Case Study Assignment 3

Pearson MyLabTM

Improving Results A proven way to help individual students achieve the goals that educators set for their course.

Engaging Experiences Dynamic, engaging experiences that personalize and activate learning for each student.

An Experienced Partner From Pearson, a long-term partner with a true grasp of the subject, excellent content, and an eye on the future of education.

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ISBN-13: 978-0-13-463520-0 ISBN-10: 0-13-463520-5

I N F O R M AT I O N S YS T E M S TO D AY M A N A G I N G I N T H E D I G I T A L W O R L D

E I G H T H E D I T I O N

Joseph Valacich Christoph Schneider

www.pearsonhighered.com

E I G H T H E D I T I O N

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MIS: Engage, Apply, Empower

• Learning Catalytics™—is an interactive, student response tool that uses students’ smartphones, tablets, or laptops to engage them in more sophisticated tasks and critical thinking as well as collaboration with other class members. Included with MyLab with eText, Learning Catalytics enables you to generate classroom discussion, guide your lecture, and promote peer-to-peer learning with real-time analytics.

• Enhanced eText—keeps students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material. The embedded videos, simulations, and activities bring learning to life. to apply the very concepts they are reading about. Combining resources that illuminate content with accessible self-assessment, MyLab with Enhanced eText provides students with a complete digital learning experience—all in one place.

• Dynamic Study Modules—help students learn the language of MIS by continuously assessing their activity and performance in real time by adapting to the student's knowledge and confidence on each concept. These are available as graded assignments prior to class, and accessible on smartphones, tablets, and computers.

• Reporting Dashboard—View, analyze, and report learning outcomes clearly and easily, and get the information needed to keep students on track throughout the course with the new Reporting Dashboard. Available via the MyLab Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner.

• Accessibility (ADA)—Pearson is working toward WCAG 2.0 Level AA and Section 508 standards, as expressed in the Pearson Guidelines for Accessible Educational Web Media. Moreover, our products support customers in meeting their obligation to comply with the Americans with Disabilities Act (ADA) by providing access to learning technology programs for users with disabilities.

Please email our Accessibility Team at [email protected] for the most up-to-date information.

• LMS Integration—You can now link from Blackboard Learn, Brightspace by D2L, Canvas, or Moodle to MyISLab. Professors can acess assignments, rosters, and resources, and synchronize grades with your LMS gradebook.

Single sign-on provides students access to all the personalized learning resources that make studying more efficient and effective.

• Branching, Decision-Making Simulations—students take on the role of manager as they make a series of decisions based on a realistic business challenge, fostering decision making and problem solving skills. The simulations change and branch based on their decisions, creating various scenario paths. At the end of each simulation, students receive a grade and a detailed report of the choices they made with the associated consequences included.

• Writing Space—Better writers make better communicators— who become better managers. Designed to help develop and assess concept mastery and critical thinking, the Writing Space offers auto-graded writing assignments, and assisted auto-graded writing assignments so students can receive meaningful, personalized feedback quickly and easily. And because of Intergration with Turnitin®, Writing Space can check students’ work for improper citation or plagiarism.

A L W A Y S L E A R N I N G

Office 2016 Grader Projects—Students complete projects in Excel and Access to demonstrate problem solving, critical thinking, and data analysis skills. Projects are automatically graded and include feedback. Integrity tokens in each project prevent and detect cheating.

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PROBLEM SOLVING

TEAMWORK DECISION MAKING

CRITICAL THINKING

ABILITY TO APPLY

KNOWLEDGE

COMMUNICATION

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Information systems have become pervasive. Mobile devices, social media, and cloud computing have transformed organizations and society. The Internet of Things can generate a wealth of potentially useful Big Data. The rapid development of transportation and telecommunication technologies, national and global infrastructures, and information systems as well as a host of other factors has created a number of pressing societal issues that tremendously influence the world we live in. These issues include demographic changes, urbanization, shifts in economic power, resource scarcity, and climate change. As a consequence, sustainable development will become an ever increasingly important aspect for organizations. Throughout this revision, we discuss how organizations can harness radical innovations and other technological developments, as well as the role of information systems in influencing and addressing pressing societal issues; further, we added a new chapter element about the role of Green IT. We designed the book’s cover to emphasize how IT resides within and influences various societal issues.

• Learning Catalytics™—is an interactive, student response tool that uses students’ smartphones, tablets, or laptops to engage them in more sophisticated tasks and critical thinking as well as collaboration with other class members. Included with MyLab with eText, Learning Catalytics enables you to generate classroom discussion, guide your lecture, and promote peer-to-peer learning with real-time analytics.

• Enhanced eText—keeps students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material. The embedded videos, simulations, and activities bring learning to life. to apply the very concepts they are reading about. Combining resources that illuminate content with accessible self-assessment, MyLab with Enhanced eText provides students with a complete digital learning experience—all in one place.

• Dynamic Study Modules—help students learn the language of MIS by continuously assessing their activity and performance in real time by adapting to the student's knowledge and confidence on each concept. These are available as graded assignments prior to class, and accessible on smartphones, tablets, and computers.

• Reporting Dashboard—View, analyze, and report learning outcomes clearly and easily, and get the information needed to keep students on track throughout the course with the new Reporting Dashboard. Available via the MyLab Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner.

• Accessibility (ADA)—Pearson is working toward WCAG 2.0 Level AA and Section 508 standards, as expressed in the Pearson Guidelines for Accessible Educational Web Media. Moreover, our products support customers in meeting their obligation to comply with the Americans with Disabilities Act (ADA) by providing access to learning technology programs for users with disabilities.

Please email our Accessibility Team at [email protected] for the most up-to-date information.

• LMS Integration—You can now link from Blackboard Learn, Brightspace by D2L, Canvas, or Moodle to MyISLab. Professors can acess assignments, rosters, and resources, and synchronize grades with your LMS gradebook.

Single sign-on provides students access to all the personalized learning resources that make studying more efficient and effective.

A L W A Y S L E A R N I N G

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330 Hudson Street, NY NY 10013

I N F O R M A T I O N S Y S T E M S T O D A Y

Joseph Valacich University of Arizona

Christoph Schneider City University of Hong Kong

M A N A G I N G I N T H E D I G I T A L W O R L D

E I G H T H E D I T I O N

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VP Editorial Director: Andrew Gilfillan Senior Portfolio Manager: Samantha Lewis Content Development Team Lead: Laura Burgess Program Monitor: Ann Pulido/SPi Global Editorial Assistant: Madeline Houpt Product Marketing Manager: Kaylee Carlson Project Manager: Katrina Ostler/ Cenveo® Publisher Services Text Designer: Cenveo® Publisher Services Cover Designer: Brian Malloy/ Cenveo® Publisher Services

Cover Art: Kanate/Shutterstock; Zera93/Shutterstock; Maglara/Shutterstock; iDesign/Shutterstock; Fine Art/ Shutterstock Full-Service Project Management: Cenveo® Publisher Services Composition: Cenveo® Publisher Services Printer/Binder: RR Donnelley/Menasha Cover Printer: Phoenix Color Text Font: 10/12 Times LT Pro Unattributed figures in text: Joseph Valacich, Christoph Schneider, Information Systems Today, 8Ed., © 2018. Pearson Education, Inc., New York, NY.

Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. All such documents and related graphics are provided “as is” without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services.

The documents and related graphics contained herein could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time. Partial screen shots may be viewed in full within the software version specified.

Microsoft® Windows®, and Microsoft Office® are registered trademarks of the Microsoft corporation in the U.S.A. and other countries. This book is not sponsored or endorsed by or affiliated with the Microsoft corporation.

Copyright © 2018, 2016, 2014 by Pearson Education, Inc., All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permissions, request forms and the appropriate contacts within the Pearson Education Global Rights & Permissions department, please visit www.pearsoned.com/permissions/.

Acknowledgements of third party content appear on the appropriate page within the text, which constitutes an extension of this copyright page.

Unless otherwise indicated herein, any third-party trademarks that may appear in this work are the property of their respective owners and any references to third-party trademarks, logos or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc. or its affiliates, authors, licensees or distributors.

Library of Congress Cataloging-in-Publication Data On file with the Library of Congress.

ISBN 10: 0-13-463520-5 ISBN 13: 978-0-13-463520-0

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Dedication

To my mother Mary, you are the best. —Joe

To Birgit for your love and support. —Christoph

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Joseph (Joe) Valacich is an Eller Professor of MIS within the Eller College of Management at the University of Arizona, a Fellow of the Association for Information Systems (2009), and the Chief Science Officer (CSO) of Neuro-ID, Inc. He was previously on the faculty at Indiana University, Bloomington, and Washington State University, Pullman. He has had visiting faculty appointments at City University of Hong Kong, Buskerud College (Norway), the Helsinki School of Economics and Business, the Norwegian University of Life Sciences, and Riga Technical University (Latvia). He received a PhD degree from the University of Arizona (MIS) and MBA and BS (Computer Science) degrees from the University of Montana. Prior to his academic career, Dr. Valacich worked in the software industry in Seattle in both large and startup organizations.

Dr. Valacich has served on various national task forces designing model curricula for the information systems discipline, including IS ‘97, IS 2002, and IS 2010: The Model Curriculum and Guidelines for Undergraduate Degree Programs in Information Systems, where he was co-chairperson. He also served on the task force that designed MSIS 2000 and 2006: The Master of Science in Information Systems Model Curriculum. He served on the executive committee, funded by the National Science Foundation, to define the IS Program Accreditation Standards and served on the board of directors for CSAB (formally the Computing Sciences Accreditation Board) representing the Association for Information Systems (AIS). He was the general confer- ence co-chair for the 2003 International Conference on Information Systems (ICIS) and the 2012 Americas Conference on Information Systems (AMCIS); both were held in Seattle.

Dr. Valacich has conducted numerous corporate training and executive development pro- grams for organizations, including AT&T, Boeing, Dow Chemical, EDS, Exxon, FedEx, General Motors, Microsoft, and Xerox. He has served in a variety of editorial roles within various academic journals and conferences. His primary research interests include human–computer interaction, deception detection, technology-mediated collaboration, mobile and emerging tech- nologies, and e-business. He is a prolific scholar, having published more than 200 scholarly articles in numerous prestigious journals and conferences, including: MIS Quarterly, Information Systems Research, Management Science, Academy of Management Journal, Journal of MIS, Decision Sciences, Journal of the AIS, Communications of the ACM, Organizational Behavior and Human Decision Processes, and Journal of Applied Psychology. He is a coauthor of the leading textbooks Modern Systems Analysis and Design (8th ed.) and Essentials of Systems Analysis and Design (6th ed.), both published by Pearson.

In 2016, Dr. Valacich was awarded the University of Arizona, Tech Launch Arizona, “Innova- tion & Impact Award” for Information Technology. He was awarded the “Distinguished Alumnus Award” from the University of Montana Alumni Association in 2012 and the “Outstanding Alum- nus Award” from the University of Montana’s School of Business Administration in 2009. Dr. Valacich is also ranked as one of the most prolific authors in the history of MIS Quarterly—his discipline’s top journal—over the life of the journal (1977–2016) (see misq.org). Throughout his career, he has also won numerous teaching, service, and research awards.

Christoph Schneider is an assistant professor in the Department of Information Systems at City University of Hong Kong and previously held a visiting faculty appointment at Boise State University. He earned a Swiss Higher Diploma in Hotel Management at the University Centre César Ritz in Brig, Switzerland, a BA in Hotel and Restaurant Administration at Washington State University, and a PhD in Business Administration (Management Information Systems) at Washington State University. His teaching interests include the management of information systems and web design.

About the Authors

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viii ABOUT THE AUTHORS

Dr. Schneider is an active researcher. His primary research interests include human–com- puter interaction, electronic commerce, and computer-mediated collaboration. His research has appeared in peer-reviewed journals, such as Information Systems Research, Management Infor- mation Systems Quarterly, Management Science, and IEEE Transactions on Professional Com- munication; further, he has presented his research at various international conferences, such as the International Conference on Information Systems, the European Conference on Informa- tion Systems, and the Hawaii International Conference on System Sciences. He serves as a member of the International Steering Committee of the International Conference on Informa- tion Systems Development (ISD) and as senior editor at Information Systems Journal.

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ix

Preface xix

Chapter 1 Managing in the Digital World 2

Chapter 2 Gaining Competitive Advantage Through Information Systems 48

Chapter 3 Managing the Information Systems Infrastructure and Services 90

Chapter 4 Enabling Business-to-Consumer Electronic Commerce 138

Chapter 5 Enhancing Organizational Communication and Collaboration Using Social Media 182

Chapter 6 Enhancing Business Intelligence Using Big Data and Analytics 224

Chapter 7 Enhancing Business Processes Using Enterprise Information Systems 270

Chapter 8 Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management 306

Chapter 9 Developing and Acquiring Information Systems 344

Chapter 10 Securing Information Systems 390

Technology Briefing Foundations of Information Systems Infrastructure 442

Acronyms 491

Glossary 493

Name Index 513

Organization Index 514

Subject Index 517

Brief Contents

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Preface xix

Chapter 1 Managing in the Digital World 2 MANAGING IN THE DIGITAL WORLD: Open Innovation 2

Information Systems Today 4 The Emergence of the Digital World 4 Globalization and Societal Issues in the Digital World 7 ◾ COMING ATTRACTIONS: Memory Crystals 7 Five IT Megatrends That Shape the Digital Future 10 ◾ WHO’S GOING MOBILE: Wearable Technologies 10 ◾ GREEN IT: The Green Internet of Things 16

Information Systems Defined 16 Data: The Root and Purpose of Information Systems 18 Hardware, Software, and Telecommunications Networks: The Components of Information Systems 18 People: The Builders, Managers, and Users of Information Systems 19 ◾ SECURITY MATTERS: Ransomware 24 Organizations: The Context of Information Systems 25 ◾ WHEN THINGS GO WRONG: Technology Addiction 28

The Dual Nature of Information Systems 29 Case in Point: An Information System Gone Awry: Outages Outrage Gamers 29 Case in Point: An Information System That Works: FedEx 29 Information Systems for Competitive Advantage 30 ◾  ETHICAL DILEMMA: The Social and Environmental Costs of the Newest

Gadgets 31 IS Ethics 32

Information Privacy 32 Intellectual Property 36 The Need for a Code of Ethical Conduct 37 ◾ INDUSTRY ANALYSIS: Business Career Outlook 38

Key Points Review 39 • Key Terms 39 • Review Questions 40 • Self- Study Questions 40 • Problems and Exercises 41 • Application Exercises 42 • Team Work Exercise 42 • Answers to the Self-Study Questions 43

◾ APPLE 44 ◾ HEALTHCARE IS 45

Chapter 2 Gaining Competitive Advantage Through Information Systems 48

MANAGING IN THE DIGITAL WORLD: Startups and New Business Models 48

Enabling Organizational Strategy through Information Systems 50 Organizational Decision-Making Levels 50 Organizational Functional Areas 52

Contents

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xii CONTENTS

Information Systems for Automating: Doing Things Faster 53 Information Systems for Organizational Learning: Doing Things Better 55 Information Systems for Supporting Strategy: Doing Things Smarter 56 Identifying Where to Compete: Analyzing Competitive Forces 56 Identifying How to Compete: Choosing a Generic Strategy 57 Identifying How to Compete: Resources and Capabilities 58 ◾ GREEN IT: The Electric Navy 59 Identifying How to Compete: Analyzing the Value Chain 60 The Role of Information Systems in Value Chain Analysis 60 The Technology/Strategy Fit 61

Business Models in the Digital World 61 ◾ WHO’S GOING MOBILE: Digital Nomads 62 Revenue Models in the Digital World 62 ◾ WHEN THINGS GO WRONG: The Pains of Uber in China 65 Platform-Based Business Models and the Sharing Economy 65 Service-Based Business Models 67 ◾ ETHICAL DILEMMA: The Ethics of the Sharing Economy 68

Valuing Innovations 69 The Need for Constant IS Innovation 71 Successful Innovation Is Difficult 72 Open Innovation 73 Organizational Requirements for Innovation 74 ◾ COMING ATTRACTIONS: The CITE Project 75 The Innovation Process 75 ◾ SECURITY MATTERS: The Bangladesh SWIFT Theft 78 Startups and Crowdfunding 78 ◾ INDUSTRY ANALYSIS: Education 80

Key Points Review 81 • Key Terms 81 • Review Questions 82 • Self- Study Questions 82 • Problems and Exercises 83 • Application Exercises 84 • Team Work Exercise 84 • Answers to the Self-Study Questions 84

◾ GROUPON 85 ◾ STREAMING VIDEO 86

Chapter 3 Managing the Information Systems Infrastructure and Services 90

MANAGING IN THE DIGITAL WORLD: From Google to Alphabet 90

The IS Infrastructure 92 ◾ �WHO’S GOING MOBILE: Mobile Payments Are Transforming Developing

Countries 94 Applications and Databases Supporting Business Processes 96 ◾ ETHICAL DILEMMA: Putting People’s Lives Online 97

IS Infrastructure Components 98 Hardware 98 System Software 100 Storage 102 ◾ COMING ATTRACTIONS: Making Death Optional? 102 Networking 103 ◾ GREEN IT: Alphabet Renewables 109 Data Centers 111

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CONTENTS xiii

Issues Associated with Managing the IS Infrastructure 112 Rapid Obsolescence and Shorter IT Cycles 112 Big Data and Rapidly Increasing Storage Needs 115 Demand Fluctuations 115 Increasing Energy Needs 116

Cloud Computing 116 ◾ �WHEN THINGS GO WRONG: Old and Dirty Energy Drives Global Internet

Growth 117 What Is Cloud Computing? 117 Managing the Cloud 121 Advanced Cloud Applications 124 ◾ SECURITY MATTERS: Car Hacking 126 Green Computing 129 ◾ INDUSTRY ANALYSIS: Movie Industry 130

Key Points Review 131 • Key Terms 131 • Review Questions 132 • Self- Study Questions 132 • Problems and Exercises 133 • Application Exercises 134 • Team Work Exercise 134 • Answers to the Self-Study Questions 135

◾ A CATALYST FOR INNOVATION: AMAZON WEB SERVICES 135 ◾ THE DARK WEB 136

Chapter 4 Enabling Business-to-Consumer Electronic Commerce 138

MANAGING IN THE DIGITAL WORLD: Taobao and the World of E-commerce 138

E-Commerce and E-Government 140 Types of Electronic Commerce 140 E-government 141 E-finance 142

Business-To-Consumer E-Commerce 143 ◾ COMING ATTRACTIONS: The AI Hedge Fund 144 E-tailing: Capabilities and Opportunities 146 Benefits of E-tailing 149 ◾ ETHICAL DILEMMA: The Ethics of Reputation Management 150 Drawbacks of E-tailing 151

Electronic Commerce Websites and Internet Marketing 151 Designing Websites to Meet Online Consumers’ Needs 152 ◾ SECURITY MATTERS: Too Small to Be Hacked? 152 Internet Marketing 154 ◾ WHEN THINGS GO WRONG: Buying Likes 158

Mobile Commerce, Consumer-To-Consumer EC, and Consumer-To-Business EC 159

C2C EC 161 C2B EC 162

Securing Payments and Navigating Legal Issues in EC 163 Securing Payments in the Digital World 163 ◾ GREEN IT: Green Online Shopping 164 ◾ WHO’S GOING MOBILE: Mobile Payments 165 Legal Issues in EC 168 ◾ INDUSTRY ANALYSIS: Retailing 171

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xiv CONTENTS

Key Points Review 172 • Key Terms 172 • Review Questions 173 • Self- Study Questions 173 • Problems and Exercises 174 • Application Exercises 175 • Team Work Exercise 175 • Answers to the Self-Study Questions 176

◾ WEB ANALYTICS 177 ◾ ROCKET INTERNET—CLONING BUSINESS MODELS 178

Chapter 5 Enhancing Organizational Communication and Collaboration Using Social Media 182

MANAGING IN THE DIGITAL WORLD: Facebook 182

The Need for Communication and Collaboration 184 Virtual Teams 184 Groupware 185 Videoconferencing 186 ◾ GREEN IT: Green IT Fueling Renewable Energy 188 Intranets and Employee Portals 188

The Evolving Web 190 ◾ COMING ATTRACTIONS: Dissolvable Electronics 191 Evolving Web Capabilities 191 Evolving Social Interaction 192 The Evolving Workspace 193 Future Web Capabilities 193

Social Media and the Enterprise 194 Enhancing Communication Using Social Media 194 Enhancing Cooperation with Social Media 197 ◾ SECURITY MATTERS: Terrorism Is Winning the Social Media Battle 200 Enhancing Collaboration with Social Media 201 ◾ WHO’S GOING MOBILE: Going SoLoMo: Yelp 203 Enhancing Connection with Social Media 205 ◾ ETHICAL DILEMMA: Anonymity, Trolling, and Cyberharassment 207

Managing Social Media Applications in the Enterprise 208 Organizational Issues 208 ◾ WHEN THINGS GO WRONG: Crowdfunding Failures 210 Downsides and Dangers of using Social Media Applications 211 ◾ INDUSTRY ANALYSIS: Online Travel 213

Key Points Review 214 • Key Terms 214 • Review Questions 215 • Self- Study Questions 215 • Problems and Exercises 216 • Application Exercises 216 • Team Work Exercise 217 • Answers to the Self-Study Questions 218

◾ LIVING IN A BUBBLE: FACEBOOK, NEWSFEEDS, AND JOURNALISM 218 ◾ LIKE FARMING AND CLICKBAIT 219

Chapter 6 Enhancing Business Intelligence Using Big Data and Analytics 224

MANAGING IN THE DIGITAL WORLD: Intelligence Through Drones 224

Enhancing Organizational Decision Making 226 Why Organizations Need Business Intelligence and Advanced Analytics 226 ◾ �GREEN IT: Big Data, Internet of Things, and Analytics Fuel Greener

Facilities 229 Databases: Providing Inputs into Business Intelligence and Advanced Analytics 229

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CONTENTS xv

◾ WHEN THINGS GO WRONG: Twitter Fever—Look Before You Tweet 233 ◾ COMING ATTRACTIONS: Emotion Aware Gaming 239

Business Intelligence and Advanced Analytics 239 Business Intelligence 240 ◾ WHO’S GOING MOBILE: Identifying Malaria Hotspots 245 Advanced Analytics 245 ◾ ETHICAL DILEMMA: Orwellian Internet of Things 247 ◾ �SECURITY MATTERS: Hacktivists Versus Fembots: The Ashley Madison

Case 253 Knowledge Management and Geographic Information Systems 254

Knowledge Management Systems 254 Geographic Information Systems 257 ◾ INDUSTRY ANALYSIS: Healthcare 260

Key Points Review 261 • Key Terms 261 • Review Questions 262 • Self- Study Questions 262 • Problems and Exercises 263 • Application Exercises 264 • Team Work Exercise 265 • Answers to the Self-Study Questions 265

◾ NSA: NATIONAL SURVEILLANCE AGENCY? 265 ◾ GATHERING SOCIAL INTELLIGENCE 266

Chapter 7 Enhancing Business Processes Using Enterprise Information Systems 270

MANAGING IN THE DIGITAL WORLD: Amazon.com 270

Core Business Processes and Organizational Value Chains 272 Core Business Processes 272 Organizational Activities Along the Value Chain 274 ◾ GREEN IT: Why Your Enterprise Systems Should Be in the Cloud 277 Value Systems: Connecting Multiple Organizational Value Chains 279

Enterprise Systems 279 The Rise of Enterprise Systems 280 Supporting Business Processes 281 ◾ ETHICAL DILEMMA: Too Much Intelligence? RFID and Privacy 282 ◾ �COMING ATTRACTIONS: The Internet of Things Will Transform ERP and

Organizations 285 Enterprise Resource Planning 288

Responding to Compliance and Regulatory Demands 289 Choosing an ERP System 289 ◾ �SECURITY MATTERS: To Update or Not to Update, That Shouldn’t Be the

Question 290 Enabling Business Processes Using ERP Core Components 291 ERP Installation 294 ERP Limitations 294

Achieving Enterprise System Success 294 ◾ WHO’S GOING MOBILE: Big ERP Systems Embracing Small Mobile Devices 295 Secure Executive Sponsorship 295 Get Help from Outside Experts 296 Thoroughly Train Users 296 Take a Multidisciplinary Approach to Implementations 296 Evolve the Implementation 296 ◾ �WHEN THINGS GO WRONG: Software Error Frees Prisoners Early and Is

Linked to Killings 297

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xvi CONTENTS

◾ INDUSTRY ANALYSIS: The Automobile Industry 298 Key Points Review 299 • Key Terms 299 • Review Questions 300 • Self- Study Questions 300 • Problems and Exercises 301 • Application Exercises 302 • Team Work Exercise 302 • Answers to the Self-Study Questions 302

◾ SOFTWARE AS A SERVICE: ERP BY THE HOUR 303 ◾  AMAZON’S ORDER FULFILLMENT, AUTOMATION, AND TECHNOLOGICAL

UNEMPLOYMENT 304

Chapter 8 Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management 306

MANAGING IN THE DIGITAL WORLD: Walmart 306

Supply Chain Management 308 What Is a Supply Chain? 308 Business-to-Business Electronic Commerce: Exchanging Data in Supply Networks 308 Managing Complex Supply Networks 311 Benefits of Effectively Managing Supply Chains 312 Optimizing the Supply Chain Through Supply Chain Management 314 ◾ �WHEN THINGS GO WRONG: SpaceX Rocket Failure due to Supply Chain

Failure 315 Developing an SCM Strategy 316 ◾ GREEN IT: Nike’s Green Supply Chain 317 Supply Chain Planning 317 Supply Chain Execution 318 Supply Chain Visibility and Analytics 321

Customer Relationship Management 321 ◾ COMING ATTRACTIONS: Augmenting Supply Chain Success 322 ◾ �SECURITY MATTERS: Disclosing the Customer Data of the Most

Vulnerable 325 Developing a CRM Strategy 325 Architecture of a CRM System 326 ◾ �WHO’S GOING MOBILE: Developing a Mobile CRM App for

Customers 330 ◾ ETHICAL DILEMMA: When Algorithms Discriminate 334 Ethical Concerns with CRM 335 ◾ INDUSTRY ANALYSIS: Manufacturing 335

Key Points Review 336 • Key Terms 336 • Review Questions 337 • Self- Study Questions 337 • Problems and Exercises 338 • Application Exercises 339 • Team Work Exercise 339 • Answers to the Self-Study Questions 339

◾ SUPPLY CHAIN HAVOC 340 ◾ EFFICIENTLY DELIVERING PRODUCTS OVER THE “LAST MILE” 341

Chapter 9 Developing and Acquiring Information Systems 344 MANAGING IN THE DIGITAL WORLD: The Maker Movement 344

Making the Business Case 346 Business Case Objectives 346 The Productivity Paradox 346 Making a Successful Business Case 348 ◾ GREEN IT: Project Natick—Microsoft’s Underwater Data Centers 350

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CONTENTS xvii

◾ COMING ATTRACTIONS: Harvesting Human Energy 352 Presenting the Business Case 354 ◾ ETHICAL DILEMMA: Ethical App Development 356

The Systems Development Process 357 Custom Versus Off-the-Shelf Software 357 Open Source Software 358 Systems Integration: Combining Custom, Open Source, and Off-the-Shelf Systems 359 IS Development in Action 359 The Role of Users in the Systems Development Process 361 Systems Development Controls 361 Steps in the Systems Development Process 361 ◾ WHO’S GOING MOBILE: Creating Mobile Apps 362 Phase 1: Systems Planning and Selection 362 Phase 2: Systems Analysis 363 Phase 3: Systems Design 366 Phase 4: Systems Implementation and Operation 367 Repeating the SDLC: Systems Maintenance 369 ◾ SECURITY MATTERS: Mobile Cybercrime 371 Other Approaches to Designing and Building Systems 371

Acquiring Information Systems 373 External Acquisition 373 ◾ WHEN THINGS GO WRONG: Top Security Threats 374 Outsourcing Systems Development 378 ◾ INDUSTRY ANALYSIS: Broadcasting 380

Key Points Review 381 • Key Terms 381 • Review Questions 382 • Self- Study Questions 382 • Problems and Exercises 383 • Application Exercises 384 • Team Work Exercise 384 • Answers to the Self-Study Questions 385

◾  NEXT GENERATION IDENTIFICATION: FBI, ICE DATABASES EXPAND AND JOIN FORCES 386

◾ BIG DATA, HADOOP, MAP REDUCE 387

Chapter 10 Securing Information Systems 390 MANAGING IN THE DIGITAL WORLD: Not So “Anonymous”—Activists, Hacktivists, or Just Plain Criminals? 390

Computer Crime 392 Hacking and Cracking 392 Types of Computer Criminals and Crimes 392 ◾ �GREEN IT: Anonymous Protests the Killing of Dolphins and Whales in

Japan 396 Computer Viruses and Other Destructive Code 397 ◾ �WHEN THINGS GO WRONG: The Bug That Almost Killed the

Internet 402 Cyberharassment, Cyberstalking, and Cyberbullying 404 Software Piracy 404 Cybersquatting 406 Laws Against Computer Crime 406

Cyberwar and Cyberterrorism 407 ◾ WHO’S GOING MOBILE: Backdoors in Every Mobile Phone? 408 Cyberwar 408 Cyberterrorism 409

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xviii CONTENTS

Foundations of Information Systems Infrastructure 442 Foundational Topics in IS Hardware 443

Input Technologies 443 Processing: Transforming Inputs into Outputs 445 Output Technologies 449

Foundational Topics in IS Software 450 System Software 451 Programming Languages and Development Environments 451

Foundational Topics in Networking 457 Evolution of Computer Networking 457 Types of Networks 459 Packet Switching 462 Network Standards and Protocols 462 Network Technologies 466 The Internet 472

Foundational Topics in Database Management 478 Relational Database Design 478 Advanced Database Models 483

Key Points Review 483 • Key Terms 484 • Review Questions 485 • Self-Study Questions 486 • Problems and Exercises 487 • Answers to the Foundational Hardware Self-Study Questions 489 • Answers to the Foundational Software Self-Study Questions 489 • Answers to the Foundational Networking Self-Study Questions 489 • Answers to the Foundational Database Self-Study Questions 489

Acronyms 491

Glossary 493

Name Index 513

Organization Index 514

Subject Index 517

TECHNOLOGY BRIEFING

◾ �ETHICAL DILEMMA: Ethics and Cyberwar: Just Because We Can, Should We? 412

Managing Information Systems Security 412 Assessing Risks 414 Developing a Security Strategy 416 Implementing Controls and Training 418 ◾ �SECURITY MATTERS: Back to the Future: Analog May Be the Future of

Securing Critical Infrastructure 419 ◾ COMING ATTRACTIONS: Can You Become Your Password? 425 Monitoring Security 428 ◾ INDUSTRY ANALYSIS: Cybercops Track Cybercriminals 431

Key Points Review 432 • Key Terms 432 • Review Questions 433 • Self- Study Questions 433 • Problems and Exercises 434 • Application Exercises 436 • Team Work Exercise 436 • Answers to the Self-Study Questions 437

◾ STOPPING INSIDER THREATS: EDWARD SNOWDEN AND THE NSA 438 ◾ CHINA’S GREAT (FIRE) WALL 439

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xix

Approach Information systems have become pervasive. Mobile devices, social media, and cloud computing have transformed organizations and society. Organizations see the possibilities of the Internet of Things, in that not only computers but various sensors, motors, actuators, or even cameras can generate a wealth of potentially useful data. Businesses face unprecedented opportunities, but also challenges, through the ability to utilize Big Data. What does all this mean? What are the catalysts of these concepts and of all this change? More important, how can organizations thrive in this dynamic and highly competitive marketplace? The answer to these and many similar ques- tions is that information systems and related information technologies are driving innovation, new business models, and hypercompetition. It is little wonder that teaching an introductory course on information systems has never been more crucial—or more challenging.

One of the greatest challenges that we face in teaching information systems courses is how to keep pace in the classroom with what is happening out in the real world. Being relevant to students while at the same time providing the necessary foundation for understanding the breadth, depth, and complexity of information systems has never been more difficult. We wrote Informa- tion Systems Today, Eighth Edition, with this overarching goal in mind, to be both rigorous and relevant. To accomplish this, we want students not only to learn about information systems but also to clearly understand the importance of information systems for individuals, organizations, and society. Additionally, we do not want to simply spoon-feed students with technical terms and the history of information systems. Instead, students must understand exactly what innovative organizations are doing with contemporary information systems and, more important, where things are heading. Finally, we want to empower students with the essential knowledge needed to be successful in the use and understanding of information systems in their careers.

To this end, we wrote Information Systems Today, Eighth Edition, so that it is contemporary, fun to read, and useful, focusing on what business students need to know about information sys- tems to survive and thrive in the digital world.

Audience Information Systems Today, Eighth Edition, is primarily for the undergraduate introductory infor- mation systems course required of all business students. The introductory information systems course typically has a diverse audience of students majoring in many different areas, such as accounting, economics, finance, marketing, general management, human resource management, production and operations, international business, entrepreneurship, and information systems. This book was also written for students studying topics outside of business, especially in the growing and broad area of information sciences. Given the range of students taking this type of course, we have written this book so that it is a valuable guide to all students, providing them with the essential information they need to know. Therefore, this book has been written to appeal to a diverse audience.

Information Systems Today, Eighth Edition, can also be used for the introductory course offered at the graduate level—for example, in the first year of an MBA program. Such usage would be especially appropriate if the course heavily focused on the diverse set of cases provided in each chapter.

What’s New to the Eighth Edition Our primary goal for Information Systems Today, Eighth Edition, was to emphasize the impor- tance of information systems to all business students as the role of information technology and systems continues to expand within organizations and society. Most notably, we extensively

Preface

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xx PREFACE

examine how five big megatrends—mobile, social media, the Internet of Things, cloud comput- ing, and Big Data—are transforming individuals, organizations, and society. Given this clear focus, we are better able to identify those topics most critical to students and future business professionals. Consequently, we have made substantial revisions to the basic content of the chap- ters and pedagogical elements as well as introduced several new elements that we believe help achieve this goal. New or expanded chapter topics include the following:

�■ An extensively revised chapter—Chapter 1, “Managing in the Digital World”—focuses not only on defining what an information system consists of but also provides new content on globalization and societal issues in the digital world as well as the role of five IT mega- trends in fueling and addressing these issues.

�■ An extensively revised chapter—Chapter 2, “Gaining Competitive Advantage Through Information Systems”—provides new content describing how information systems play a key part in enabling different types of innovation and innovative business models.

�■ A revised chapter—Chapter 3, “Managing the Information Systems Infrastructure and Services”—provides updated content on the need for a reliable, adaptable, and scalable infrastructure to support the needs of today’s organizations as well as on essential infra- structure concepts related to hardware, software, storage, networking and the Internet, data centers, and cloud computing.

�■ A revised chapter—Chapter 4, “Enabling Business-to-Consumer Electronic Commerce”— provides updated content related to e-commerce involving the end consumer as well as new and expanded coverage of e-finance, fintech, and related issues.

�■ A revised chapter—Chapter 5, “Enhancing Organizational Communication and Collabora- tion Using Social Media”—centers around various topics related to the need for organiza- tional communication and provides updated content on how individuals and organizations use both traditional communication and collaboration tools and social media for communi- cation, collaboration, cooperation, and connection.

�■ An extensively revised chapter—Chapter 6, “Enhancing Business Intelligence Using Big Data and Analytics”—provides extended coverage on business intelligence and advanced analytics and greatly expanded content on machine learning, predictive modeling, artificial intelligence, unstructured data analytics, and spatial decision support.

�■ A revised chapter—Chapter 8, “Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management”—provides updated content on business-to-business electronic commerce and supply chain management as well as customer relationship management (CRM).

�■ A revised chapter—Chapter 9, “Developing and Acquiring Information Systems”— provides updates to various topics and extended content on alternative system development methodologies.

�■ A revised chapter—Chapter 10, “Securing Information Systems”—provides an update to all topics and deeper coverage on industrial espionage and cyberterrorism.

�■ A revised Technology Briefing covers foundational concepts related to various informa- tion technologies. The Technology Briefing provides the foundations for a deeper under- standing of the topics introduced in Chapter 3 and is intended for use in more technically oriented courses. Each section of this briefing was designed to stand alone—it can be read with or without the other sections.

In addition to the changes within the main chapter content, we have also added two new features to each chapter—Green IT and Security Matters. Green IT presents environmental issues arising from the use of information systems. For example, in Chapter 4, we discuss the environ- mental impacts of online shopping. Security Matters presents some current issues and threats arising from the ubiquitous use of information systems. For example, in Chapter 5, we discuss how hacktivists challenged the extramarital dating website Ashley Madison.

Beyond the chapter content and features, we have also made substantial changes and refine- ments to the end of each chapter. In particular, we carefully revised many of the end-of-chapter problems and exercises to reflect content changes and new material. Further, we have carefully updated the end-of-chapter cases about contemporary organizations and issues to illustrate the complexities of the digital world. Each case mirrors the primary content of its chapter to better emphasize its relevancy within the context of a real organization. All these elements are discussed more thoroughly next.

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PREFACE xxi

Our goal has always been to provide only the information that is relevant to all business students, nothing more and nothing less. We believe that we have again achieved this goal with Information Systems Today, Eighth Edition. We hope you agree.

Key Features As authors, teachers, developers, and managers of information systems, we understand that in order for students to best learn about information systems with this book, they must be motivated to learn. To this end, we have included a number of unique features to help students quickly and easily assess the true value of information systems and their impact on everyday life. We show how today’s professionals are using information systems to help modern organizations become more efficient and competitive. Our focus is on the application of technology to real-world, con- temporary situations. Next, we describe each of the features that contribute to that focus.

Pedagogy—A Multitiered Approach Each chapter provides a list of learning objectives to lay the foundation for the chapter content, followed by an opening case to highlight how contemporary organizations are utilizing informa- tion systems to gain competitive advantage, streamline organizational processes, or improve customer relationships or how information systems fuel societal change. In addition, throughout each chapter, various short pedagogical elements are presented to highlight key information sys- tems issues and concepts in a variety of contexts. These elements help to show students the broader organizational and societal implications of various topics. At the end of each chapter, the Key Points Review repeats the learning objectives and describes how each objective was achieved; a variety of questions and exercises helps students assess their understanding of the chapter mate- rial and encourages them to synthesize and apply the concepts learned. A list of references appears at the end of each chapter.

OPENING CASE—MANAGING IN THE DIGITAL WORLD. Each chapter begins with an opening case describing a real-world company, technology, and/or issue to spark students’ interest in the chapter topic. We have chosen engaging cases that relate to students’ interests and concerns by highlighting why information systems have become central for managing in the digital world. Each opening case includes a series of associated questions the students will be able to answer after reading the chapter contents. The organizations, technologies, or issues highlighted in these cases are as follows:

�■ The rise of open innovation �■ How information systems fuel startups and new business models �■ Google’s meteoric rise and its transition to Alphabet �■ How Chinese e-commerce company Taobao became a leader in the world of e-commerce �■ How Facebook has emerged as one of the most successful and powerful social media sites �■ Intelligence through drones �■ Amazon.com’s use of its sophisticated infrastructure to automate the supply chain for both

large and small customers �■ How Walmart became a leader in managing its global supply chains �■ The rise of the maker movement �■ How the hacking group “Anonymous” uses various tactics to further its ideological goals

Green IT Case Climate change and resource scarcity are among the most pressing issues societies face. To highlight the role of information systems in this context, each chapter includes a Green IT case. This new feature discusses important issues related to the environmental impacts of information systems as well as how information systems can be used to reduce negative environmental impacts. The Green IT cases are embedded in the text of the chapter and highlight concepts from the surrounding chapter material. The issues and organizations highlighted in these cases are as follows:

�■ Green IT and the Internet of Things �■ How the U.S. Navy is using alternative energy sources to address power consumption of its

fleets

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xxii PREFACE

�■ How Alphabet uses renewably energy to power its data centers �■ The environmental impacts of online shopping �■ How green IT is fueling the use of renewable energy �■ How the Internet of Things, Big Data, and analytics fuel greener facilities �■ Why your ERP system should be in the cloud �■ How Nike builds a greener supply chain �■ How companies are trying to reduce the carbon footprint of modern data centers �■ How Anonymous protests the killing of dolphins and whales in Japan

Security Matters With information systems becoming ever more ubiquitous, security is of growing concern, not only for organizations but also for individuals. While we dedicate an entire chapter to issues sur- rounding securing information systems, this new feature presents some current issues and threats. The topics discussed in this element are as follows:

�■ How computer criminals use ransomware to extort money from organizations and everyday people

�■ How attackers use the SWIFT system to conduct virtual bank robberies �■ How attackers can remotely hack into a car’s onboard systems �■ How even small companies are not immune from being targeted �■ How terrorism is winning the social media battle �■ How hacktivists challenged the extramarital dating website Ashley Madison �■ How companies have to weigh the benefits and dangers of not updating ERP systems �■ How VTech’s attackers disclosed the customer data of the most vulnerable �■ How attackers use mobile malware to steal online banking users’ login credentials �■ How analog may be the future of securing critical infrastructure

Coming Attractions We worked to ensure that this book is contemporary. We cover literally hundreds of different current and emerging technologies throughout the book. This feature, however, focuses on innovations that are likely to soon have an impact on organizations or society. The topics dis- cussed are as follows:

�■ Storing the history of humankind in memory crystals �■ CITE—a city-sized test lab for innovations �■ Extending the human lifetime indefinitely �■ Using artificial intelligence to manage hedge funds �■ Dissolvable electronics to fight bacteria �■ Emotion aware gaming �■ Transforming ERP and organizations using the Internet of Things �■ Reducing supply chain problems using augmented reality �■ Harvesting human energy �■ Using brainwaves to verify people’s identities

When Things Go Wrong Textbooks don’t usually describe what not to do, but this can be very helpful to students. This feature enables students to learn about a real-world situation in which information systems did not work or were not built or used well. The topics and issues discussed are as follows:

�■ The negative effects of technology addiction �■ The pains of Uber in China �■ Dirty data centers and the environmental impact of cloud computing �■ How companies are trying to rig “likes” to gain reputation on social networking sites �■ Crowdfunding failures �■ How Twitter can quickly disseminate misinformation, with unforeseen consequences

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�■ How a software error freed prisoners early �■ How a supply chain failure caused SpaceX rocket failure �■ Top security threats �■ How the “heartbleed” bug almost killed the Internet

Who’s Going Mobile Mobile technologies have become pervasive throughout society. New opportunities and issues have emerged with the growing importance of mobile devices, such as smartphones and tablets, which are in people’s immediate reach 24/7. Related to each chapter’s content, this feature exam- ines topics related to the growth in mobile device usage throughout the world. The topics dis- cussed are as follows:

�■ The rise of wearable technologies �■ How information systems support the lifestyle of the digital nomads �■ How mobile payment systems have transformed developing countries �■ The rise of mobile payments �■ Going SoLoMo: Yelp �■ Identifying malaria hotspots using mobile phone data �■ Managing businesses on the road using mobile ERP �■ Developing mobile CRM apps for customers �■ How to succeed in mobile app development �■ Backdoors in mobile phones

Ethical Dilemma Ethical business practices are now a predominant part of contemporary management education and practice. This feature examines contemporary dilemmas related to the chapter content and highlights the implications of these dilemmas for managers, organizations, and society. Discus- sion questions are provided to seed critical thinking assignments or class discussions. The topics discussed are as follows:

�■ The social and environmental costs of the newest gadgets �■ The ethics of the sharing economy �■ The ethics of publishing street photography on the web �■ The ethics of reputation management �■ Anonymity, trolling, and cyberharassment �■ The Orwellian Internet of Things �■ Privacy issues of radio frequency identification �■ Using CRM systems to target or exploit consumers �■ Ethical app development �■ The ethics of cyberwar

Industry Analysis Every industry is being transformed by the Internet and the increasing use of information systems by individuals and organizations. To give students a feel for just how pervasive and profound these changes are, each chapter presents an analysis of a specific industry to highlight the new rules for operating in the digital world. Given that no industry or profession is immune from these changes, each Industry Analysis highlights the importance of understanding information systems for every business student, not only for information systems majors. Discussion questions help students better understand the rapidly changing opportunities and risks of operating in the digital world. Chapter 1 examines how the digital world is transforming the opportunities for virtually all busi- ness professions. Subsequent chapters examine how globalization and the digital world have forever transformed various industries, including education, entertainment, retail, travel, health care, automobile, manufacturing, broadcasting, and law enforcement. Clearly, we are in a time of tremendous change, and understanding this evolution will better equip students to not only sur- vive but also thrive in the digital world.

PREFACE xxiii

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End-of-Chapter Material Our end-of-chapter material is designed to accommodate various teaching and learning styles. It promotes learning beyond the book and the classroom. Elements include the following:

�■ Key Terms—Highlight key concepts within the chapter. �■ Review Questions—Test students’ understanding of basic content. �■ Self-Study Questions—Enable students to assess whether they are ready for a test. �■ Problems and Exercises—Push students deeper into the material and encourage them to

synthesize and apply it. �■ Application Exercises—Challenge students to solve two real-world management problems

using spreadsheet and database applications from a running case centered on a university travel agency. Student data files referenced within the exercises are available on the book’s website: www.pearsonhighered.com/valacich.

�■ Team Work Exercise—Encourage students to keep up with, discuss, visualize, and pres- ent interesting, important trends and forecasts related to Internet usage within a variety of contexts.

We have extensively updated these elements to reflect new chapter content and the natural evolution of the material.

End-of-Chapter Cases To test and reinforce chapter content, we present two current real-world cases at the end of each chapter. Like the Opening Cases of each chapter, these cases are taken from the news and are contemporary. However, these are longer and more substantive than the Opening Cases. Sources for these cases include BusinessWeek, CIO magazine, InformationWeek, Wired, and various web- sites. They too are followed by discussion questions that help the student apply and master the chapter content. The organizations, products, and issues highlighted in these cases are as follows:

�■ Apple’s rise, fall, and reemergence as a global technology giant �■ How electronic health records are transforming healthcare �■ How Groupon achieved a first-mover advantage by reinventing the business model of

group buying �■ How streaming video is disrupting the movie rental and TV broadcasting industries �■ How Amazon Web Services are a catalyst for innovation �■ How the dark web fuels illegal activities �■ How web analytics are providing unprecedented insights into online consumer behavior �■ How Rocket Internet aims to become a European Internet giant by cloning business models �■ How algorithms determine news feeds �■ How scammers use like farming and clickbait to game Facebook’s newsfeed algorithms �■ How the National Security Agency, or NSA, is being viewed as the National Surveillance

Agency �■ How companies gather social intelligence through social media �■ How software as a service has enabled small and medium-sized organizations to utilize

enterprise resource planning (ERP) systems �■ How Amazon’s order fulfillment fuels technological unemployment �■ How natural disasters disrupt global supply chains �■ How companies attempt to use information systems to efficiently deliver products to the

“last mile” �■ How the Federal Bureau of Investigation and Department of Homeland Security joined

forces in developing a comprehensive database of biometric information to better track and apprehend criminals

�■ How Hadoop and MapReduce fuel the use and analysis of Big Data �■ How the National Security Agency is attempting to stop insider leaks �■ How China limits information exchange within its society through its “great firewall”

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Organization The content and organization of this book are based on our own teaching as well as on feedback from reviewers and colleagues throughout the field. Each chapter builds on the others to reinforce key concepts and allow for a seamless learning experience. Essentially, the book has been struc- tured to answer three fundamental questions:

1. What are contemporary information systems, and how are they being used in innovative ways?

2. Why are information systems so important and interesting? 3. How best can we build, acquire, manage, and safeguard information systems?

The ordering and content of our chapters were also significantly influenced by the “IS 2010 Curriculum Guidelines for Undergraduate Degree Programs in Information Systems”1; these guidelines, written by prominent information systems scholars, define the information systems core body of knowledge for all business students. By design, the content of Information Systems Today, Eighth Edition, carefully follows these guidelines, and we are, therefore, very confident that our book provides a solid and widely agreed-on foundation for any introductory information systems course.

The chapters are organized as follows:

�■ Chapter 1: Managing in the Digital World—Information systems are fueling change in the digital world. Here, we help students understand what information systems are, the press- ing issues societies in the digital world are facing, how five IT megatrends—mobile, social media, the Internet of Things, cloud computing, and Big Data—influence organizations and society, and how information systems have become a vital part of modern organiza- tions. We walk the student through the technology, people, and organizational components of an information system, and lay out types of jobs and career opportunities in information systems and in related fields. We also focus on how technology is creating countless ethical concerns.

�■ Chapter 2: Gaining Competitive Advantage Through Information Systems—Given the rapid advancement of new technologies, we explain why and how companies are continu- ally looking for innovative ways to use information systems for competitive advantage, and how information systems support organizations’ business strategies. Here, we discuss how companies from GE to Uber can use information systems for automation, organizational learning, and strategic advantage by creating new and innovative business models.

�■ Chapter 3: Managing the Information Systems Infrastructure and Services—With the ever-increasing complexity of maintaining a solid information systems infrastructure, it becomes increasingly important for organizations such as Google to design a reliable, robust, and secure infrastructure. Here, we provide an overview of the essential information systems infrastructure components and describe why they are necessary for satisfying an organization’s informational needs. We also examine the rapid evolution toward the deliv- ery of infrastructure capabilities through a variety of cloud-based services.

�■ Chapter 4: Enabling Business-to-Consumer Electronic Commerce—Perhaps nothing has changed the landscape of business more than the use of the Internet for electronic com- merce. Here, we describe how firms such as Amazon.com, Dell, or Taobao; governments; financial services providers; and e-finance startups use the Internet to conduct commerce in cyberspace. Further, we describe the requirements for successful e-commerce websites and discuss Internet marketing and mobile commerce as well as consumer-to-consumer and consumer-to-business e-commerce. Finally, we discuss payment and legal issues in e-commerce.

�■ Chapter 5: Enhancing Organizational Communication and Collaboration Using Social Media—Social media have forever changed how people interact. In addition to enabling various business opportunities, social media have also enabled companies to better har- ness the power and creativity of their workforce. Here, we provide an overview of tradi- tional communication and collaboration tools and examine how different social media can

PREFACE xxv

1 Topi, H., Valacich, J., Wright, R. T., Kaiser, K., Nunamaker Jr., J. F., Sipior, J. C., & de Vreede, G. J. (2010). IS 2010: Curriculum guidelines for undergraduate degree programs in information systems. Communica- tions of the Association for Information Systems, 26(18).

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enhance communication, collaboration, cooperation, and connection within organizations but also between organizations and their customers. Further, we discuss the importance of carefully managing the use of social media within organizations. Finally, using examples such as Twitter and Facebook, we describe how companies can deal with potential pitfalls associated with social media.

�■ Chapter 6: Enhancing Business Intelligence Using Big Data and Analytics—A key to effective management in a global, highly competitive, and rapidly changing environment is high-quality and timely information to support decision making in order to realize the strategic goals of the organization. Here, we first describe the need for enhanced decision making and explain how databases serve as a foundation for gaining business intelligence. We then discuss concepts related to business intelligence and advanced analytics, including data mining, machine learning, and predictive modeling. Finally, we discuss how knowl- edge management and geographic information systems help organizations make better business decisions.

�■ Chapter 7: Enhancing Business Processes Using Enterprise Information Systems— Enterprise systems have become a critical technology in a broad range of organizations, both large and small, to integrate information and span organizations’ boundaries to better connect a firm with customers, suppliers, and other partners. Here, we focus on founda- tional concepts related to enterprise systems, walking students through various core busi- ness processes, and then examine how enterprise resource planning systems can be applied to improve these processes and organizational performance.

�■ Chapter 8: Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management—Two additional types of enterprise systems, supply chain management systems and customer relationship management systems, are being used to facilitate various business processes between suppliers and customers. Here, we begin by introducing business-to-business electronic commerce. Next, we examine how supply chain management systems can support the effective management of supply networks. Finally, we examine customer relationship management systems and their role in attracting and retaining customers and, using examples from companies such as Dell, discuss how organizations can integrate social media in their CRM efforts.

�■ Chapter 9: Developing and Acquiring Information Systems—Nearly every organization needs to develop or acquire information systems. Here, we begin by describing how to for- mulate and present the business case to build or acquire a new information system. We then walk the student through the traditional systems development approach and explain how numerous other approaches, such as agile development, can be utilized depending on the situation. Finally, we examine the steps followed when acquiring an information system from an outside vendor.

�■ Chapter 10: Securing Information Systems—With the pervasive use of information sys- tems, new dangers have arisen for organizations, and the interplay between threats, vulner- abilities, and potential impacts has become a paramount issue within the context of global information management. Here, we contrast several types of computer crime and discuss the growing significance of cyberwar and cyberterrorism. We then highlight the primary threats to information systems security and explain how systems can be compromised and safeguarded. We conclude this chapter with a discussion of the role of auditing, informa- tion systems controls, and the Sarbanes–Oxley Act. Note that some instructors may choose to introduce this chapter prior to the discussion of the information systems infrastructure in Chapter 3.

�■ Technology Briefing—In addition to these 10 chapters, we include a Technology Briefing that focuses on foundational concepts regarding hardware, software, networking and the Internet, and databases. While Chapter 3, “Managing the Information Systems Infrastruc- ture and Services,” provides a more managerial focus to these enabling technologies, this foundational material provides a more in-depth examination of these topics. By delivering this material as a Technology Briefing, we provide instructors the greatest flexibility in how and when they can apply it.

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Available in MyMISLab: �■ MIS Video Exercises – videos illustrating MIS concepts, paired with brief quizzes �■ MIS Decision Simulations – interactive exercises allowing students to play the role of a

manager and make business decisions �■ Auto-Graded writing exercises – taken from the end of each chapter �■ Assisted-Graded writing exercises – taken from the end of each chapter, with a rubric

provided �■ Chapter Warm Ups, Chapter Quizzes – objective-based quizzing to test knowledge �■ Discussion Questions – taken from the end of each chapter �■ Dynamic Study Modules – on-the-go adaptive quizzing, also available on a mobile phone �■ Learning Catalytics – bring-your-own-device classroom response tools �■ Enhanced eText – an accessible, mobile-friendly eText �■ Excel & Access Grader Projects – live in the application auto-graded Grader projects pro-

vided inside MyMISLab to support classes covering Office tools

Instructor Resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://support.pearson.com/getsupport for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

�■ Instructor’s Resource Manual �■ Test Bank �■ TestGen® Computerized Test Bank �■ PowerPoint Presentation �■ Image Library

Reviewers We wish to thank the following faculty who participated in reviews for this and previous editions:

Lawrence L. Andrew, Western Illinois University Karin A. Bast, University of Wisconsin–La Crosse David Bradbard, Winthrop University Rochelle Brooks, Viterbo University Brian Carpani, Southwestern College Amita Chin, Virginia Commonwealth University Jon D. Clark, Colorado State University Paul Clay, Fort Lewis College Khaled Deeb, Barry University Thomas Engler, Florida Institute of Technology Badie Farah, Eastern Michigan University Roy H. Farmer, California Lutheran University Mauricio Featherman, Washington State University David Firth, University of Montana Frederick Fisher, Florida State University Jonathan Frank, Suffolk University James Frost, Idaho State University Frederick Gallegos, California State Polytechnic

University–Pomona Dale Gust, Central Michigan University Peter Haried, University of Wisconsin–La Crosse Albert Harris, Appalachian State University Michelle Hepner, University of Central Oklahoma Traci Hess, University of Massachusetts Bruce Hunt, California State University–Fullerton Carol Jensen, Southwestern College

Bhushan Kapoor, California State University–Fullerton

Elizabeth Kemm, Central Michigan University Beth Kiggins, University of Indianapolis Chang E. Koh, University of North Texas Brian R. Kovar, Kansas State University Kapil Ladha, Drexel University Linda K. Lau, Longwood University Amy Lavin, Temple University Cameron Lawrence, University of Montana Martha Leva, Penn State University–Abington Weiqi Li, University of Michigan–Flint Clayton Looney, University of Montana Dana L. McCann, Central Michigan University Richard McCarthy, Quinnipiac University Patricia McQuaid, California State Polytechnic

University, San Louis Obispo Michael Newby, California State

University–Fullerton Kathleen Noce, Penn State University–Erie W. J. Patterson, Sullivan University Timothy Peterson, University of Minnesota–Duluth Lara Preiser-Houy, California State Polytechnic

University, Pomona Sridhar Ramachandran, Indiana University

Southeast

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Eugene Rathswohl, University of San Diego Rene F. Reitsma, Oregon State University Jose Rodriguez, Barry University Bonnie Rohde, Albright College Kenneth Rowe, Purdue University Dana Schwieger, Southeast Missouri State

University G. Shankaranarayanan, Boston University James Sneeringer, St. Edward’s University Cheri Speier, Michigan State University

Bill Turnquist, Central Washington University Craig K. Tyran, Western Washington University William Wagner, Villanova University Minhua Wang, State University of New

York–Canton John Wells, University of Massachusetts Nilmini Wickramasinghe, Cleveland State

University Yue Zhang, California State University–Northridge

Acknowledgments Although only our two names are listed as the authors for this book, this was truly a team effort that went well beyond the two of us. Pearson has been an outstanding publishing company to work with. Pearson is innovative, has high standards, and is as competitive as we are.

Among the many amazingly helpful people at Pearson, there are a handful of people we wish to thank specifically. First, Katrina Ostler, our project manager, helped to whip us and this book into shape and get it finished on time. Additionally, Ann Pulido from SPI Global helped in getting approval for photos, figures, websites, and other graphics, as well as coordinating refinements as the book moved through the stages of production. Finally, we want to thank our editor, Samantha Lewis.

In addition to our colleagues at Pearson Prentice Hall, several individuals have been particu- larly instrumental in making the eighth edition the best ever. First, Michael Byrd, PhD candidate at the University Arizona, did an outstanding job on creating and revising several of our case elements. Also, a special thanks goes out to Dave Wilson (University of Oklahoma) and Catherine Chan (Hong Kong Baptist University), who were instrumental in drafting earlier chapter ele- ments. Thanks, team! We could not have done it without you.

Most important, we thank our families for their patience and assistance in helping us to com- plete this book. Joe’s wife Jackie, daughter Jordan, and son James were a constant inspiration, as was Christoph’s wife Birgit. This one is for all of you.

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22

Preview

Managing in the Digital WorlD:

Open Innovation

Where do good ideas come from? An eccen-tric inventor toiling alone? A secretive lab filled with researchers in white coats? Views of innovation are shifting away from these traditional

stereotypes. For decades, corporations funded internal

research and development units and tightly controlled

both the inputs and outputs of these operations. Oppor-

tunities to interact with customers were limited, and

the possibility of spending months or years and millions

of dollars developing products that no one wanted was

a real threat. New technologies are enabling a shift in

the way innovation occurs.

Traditionally, universities would conduct basic and

applied research, but the results of this research only

sometimes would make their way to the private sector.

Corporations would fund their own research and devel-

opment operations, often at great expense. Such opera-

tions took years to set up and were often highly

constrained in the types of research they could carry

out. Programs of research were evaluated against busi-

ness plans that had been studied, reviewed, and

approved by multiple layers of management. The time

and complexity involved in these bureaucratic processes

often left the actual research out of date and out of

touch with the realities of the marketplace and actual

customer wants and needs. The resulting products

Managing in the Digital World1

Today, organizations from Apple to Zappos use informa-

tion systems to better manage their organizations in the

digital world. These organizations use information systems

to provide high-quality goods and services as well as to

gain or sustain competitive advantage over rivals. In addi-

tion to helping organizations to be competitive, informa-

tion systems have contributed to tremendous societal

changes. Our objective for this chapter is to help you

understand the role of information systems as we con-

tinue to move further into the digital world, the role of

information systems in current issues faced by societies in

the digital world, and the role of information technology

(IT) megatrends in influencing the digital future. We then

highlight what information systems are, how they have

evolved to become a vital part of modern organizations,

and why this understanding is necessary for you to

become an effective manager in the digital world. We

conclude by discussing ethical issues associated with the

use of information systems.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab .com for simulations, tutorials, and end-of-chapter problems.

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3

After reading this chapter,

you will be able to do the

following:

After reading this chapter, you will be able to answer

the following:

1. How do the five IT megatrends fuel open innovation?

2. What are the primary information systems compo-

nents that enable open innovation?

3. What intellectual property issues arise from engag-

ing in open innovation?

Based on:

Board of Innovation. (n.d.). List of open innovation and crowdsourcing examples. Retrieved June 20, 2016, from http://www.boardofinnovation .com/list-open-innovation-crowdsourcing-examples

GE. (2016). GE open innovation. GE.com. Retrieved April 24, 2016, from http://www.ge.com/about-us/openinnovation

Open Innovation Community. (2016). Open innovation. Retrieved A p r i l 2 4 , 2 0 1 6 , f r o m h t t p : / / o p e n i n n o v a t i o n . n e t / a b o u t - 2 / open-innovation-definition

would often fail in the market due to being years late or

no longer being relevant.

Open innovation is a new approach. Instead of rely-

ing on tightly controlled internal research projects, com-

panies are opening up their research and development

efforts to a broad audience (Figure 1.1). Customers, sup-

pliers, and other companies are invited to participate

more directly in different phases of the innovation pro-

cess, and companies are working more collaboratively

with universities.

Many companies take these ideas even further and

open up the research and development efforts to any-

one who wishes to participate online or in person. For

example, Starbucks introduced “My Starbucks Idea,”

where customers can post ideas and suggestions as well

as vote on or discuss others’ ideas. Hundreds of

customer-generated ideas have been launched over the

years. Likewise, more than 37,000 ideas have been sub-

mitted to Dell’s “IdeaStorm” website, with more than

550 ideas implemented, and Heineken’s “Innovators

Brewhouse” uses open innovation to generate ideas

related to topics ranging from methods for counterfeit

detection to brewing closer to the consumer or new,

more convenient packaging. Further, new tools like

interactive 3D visualization and rapid prototyping tech-

nologies like 3D printing allow for tremendously low-

ered barriers to entry to innovation. Many companies

and institutions have set up collaborative spaces to share

resources and encourage the fusion of ideas and skills

that can lead to exciting breakthroughs. As with many

innovations themselves, this innovative way of innovat-

ing would not be possible without information systems.

1. Describe the characteristics of the digital world, contemporary societal issues of the digital world, and IT megatrends shaping the digital future.

2. Explain what an information system is, contrasting its data, technology, people, and organizational components.

3. Describe the dual nature of information systems in the success and failure of modern organizations.

4. Describe how computer ethics affect the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property.

Open innovation

FIGURE 1.1 Open innovation entails opening up the innovation process to outside entities, including academia, individual innovators, research labs, other companies, or suppliers.

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4 Chapter 1 • Managing in the Digital WorlD

Information Systems Today Today, information systems (IS) are ubiquitous: Be it traditional desktop computers, laptop com- puters, smartphones, tablets, you name it; information systems are all around us, whether you see them or not. Companies such as FedEx and UPS use information systems to route trucks and track packages. Retailers such as Walgreens and Walmart use information systems for every- thing from optimizing supply chains to recording purchases and analyzing customer tastes and preferences. Cities use information systems for adaptive traffic control systems or variable speed limits. Cars use information systems for everything from ignition control to airbags to distance control and park assist systems. Many innovative business models, ranging from Airbnb to Uber, are built on or around information systems. Alternatively, just look around your school or place of work. At your school, you register for classes online; use e-mail, Twitter, or Facebook to com- municate with fellow students and your instructors; access e-books from your library; and com- plete or submit assignments on online learning platforms such as Blackboard, Moodle, Canvas, or Sakai. At work, you may use a PC for e-mail and many other tasks. Your paychecks are prob- ably generated by computer and automatically deposited into your bank account via high-speed networks. Even in your spare time, information systems are ubiquitous: You use social network- ing sites like Facebook to stay connected with your friends and family, you watch videos on YouTube, you upload pictures taken with your smartphone to picture-sharing sites like Insta- gram, you listen to music on Pandora or Spotify, and you use your smartphone for playing games, sending e-mails, or reading books. Chances are that each year you see more information systems than you did the year before, and these systems are a more fundamental and important part of your social, academic, and work life than ever before.

The Emergence of the Digital World Over the past decades, the advent of powerful, relatively inexpensive, easy-to-use computers has had a major impact on business and society. When you stop and think about it, it is easy to see why information systems are important. Increasing global competitiveness has forced companies to find ways to be better and to do things less expensively. The answer for many firms continues to be to use information systems to do things better, faster, and cheaper. Many organizations use information systems to support innovative business models, or build their entire business models around technological innovations. Likewise, using global telecommunications networks, compa- nies can more easily integrate their operations to access new markets for their products and ser- vices as well as access a large pool of talented labor in countries with lower wages.

Clearly, we are living in a digital world. Given the proliferation of mobile devices such as tablets or smartphones, some have even argued that we are living in the post-PC era, where wire- less, mobile devices will replace traditional desktop and laptop computers. In fact, already in the last quarter of 2011, Apple sold more iPads than HP (traditionally one of the world’s leading PC makers) sold PCs, and in the United States, smartphone penetration has reached 82 percent (Nielsen, 2016). Initially created as consumer devices, tablets have become commonplace in various professional settings, including warehouses, showrooms, airplane cockpits, and hospi- tals (Figure 1.2).

Yet desktop PCs and laptops are unlikely to go away. Rather, devices with newer form fac- tors will work in tandem with older form factors to provide truly ubiquitous experiences; mobile devices complement traditional computers, providing different devices for different users and different tasks, where not the device but the services and data provided are of primary impor- tance. Further, the changes we’ve seen so far have given rise to developments such as wearable computers, augmented reality devices, or surface computers.

Changes in technology have enabled new ways of working and socializing; whereas tradi- tionally, people were bound to a stationary PC to do essential tasks, they can now perform such tasks from almost anywhere they have a cell phone signal. Likewise, workdays traditionally had a clear beginning and a clear end—from when you powered your computer on to when you turned it off at night. Today, many tasks (especially more casual tasks such as reading or sending e-mails) can be done at any time, often in small chunks in between other tasks, such as when waiting in line at the supermarket cashier.

Computing has changed from an activity primarily focused on automating work to encom- pass various social and casual activities. Devices such as smartphones or tablets, paired with mobile broadband networks, allow for instant-on computing experiences, whenever and

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Chapter 1 • Managing in the Digital WorlD 5

wherever; advances in cloud computing (think Gmail, Office Online, or Dropbox) allow for accessing e-mails, files, notes, and the like, from different devices, further enhancing portability and mobility.

In effect, we are in a virtuous cycle (or in a vicious cycle, considering the creep of work life into people’s leisure time and the increasing fixation on being permanently “on call”), where changes in technology lead to social changes and social changes shape technological changes. For example, communication, social networking, and online investing almost necessitate mobil- ity and connectivity, as people have grown accustomed to checking e-mails, posting status updates, or checking on real-time stock quotes while on the go. In addition, the boundaries between work and leisure time are blurring, so that employees increasingly demand devices that can support both and often bring their own devices into the workplace.

KnowlEDgE worKErS anD ThE KnowlEDgE SocIETy. In 1959, Peter Drucker predicted that information and information systems would become increasingly important, and at that point, more than half a century ago, he coined the term knowledge worker. Knowledge workers are typically professionals who are relatively well educated and who create, modify, and/or synthesize knowledge as a fundamental part of their jobs.

Drucker’s predictions about knowledge workers were accurate. As he predicted, they are generally paid better than their prior agricultural and industrial counterparts; they rely on and are empowered by formal education, yet they often also possess valuable real-world skills; they are continually learning how to do their jobs better; they have much better career oppor- tunities and far more bargaining power than workers ever had before. Knowledge workers make up about a quarter of the workforce in the United States and in other developed nations, and their numbers are rising quickly.

Drucker also predicted that, with the growth in the number of knowledge workers and with their rise in importance and leadership, a knowledge society would emerge. He reasoned that, given the importance of education and learning to knowledge workers and the firms that need them, education would become the cornerstone of the knowledge society. Possessing knowl- edge, he argued, would be as important as possessing land, labor, or capital (if not more so) (Figure 1.3). Indeed, research shows that people equipped to prosper in the knowledge society, such as those with a college education, earn far more on average than people without a college education, and that gap is increasing. In fact, the most recent data from the U.S. Census Bureau’s American Community Survey (2014 data) reinforce the value of a college education: Median earnings for workers 25 and over with a bachelor’s degree were US$50,450 a year, while those for workers with a high school diploma were US$27,809. Median earnings for workers with a graduate or professional degree were US$66,175, and for those without a high school diploma US$20,542. These data suggest that a bachelor’s degree is worth about US$1 million in additional lifetime earnings compared to a worker with only a high school diploma.

FIGURE 1.2 Mobile devices are increasingly being used in various professional settings. Source: William Perugini/Shutterstock.

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6 Chapter 1 • Managing in the Digital WorlD

Additionally, getting a college degree will qualify you for many jobs that would not be avail- able to you otherwise and will distinguish you from other job candidates. Finally, a college degree is often a requirement to qualify for career advancement and promotion opportunities once you do get that job.

People generally agree that Drucker was accurate about knowledge workers and the evolu- tion of society. While people have settled on Drucker’s term knowledge worker, there are many alternatives to the term knowledge society. Others have referred to this phenomenon as the knowledge economy, the new economy, the digital society, the network era, the Internet era, and other names. We simply refer to this as the digital world. All these ideas have in common the premise that information and related technologies and systems have become indispensable and that knowledge workers are vital.

Today, not only knowledge workers use information systems as integral parts of their work lives; many “traditional” occupations now increasingly use information systems—from the UPS package delivery person using global positioning system (GPS) technology to take the best route to deliver parcels to the farmer in Iowa who uses precision agriculture to plan the use of fertiliz- ers to increase crop yield. In essence, (almost) every organization can now be considered an e-business. An e-business is an organization that uses information technologies or systems to support nearly every part of its business. Thus, the lines between “knowledge workers” and “manual workers” are blurring, to the point that some argue that “every worker is a knowledge worker” (Rosen, 2011).

ThE DIgITal DIvIDE. Some have argued, however, that there is a downside to being a knowledge worker and to living in the digital world. For example, some have argued that knowledge workers will be the first to be replaced by automation with information systems. Others have argued that in the new economy there is a digital divide, where those with access to information systems have great advantages over those without access to information systems. The digital divide is one of the major ethical challenges facing society today when you consider the strong linkage between computer literacy and a person’s ability to compete in the digital world. For example, access to raw materials and money fueled the Industrial Revolution, “but in the informational society, the fuel, the power, is knowledge,” emphasized John Kenneth Galbraith, an American economist who specialized in emerging trends in the U.S. economy. “One has now come to see a new class structure divided by those who have information and those who must function out of ignorance. This new class has its power not from money, not from land, but from knowledge” (Galbraith, 1987).

Items of Value in the Knowledge Society

Knowledge

Labor

Land Capital

FIGURE 1.3 Knowledge has become as important as—and many feel more important than—land, labor, and capital resources.

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Chapter 1 • Managing in the Digital WorlD 7

The good news is that the digital divide in America is rapidly shrinking, but there are still major challenges to overcome. In particular, people in rural communities, the elderly, people with disabilities, and minorities lag behind national averages for Internet access and computer literacy. Outside the United States and other developed countries, the gap gets even wider and the obstacles get much more difficult to overcome, particularly in the developing countries where infrastructure and financial resources are lacking. For example, most developing coun- tries are lacking modern informational resources such as affordable Internet access or efficient electronic payment methods.

To be sure, there is a downside to overreliance on information systems, but one thing is for certain: Knowledge workers and information systems are now critical to the success of modern organizations, economies, and societies. At the same time, information systems play a crucial role in various major issues societies face. These issues are examined next.

Globalization and Societal Issues in the Digital World The past decades have brought about a number of dramatic global changes, many of which will continue to inf luence individuals, businesses, economies, and societies well into the future. Many of such interrelated societal “megatrends,” discussed by consulting firms such as Pricewa- terhouseCoopers (PwC) or Ernst & Young (EY), local and national governments, or global polit- ical and business leaders at the World Economic Forum, are related to ever-increasing globalization—the integration of economies throughout the world, enabled by innovation and technological progress (International Monetary Fund, 2002). You can see the effects of global- ization in many ways, such as the greater international movement of commodities, money, infor- mation, and labor as well as the development of technologies, standards, and processes to facilitate this movement.

COMING ATTRACTIONS Memory Crystals

In the Superman films and many other sci-fi movies and books, characters make use of data storage devices that resemble large crystals. In the stories, these crystals often store incredibly large amounts of data and last for extraordinary lengths of time. now scientists have taken a step toward making such technology a reality. Researchers at the University of South- ampton (UK) have created a nanostructured glass storage device that resembles the fictional technologies. The technique uses self-assembling nanostructures written into fused quartz using tiny femtosecond (one-quadrillionth, or one-millionth of one-billionth, of a second) laser light pulses. The data are encoded in five dimensions (5D): height, length, width, posi- tion, and orientation. Using these multiple dimensions along with the nanoscale laser writing allows a small glass disc, about the size of a large coin, to store 360 terabytes (TB) of data. As a terabyte is equal to 1,024 gigabytes (gB), the amount of data stored on each tiny disk is several hundred times the amount of data stored on a standard desktop computer (1–4 TB) and several thousand times the data storage capacity of most smartphones (16–128 gB). the quartz material is highly stable (up to 13.8 billion years at 190 degrees Celsius), so data can be archived essentially forever.

To demonstrate the technology, the scientists recorded several major documents from human history on the disks,

including the Universal Declaration of human rights, new- ton’s Opticks, the Magna Carta, and the King James Bible. The technology could be used by any organization or busi- ness seeking to store large volumes of data for long periods of time. Museums, libraries, national archives, and others could preserve their information and records for nearly unlimited time. Data stored using the technique could well outlast any other aspects of not just our technology but our civilization. Professor Peter Kazansky from the university’s research team says: “It is thrilling to think that we have cre- ated the technology to preserve documents and information and store it in space for future generations. This technology can secure the last evidence of our civilization: all we’ve learnt will not be forgotten.” The scientists are looking for industry partners to further develop and commercialize the technology.

Based on:

Mullen, M. (2016, February 17). new “Superman” crystals can store data for billions of years. CNN Money. Retrieved April 14, 2016, from http://money.cnn.com/2016/02/17/technology/5d-data-storage- memory-crystals/index.html

phys.org. (2016, February 15). eternal 5D data storage could record the history of humankind. Retrieved April 14, 2016, from http://phys .org/news/2016-02-eternal-5d-storage-history-humankind.html

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8 Chapter 1 • Managing in the Digital WorlD

globalIzaTIon: opporTunITIES anD challEngES. For organizations, globalization has opened up many opportunities, brought about by falling transportation and telecommunication costs. Today, shipping a bottle of wine from Australia to Europe costs merely a few cents, and people can make voice or video calls around the globe for free using services such as Skype, Google Hangouts, or WhatsApp. To a large extent fueled by movies, television, and other forms of media, the increasing globalization has moved cultures closer together. The streaming movie provider Netf lix is available in almost every country of the world, people in all corners of the world can receive television programming from other countries, and major movies are increasingly international. Developments such as these help create a shared understanding about norms of behavior or interaction, desirable goods or services, or even forms of government (though such shared understanding is still often lacking, and many of these developments have not yet happened). The rapid rise of a new middle class in many developing countries has enabled established companies to reach new markets, enabling them to sell their products to literally millions of new customers. At the same time, with the decrease in communication costs, companies can now draw on a large pool of skilled professionals from all over the globe. Countries such as Russia, China, and India offer high-quality education, leading to an ample supply of well-trained people at low cost. Some countries have even built entire industries around certain competencies, such as software development or tax preparation in India and call centers in Ireland.

The tremendous decrease in communication costs has increased the use of outsourcing— the moving of business processes or tasks (such as accounting, manufacturing, or security) to another company or another country—as now companies can outsource business processes on a global scale (Figure 1.4). Companies are choosing to outsource business activities for a variety of reasons; the most important reasons include the following (King, 2003):

■■ To reduce or control costs ■■ To free up internal resources ■■ To gain access to world-class capabilities ■■ To increase the revenue potential of the organization ■■ To reduce time to market ■■ To increase process efficiencies ■■ To be able to focus on core activities ■■ To compensate for a lack of specific capabilities or skills

Often, companies located in countries such as India can provide certain services much cheaper because of lower labor costs, or companies perform certain functions in a different country to reduce costs or harness skilled labor. For example, in India, two companies—Wipro and Infosys—have emerged as the leaders in providing IT services that range from business con- sulting to systems development. In addition, a wide variety of other services—ranging from telephone support to tax returns—are candidates for outsourcing to different countries, be it Ire- land, China, or India. Even highly specialized services, such as reading of X-rays by skilled

FIGURE 1.4 Companies are outsourcing production to overseas countries (such as China) to utilize talented workers or reduce costs. Source: lianxun Zhang/Fotolia.

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Chapter 1 • Managing in the Digital WorlD 9

radiologists, are outsourced by U.S. hospitals to doctors around the globe, often while doctors in the United States are sleeping.

Yet globalization has also brought about a number of operational challenges for organiza- tions. Organizations face governmental challenges related to differences in political systems, regulatory environments, laws, standards, or individual freedoms. Likewise, geoeconomic chal- lenges include differences in infrastructure, demographics, welfare, or workers’ expertise. Lastly, organizations face cultural challenges, such as dealing with differences in languages, beliefs, attitudes, religions, or life focus but also different viewpoints regarding intellectual property. As a result, companies intending to outsource services or production have to carefully choose out- sourcing locations, considering numerous different factors, such as English proficiency, salaries, or geopolitical risk. While countries such as India remain popular, other formerly popular coun- tries (such as Singapore, Canada, or Ireland) are declining because of rising salaries. With these shifts, outsourcers are constantly looking at nascent and emerging countries such as Bulgaria, Egypt, Ghana, Bangladesh, or Vietnam.

Obviously, organizations have to weigh the potential benefits (e.g., cost savings) and draw- backs (e.g., higher geopolitical risk or less experienced workers) of outsourcing to a particular country, and often, cost savings prove to be negligible due to added overhead, such as customs, shipping, or training as well as quality problems. In fact, InformationWeek, a leading publication targeting business IT users, found that 20 percent of the 500 most innovative companies in terms of using IT took back projects previously outsourced to another country. Nevertheless, IT out- sourcing is big business: Research firm IDC forecasted the market for IT outsourcing to be $103 billion in 2019 (Tapper, 2015).

SocIETal ISSuES In ThE DIgITal worlD. The rapid development of transportation and telecommunication technologies, national and global infrastructures, and information systems as well as a host of other factors has created a number of pressing societal issues that will tremendously influence the world we live in (PWC, 2016; Schreiber, 2016). In this section, we will highlight a few of these issues (Figure 1.5). One such issue is demographic changes— changes in the structure of populations such as related to age, birth rates, and migration. While many countries in the developed world see rapidly aging populations, developing regions such as Africa are expected to rapidly rise in population, fueling a massive global population growth. These differences in demographic changes will also shift the balance of demand and supply of labor; further, differences in welfare are likely to further increase, and many countries are already experiencing both positive and negative effects of mass migrations. In addition, many regions of the world are seeing rapid urbanization—the movement of rural populations to urban areas, to a point where 50 percent of the world’s population is now living in cities (PWC, 2016); sustaining this growth while providing livable environments for the inhabitants will pose major challenges. Another major trend is the global shifts in economic power—changes in countries’ purchasing power and control over natural resources—where established economies are losing

0

23,5

32,2

26,7

–273

0

100

36,7

FIGURE 1.5 Societal issues in the digital world. Source: pichaitun/Fotolia.

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10 Chapter 1 • Managing in the Digital WorlD

their dominating positions in the world’s economy, resulting in the need to resolve political struggles (PWC, 2016). Many of these issues interact, affect each other, and/or fuel other issues, such as issues related to resource scarcity due to limited availability of fossil fuels and other natural resources and climate change—large-scale and long-term regional and global changes in temperatures and weather patterns. Population growth, global trade, consumerism, and other factors contribute to increasing waste and pollution, as well as a growing need for resources, at a time where humans already live beyond the finite natural resources the planet can provide. Likewise, climate change—regardless of its causes—and its associated changes in weather patterns, rise in sea levels, and increase in the severity of storms pose a number of challenges for individuals, societies, and the world. As a consequence, sustainable development— “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987)—will become an ever increasingly important aspect. In addition to these societal issues, we have witnessed a number of breakthroughs and transformations enabled by technology; these breakthroughs are disrupting traditional business models but can also help address pressing societal issues. Next we will discuss five IT megatrends that shape the digital future.

Five IT Megatrends That Shape the Digital Future In most developed societies, information technologies have become pervasive—information technologies are in fact used throughout society, and the speed of innovations is increasing at a tremendous pace, with many radical innovations marginalizing or displacing existing products or industries (see Chapter 2, “Gaining Competitive Advantage Through Information Systems”).

WHO’S GOING MOBILE Wearable Technologies

For a long time, the smart fridge has been touted as the prime example of possibilities enabled by the Internet of Things, a network of physical objects that are connected over the Inter- net. While the smart fridge has yet to take off, many much smaller “things” have become tremendously popular—wear- able technologies, such as smartwatches or activity trackers. The term wearable technologies refers to clothing or acces- sories that incorporate electronic technologies. For example, the apple Watch, Samsung’s galaxy gear, or the Fitbit incorpo- rate various sensors; depending on the device, the sensors record physiological data such as body movements or heart rate but also environmental data such as ambient light, orien- tation, or altitude. Smartwatches such as the Apple Watch or Samsung’s galaxy gear are designed to be an extension of the user’s phones, used to display notifications from the phone or tablet devices, providing quick access to some of the phone’s or tablet’s functions, in addition to enabling the user to moni- tor various fitness activities. activity trackers such as the Fitbit are designed to be worn and passively used on a regular basis, supporting the “quantified self“—the logging of all aspects of one’s daily life, ranging from monitoring and recording of activities, performance, or intakes to monitoring bodily states (such as moods or physiological data) to improve one’s overall health and performance. Yet other devices are intended for special use cases—as in the “Climbax,” a rock-climbing device that tracks your climbing technique.

Whereas many wearable technologies are designed to sup- port the quantified self, many see social relationships as the next big thing in wearables and experiment with social wear- ables that allow users to connect with each other in novel ways. For example, experimental concepts include a social fan jersey, which allows sports fans to experience vibration pat- terns as their favorite rugby player hits the ground. Many of these technologies are both exciting and futuristic, but there remain security, privacy, and other issues to resolve: Early wearable devices have been demonstrated to be easily hack- able, and there is also broad concern about the potential dis- tractions to automobile drivers or students in classrooms from such wearable devices. While offering great promises, these exciting technologies will require adjustments and compro- mises if they are to obtain the extensive adoption their manu- facturers are aiming for.

Based on:

Cosco, a. (2016, March 7). the social age of wearable tech: From quantified self to emotional second skin. Wareable. Retrieved March 18, 2016, from http://www.wareable.com/wearable-tech/ the-social-age-of-wearable-tech-beyond-the-quantified-self

green, C. (2014, May 12). Wearable technology creates $50 billion investment frenzy. Information Age. retrieved March 18, 2016, from http://www.information-age.com/technology/mobile-and-networking/ 123457988/wearable-technology-creates-50-billion-investment-frenzy

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Chapter 1 • Managing in the Digital WorlD 11

For example, within just a few years, drones evolved from being primarily used by the military to being used by farmers, aerial photographers, filmmakers, and hobbyists alike. Self-parking systems are already available in many vehicles, self-driving cars and trucks are being actively tested by various companies, and autonomous Caterpillar mining trucks are already in use. Like- wise, the development of sophisticated web technologies has brought about a fundamental shift in types of information technologies that are being used, and we’re seeing five (intertwined) “megatrends” that influence individuals, organizations, and society (Figure 1.6). Understanding the influence of these megatrends will be increasingly important: Individuals will increasingly feel the impact of these megatrends on their private and work lives, and businesses need to have a business strategy that is fit for today’s digital world and the digital future.

■■ Mobile. One of the biggest trends we’re seeing today is the move toward mobile devices, as indicated in the opening section of this chapter. In most developed countries, the vast majority of adults have a mobile phone, and typically, people have their mobile phones within their reach 24/7. Compare that with the access to your laptop or PC. In the develop- ing world, mobile devices are frequently seen leapfrogging traditional PCs; owing to the lack of stable, reliable power or landline telephone infrastructure, mobile devices are often the primary means of accessing the Internet. For organizations, this increase in mobility has a wide range of implications, from increased collaboration to the ability to manage a business in real time—at any time, from anywhere—to changes in the way new (or exist- ing) customers can be reached (Figure 1.7). With the increase in mobile devices, organiza- tions not only have to create mobile-device-friendly versions of their websites but often

Changes in Organizations and Society

Mobile Big Data

Cloud Computing

Internet of Things

Social Media

FIGURE 1.6 Five IT megatrends.

HOTEL

FIGURE 1.7 Mobile devices allow running business in real time—at any time, from anywhere.

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12 Chapter 1 • Managing in the Digital WorlD

build mobile apps (software programs designed to perform a particular, well-defined function) to market their products or services. In addition, fueled by advances in consumer- oriented mobile devices (such as smartphones and tablets) and the ability to access data and applications “in the cloud,” today’s employees are increasingly using their own devices for work-related purposes or are using software they are used to (such as social networks for communicating) in the workplace. While initially, workers tended to use their own devices primarily for checking e-mails or visiting social networking sites, they now use their own devices for various other important tasks, including customer relationship man- agement or enterprise resource planning. For organizations, this trend can be worrying (due to concerns related to security or compliance or increasing need to support the workers’ own devices), but it can also provide a host of opportunities, such as increased productiv- ity, higher retention rates of talented employees, or higher customer satisfaction. Managing this trend of “bring your own device” (BYOD) is clearly a major concern of business and IT managers alike. Further, we have witnessed the consumerization of IT; many techno- logical innovations are first introduced in the consumer marketplace before being used by organizations, and businesses have to constantly evaluate how a wide variety of new tech- nologies might influence their ways of doing business. Throughout the text, we will intro- duce issues and new developments associated with increases in mobility.

■■ Social Media. A second megatrend, as you have undoubtedly noticed, is social media. The rise of social media is largely based on the network effect—referring to the notion that the value of a network (or tool or application based on a network) increases with the num- ber of other users. In other words, if a network has few users, it has little or no value. You may be one of the more than 1.6 billion (and growing) Facebook users who share status updates or pictures with friends and family, or you may use apps such as Snapchat, Twit- ter, or WhatsApp to communicate with your friends. How useful would these social media platforms be if none of your friends or family members had access to them? Today, the use of social media has gone way beyond friends and families. University professors use social networks to provide students with updates about course-related topics, and organizations use social media to encourage employee collaboration or to connect with their customers (Figure 1.8). In addition, companies can harness the power of the crowd by using social media to get people to participate in innovation and other activities. With the rise of social media, we have witnessed a shift in roles, where users are not mere consumers of infor- mation but have become important creators and contributors. As you can imagine, social media are here to stay; while we will touch on social media–related aspects throughout the book, we will devote Chapter 5, “Enhancing Organizational Communication and Collabo- ration Using Social Media,” to social media and related topics.

■■ The Internet of Things. A third megatrend is the Internet of Things (IoT)—a network of a broad range of physical objects that can automatically share data over the Internet. Such objects (or “things”) can range from an automobile tire equipped with a pressure sen- sor to a smart meter enabling remote monitoring of energy consumption to a cow with an injectable ID chip. Already in 2008, more devices were connected to the Internet than there were people living on earth. Fueled by advances in chips and wireless radios and decreas- ing costs of sensors (devices that can detect, record, and report changes in the physical environment), in the not-too-distant future everything that can generate useful information

Social media Google+

LinkedIn Facebook

Customers

Business partners

Co-workers

F am

ily

F ri en

d s

Social circles

X IN

G

Wikipedia

FIGURE 1.8 Social media are used in various personal and business settings.

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Chapter 1 • Managing in the Digital WorlD 13

will be equipped with sensors and wireless radios (Figure 1.9). In other words, anything that can generate data or uses data can be connected, accessed, or controlled via the Inter- net (sometimes referred to as “pervasive computing”). With the ability to connect “things” such as sensors, meters, signals, motors, actuators, or cameras, the potential for gather- ing useful data is almost limitless. For example, the market for smart home technologies (sometimes called home automation)—technologies enabling the remote monitoring and controlling of lighting, heating, or home appliances—such as the Nest Learning Thermo- stat, is expected to reach almost US$60 billion by 2020. Using smart home technology, one can monitor home temperatures when on vacation or remotely adjust the air-conditioning; likewise, sensors integrated in a road’s surface can monitor temperatures and trigger dynamic speed limits in case there is the risk of ice or snow. Similarly, sensors can monitor availability of parking spaces or traffic flow, alerting drivers of changes in conditions. Mil- lions of sensors connected to the Internet can monitor weather conditions, helping to gener- ate more accurate local weather predictions, or can monitor soil moisture in golf courses, reducing the need for watering. Cardiac monitors can alert physicians of patients’ health risks. The use of IoT technologies in manufacturing—referred to as Industrial Internet of Things (IIoT)—enables the convergence of information technology and operations tech- nology, offering the potential for tremendous improvements in efficiency, product quality, agility, and flexibility, allowing companies to mass-produce customized products, better monitor supply chains, and so on. In sum, the applications of sensor technology for home automation, smart cities, smart metering, smart farming, e-health, manufacturing, and other areas are almost limitless. As the number of sensors and devices connected to the Internet grows, the Internet of Things will evolve to become the Internet of Everything (IoE), where just about any device’s functionality is enhanced through connectivity and intelligence.

■■ Cloud Computing. The fourth megatrend is cloud computing. Whereas traditionally each user would install a number of different applications for various tasks—from creating documents to listening to music—as well as store documents, pictures, and other data on

FIGURE 1.9 The Internet of Things.

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14 Chapter 1 • Managing in the Digital WorlD

his or her computer, web technologies enable using the Internet as the platform for applica- tions and data. Now, much of the functionality previously offered by applications installed on each individual computer is offered by applications “in the cloud,” accessed via a web browser. Increasingly, not only the applications but also the data reside in the cloud, to be accessed at any time from anywhere (Figure 1.10). A good example of cloud computing is the various services offered by Google, such as Gmail (e-mail), Google Docs (word pro- cessing), and Google Calendar, all of which are accessed via a web browser, freeing users from the task of installing or updating traditional desktop applications or worrying about storing or backing up data. Cloud computing has made inroads in a variety of organiza- tional applications, and many organizations rely on an information systems infrastructure in the cloud. Further, cloud computing can enable advanced analytics of massive amounts of Big Data generated by mobile devices, sensors, or users of social networks. We will extensively discuss cloud computing in Chapter 3, “Managing the Information Systems Infrastructure and Services.”

■■ Big Data. Together, these transformations of our social and work interactions enabled by 24/7 connectivity have given rise to a fifth trend, Big Data. Big Data are typically described as extremely large and complex datasets, which are characterized as being of high volume, variety (i.e., many different types of data), and velocity (i.e., the data are being collected and analyzed at ever-increasing rates). Following the old adage that infor- mation is power, organizations are continuously seeking to get the right information to make the best business decisions. Yet organizations are generating and collecting ever more data from internal and external sources. The rise of social media has further increased the amount of unstructured data available to organizations; for example, people frequently voice their thoughts about products or companies on blogs or social networks. In addition, the Internet of Things, allowing for connecting devices and sensors to the Internet, further contributes to the growth of data available to organizations and individuals. With decreas- ing costs for capturing and storing data, data are now not only ubiquitous but also cheap. A study by research firm IDC estimated that in 2013, 4.4 zettabytes of data were gener- ated and consumed. How much is 4.4 zettabytes? Well, 4.4 zettabytes equals 4.4 trillion gigabytes, or the equivalent of 32 billion 128GB iPads. As the number of devices con- nected to the Internet is expected to reach 30 billion in 2020, the amount of digital data generated worldwide is forecast to reach 44 zettabytes in 2020 and 180 zettabytes by 2025. For many organizations today, value is created from data. Consider, for example, that the largest/most valuable organizations in the “old economy” (such as GE, Dow, or Ford) have 100,000–300,000 employees, and the largest organizations in the “new economy” (such as Microsoft, HP, or Oracle) have 50,000–100,000 employees; in contrast, modern companies of the digital world (such as Facebook, Twitter, or Groupon) have risen to the top with a mere 5,000–15,000 employees by creating value from data (Hofmann, 2011) (Figure 1.11). Ever-increasing amounts of data increase the ability to detect meaningful relationships and regularities, and insights gained from analyzing Big Data not only can contribute to busi- ness success but can also help to address some of the tremendous challenges society faces.

Applications

Data

FIGURE 1.10 Applications and data stored in the cloud can be accessed from different devices.

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Chapter 1 • Managing in the Digital WorlD 15

For example, Big Data is a key factor enabling research ranging from genomics to climate change. However, analyzing tremendous amounts of (often unstructured) data (i.e., Big Data) poses tremendous challenges for organizations. In Chapter 6, “Enhancing Business Intelligence Using Big Data and Analytics,” we will discuss how organizations can harness Big Data to make better business decisions.

Just as the societal issues interact and affect each other, so do the IT megatrends. For exam- ple, cloud computing allows for generating new machine learning algorithms to analyze Big Data, continuously improving artificial intelligence capabilities. Similarly, continuous input from various sensors, paired with artificial intelligence to make sense of such Big Data streams, enables tremendous advances in robotics (i.e., the use of robots to perform manual tasks). The different megatrends have also enabled various business model innovations that disrupt estab- lished industries. For example, fueled by mobile devices, social media, and cloud computing, Uber and Airbnb are examples of innovative business models based on the concept of a sharing economy and disrupt traditional taxi and lodging companies. Likewise, the Internet of Things and the massive amounts of data generated enable the creation of service-oriented business mod- els (sometimes referred to servitization), where companies shift from selling physical products to providing these as services (see Chapter 2); for example, using sensors to monitor perfor- mance, temperature, or mileage enables tire manufacturers Bridgestone and Michelin to sell tires as a service, where truck operators pay based on usage, whereas the manufacturer is responsible for the tires’ performance. Other industries being disrupted range from the financial industry to healthcare providers, where information systems allow for various radical innovations.

While these megatrends open up an almost unlimited potential for innovative products, ser- vices, or processes, they also pose a variety of challenges for organizations operating in the digital world. Throughout the book, we will discuss not only the opportunities but also the challenges organizations face when trying to harness the potential of these megatrends. What do these mega- trends mean for you and for today’s workforce? On a most basic level, they imply that being able to use information systems, to assess the impacts of new technologies on one’s work or private life, and to learn new technologies as they come along will be increasingly important skills.

Most modern-day high school and university students have grown up in a computerized world. If by some chance they do not know how to operate a computer by the time they graduate from high school, they soon acquire computer skills because in today’s work world, knowing how to use a computer—called computer literacy (or information literacy)—can not only open up myriad sources of information but can also mean the difference between being employed and being unemployed. In fact, some fear that the Information Age will not provide the same advan- tages to “information haves”—those computer-literate individuals who have almost unlimited access to information—and “information have-nots”—those with limited or no computer access or skills.

Computer-related occupations have evolved as computers have become more sophisticated and more widely used. Where once we thought of computer workers as primarily programmers, data entry clerks, systems analysts, or computer repairpersons, today many more job categories in virtually all industries, from accounting to the medical field, involve the use of computers. In

Old Economy Information Age Economy

New Economy

FIGURE 1.11 Companies in the Information Age economy are creating value not from people but from data.

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16 Chapter 1 • Managing in the Digital WorlD

fact, today there are few occupations where computers are not somehow in use. Computers man- age air traffic, perform medical tests, monitor investment portfolios, control construction machinery, and more. Because they are especially adept at processing large amounts of data, they are used extensively by universities and public schools, in businesses of all sizes, and in all levels and departments of government. Engineers, architects, interior designers, and artists use special-purpose computer-aided design programs. Musicians play computerized instruments, and they write and record songs with the help of computers. Professionals in the medical indus- try use healthcare IS to support everything from patient diagnosis and treatment to analyzing patient and disease data to running doctors’ offices and hospitals (see Chapter 6). Not only do we use computers at work, we also use them in our personal lives. We teach our children on them, manage our finances, do our taxes, compose letters and term papers, create greeting cards, send and receive e-mail, surf the Internet, purchase products, and play games on them. With the increasing use of computers in all areas of society, many argue that being computer literate— knowing how to use a computer and use certain applications—is not sufficient in today’s world; rather, computer fluency—the ability to independently learn new technologies as they emerge and assess their impact on one’s work and life—is what will set you apart in the future.

Information Systems Defined An information system (IS) is the combination of people and information technology that cre- ate, collect, process, store, and distribute useful data. Information technology (IT) includes hardware, software, and telecommunications networks. Hardware refers to physical computer

GREEN IT The Green Internet of Things

The Internet and associated technologies have been busy dis- rupting business and society for the past several decades. next up, another revolution in information technology is going to shake things up again. green it (or green computing, see Chapter 3) refers to the study and practice of using computing resources more efficiently to reduce environmental impacts as well as the use of information systems to reduce negative envi- ronmental impacts. The Internet of Things brings connectivity and information technology to places never before considered. Together, these technologies are once again poised to revolu- tionize business and society.

Traditionally, IT resources were seen as an ever-expanding pool—as business needs grew, more servers and data centers were installed. Eventually a limit has to be reached; the impact of power consumption alone from a modern data center can be profound. new technologies and techniques are having a large impact on both how we provision IT resources and how we interact with our world’s resources. new servers are designed for low power consumption. Cloud computing archi- tectures allow resources to be allocated on an as-needed basis.

With the Internet maturing into an established platform, new opportunities have become apparent. By combining ubiq- uitous connectivity with inexpensive processing power and sensor devices, nearly anything can be connected to the Inter- net. To be considered a part of the IoT, a device simply needs to be connected to the Internet, collect and transmit sensory data, and be something physical that interacts with the real

world. Umbrellas notify us of the weather, smartwatches moni- tor our steps and vital signs, and nano-scale sensors are help- ing scientists collect unprecedented data about natural phenomena and ecosystems. Power companies can instrument our houses, our cars, and their distribution systems to gain unprecedented insights into energy use and demand.

Internet technologies disrupted many businesses and social processes by changing the scope and scale of interactions between people. By making large-scale interaction and com- munication possible almost instantaneously, supply chains could be redesigned, globalization was accelerated, and politi- cal processes were altered (for better and for worse). Individuals became citizen journalists. Together with the IoT, green tech- nologies are enabling more accurate forecasting of resource needs and allow businesses and governments alike to become more informed and responsive. Tomorrow’s leaders will need to incorporate such devices and systems into their planning to stay ahead of customer and citizen wants and needs.

Based on:

Byles, D. (2016, January 13). technology, disruption, the inter- net of Things… and you. Businessgreen.com. Retrieved April 24, 2016, from http://www.businessgreen.com/bg/opinion/2441499/ technology-disruption-the-internet-of-things-and-you

McCabe, l. (2009, December 30). What is green it, and why should you care? Smallbusinesscomputing.com. Retrieved April 24, 2016, from http://www.smallbusinesscomputing.com/testdrive/article .php/3855806/What-is-green-it-and-Why-Should-You-Care.htm

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Chapter 1 • Managing in the Digital WorlD 17

equipment, such as a computer, tablet, or printer, as well as components like a computer monitor or keyboard. Software refers to a program or set of programs that tell the computer to perform certain tasks. Telecommunications networks refer to a group of two or more computer systems linked together with communications equipment. Although we discuss the design, implementa- tion, use, and implications of hardware, software, and telecommunications throughout the text, the specifics on hardware, software, and telecommunications networks are discussed in Chapter 3 and the Technology Briefing. While traditionally the term information technology referred to the hardware, software, and networking components of an information system, the difference is shrinking, with many using the terms IS and IT synonymously. It is important to note that while many of today’s technologies operate autonomously, they don’t build themselves and do not exist for their own sake; rather, they are created to serve a useful purpose for people. Also, any information system involves data that are useful, for someone, somewhere. For example, trans- actional data are useful for businesses, status updates in your news feed on Facebook are useful for your friends as well as for Facebook itself, scores in a computer game are useful for the player as well as for the game developers, and so on. In Figure 1.12, we show the relationships among these IS components.

People in organizations use information systems to process sales transactions, manage loan applications, or help financial analysts decide where, when, and how to invest. Product managers also use them to help decide where, when, and how to market their products and related services, and production managers use them to help decide when and how to manufacture products. Infor- mation systems also enable us to get cash from ATMs, communicate by live video with people in other parts of the world, or buy concert or airline tickets. (Note that the term information systems is also used to describe the field comprising people who develop, use, manage, and study infor- mation systems in organizations.)

It is important to note that people use various terms to describe the field of information sys- tems, such as management information systems, business information systems, computer infor- mation systems, and simply systems. Next, we more thoroughly examine the key components of the IS definition.

Telecommunications

Information System

Software

Create Collect Process

Store Distribute

Hardware

Data

People

FIGURE 1.12 An information system is the combination of people and information technology that create, collect, process, store, and distribute useful data.

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18 Chapter 1 • Managing in the Digital WorlD

Data: The Root and Purpose of Information Systems Earlier, we defined information systems as the combination of people and information technol- ogy that create, collect, process, store, and distribute useful data. We begin by talking about data, the most basic element of any information system.

DaTa. Before you can understand how information systems work, it is important to distinguish between raw, unformatted data, information, and knowledge. Unformatted data, or simply data, are raw symbols, such as characters and numbers. Data have no meaning in and of themselves and are of little value until processed (Ackoff, 1989). For example, if we asked you what 465889727 meant or stood for, you could not tell us (Figure 1.13). However, if we presented the same data as 465-88-9727 and told you it was located in a certain database, in John Doe’s record, in a field labeled SSN, you might rightly surmise that the number was actually the Social Security number of someone named John Doe. While data have no inherent meaning, the old adage “garbage in, garbage out” applies to data as well; thus, a key consideration of assessing whether data are reliable for making decisions is data quality, consisting of completeness, accuracy, timeliness, validity, and consistency.

InformaTIon. Data can be formatted, organized, or processed to be useful; they are transformed into information, which can be defined as a representation of reality, and can help to answer questions about who, what, where, and when (Ackoff, 1989). In the previous example, 465-88-9727 was used to represent and identify an individual person, John Doe (see Figure 1.13). Contextual cues, such as a label, are needed to turn data into information that is familiar and useful to the reader. Think about your experience with ATMs. A list of all the transactions at a bank’s ATMs over the course of a month would be fairly useless data. However, a table that divided ATM users into two categories, bank customers and non-bank customers, and compared the two groups’ use of the machine—their purpose for using the ATMs and the times and days on which they use them—would be incredibly useful information. A bank manager could use this information to create marketing mailings to attract new customers. Without information systems, it would be difficult to transform raw data into useful information.

KnowlEDgE. In order to actually use information, knowledge is needed. Knowledge is the ability to understand information, form opinions, and make decisions or predictions based on the information. For example, you must have knowledge to be aware that only one Social Security number can uniquely identify each individual (see Figure 1.13). Knowledge is a body of governing procedures, such as guidelines or rules, that are used to organize or manipulate data to make them suitable for a given task.

Understanding the distinctions between data, information, and knowledge is important because all are used in the study, development, and use of information systems.

Hardware, Software, and Telecommunications Networks: The Components of Information Systems Ever since the dawn of humankind, there was a need to transform data into useful information for people, and people have invented various calculating devices, such as the abacus or the slide rule. Before the introduction of the first computers (which worked on a mechanical basis using punch cards), almost all business and government information systems consisted of file folders,

Data Information Knowledge

465889727

Raw Symbols

Formatted Data

Data Relationships

Meaning: ------------ ???

Meaning: ------------ SSN

Meaning: ------------ SSN Unique Person

465-88-9727 465-88-9727 John Doe

FIGURE 1.13 Data, information, and knowledge.

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Chapter 1 • Managing in the Digital WorlD 19

filing cabinets, and document repositories. Computer hardware has replaced these physical arti- facts, providing the technologies to input and process data and output useful information; today, hardware includes not only “traditional” computer components but a variety of other input and output devices, including sensors, cameras, actuators, and the like. Software enables organiza- tions to utilize the hardware to execute their business processes and competitive strategy by pro- viding the computer hardware with instructions on what processing functions to perform. Finally, the telecommunications networks allow computers to share data and services, enabling the global collaboration, communication, and commerce we see today. The rapid evolution of the various hardware, software, and networking components make the ability to tie everything together ever more important.

People: The Builders, Managers, and Users of Information Systems The IS field includes a vast collection of people who develop, maintain, manage, and study information systems. Yet an information system does not exist in a vacuum and is of little use if it weren’t for you—the user. We will begin by discussing the IS profession and then talk about why knowing about fundamental concepts of information systems is of crucial importance in your personal and professional life.

If you are choosing a career in the IS field, you will find countless opportunities. With the growing value of data for competitive advantage, every company can now be considered a tech- nology company, needing people with the right skill set to help optimize its business processes. The career opportunities for a person with IS training continue to be strong, and they are expected to continue to improve over the next 10 years. For example, the 2016–17 edition of the Occupational Outlook Handbook published by the U.S. Bureau of Labor Statistics predicted that employment for computer and IS managers will grow 15 percent through 2024, much faster than the average for all occupations (www.bls.gov/ooh/management/computer-and-information- systems-managers.htm). As more and more organizations rely more heavily on IS professionals, this boost in employment will occur in nearly every industry, not just computer hardware and software companies. Money magazine (http://money.cnn.com/pf/best-jobs) ranked software architect as the best job in America, with database developer and information assurance analyst also being among the top 10 best jobs in America (Table 1.1); also, U.S. News magazine (http:// money.usnews.com/careers/best-jobs/rankings/the-100-best-jobs) rated computer systems ana- lyst and web developer among the top 20 jobs (two of the few nonmedical jobs in that list). Like- wise, a degree in information systems can provide the foundation for becoming a data scientist, currently one of the jobs with highest demand (Florentine, 2016).

In addition to an ample supply of jobs, earnings for IS professionals will remain strong. According to the U.S. Bureau of Labor Statistics, median annual earnings of these managers in May 2014 were US$127,640, with the top 10 percent earning more than US$187,200. Also, according to Salary.com, the median salary in 2016 for IT managers was US$109,701. Accord- ing to a 2016 report by the National Association of Colleges and Employers, management

TABLE 1.1 best Jobs in america (2015)

Rank Career Job Growth (10-year forecast) Median Pay (in US$)

1 Software architect 23% 124,000

2 Video game designer 19% 79,900

3 Landman 13% 103,000

4 Patent agent 13% 126,000

5 Hospital administrator 23% 114,000

6 Continuous improvement manager 12% 96,600

7 Clinical nurse specialist 19% 89,300

8 Database developer 23% 88,200

9 Information assurance analyst 37% 96,400

10 Yoga instructor 13% 62,400

Source: Based on 100 Best Jobs in America, published by CNN Money, © 2016.

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20 Chapter 1 • Managing in the Digital WorlD

information systems was expected to be the highest-paid business major, with a mean starting salary of US$56,846. Likewise, information systems graduates with a master’s degree had an average starting salary of US$67,632, higher than business majors such as accounting, finance, or marketing, according to a study by Temple University. Finally, computer and IS managers, especially those at higher levels, often receive more employment-related benefits—such as expense accounts, stock option plans, and bonuses—than do nonmanagerial workers in their organizations (a study by Payscale.com found that IS majors were—post-graduation—among the most satisfied with their careers).

As you can see, there continues to be a very strong need for people with IS knowledge, skills, and abilities—in particular, people with advanced IS skills, as we describe here. In fact, IS careers are regularly selected as not only one of the fastest growing but also a career with far-above-average opportunities for greater personal growth, stability, and advancement. Although technology continues to become easier to use, there is still and is likely to continue to be an acute need for people within the organization who have the responsibility of planning for, designing, developing, maintaining, and managing technologies. Much of this will happen within the business units and will be done by those with primarily business duties and tasks as opposed to systems duties and tasks. However, we are a long way from the day when technol- ogy is so easy to deploy that a need no longer exists for people with advanced IS knowledge and skills. In fact, many people believe that this day may never come. Although increasing numbers of people will incorporate systems responsibilities within their nonsystems jobs, there will continue to be a need for people with primarily systems responsibilities. In short, IS staffs and departments will likely continue to exist and play an important role in the foresee- able future.

Given that information systems continue to be a critical tool for business success, it is not likely that IS departments will go away or even shrink significantly. Indeed, all projections are for long-term growth of information systems in both scale and scope. Also, as is the case in any area of business, those people who are continually learning, continuing to grow, and continuing to find new ways to add value and who have advanced and/or unique skills will always be sought after, whether in information systems or in any area of the firm.

The future opportunities in the IS field are likely to be found in a variety of areas, which is good news for everyone. Diversity in the technology area can embrace us all. It really does not matter much which area of information systems you choose to pursue—there will likely be a promising future there for you. Even if your career interests are outside information systems, being a well-informed and capable user of information technologies will greatly enhance your career prospects.

carEErS In InformaTIon SySTEmS. The field of information systems includes those people in organizations who design and build systems, those who use these systems, and those responsible for managing these systems. The people who help develop and manage systems in organizations include systems analysts, systems programmers, systems operators, network administrators, database administrators, systems designers, systems managers, and chief information officers. (In Table 1.2 we describe some of these careers.) This list is not exhaustive; rather, it is intended to provide a sampling of IS management positions. Furthermore, many firms will use the same job title, but each is likely to define it in a different way, or different companies will have different titles for the same basic function. As you can see from Table 1.2, the range of career opportunities for IS managers is broad, and salary expectations are high.

whaT maKES IS pErSonnEl So valuablE? In addition to the growing importance of people in the IS field, there have been changes in the nature of this type of work. No longer are IS departments in organizations filled only with nerdy men with pocket protectors. Many more women are in IS positions now. Also, it is now more common for an IS professional to be a polished, professional businessperson who can speak f luently about both business and technology. IS personnel are now well-trained, highly skilled, valuable professionals who garner high wages and prestige and who play a pivotal role in helping firms be successful.

Many studies have been aimed at helping us understand what knowledge and skills are nec- essary for a person in the IS area to be successful. Interestingly, these studies also point out just what it is about IS personnel that makes them so valuable to their organizations. In a nutshell, good IS personnel possess valuable, integrated knowledge and skills in three areas—technical, business, and systems—as outlined in Table 1.3 (see also Figure 1.14).

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Chapter 1 • Managing in the Digital WorlD 21

TABLE 1.2 Some IS management Job Titles and brief Job Descriptions

IS Activity Job Title Job Description

Salary Range, in US$, in Percentiles (25%–75%)

Develop Systems analyst Analyze business requirements and select information sys- tems that meet those needs

63,000–80,000

Software developer Code, test, debug, and install programs 71,000–91,000

Software architect Create customized software for large corporations 98,000–130,000

IT consultant Provide IT knowledge to external clients 57,000–93,000

Database developer Develop, modernize, and streamline databases 57,000–68,000

Maintain IT auditor Audit information systems and operating procedures for compliance with internal and external standards

64,000–83,000

Database administrator Manage database and database management software use 75,000–99,000

Webmaster Manage a firm’s website 59,000–80,000

Manage IT manager Manage existing information systems 95,000–126,000

IS security manager Manage security measures and disaster recovery 102,000–125,000

Information assurance analyst Ensure availability and security of information stored on networks and in the cloud

60,000–93,000

E-commerce manager Manage development, maintenance, and strategy related to e-commerce systems

97,000–126,000

Chief information officer (CIO) Highest-ranking IS manager; oversee strategic planning and IS use throughout the firm

213,000–316,000

Chief digital officer (CDO) Executive focused on converting traditional “analog” busi- nesses to digital; oversee operations in rapidly changing digital sectors like mobile apps and social media

150,000–200,000

Study University professor Teach undergraduate and graduate students; study the use of information systems in organizations and society

70,000–180,000

Government scientist Perform research and development of information sys- tems for homeland security, intelligence, and other related applications

60,000–200,000

Source: Based on http://www.salary.com, http://www.payscale.com.

TABLE 1.3 IS professional core competencies

Domain Description

Technical Knowledge and Skills

Hardware Hardware platforms, infrastructure, cloud computing, virtualization, peripherals, mobile devices

Software Operating systems, application software, mobile apps

Networking Network administration, cabling and network interface cards, wireless, Internet, security

Business Knowledge and Skills

Business integration, industry Business processes, functional areas of businesses and their integration, industry characteristics

Managing people and projects Planning, organizing, leading, controlling, managing people and projects

Social Interpersonal, group dynamics, political

Communication Verbal, written, and technological communication and presentation

Systems Knowledge and Skills

Systems integration Connectivity, compatibility, integrating subsystems and systems

Development methodologies Steps in systems analysis and design, systems development life cycle, alternative development methodologies

Critical thinking Challenging one’s and others’ assumptions and ideas

Problem solving Information gathering and synthesis, problem identification, solution formulation, comparison, choice

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Technical Competency The technical competency area includes knowledge and skills in hardware, software, networking, and security. In a sense, this is the “nuts and bolts” of information systems. This is not to say that the IS professional must be a technical expert in these areas. On the contrary, the IS professional must know just enough about these areas to understand how they work, what they can do for an organization, and how they can and should be applied. Typically, the IS professional manages or directs those who have deeper, more detailed technical knowledge.

The technical area of competency is, perhaps, the most difficult to maintain because of the rapid pace of technological innovation in the digital world. With the economy rebounding, orga- nizations are starting new projects or are reviving projects put on hold during the economic downturn; hence, while it once appeared as if most programming jobs or support jobs would be outsourced to third-party providers abroad, there is an increased demand in many companies for people with application development skills, especially in combination with sound business anal- ysis and project management skills (Brandel, 2013). In fact, many of the hot skills listed in Table 1.4 are focused on the business domain, which is discussed next.

Business Competency The business competency area is one that sets the IS professional apart from others who have only technical knowledge and skills, and in an era of increased outsourcing, it may well save a person’s job. For example, even though some low-level technology jobs may be outsourced, the Bureau of Labor Statistics recently reported that there is an increased need for IS managers as organizations embrace mobility and cloud computing (www.bls.gov/ooh/management/computer-and-information-systems-managers.htm). As a result, it is absolutely vital for IS professionals to understand the technical areas and the nature of the business. IS professionals must also be able to understand and manage people and projects, not just the technology. These business skills propel IS professionals into project management and, ultimately, high-paying middle- and upper-level management positions.

Systems Competency Systems competency is another area that sets the IS professional apart from others with only technical knowledge and skills. Those who understand how to build and integrate systems and how to solve problems will ultimately manage large, complex systems projects as well as manage those in the firm who have only technical knowledge and skills.

IS Personnel

System C

System A

System B

FIGURE 1.14 Good IS personnel possess valuable, integrated knowledge and skills in three areas—technical, business, and systems.

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TABLE 1.4 hot Skills for the next Decade

Domain Hot Skills

Business Business–IT alignment; business analysis; enterprise solutions; business process modeling; project management; third-party provider management; enterprise-oriented social media

Technology infra- structure and services

Virtualization; cloud computing/infrastructure as a service; cloud integra- tion; serverless computing; systems analysis and design; network design; systems auditing; wireless; telecommunications/VoIP (Voice over Internet Protocol); database administration; data centers

Security IT security planning and management; BYOD; governance, risk, and com- pliance; cybersecurity

Applications Customer-facing application development; mobile app development; web development; open source; portal technologies; cloud computing; user expe- rience; legacy systems integration; interface design; content management systems

Internet Social media; customer-facing web applications; mobile apps; search engine optimization; artificial intelligence; web mining; Internet of Things

Business analytics/ data science

Business intelligence; advanced analytics; data warehousing; data mining; unstructured data analysis; Big Data

Source: Based on Broom (2016), Florentine (2015), Pratt (2015), Leung (2009).

Perhaps now you can see why IS professionals are so valuable to their organizations. These individuals have a solid, integrated foundation in technical, business, and systems knowledge and skills. Perhaps most important, they also have the social skills to understand how to work well with and motivate others. It is these core competencies that continue to make IS profession- als valuable employees.

Given how important technology is, what does this mean for your career? Technology is being used to radically change how business is conducted—from the way products and services are produced, distributed, and accounted for to the ways they are marketed and sold. Whether you are majoring in information systems, finance, accounting, operations management, human resource management, business law, or marketing, knowledge of technology is critical to a suc- cessful career in business.

fInDIng QualIfIED pErSonnEl. Unfortunately, given the increased sophistication of modern information systems, organizations can often have a difficult time finding qualified personnel, and attracting the right people with the right skills is not possible in some areas. Consequently, many technology-focused organizations tend to cluster in areas where talented workers are available. Such areas are often characterized by a high quality of life for the people living there, and it is no surprise that many companies in the IT sector within the United States are headquartered in Silicon Valley, California; Boston, Massachusetts; Austin, Texas; or Seattle, Washington. With increasing globalization, other regions throughout the world are boasting about their highly skilled personnel. One such example is the Indian city of Bangalore, where, more than a century ago, Maharajas started to lure talented technology-oriented people to the region, building a world-class human resource infrastructure that attracted companies from around the world. In other areas, organizations may have to find creative ways to attract and retain people, such as by offering favorable benefits packages that include educational grants or expense-matching programs to encourage employees to improve their education and skills. Other human resource policies, such as telecommuting, flextime, and creative benefit packages, can also help to attract and retain the best employees.

you—ThE uSEr. Clearly, the field of information systems offers a wide variety of interesting career choices, and you will likely find a career that offers a host of opportunities for lifelong learning and advancement. Yet understanding fundamental concepts related to information systems will be critical in almost any career as well as in your private life. In almost any

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business-related field, you will be extensively using information systems, and you will likely be involved in various information systems–related decisions within your organization. Understanding what information systems are capable of doing (as well as what they cannot do), being able to communicate with the “techies,” and being able to make educated IS-related decisions are likely to set you apart from your competition. Especially in smaller organizations (that may not have dedicated IS departments), you are likely to be involved in IS-related investment decisions, and lacking a basic understanding of fundamental issues associated with topics such as IS infrastructure, systems analysis and design, or information systems security will put you at the mercy of outside consultants or (worse yet) vendors who are likely to act out of their own interests, often trying to sell you their “technology of the week/month/year.”

In addition, as you have undoubtedly noticed, you are facing a number of IS-related deci- sions in your private life. Examples of such decisions abound; for example, you may face the question of what mobile phone to purchase next: an iPhone, a phone using some version of the Android operating system, or a phone sporting Microsoft’s Windows 10 Mobile operating sys- tem. Such decisions are likely to include your own preferences or inf luence by your peers, but there are a number of critical differences in terms of privacy, security, available apps, and the like. Likewise, you may face the problem of how to best secure your wireless network at home or may wonder how to best keep your various files in sync across different computers or mobile devices.

Finally, you may have a great idea for a new product or service and want to launch a startup. Having the idea is but the first step, and you will soon realize the role of information systems in

SECURITY MATTERS Ransomware

As more and more of our business and professional lives are lived online, the security of our personal and business data has become increasingly important. In recent years, attackers have gotten more sophisticated and have shifted tactics. A new tac- tic is the distribution of ransomware, a novel approach to extracting money from victims. Ransomware refers to a type of virus that, once it has infected a victim’s system or network, encrypts the data it finds in place in a format that renders them impossible for the victim to access. The attacker then demands a ransom payment in return for releasing the decryption keys that can be used to access and recover the data (though many victims have painfully experienced that paying the ransom does not guarantee regaining access to the data). Victims range from individuals, who may stand to lose years of family photos or personal records, to businesses large and small, who may lose customer records, financial data, intellectual property, or other valuable data. The malicious software usually arrives as an attachment to a spam e-mail or is downloaded in the guise of a video or other content from a website.

Until recently, attackers have largely focused on individuals and small businesses and demanded relatively small ransoms that are affordable enough that the victim will seriously con- sider paying the ransom. The average payment demanded in 2015 was just US$300 according to security firm Symantec. By early 2016, however, there has been an apparent shift to larger, higher-value organizations. Hollywood Presbyterian Medical Center in los angeles was forced to pay a US$17,000 ransom after its network was broadly infected with

ransomware. Another hospital in Ottawa decided not to pay the ransom demanded of it and was able to restore data from backups. Security researchers warn that attackers are increas- ingly not just attempting to lock down the data but are threat- ening to release the data to the public if not paid. For organizations dealing with sensitive or personally identifiable information, lawsuits and reporting requirements can make such public release an even more costly threat than simply los- ing access to their data.

With threats like ransomware becoming increasingly prev- alent, individuals and organizations will need to increase their security awareness and vigilance to better avoid potential infections and also improve their backup and disaster recovery preparations in order to become more resilient to such attacks.

Based on:

Colwey, S., & Stack, l. (2016, February 18). los angeles hospital pays hackers $17,000 after attack. The New York Times. Retrieved April 14, 2016, from http://www.nytimes.com/2016/02/19/business/ los-angeles-hospital-pays-hackers-17000-after-attack.html

pilieci, V. (2016, March 16). ottawa hospital hit with ransom- ware, information on four computers locked down. Ottawa Citizen. Retrieved April 14, 2016, from http://ottawacitizen.com/news/local- news/ottawa-hospital-hit-with-ransomware-information-on-four- computers-locked-down

Savage, K., Coogan, p., & lau, h. (2015, august 6). the evolu- tion of ransomware. Symantec.com. Retrieved April 14, 2016, from http://www.symantec.com/content/en/us/enterprise/media/security_ response/whitepapers/the-evolution-of-ransomware.pdf

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all phases of the process of bringing your idea to the market. Thus, understanding how informa- tion systems can fuel the development and commercialization of your idea is crucial. Through- out this text, we will touch on those issues and hope that you will gain valuable knowledge to understand the trade-offs involved when selecting new information systems.

Organizations: The Context of Information Systems We have talked about data versus information, the technology side of information systems, and the people side of information systems. Information systems do not exist in a vacuum; they are built and/or used within a certain context. Organizations use information systems to become more productive and profitable, to gain competitive advantage, to reach more customers, or to improve customer service. This holds true for all types of organizations—professional, social, religious, educational, and governmental—and for all types of industries—medical, legal, manu- facturing, and so on. In fact, the U.S. Internal Revenue Service launched its own website for the reasons just described (Figure 1.15). The website was so popular that approximately 220,000 users visited it during the first 24 hours and more than 1 million visited it in its first week—even before the web address for the site was officially announced. Today, popular websites like Face- book.com and WSJ.com receive millions of visitors every day.

TypES of InformaTIon SySTEmS. Throughout this text, we explore various types of information systems commonly used in organizations. It makes sense, however, for us to describe briefly a few of the various types of systems used so that you will better understand what we mean by the term information system as we use it throughout the rest of the book. Table 1.5 provides a list of the major categories of information systems used in organizations.

Topping the list in the table are some of the more traditional, major categories that are used to describe information systems. For example, not only are transaction processing systems (TPS) used by a broad range of organizations to process customer transactions more efficiently, these systems also generate a tremendous amount of data that can be used by the organization to learn about customers or ever-changing product trends. Your local grocery store uses a TPS at the checkout that scans bar codes on products; as this occurs, many stores will print discount coupons on the backs of receipts for products related to current purchases. Every hour, online retailer Amazon.com’s website processes thousands of transactions from around the world. This massive amount of data is fed into large data warehouses and is then analyzed to provide pur- chase recommendations to future customers. In addition, TPS data are sorted and organized to support a broad range of managerial decision making using a variety of systems; the most com- mon of these is generally referred to as management information systems. TPS data also pro- vide input into a variety of other information systems within organizations, including decision

FIGURE 1.15 Website of the U.S. Department of the Treasury, Internal Revenue Service, http://www.irs.gov. Source: Courtesy of the United States Department of the treasury.

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TABLE 1.5 categories of Information Systems used in organizations

Category of System Purpose Sample Application(s)

Transaction processing system Process day-to-day business event data at the operational level of the organization

Grocery store checkout cash register with connection to network, student registration system

Management information system Produce detailed information to help manage a firm or part of a firm

Inventory management and planning system, student enrollment management

Decision support system Provide analysis tools and access to data- bases in order to support quantitative decision making

Product demand forecasting system, loan and investment analysis

Intelligent system Emulate or enhance human capabilities Automated system for analyzing bank loan applications, self-driving car

Business intelligence system Analyze Big Data to better understand vari- ous aspects of a business

Online analytical processing (OLAP) system

Office automation system (personal productivity software)

Support a wide range of predefined day-to- day work activities of individuals and small groups

Word processor, spreadsheet, presentation software, e-mail client

Collaboration system Enable people to communicate, collaborate, and coordinate with each other

E-mail system with automated, shared calendar

Knowledge management system Enable the generation, storage, sharing, and management of knowledge assets

Knowledge portal for finding answers to common questions

Social software Facilitate collaboration and knowledge sharing

Social network, connecting colleagues and friends

Geographic information system Create, store, analyze, and manage geograph- ically referenced data

Site selection for new shopping mall

Functional area information system Support the activities within a specific func- tional area of the firm

Planning system for personnel training and work assignments

Customer relationship management system

Support interaction between the firm and its customers

Sales force automation, lead generation

Enterprise resource planning system Support and integrate all facets of the busi- ness, including planning, manufacturing, sales, marketing, and so on

Financial, operations, and human resource management

Supply chain management system Support the coordination of suppliers, prod- uct or service production, and distribution

Procurement planning

Electronic commerce system Enable customers to buy goods and services from a firm’s website

Amazon.com, eBay.com, Nordstrom.com

Mobile app Perform a particular, well-defined function, typically on a mobile device

Instagram, Snapchat, WhatsApp, Facebook app

support systems, intelligent systems, business intelligence systems, knowledge management sys- tems, social software, geographic information systems, and functional area information systems. Five to 10 years ago, it would have been typical to see systems that fell cleanly into one of these categories. Today, many organizations have replaced standalone systems with enterprise systems that span the entire organization. Likewise, with internetworking—connecting host computers and their networks together to form even larger networks like the Internet—and systems integration—connecting separate information systems and data to improve business processes

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and decision making—it is difficult to say that any given information system fits into only one of these categories (e.g., that a system is a management information system only and nothing else). In addition, many of these systems are not housed within organizations anymore but are located “in the cloud” and accessed via the users’ browsers when needed. Modern-day information sys- tems tend to span several of these categories of information systems, helping not only to collect data from throughout the firm and from customers but also to integrate data from diverse sources and present them to busy decision makers along with tools to manipulate and analyze those data. Customer relationship management, supply chain management, and enterprise resource plan- ning systems are good examples of these types of systems that encompass many features and types of data and cannot easily be categorized.

Office automation systems such as Microsoft Office and the OpenOffice.org Productivity Suite provide word processing, spreadsheet, and other personal productivity tools, enabling knowledge workers to accomplish their tasks; collaboration systems, such as Microsoft’s Exchange/Outlook, Lotus Notes, or Google Apps, provide people with e-mail, automated calen- daring, and online, threaded discussions, enabling close collaboration with others, regardless of their location.

Systems for electronic commerce (or e-commerce), such as corporate websites, are also popular and important. These systems enable (1) consumers to find information about and to purchase goods and services from each other and from business firms and (2) business firms to electronically exchange products, services, and data. In Chapter 4, “Enabling Business-to- Consumer Electronic Commerce,” we talk about different forms of electronic commerce involv- ing the end consumer; in Chapter 8, “Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management,” we discuss how organizations use the Internet to enable or facilitate business-to-business transactions.

While many modern-day information systems span several of these IS categories or inte- grate different types of systems, it is still useful to understand these categories. Doing so enables you to better understand the myriad approaches, goals, features, and functions of modern infor- mation systems.

We have talked about each of the parts of our definition of information systems, and we have talked about different types of information systems. In the next section, we focus on how information systems can be managed within organizations.

organIzIng ThE IS funcTIon. Old-school IS personnel believed that they owned and controlled the computing resources, that they knew better than users did, and that they should tell users what they could and could not do with the computing resources; in addition, early IS departments typically had huge project backlogs, and IS personnel would often deliver systems that were over budget, were completed much too late, were difficult to use, and did not always work well. The increasing pervasiveness of technology in businesses and societies has led to a shifting mindset about information systems within organizations. Increasingly fast-paced competition is forcing businesses to regard IS as an enabler for streamlining business processes, providing better customer service, and better connecting and collaborating with various stakeholders inside and outside the organization. Many organizations, for example, have realized that some of the best ideas for solving business problems come from the employees using the system; as a result, personnel within many IS units have taken on more of a consulting relationship with their users, helping the users solve problems, implement ideas, and be more productive. IS personnel are increasingly reaching out to their internal customers and proactively seek their input and needs rather than waiting for customers to come in with systems complaints. They modify the systems at a moment’s notice just to meet customer needs quickly and effectively. They celebrate the customers’ new systems ideas rather than putting up roadblocks and giving reasons that the new ideas cannot or will not work. They fundamentally believe that the customers own the technology and the information and that the technology and information are there for the customers, not for the systems personnel. They create help desks, hotlines, information centers, and training centers to support customers. These service-oriented IS units structure the IS function so that it can better serve the customer.

The implications of this new service mentality for the IS function are staggering. It is sim- ply amazing how unproductive a company can be when the IS personnel and other people within the firm are at odds with one another. On the other hand, it is even more amazing how productive and enjoyable work can be when people in the IS function work hand in hand with people

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throughout the organization. Technology is, potentially, the great lever, but it works best when people work together, not against each other, to use it.

ThE SprEaD of TEchnology In organIzaTIonS. Another phenomenon that shows how integral and vital information systems and their proper management have become to organizations is the extent to which the technology is firmly integrated and entrenched within the various business units (such as accounting, sales, and marketing).

In many organizations today, you will find that the builders and managers of a particular information system or subsystem spend most of their time out in the business unit, along with the users of that particular system. Many times, these systems personnel are permanently placed—with an office, desk, phone, and PC—in the business unit along with the users.

In addition, it is not uncommon for systems personnel to have formal education, training, and work experience in information systems as well as in the functional area that the system supports, such as finance. It is becoming increasingly more difficult to separate the technology from the business or the systems staff from the other people in the organization. For this reason, how infor- mation systems are managed is important to you, no matter what career option you pursue.

As information systems are used more broadly throughout organizations, IS personnel often have dual-reporting relationships—reporting both to the central IS group and to the business function they serve. Therefore, at least some need for centralized IS planning, deployment, and management continues—particularly with respect to achieving economies of scale in systems acquisition and development and in optimizing systems integration, enterprise networking, and the like. Even in organizations that are decentralizing technology and related decisions, a need to coordinate technology and related decisions across the firm still persists. This coordination is likely to continue to happen through some form of a centralized (or, at least, centrally coordi- nated) IS staff. Organizations are likely to continue to want to reap the benefits of IS decentral- ization (f lexibility, adaptability, and systems responsiveness), but it is equally likely that they

WHEN THINGS GO WRONG Technology Addiction

In 2015, the average person in the United Kingdom spent 9 hours and 53 minutes consuming media each day, 50 percent of 18- to 24-year-olds checked their phone within 5 minutes of waking up, and a third of 25- to 34-year-olds visited social media sites or used mobile apps more than 10 times a day. Between the near-ubiquitous availability of network connectiv- ity and the sheer number of options when it comes to ways to interact online, we are increasingly distracted by information technology, to the point where some doctors argue that we are actually becoming addicted. Dopamine—the brain chemi- cal associated with pleasure—is released when we are stimu- lated, whether by food, sex, excitement, or interacting online. The hit of dopamine we get when we get a “like,” update our status, or read the latest tidbit of news or gossip can have the same addicting effect on our bodies as drugs like cocaine or heroin. In addition, being plugged in all the time reduces the brain’s ability to let us relax. Hyper-stimulation from having a screen in front of us from when we wake up to when we finally fall asleep causes a type of hyper-arousal—we walk around in a constant state of distraction.

As we find more and more uses for technology in our daily lives, the threat of technology addiction is getting worse. Cog- nitive psychologist and neuroscientist Daniel J. levitin claims that, on average, we are taking in information equivalent to

the content of 175 newspapers every day—five times more than we did 30 years ago. Children are affected as well. Too much screen time can affect memory and lead to a decline in grades—the part of the brain that helps us focus may not develop properly. A study carried out in Canada in 2015 by Microsoft revealed that the average human attention span has fallen from 12 seconds at the turn of this century to a mere 8 seconds—less than that of a goldfish. However, there may be a bright side. Because the younger generations have been immersed in the technology their entire lives, they may be bet- ter able to adjust and adapt—they may develop a better feel for their limits and how to avoid exceeding them.

So what can we do to improve the situation? Start by turn- ing off the gadgets for a while each day. Improving your over- all health helps as well—eat right, stay hydrated, and work out regularly. Finally, get enough sleep and don’t fall asleep to netflix or Facebook.

Based on:

Foot, g. (2016). Why can’t i concentrate? BBC. Retrieved April 24, 2016, from http://www.bbc.co.uk/guides/zshv9qt

Kleinman, Z. (2015, August 31). Are we addicted to technology? BBC News. Retrieved April 24, 2016, from http://www.bbc.com/news/ technology-33976695

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will not want to—and will not be able to—forgo the benefits of IS centralization (coordination, economies of scale, compatibility, and connectivity).

Given the trend toward pushing people from the IS staff out into the various business units of the firm and given the need for people within each of the functional areas of the business to have technology skills, there is clearly a need for people who understand both the technology side and the business side of the organization. This is becoming increasingly important due to ever-faster IT cycles: Where traditionally, IS departments thought in time frames of about 5 years, nowadays, new devices (such as new versions of Apple’s iPad) come out every 6–18 months, and organizations wanting to harness the opportunities brought about by new devices have to adjust to this change in pace.

The Dual nature of Information Systems Given how important and expensive information systems have become, information technology is like a sword—you can use it effectively as a competitive weapon, but, as the old saying goes, those who live by the sword sometimes die by the sword. The two following cases illustrate this dual nature of information systems.

Case in Point: An Information System Gone Awry: Outages Outrage Gamers Computer gaming has increasingly become interactive, with more and more games offering multiplayer experiences. Riding on the bandwagon, Sony introduced the PlayStation Network in 2006 to accompany its successful PlayStation game consoles. In 2010, Sony added a service named PlayStation Plus, offering subscription-based premium services. In the war of the game consoles, PlayStation Plus was regarded as a way for Sony to get ahead of the competition from Microsoft’s Xbox and Nintendo’s Wii. However, since its inception, the PlayStation Network has been plagued with all-too-frequent system outages. Most notably, in 2011, a system outage following a malicious attack lasted 23 days. On Christmas Day 2014, a denial-of-service attack (see Chapter 10, “Securing Information Systems”) caused the PlayStation Network to be unavailable, ruining the holidays for many users (Figure 1.16). In 2016, the first outage hap- pened only a few days into the new year, with further outages following just a few weeks later. Built to help achieve competitive advantage, the PlayStation Network continues to be Sony’s Achilles heel.

Case in Point: An Information System That Works: FedEx Just as there are examples of information systems gone wrong, there are many examples of information systems gone right. FedEx, a US$47.5 billion family of companies (2016 data), is the world’s largest express transportation company, delivering millions of packages and millions of pounds of freight to 220 countries and territories each business day. FedEx uses extensive,

FIGURE 1.16 System outages annoy online gamers. Source: phoenix21/Fotolia.

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interconnected information systems to coordinate more than 340,000 employees, hundreds of aircraft, and more than 100,000 ground vehicles worldwide. To improve its services and sustain a competitive advantage, FedEx continuously updates and fine-tunes its systems. For example, FedEx.com has more than 50 million unique visitors per month and more than 50 million track- ing requests per day, and FedEx strives to provide the most accurate tracking information to each visitor. Similarly, in FedEx’s ground hubs, automation is another enabler of competitive advan- tage. En route to its destination, each package typically travels through at least one sorting facil- ity, where it is routed to its intermediate and final destinations (Figure 1.17). Traveling through an extensive network of conveyor belts, each package is scanned multiple times and can be rerouted as needed. Once a package passes an overhead scanner, there is between 1 and 2 sec- onds of time to divert a package, so decisions have to be made in a few hundred milliseconds (King, 2011). On average, FedEx reengineers and improves the performance twice a year and now manages to deliver a quarter of all daily packages handled within 1 business day. These and other information systems have positioned FedEx as the global leader in express transportation.

Information Systems for Competitive Advantage The PlayStation Network and FedEx systems are typical of systems that are pervasive in today’s life or used in large, complex organizations. These systems are so large in scale and scope that they are difficult to build. It is important to handle the development of such systems the right way the first time around. These examples also show that as we rely more and more on informa- tion systems, the capabilities of these systems are paramount to business success.

Not only were these systems large and complicated, but they were—and continue to be— critical to the success of the organizations that built them. The choices made in developing the systems at Sony and FedEx were strategic in their intent. Both Sony’s PlayStation Network and FedEx’s systems were developed and are continuously updated to help the companies gain or sustain some competitive advantage (Porter, 1985; Porter & Millar, 1985) over their rivals. Let us not let this notion slip by us—while the use of technology can enable efficiency and while information systems must provide a return on investment, technology use can also be strategic and a powerful enabler of competitive advantage.

Although we described the use of information systems at two very large organizations, firms of all types and sizes can use information systems to gain or sustain a competitive advantage over their rivals. Whether it is a small mom-and-pop boutique or a large government agency, every organization can find a way to use information technology to beat its rivals.

Some argue that as information systems have become standardized and ubiquitous, they are now more of a commodity that is absolutely necessary for every company, and companies should focus information technology strictly on cost reduction and risk mitigation and that investing in information technology for differentiation or for competitive advantage is futile. Yet, as evi- denced by the advances in smartphones, the emergence of social networks, or changes in various creative industries, IT is changing rapidly, and many companies have gained competitive advan- tage by innovatively using the potential of new technologies. Specifically, companies from

FIGURE 1.17 Packages travel through an extensive network of conveyor belts, where they are routed to their intermediate and final destinations. Source: Steve Design/Shutterstock.

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Amazon.com to Zappos created competitive advantage by combining certain commoditized technologies with proprietary systems and business processes. Companies with bad business models tend to fail regardless of whether they use information technology, but companies that have good business models and use information technology successfully to carry out those busi- ness models tend to be very successful. For companies such as Google or Facebook, data gener- ated by the customers create value, and how data are being gathered, processed, and used can be a source of sustained competitive advantage (Vellante, 2011); other companies, such as Amazon .com, use their IT expertise to sell cloud computing services to other businesses, directly gener- ating revenue from their IT investments.

In sum, we believe that information systems are a necessary part of doing business and that they can be used to create efficiencies but that they can also be used as an enabler of competitive advantage. Organizations should also note, however, that the competitive advantage from the use of information systems can be fleeting, as competitors can eventually do the same thing.

ETHICAL DILEMMA The Social and Environmental Costs of the Newest Gadgets

We all face ethical dilemmas. Such situations, sometimes called moral dilemmas, occur when one has to choose between two different options, each of which involves breaking a moral imperative. Throughout this book, we will present situations that involve ethical dilemmas for the players involved. For most (if not all) of these situations, there are no definite solutions. In trying to resolve ethical dilemmas, decision makers should take into consideration both the consequences of and the actions involved in each approach: First, consider the consequences of each potential course of action, in terms of benefits and harms (considering degree and time horizon), so as to identify the option that maximizes benefits while minimizing harms. The second step is to consider the actions involved (irrespective of the consequences) and to evaluate which actions are least problematic from a moral standpoint (in terms of honesty, fair- ness, respect, and so on). While you may not arrive at a perfect solution, taking these two factors into account should give you some guidance on how to arrive at a decision.

There are various ethical dilemmas surrounding the pro- duction, use, and disposal of electronic devices, and Apple is no exception. For example, tiny silver letters printed on the back of an iphone say: “Designed by apple in California— assembled in China.” globalization has enabled apple to focus on designing electronics consumers crave while out- sourcing the manufacturing of components and assembling of the devices to contract manufacturers on a global scale. How- ever, while Apple keeps tight control over the designs of its devices, it does not always have complete control over how its suppliers build the devices.

as a case in point, Foxconn, one of apple’s primary Chi- nese assembly partners, was recently scrutinized following a series of complaints of poor working conditions. The pressures of huge production volumes and tight deadlines resulted in pushing workers to their limit, causing twitching hands, uncontrollable mimicking of the motion after work, a rapid burnout rate, the resignation of 50,000 workers each month, and even up to 14 suicides. An independent audit at various

factories confirmed that laborers worked excessive overtime and faced health and safety issues. In addition to labor, rare earth minerals are crucial for manufacturing electronic devices. Used for everything from magnets to superconductors, many of today’s high-tech products would not exist without rare earths. However, the mining of these minerals, primarily done in China, poses an enormous threat to the environment as well as to the health of the mining workers.

As the leaders of other technology companies, Apple’s Ceo tim Cook faces a number of dilemmas. For its sharehold- ers, Apple pursues a goal of profit maximization. In pursuing this goal, Apple introduces gadgets consumers crave at an ever-increasing pace, creating a hype around each new device, which, in turn, creates huge demand. There are few suppliers worldwide who can, on relatively short notice, produce the numbers needed to meet the demand for Apple’s products, so shifting suppliers is not easy for Apple. At the same time, reducing working hours, raising salaries, or offering other fringe benefits negatively affects apple’s profit margin. Further, for many young Chinese, working at Foxconn for a few months is better than the alternative of tilling the fields on their families’ small farming operations or not working at all, as evidenced by the thousands of workers lining up for Fox- conn’s recruiting sessions every week.

Questions 1. If you were in Tim Cook’s shoes, what would you do? 2. As a consumer, what are your ethical dilemmas associated

with the ever-increasing desire for new gadgets?

Based on:

anonymous. (2012, March 29). apple addresses China Foxconn fac- tory report. BBC News. retrieved March 21, 2016, from http://www .bbc.com/news/technology-17557630

Kaiman, J. (2014, March 20). rare earth mining in China: the bleak social and environmental costs. The Guardian. retrieved March 21, 2016, from http://www.theguardian.com/sustainable-business/ rare-earth-mining-china-social-environmental-costs

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32 Chapter 1 • Managing in the Digital WorlD

IS Ethics A broad range of ethical issues have emerged through the use and proliferation of computers. Especially with the rise of companies such as Google, which generate tremendous profits by col- lecting, analyzing, and using their customers’ data, and the emergence of social networks such as Facebook, many people fear negative impacts such as social decay, increased consumerism, or loss of privacy. Computer ethics is used to describe moral issues and standards of conduct as they pertain to the use of information systems. In 1986, Richard O. Mason wrote a classic and very insightful article on the issues central to this debate—information privacy, accuracy, prop- erty, and accessibility (aka “PAPA”). These issues focus on what information an individual should have to reveal to others in the workplace or through online transactions, ensuring the authenticity and fidelity of information, who owns information about individuals and how that information can be sold and exchanged, and what information a person or organization has the right to obtain about others and how this information can be accessed and used.

With the societal changes brought about by information systems, the issues surrounding privacy have moved to the forefront of public concern; in addition, the ease of digitally duplicat- ing and sharing information has raised not only privacy concerns but also issues related to intel- lectual property. Next, we examine these issues.

Information Privacy If you use the Internet regularly, sending e-mail messages, posting status updates on Facebook, or just visiting websites, you may have felt that your personal privacy is at risk. Several e-commerce websites where you like to shop greet you by name and seem to know which products you are most likely to buy (Figure 1.18); other websites provide you with advertising that appears to be targeted accurately at you. As a result, you may feel as though eyes are on you every time you go online. Information privacy is concerned with what information an individual should have to reveal to others in the workplace or through other transactions, such as online shopping.

Although the Information Age has brought widespread access to information, the down- side is that others may now have access to personal information that you would prefer to keep private. Personal information, such as Social Security numbers, credit card numbers, medical histories, and even family histories, is now available on the Internet. Using search engines,

FIGURE 1.18 Just like the owners of your neighborhood bookstore, online merchants such as Amazon.com greet you by name and personalize their websites to individual customers. Source: Jurgita genyte/Shutterstock.

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Chapter 1 • Managing in the Digital WorlD 33

your friends, coworkers, spouse, or even current or future employers can find out almost any- thing that has been posted by or about you on the Internet. For example, it is very easy to locate your personal blog, your most recent party pictures posted on Facebook, or even sensi- tive questions you asked in a public discussion forum about drug use or mental health. More- over, many of these pages are stored in the search engines’ long-term cache, so they remain accessible for a long time even after they have been taken off the web. Yet some countries are seeking to protect their citizens from this. In 2014, the European Court of Justice ruled that individuals have the “right to be forgotten” and that search engines may have to remove links with personal information if the “information is inaccurate, inadequate, irrelevant or excessive for the purposes of the data processing” (European Commission, n.d.). This ruling, however, creates yet another set of ethical issues, this time centering around censorship of web content. In order to uphold freedom of expression and freedom of the media, such requests are handled on a case-by-case basis.

InformaTIon propErTy on ThE wEb. It happens to all of us. Nearly every day in our physical or virtual mailboxes, we receive unwanted solicitations from credit card companies, department stores, magazines, or charitable organizations. Many of these items are never opened. We ask the same question over and over again: “How did I get on another mailing list?” Our names, addresses, and other personal data were most likely sold from one company to another for use in mass mailings.

Who owns the computerized data about people—the data that are stored in thousands of databases by retailers, credit card companies, and marketing research companies? The answer is the company that maintains the database of customers or subscribers legally owns the data and is free to sell them. Your name, address, and other data are all legally kept in a company database to be used for the company’s future mailings and solicitations, and the company can sell its cus- tomer list or parts of it to other companies who want to send similar mailings.

There are limits, however, to what a company can do with such data. For example, if a com- pany stated at one time that its collection of marketing data was to be used strictly internally as a gauge of its own customer base and then sold those data to a second company years later, it would be unethically and illegally breaking its original promise. Companies collect data from credit card purchases (by using a credit card, you indirectly allow this) or from surveys and questionnaires you fill out when applying for a card. They also collect data when you fill in a survey at a bar, restaurant, supermarket, or the mall about the quality of the service or product preferences. By providing these data, you implicitly agree that the data can be used as the com- pany wishes (within legal limits, of course).

What is even more problematic is the combination of survey data with transaction data from your credit card purchases. As information systems are becoming more powerful, it becomes easier to collect and analyze various types of data about people. For example, using demographic data (Who am I, and where do I live?) and psychographic data (What do I like, what are my tastes and preferences?), companies can piece together bits of data about people, creating highly accurate profiles of their customers or users, with each additional bit helping to create a more accurate picture. Such pictures, sometimes referred to as “the Database of Intentions” (Battelle, 2010), can contain information about what people want, purchase, like, are interested in, or are doing; where they are; who they are; and whom they know (Figure 1.19).

Needless to say, just because people provide data at different points does not mean that they agree for the data to be combined to create a holistic picture. Companies are often walking a fine line, as data about customers are becoming increasingly valuable. Especially in the age of Big Data analytics, there are various concerns, for example, related to discrimination or the selling of personal data but also related to embarrassments resulting from data breaches. Further, advanced analytics of vast amounts of structured and unstructured data about people’s behavior enables building predictive models pertaining to people’s behavior. Ultimately, this allows manipulating people (e.g., by targeted advertising) and essentially reduces human beings to objects that can be quantified and manipulated and whose value is primarily of commercial nature.

How do you know who is accessing these databases? This is an issue that each company must address at both a strategic/ethical level (Is this something that we should be doing?) and a tactical level (If we do this, what can we do to ensure the security and integrity of the data?). The company needs to ensure proper hiring, training, and supervision of employees who have access to the data and implement the necessary software and hardware security safeguards.

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34 Chapter 1 • Managing in the Digital WorlD

In today’s interconnected world, there are even more dangers to information privacy. Although more and more people are concerned about their privacy settings on social networks such as Facebook, there are things that you may not be able to control. For example, if one of your friends (or even a stranger) posts a photo of you on Facebook, it will be there for many oth- ers to view, whether you like it or not. By the time you realize it, most of your friends, cowork- ers, and family members may have already seen it. At other times, you may divulge sensitive data (such as your address or date of birth) when signing up for yet another social network; as newer, more exciting applications come up, you abandon your profile, but your data stay out there. Sometimes, you may forget who’s following your activities at the various social network- ing sites, and you may tell people things you never wanted them to know. As these examples show, there are many more threats to your privacy than you may have thought.

E-maIl prIvacy. The use of e-mail raises further privacy issues, as nowadays, almost everyone sends and receives electronic mail. Although it is slowly being supplanted by social networking services and text messages, e-mail is still one of the most popular software applications of all time, having contributed greatly to a steady decline of physical mail. However, recent court cases have not supported computer privacy for employee e-mail transmissions and Internet usage. For example, most companies provide employees with access to the Internet and e-mail systems, and many periodically monitor the e-mail messages that employees send and receive. Monitoring employee behavior is nothing new, and for many businesses it was a natural extension to monitor employee e-mail messages.

Surprisingly, there is little legal recourse for those who support e-mail privacy. In 1986, the U.S. Congress passed the Electronic Communications Privacy Act (ECPA), but it offered far stronger support for voice mail than it did for e-mail communications. This act made it much more difficult for anyone (including the government) to eavesdrop on phone conversations. E-mail privacy is, however, much less protected. In addition, no other laws at the federal or state levels protect e-mail privacy. However, some states, most notably California, have passed laws that define how companies should inform their employees of the monitoring and in which situa- tions monitoring is legal. Even so, this law is more of a guideline for ethical practice than a pro- tection of privacy (Sipior & Ward, 1995).

Fortunately, the ECPA and the court case judgments thus far on e-mail monitoring suggest that companies must be prudent and open about their monitoring of e-mail messages and Internet usage. Companies should use good judgment in monitoring e-mail and should make public their policy about e-mail monitoring. One primary reason that employees perceive their e-mail to be private is the fact that they are never told otherwise (Weisband & Reinig, 1995). In addition, employees should use e-mail only as appropriate, based on their company’s policy and their own ethical standards. Given recent actions and rulings on the capture and usage of e-mail messages,

Database of Intentions

The Query: What I Want

The Social Graph:

Who I Am & Whom I Know

The Status Update:

What I’m Doing

The Check-in: Where I Am

The “Like”: What I Like

The Social Reader: What I’m

Interested In

The Purchase: What I Buy

(Bing) (Google)

(Facebook) (LinkedIn)

(Facebook) (Swarm)

(Facebook)

(Facebook) (Twitter)

(Facebook)

(Google Wallet) (Apple Pay)

FIGURE 1.19 The database of intentions. Source: Based on The Database of Intentions is Far Larger than/Thought by John Battelle, published by John Battelle.

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Chapter 1 • Managing in the Digital WorlD 35

it appears that online privacy is in jeopardy both in and out of business organizations. As a general rule, we all need to realize that what we type and send via e-mail in and out of the workplace is likely to be read by others for whom the messages were not intended. It is wise to write only those e-mail messages that would not embarrass us if they were made public.

how To maInTaIn your prIvacy onlInE. In general, companies operating in the online world are not required by law to respect your privacy. In other words, a vendor can track what pages you look at, what products you examine in detail, which products you choose to buy, what method of payment you choose to use, and where you have the product delivered. After collecting all those data, unscrupulous vendors can sell them to others, resulting in more direct- mail advertising, electronic spam in your e-mail inbox, or calls from telemarketers.

When surveyed about concerns related to Internet use, most consumers list issues of infor- mation privacy as a top concern. As a result, governments have pressured businesses to post their privacy policies on their websites. As outlined in the U.S. Federal Trade Commission’s “Fair Information Practice Principles” (www.ftc.gov/reports/privacy3/fairinfo.shtm, see also Figure 1.20), widely accepted fair information practices include:

■■ Notice/Awareness. Providing information about what data are gathered, what the data are used for, who will have access to the data, whether provision of the data is required or vol- untary, and how confidentiality will be ensured. Such information is typically contained in data privacy statements on a website.

■■ Choice/Consent. Providing options about what will be done with the data (e.g., subscrip- tion to mailing lists after a purchase). Typically, consumers are given a choice to opt in (i.e., signal agreement to the collection/further use of the data, e.g., by checking a box) or opt out (i.e., signal that data cannot be collected/used in other ways).

■■ Access/Participation. Providing customers with means to access data collected about them, check for accuracy, and request correction of inaccuracies.

■■ Integrity/Security. Ensuring integrity of the data (e.g., by using only reputable sources of data) as well as implementing controls against unauthorized access, disclosure, or destruc- tion of data (we will discuss these controls in Chapter 10, “Securing Information Systems”).

■■ Enforcement/Redress. Providing means to enforce these practices, and/or for customers to receive remedies, for example, through self-regulation or appropriate laws and regulations.

Unfortunately, while data privacy statements provide information about, for example, how data will be used, they often do not protect the privacy of consumers. To protect yourself, you should always review the privacy policy of all companies you do business with and refuse to do business with those that do not have a clear policy or do not respect your privacy. To make sure

Notice/ Awareness

Fair Information

Practice Principles

Choice/ Consent

Access/ Participation

Integrity/ Security

Enforcement/ Redress

FIGURE 1.20 Fair Information Practice Principles. Source: Courtesy of the Federal trade Commission.

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36 Chapter 1 • Managing in the Digital WorlD

your shopping experience is a good one, you can take a few additional steps to maintain your privacy:

■■ Choose Websites That Are Monitored by Independent Organizations. Several independent organizations monitor the privacy and business practices of websites (e.g., www.truste.com).

■■ Avoid Having “Cookies” Left on Your Machine. Many commercial websites leave cookies on your machine so that the owner of the site can monitor where you go and what you do on the site. To protect your privacy, you should carefully manage your browser’s cookie set- tings or get special “cookie management” software (see Chapter 10 for more on cookies).

■■ Visit Sites Anonymously. There are ways to visit websites anonymously. Using services pro- vided by companies such as Anonymizer (www.anonymizer.com), you have a high degree of privacy from marketers, identity thieves, or even coworkers when surfing the web.

■■ Use Caution When Requesting Confirmation E-Mail. When you buy products online, many companies will send you a confirming e-mail message to let you know that the order was received or the item has been shipped. A good strategy is to use a separate e-mail account, such as one that is separate from your work e-mail, when making online purchases.

■■ Beware What You Post or Say Online. As an old adage goes, “the Internet never forgets”; anything from status updates to Twitter messages to blog posts can be stored forever, and most content remains somewhere on the web, even after the original page has long been taken down. It is safe to say that probably almost everybody engages in some regrettable activities at some point in time. Yet having such activities appear on the web can be dev- astating for one’s career, so use common sense before you post that drunken party pic on Facebook or tweet that you are so bored on your job.

Of course, there are no guarantees that all your online experiences will be problem free, but if you follow the advice provided here, you are much more likely to maintain your privacy.

Intellectual Property Another set of ethical issues centers around intellectual property (IP) (i.e., creations of the mind that have commercial value) and the ability to easily download, copy (and potentially modify), and share or distribute digital information. For example, back in the days of analog music, it was all but impossible to create a copy of a song without sacrificing quality. Nowa- days, you can almost effortlessly copy your friend’s entire digital music library without any quality loss (Figure 1.21); with just a little more effort, you can share it with your friends or even strangers using peer-to-peer networks. Alternatively, you may come across a great photo- graph or article on the web and share it on Facebook or Instagram without asking for permis- sion from the creator.

Similarly, your school may have licensing agreements with certain vendors, allowing you to install and use certain software while you are a student; yet you may never uninstall the software

…..00011001010010…..

FIGURE 1.21 Digital media allows for lossless duplication.

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Chapter 1 • Managing in the Digital WorlD 37

after graduating, or you may lend the software to some friend or family member for personal use. In other cases, you may not be able to afford certain programs and download a pirated ver- sion from the web.

Just as digital technology enables lossless duplication of files, 3D printing enables creating physical three-dimensional objects from digital models. When building prototypes or manufac- turing parts, companies have traditionally used machine tools to drill, cut, or mill the part out of a solid piece of material, leaving up to 90 percent of a slab of material ready to go in the recy- cling or garbage bin. Instead of removing material, 3D printing successively adds thin layers of material to produce the final object. As 3D printers are becoming better, faster, and more afford- able, however, they also open up new avenues for quickly and inexpensively producing counter- feit goods. Obviously, this causes problems for consumers expecting to purchase the original product but also leads to tremendous losses in intellectual property when tools are widely avail- able that enable anyone to manufacture their own copy of a product.

Obviously, there are legal issues associated with each of these scenarios. However, there are also ethical issues associated with such behaviors. You may argue that there was no real loss involved for the creator of the files or software, as otherwise you would have gone for a free alter- native or chosen not to purchase the product at all, or you may argue that students do not have the funds to purchase expensive software. These issues become even more complex when viewed from a global perspective. In many non-Western societies, using someone else’s work is consid- ered praise for the creator, and it is perfectly alright to use a famous song as background music in a YouTube video or to include another person’s writing in one’s personal blog (or term paper).

In either case, you are using someone else’s intellectual property without permission (and often without attribution) and without compensating the creator.

The Need for a Code of Ethical Conduct Not only has the Internet age found governments playing catch-up to pass legislation pertaining to computer crime, privacy, and security, but it has also created an ethical conundrum. For instance, the technology exists to rearrange and otherwise change photographs, but is the prac- tice ethical? If you can use a computer at your school or workplace for professional purposes but “steal” computer time to do personal business, is this ethical? Is it ethical for companies to com- pile information about your shopping habits, credit history, and other aspects of your life for the purpose of selling such data to others? Should guidelines be in place to dictate how businesses and others use information and computers? If so, what should the guidelines include, and who should write them? Should there be penalties imposed for those who violate established guide- lines? If so, who should enforce such penalties?

Many businesses have devised guidelines for the ethical use of information technology and computer systems; similarly, most universities and many public school systems have written guide- lines for students, faculty, and employees about the ethical use of computers. Most organization and school guidelines encourage all system users to act responsibly, ethically, and legally when using computers and to follow accepted rules of online etiquette as well as federal and state laws.

rESponSIblE compuTEr uSE. The Computer Ethics Institute is a research, education, and policy study organization that studies how advances in information technology have affected ethics and corporate and public policy. The institute has issued widely quoted guidelines for the ethical use of computers. The guidelines prohibit the following:

■■ Using a computer to harm others ■■ Interfering with other people’s computer work ■■ Snooping in other people’s files ■■ Using a computer to steal ■■ Using a computer to bear false witness ■■ Copying or using proprietary software without paying for it ■■ Using other people’s computer resources without authorization or compensation ■■ Appropriating other people’s intellectual output

In addition, the guidelines recommend the following:

■■ Thinking about social consequences of programs you write and systems you design ■■ Using a computer in ways that show consideration and respect for others

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38 Chapter 1 • Managing in the Digital WorlD

Responsible computer use includes following the guidelines mentioned here. As a computer user, when in doubt, you should review the ethical guidelines published by your school, place of employment, and/or professional organization. Some users bent on illegal or unethical behavior are attracted by the anonymity they believe the Internet affords. But the fact is that we leave electronic tracks as we wander through the web, and many perpetrators have been traced and successfully prosecuted when they thought they had hidden their trails. The fact is, too, that if you post objectionable material on the Internet and people complain about it, your Internet ser- vice provider can ask you to remove the material or remove yourself from the service.

INDUSTRY ANALYSIS Business Career Outlook

Today, organizations are increasingly moving away from focus- ing exclusively on local markets. For example, pricewater- houseCoopers is focusing on forming overseas partnerships to increase its client base and to better serve the regions located away from its U.S. home. This means that not only it is more likely that you will need to travel overseas in your career or even take an overseas assignment, but it is also extremely likely that you will have to work with customers, suppliers, or col- leagues from other parts of the world. given this globalization trend, there is a shortage of business professionals with the necessary “global skills” for operating in the digital world. Three strategies for improving your skills include the following:

1. gain International Experience. the first strategy is straightforward. Simply put, by gaining international experiences, you will more likely possess the necessary cultural sensitivity to empathize with other cultures and, more important, you will be a valuable asset to any global organization.

2. learn more Than one language. A second strategy is to learn more than your native language. language problems within global organizations are often hidden beneath the surface. Many people are embarrassed to admit when they don’t completely understand a foreign colleague. Unfor- tunately, the miscommunication of important information can have disastrous effects on the business.

3. Sensitize yourself to global cultural and political Issues. A third strategy focuses on developing greater sensitivity to the various cultural and political differences within the world. Such sensitivity and awareness can be developed through coursework, seminars, and interna- tional travel. Understanding current events and the political climate of international colleagues will enhance communi- cation, cohesiveness, and job performance.

In addition to these strategies, prior to making an inter- national visit or taking an international assignment, there are many things you can do to improve your effectiveness as well as enhance your chances of having fun, and social media play a big role. For example, you can join local groups of expats

on Facebook to gather useful information, or use online tools such as Babbel to learn a new language or brush up on your language skills. Other suggestions include the following:

1. Read books, newspapers, magazines, and websites about the country.

2. Talk to people who already know the country and its culture.

3. Watch locally produced television as well as follow the local news through international news stations and websites.

4. After arriving in the new country, take time to tour local parks, monuments, museums, entertainment locations, and other cultural venues.

5. Share meals and breaks with local workers and discuss more than just work-related issues, such as current local events and issues.

Regardless of what business profession you choose, glo- balization is a reality within the digital world. In addition to globalization, the proliferation of information systems is hav- ing specific ramifications for all careers. For example, managers use enterprise resource planning systems to manage business operations, doctors use healthcare information systems to analyze patient data and diagnose conditions, law enforce- ment officers use databases to identify gang members by their tattoos, and farmers use geographical information systems to reduce the application of fertilizers and optimize plant yields. In other words, no matter what your career focus is, informa- tion systems will be an important part of your job.

Based on:

Berdan, M. (2014, January 23). preparing our children for the global economy. Huffington Post. retrieved June 26, 2016, from http://www .huffingtonpost.com/marshall-s-berdan/preparing-our-children-for-the- global-economy_b_4652835.html

goatham, r. (2016, June 21). What’s your ‘employability Score’? New Era. retrieved June 26, 2016, from https://www.newera.com .na/2016/06/21/whats-employability-score

Sophie. (2013, august 19). global studies programs: preparing stu- dents for a globalized world. Nerdwallet.com. retrieved June 26, 2016, from http://www.nerdwallet.com/blog/nerdscholar/2013/ global-studies-programs

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Chapter 1 • Managing in the Digital WorlD 39

Key points review 1. Describe the characteristics of the digital world,

contemporary societal issues of the digital world, and IT megatrends shaping the digital future. Today, we live in a knowledge society, and information systems have become pervasive throughout our organizational and personal lives. At the same time, we have seen economic, cultural, and technological changes brought about by globalization, and societies face a number of challenges, including demographic changes, rapid urbanization, shifts in global economic power, resource scarcity, and climate change. Technological advances have enabled five IT megatrends, where mobility, social media, the Internet of Things, cloud computing, and Big Data shape the way we work and interact. Being successful in many careers today requires that people be computer literate because the ability to access and effectively operate computing technology is a key part of many careers.

2. Explain what an information system is, contrasting its data, technology, people, and organizational components. An information system is the combination of people and information technology that create, collect, process, store, and distribute useful data. Information technology includes hardware, software, and telecommunications networks. When data are organized in a way that is useful to people, these data are defined as information. The field of information systems is huge, diverse, and growing and encompasses many different people, purposes, systems, and technologies. The people who build, manage, use, and study information systems make up the people component. They include systems analysts, systems

programmers, IS professors, and many others. Finally, information systems are used by all organizations, in all industries, so they are said to have an organizational component.

3. Describe the dual nature of information systems in the success and failure of modern organizations. If information systems are conceived, designed, used, and managed effectively and strategically, then together with a sound business model they can enable organizations to be more effective, to be more productive, to expand their reach, and to gain or sustain competitive advantage over rivals. Modern organizations that embrace and manage information systems effectively and strategically and combine that with sound business models tend to be the organizations that are successful and competitive.

4. Describe how computer ethics affect the use of information systems and discuss the ethical concerns associated with information privacy and intellectual property. Information privacy is concerned with what information an individual should have to reveal to others through the course of employment or through other transactions, such as online shopping. In the Information Age, others may have access to personal information that you would prefer to keep private. This becomes especially problematic as organizations are increasingly able to piece together information about you, forming an ever more complete picture. With the ease of duplicating, manipulating, and sharing digital information, intellectual property becomes an increasingly important issue.

Key Terms 3D printing 37 app 12 Big Data 14 BYOD 12 climate change 10 cloud computing 13 competitive advantage 30 computer ethics 32 computer fluency 16 computer literacy 15 consumerization of IT 12 data 18 data privacy statement 35 data quality 18 demographic changes 9 digital divide 6 e-business 6 globalization 7

hardware 16 healthcare IS 16 home automation 13 Industrial Internet of Things (IIoT) 13 information 18 information privacy 32 information system (IS) 16 information technology (IT) 16 intellectual property (IP) 36 Internet of Things (IoT) 12 internetworking 26 knowledge 18 knowledge society 5 knowledge worker 5 management information system 25 network effect 12 office automation system 27 opt in 35

opt out 35 outsourcing 8 quantified self 10 resource scarcity 10 robotics 15 sensor 12 sustainable development 10 shifts in economic power 9 smart home technologies 13 software 16 strategic 30 systems integration 26 telecommunications

network 16 transaction processing

system (TPS) 25 urbanization 9 wearable technologies 10

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40 Chapter 1 • Managing in the Digital WorlD

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

review Questions 1-1. Describe the major challenges societies face. 1-2. Define the term knowledge worker. Who

coined the term? 1-3. Name your two favorite mobile devices. For

each device, discuss how it has influenced your work or personal life.

1-4. Describe how cloud computing can improve your personal productivity.

1-5. List and describe several opportunities and challenges brought about by globalization.

1-6. Compare and contrast how the digital divide manifests in different parts of the world.

MyMISLab

MyMISLab

1-7. Define and contrast data, information, and knowledge.

1-8. Describe three or four types of jobs and career opportunities in information systems and in related fields.

1-9. List and define four of the systems knowledge and/or skills core competencies.

1-10. List and define five types of information sys- tems used in organizations.

1-11. Discuss the issues surrounding information privacy, and how you can protect yourself.

1-12. Following the guidelines of the Computer Ethics Institute, what behaviors are consid- ered unethical computer use?

MyMISLab

Self-Study Questions 1-13. Information systems today are ______________.

A. slower than in the past B. ubiquitous C. utilized by only a few select individuals D. stable and should not change

1-14. Whereas data are raw unformatted symbols or lists of words or numbers, information is ______________. A. data that have been organized in a form that is

useful B. accumulated knowledge C. what you enter into your computer D. what your computer prints out for you

1-15. Information systems were described in this chapter as ______________. A. any complicated technology that requires expert use B. the combination of people and information technol-

ogy that create, collect, process, store, and distrib- ute useful data

C. any technology (mechanical or electronic) used to supplement, extend, or replace human, manual labor

D. any technology used to leverage human capital 1-16. Other terms that can be used to represent the knowl-

edge society include ______________. A. the new economy B. the network era C. the digital world D. all of the above

1-17. Which of the following was not discussed as a com- mon type, or category, of information system used in organizations? A. transaction processing B. decision support

C. enterprise resource planning D. web graphics

1-18. What is meant by BYOD? A. the increased focus of hardware companies on the

mass market B. the phenomenon that devices are becoming increas-

ingly playful C. the use of personal devices and applications for

work-related purposes D. the increase of technology in people’s households

1-19. A website asking you for permission to send you a weekly newsletter is an example of ______________. A. opt in B. permissions C. opt out D. data privacy

1-20. Which of the following is not considered an intellec- tual property violation? A. giving software licensed to your school or work-

place to friends or family members B. downloading pirated movies or music C. making copies of music for your friends D. all of the above are considered intellectual property

violations 1-21. Being ______________, or knowing how to use the

computer as a device to gather, store, organize, and process information, can open up myriad sources of information. A. technology literate B. digitally divided C. computer literate D. computer illiterate Answers are on page 43.

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Chapter 1 • Managing in the Digital WorlD 41

problems and Exercises 1-22. Match the following terms with the appropriate

definitions: i. Information

ii. Internet of Things iii. Information system iv. Information privacy v. Computer fluency

vi. Globalization vii. Outsourcing

viii. Digital divide ix. Intellectual property x. Computer ethics

a. The issues and standards of conduct as they pertain to the use of information systems

b. Data that have been formatted in a way that is useful

c. The integration of economies around the world, enabled by innovation and technological progress

d. The ability to independently learn new technologies as they emerge and assess their impact on one’s work and life

e. A network of a broad range of physical objects that can automatically share data over the Internet

f. The combination of people and information tech- nology that create, collect, process, store, and dis- tribute useful data

g. The moving of routine jobs and/or tasks to people in another firm to reduce costs

h. An area concerned with what information an indi- vidual should have to reveal to others through the course of employment or through other transac- tions, such as online shopping

i. The gap between those individuals in our society who are computer literate and have access to infor- mation resources, such as the Internet, and those who do not

j. Creations of the mind that have commercial value 1-23. Of the several information systems listed in the chap-

ter, how many do you have experience with? What systems would you like to work with? What types of systems do you encounter at the university you are attending? The web is also a good source for additional information.

1-24. Identify someone who works within the field of infor- mation systems as an IS instructor, professor, or practitioner (e.g., as a systems analyst or systems manager). Find out why this individual got into this field and what this person likes and dislikes about working within the field of information systems.

What advice can this person offer to someone enter- ing the field?

1-25. As a small group, conduct a search on the web for job placement services. Pick at least four of these services and find as many IS job titles as you can. You may want to try monster.com or careerbuilder.com. How many did you find? Were any of them different from those presented in this chapter? Could you determine the responsibilities of these positions based on the information given to you?

1-26. Visit Walmart China (www.wal-martchina.com/ english/index.htm). Compare and contrast www .walmart.com with Walmart China’s site. What is the focus of Walmart China’s website? Discuss how the focus differs from www.walmart.com. What are pos- sible reasons for the differences?

1-27. What are potential costs and benefits of using your own devices in the workplace? How can organizations balance costs and benefits?

1-28. What is the impact of mobility and social networks on your personal life? On the web, find statistics about these topics. How does your own behavior compare to the statistics you found?

1-29. As a small group, brainstorm what different types of data make up “Big Data” for a company like Amazon.com. What data are easiest/hardest to ana- lyze? What data are least/most important? Justify your answers.

1-30. Compare and contrast the data privacy statements of three different e-commerce websites. What are the similarities and differences? Which business would you be least/most willing to do business with? Why?

1-31. Societies face a variety of challenges. Provide a short report that discusses one of the challenges mentioned in the chapter, and describe five ways in which infor- mation systems can help address these challenges.

1-32. The Electronic Frontier Foundation (www.eff.org) has a mission of protecting rights and promoting freedom in the “electronic frontier.” The organization provides additional advice on how to protect your online pri- vacy. Review its suggestions and provide a summary of what you can do to protect yourself.

1-33. Find your school’s guidelines for ethical computer use and answer the following questions: Are there limita- tions as to the type of websites and material that can be viewed (e.g., pornography)? Are students allowed to change the programs on the hard drives of the lab computers or download software for their own use? Are there rules governing personal use of computers and e-mail?

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42 Chapter 1 • Managing in the Digital WorlD

application Exercises Note: The existing data files referenced in these exercises are available on the book’s website: www.pearsonhighered.com/valacich.

Spreadsheet Application: Ticket Sales at Campus Travel

1-34. The local travel center, Campus Travel, has been losing sales. The presence of online ticketing websites, such as Travelocity.com and Expedia.com, has lured many students away. However, given the complexity of mak- ing international travel arrangements, Campus Travel could have a thriving and profitable business if it con- centrated its efforts in this area. You have been asked by the director of sales and marketing to help with ana- lyzing prior sales data in order to design better market- ing strategies. Looking at these data, you realize that it is nearly impossible to perform a detailed analysis of ticket sales given that the data are not summarized or organized in a useful way to inform business decision making. The spreadsheet TicketSales.csv contains the ticket sales data for a 3-month period. Your director has asked you for the following information regarding ticket sales. Modify the TicketSales.csv spreadsheet to provide the following information for your director:

■■ The total number of tickets sold. a. Select the data from the “tickets sold” column. b. Then select the “autosum” function.

■■ The largest amount of tickets sold by a certain salesperson to any one location. a. Select the appropriate cell. b. Use the “MAX” function to calculate each sales-

person’s highest ticket total in one transaction. ■■ The least amount of tickets sold by a certain sales-

person to any one location. a. Select the appropriate cells. b. Use the “MIN” function to calculate the “least

tickets sold.”

■■ The average number of tickets sold. a. Select the cells. b. Use the “AVERAGE” function to calculate the

“average number of tickets sold” using the same data you had selected in the previous steps.

Database Application: Tracking Frequent-Flier Miles at the Campus Travel Agency

1-35. The director of sales and marketing at the travel agency would like to increase the efficiency of han- dling customers who have frequent-flier accounts. Often, frequent fliers have regular travel routes and a preferred seating area or meal category. In previ- ous years, the data have been manually entered into a three-ring binder. In order to handle the frequent fliers’ requests more efficiently, your director has asked you to build an Access database containing the traveler’s name (first and last name), address, phone number, frequent-flier number, frequent-flier airline, meal cat- egory, and preferred seating area.

To do this, you will need to do the following: ■■ Create an empty database named “Frequent Flier.” ■■ Import the data contained in the file FrequentFliers.

txt. Use “Text File” under “Import” in the “External Data” tab. Hint: Use tab delimiters when importing the data; note that the first row contains field names.

After importing the data, create a report displaying the names and addresses of all frequent fliers by doing the following:

■■ Select “Report Wizard” under “Report” in the “Create” tab.

■■ Include the fields “first name,” “last name,” and “address” in the report.

■■ Save the report as “Frequent Fliers.”

Team work Exercise Net Stats: Worldwide Internet Usage

In March 2016, there were more than 3.3 billion people world- wide who had access to the Internet at home (i.e., Internet users). Since its inception, the number of users has grown tre- mendously, from only about 14 million users in 1993 to 1 bil- lion users in 2005, 2 billion users in 2010, and 3 billion users in 2014. Having grown exponentially in the early years, the growth in user numbers has slowed to less than 10 percent per

year, after worldwide Internet penetration surpassed 35 per- cent. In 2016, countries such as the United Kingdom, Japan, and the United States had the highest Internet penetration. However, other countries are catching up. While China had an Internet penetration of 52 percent and India had an Internet penetration of only 35 percent, they had the largest number of users; further, both countries having much room to grow, both in terms of Internet penetration and in terms of numbers (Table 1.6).

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Chapter 1 • Managing in the Digital WorlD 43

Questions and Exercises 1-36. Search the web for the most up-to-date statistics. 1-37. As a team, interpret these numbers. What is striking/

important about these statistics? 1-38. As a team, discuss how these numbers will look like in

5 years and 10 years. What will the changes mean for globalization? What issues/opportunities do you see arising?

TABLE 1.6 countries with largest number of Internet users

Country Population Internet Access % Population (penetration)

China 1.4 billion 721 million 52

India 1.3 billion 462 million 35

United States 324 million 287 million 89

Brazil 210 million 139 million 66

Japan 126 million 115 million 91

Russia 143 million 102 million 71

Nigeria 186 million 86 million 46

Germany 80 million 71 million 88

UK 65 million 60 million 93

Mexico 129 million 58 million 45

1-39. Using your spreadsheet software of choice, create a graph/figure most effectively visualizing the statistics/ changes you consider most important.

Based on:

Anonymous. (n.d.). Internet users. Retrieved March 21, 2016, from http:// www.internetlivestats.com/internet-users

answers to the Self-Study Questions 1-13. B, p. 4 1-14. A, p. 18 1-15. B, p. 16 1-16. D, p. 6 1-17. D, p. 26 1-18. C, p. 12 1-19. A, p. 35 1-20. D, p. 36 1-21. C, p. 15

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44 Chapter 1 • Managing in the Digital WorlD

Apple is the largest, most profitable technol- ogy company in the world. Each year, Apple sells hundreds of millions of its popular i M a c s , M a c B o o k s , i P o d s , i P a d s , a n d iPhones. Apple’s products—and the technol- ogy that supports them—have influenced the way people behave and interact. Think how waiting in line at the grocery store or waiting for the next train is more productive, or at least no longer tedious, when you get to check your inbox or watch a video on You- Tube. Now remember how insecure you felt the last time you left your smartphone sitting on your living room sofa. Whichever way you look at it, Apple has enjoyed a long streak of successful product launches, with people camping out for days to get their hands on the latest Apple gadgets.

Over the course of its history, Apple had its ups and downs, with Steve Wozniak and Steve Jobs, the company’s founders, leaving Apple in the 1980s. After Steve Jobs’s return to Apple in 1997, Apple has had an impres- sive run of successful products, including the iMac, the PowerBook, the iPod, and iTunes. Building on its success with the iPod, Apple introduced the iPhone in 2007 and, shortly thereafter, the “App Store,” revolutionizing the way we purchase and use applications on mobile devices. The era of iPhones contin- ued as successive updates to the iPhone line were introduced year after year, each garner- ing wider adoption than the last. In 2010, Apple introduced the revolutionary iPad,

touted as a “third-category” device between smartphones and laptop personal computers (PCs). Clearly, innovations fueled by Apple have changed the lives of many people all over the world.

However, Apple has also seen a number of high-profile product failures. In January 2008, to help celebrate 24 years of the Mac, first introduced to consumers in 1984, Wired magazine recalled some of Apple’s more infamous failures. One of Apple’s most visi- ble flops was the Newton, actually the name of a newly conceived operating system that stuck to the product as a whole. The Newton, which Apple promised would “reinvent per- sonal computing,” fell far short of its hype when it was introduced in 1993 as a not-so- revolutionary personal digital assistant (PDA). The Newton was on the market for 6 years—a relatively long time for an unsuc- cessful product—but one of Steve Jobs’s first acts when he returned to Apple’s helm in 1997 was to cut the Newton Systems Group. Other Apple product failures include: the Pippin (1993), a gaming device that couldn’t compete with Nintendo’s 64 or Sony’s PlayStation; the Macintosh television (1993), which only sold 10,000 units; the PowerMac G4 Cube (2000), an 8" × 8" × 8" designer machine that was widely regarded as overpriced; the puck mouse included with the iMac G3 (1998), a too-small, awkward- to-control device that users often mistakenly used upside down; and the Lisa (1983),

whose whopping US$9,995 price tag (more than US$20,000 in current dollars) made it too expensive for most businesses.

In recent years, Apple has introduced a large variety of new products, all with remarkable success. Innovative products that consumers stand in line to get include the MacBook Air, as well as a line of iPods, iPhones, and iPads. After the death of Steve Jobs in 2011, time will tell if Apple’s current success streak continues or if, at some point, Apple will yet again introduce a product that is “too innovative” for the consumers. Intro- duced in 2015, the Apple Watch may be one such product, with many questioning the usefulness of this wearable technology turned fashion statement.

With its increasing focus on personal devices, Apple has become not only a hard- ware vendor but also a keeper of people’s (often private) information. As it is being stored in the cloud, personal information can easily be (ab)used to predict future behavior, potential trends, music tastes, and more. Connected as we may be to the rest of the world, salient concerns are warranted regard- ing issues of privacy and information prop- erty—that is, who has access to what and how private information is being used. Cer- tainly, there are potential risks associated with being an active participant in the digital world, so the next time you purchase an app, think about how much you reveal about yourself with the swipe of your finger.

CASE 1 Apple

Questions 1-40. Given the pace at which technology is converging (e.g.,

phones, music players, cameras, and so on), what do you think will be Apple’s next revolutionary innovation?

1-41. How have Apple’s products influenced the way we work and socialize?

1-42. What are the ethical concerns associated with storing and analyzing user data?

Based on:

Apple Inc. (2014, May 2). In Wikipedia, The Free Encyclopedia. R e t r i eve d M a r c h 2 1 , 2 0 1 6 , f r o m h t t p s : / / e n . w i k i p e d ia . o rg / w / i n d ex .php?title=Apple_Inc.&oldid=711059018

Gardiner, B. (2008, January 24). Learning from failure: Apple’s most notorious flops. Wired. Retrieved May 12, 2014, from http://archive.wired.com/gadgets/ mac/multimedia/2008/01/gallery_apple_flops

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Chapter 1 • Managing in the Digital WorlD 45

Healthcare information systems are systems that facilitate the collection and processing of data related to healthcare activities. His- torically, such systems were largely focused on the operational needs of healthcare insti- tutions like hospitals and doctor’s offices. Mirroring the deployment of information systems in other businesses, systems were developed for accounting, billing, insurance claim processing, human resources, and other business functions. In recent years, however, there has been a push to bring the benefits of information technology to the provision of care itself. Systems are being developed to better generate and track data that are useful to improving health out- comes. A key part of this process is the elec- tronic health record (EHR). An EHR is a comprehensive record that includes your medical and immunization history, labora- tory results, and other data such as medical imagery.

When properly maintained and handled, EHRs can have many benefits. Up-to-date, complete, and accurate data makes provid- ers more knowledgeable and better able to work with you to make informed decisions about your health. EHRs can enhance patient safety and provide safer care in sev- eral ways. EHRs can offer a more complete picture of your health than paper records. Doctors can evaluate your current condition in the proper context of your health history and other treatments you are receiving. EHRs can allow those providing care in an emergency faster access to information they need about your history, allergies, and pre- scriptions. EHR systems can flag potential

conflicts in medication and help pharmacists verify dosages and avoid dispensing the wrong medications. EHRs can also help avoid the need to repeat risky tests and pro- cedures by tracking them better and ensur- ing the results are available when and where they are needed.

In addition to benefits to individuals, EHRs can lead to better collective health information. Safety hazards, disease out- breaks, high pollution levels, and other risks can be identified more rapidly by analyzing health data in aggregate. Government ser- vices and research dollars can be allocated more efficiently focusing on actual commu- nity needs. Healthcare processes and proce- dures can be improved by utilizing modern data analysis techniques on aggregate health data as well. Overall, there is great potential to both improve health outcomes and reduce healthcare delivery costs by utilizing EHR systems.

However, there are also downsides and risks associated with EHR systems. Data pri- vacy and security become even more impor- tant when the data in question have to do with such potentially sensitive topics as your health. Records must be properly protected from the same sorts of cyberthreats that other businesses face. Hackers and other malicious actors may seek to steal personal health data in order to make illicit use of it. In addition, now that they are more readily accessible, there is the concern that health data could be used for improper or undesired purposes. Most people feel that health history should not be used in the making of hiring decisions in general, but there may be acceptable

exceptions such as public safety workers or airline pilots. The role of health history in the availability and coverage of insurance is also a highly controversial topic.

It has also proven exceptionally difficult to implement EHR systems. Many hospitals and medical facilities rely heavily on paper forms and records. The deployment of EHR systems requires more than simply digitizing the existing forms; in many cases, entire business processes must be redesigned and new information systems developed. There are great opportunities when it comes to healthcare information systems, and there are many great challenges. The benefits for society from improved health and reduced costs must be offset against the potential risks of increasing the amount of our per- sonal and private data available online. The increasing availability of new sources of health data such as activity trackers and other Internet of Things devices will also generate a new set of benefits and risks. Activity trackers can provide data ranging from the number of steps you take each day to vital statistics like heart rate and blood glucose levels. Researchers are even using smartphones to collect data for health studies and clinical trials. Such technologies as Apple’s Research Kit, Care Kit, and Health Kit allow millions of people to participate in medical research studies quickly and easily. This type of data collection promises to transform large-scale health research. In summary, IS professionals have a great opportunity to assist in the transition to IT- based health systems and in helping to bal- ance the associated risks and rewards.

CASE 2 Healthcare IS

Questions 1-43. Have you encountered EHRs? How have they improved or

detracted from your healthcare experience? 1-44. How should patient privacy be balanced against social

needs? For example, should pilots be required to disclose their mental health information to their employers?

1-45. What opportunities and challenges lay ahead as health records become increasingly integrated into our mobile devices and the Internet of Things?

Based on:

Apple. (2016). Empowering medical researchers, doctors, and now you. Apple.com. Retrieved April 24, 2016, from http://www.apple.com/researchkit

HeathIT.gov. (2016). Retrieved April 24, 2016, from https://www.healthit.gov

Go to mymislab.com for auto-graded writing questions as well as the following assisted-graded writing questions:MyMISLab

TM

1-46. How do the five megatrends influence how people work and interact? 1-47. Describe and contrast the economic, cultural, and technological changes occurring in the digital world.

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46 Chapter 1 • Managing in the Digital WorlD

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4848

Preview

Managing in the Digital WorlD:

Startups and New Business Models

In addition to enabling new products and services, rapid advances in the capabilities of information tech-nology enable entirely new business models. Some are refinements to existing approaches, others can be highly

disruptive. Just because technology enables an innova-

tive business model, however, does not mean that it can

be easily or successfully implemented.

Examples of technology-enabled business models

include operating a platform, cutting out the middle-

man, selling subscriptions, and providing on-demand

services. Companies building a platform enable others—

both other businesses and users—to co-create value. In

this business model, companies like Airbnb use technol-

ogy to facilitate information gathering, identify willing

participants, and simplify transactions. Cutting out the

middleman (or disintermediation) means bypassing tra-

ditional retail channels and interacting directly with cus-

tomers (Figure 2.1). Using this business model, eyeglass

vendor Warby Parker and mattress seller Casper use

technology to disrupt traditional distribution channels

and directly connect with buyers. Subscription-based

services are facilitated by technology through the

removal of friction from the transaction—the initial

sign-up is greatly simplified through online forms,

parameters of the subscription can easily be adjusted,

Gaining Competitive Advantage Through Information Systems2

This chapter examines how organizations can use infor-

mation systems (IS) strategically, enabling them to gain or

sustain competitive advantage over their rivals. As

described in Chapter 1, “Managing in the Digital World,”

a firm has competitive advantage over rival firms when it

can do something better, faster, more economically, or

uniquely. In this chapter, we begin by examining the role

of information systems at different levels of the organiza-

tion. We then examine how information systems support

various business models and introduce innovative business

models enabled by information systems. Finally, we talk

about the continual need to find innovative ways to suc-

ceed with and through information systems.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab .com for simulations, tutorials, and end-of-chapter problems.

M02_VALA5200_08_SE_C02.indd 48 02/12/16 4:10 pm

49

After reading this chapter,

you will be able to do the

following:

2. How have information systems enabled new, inter-

esting business models like that of Uber, Spotify, and

Airbnb?

3. How can organizations identify innovative tech-

nologies that form the basis for innovative business

models?

Based on:

Kessler, S. (2016, March 29). Why a new generation of on-demand busi- nesses rejected the Uber model. Fast Company. Retrieved May 29, 2016, from http://www.fastcompany.com/3058299/why-a-new-generation-of- on-demand-businesses-rejected-the-uber-model

Tomaro, N. (2015, August 6). 9 proven business models to consider for your startup. Huffington Post. Retrieved May 29, 2016, from http:// www.huffingtonpost.com/nina-tomaro/9-proven-business-models- _b_7949932.html

and payment is made easy through digital transactions.

All this adds up to a great opportunity to gain sustained

revenue for startups and hassle-free experiences for cus-

tomers. Netflix, Spotify, and Dollar Shave Club are exam-

ples of businesses that have recently been very successful

with the subscription model. Lastly, on-demand services

have grown tremendously. Mobile and location-based

technologies have allowed substantial new opportuni-

ties on both the supply and demand side to enable on-

demand services. The most widely cited example is the

car-hailing service Uber, with countless others who are

trying to replicate Uber’s success.

A technology-enabled business model is not a guar-

antee of success. Many businesses trying to replicate

Uber’s success in the on-demand arena have struggled,

as not all goods and services are well suited to this

approach. There are certain aspects of transportation

and other services that make them well suited for on-

demand delivery. In contrast, markets where there are

high and varied standards for customer satisfaction such

as house cleaning and dining, with an abundance of

ready substitutes such as local cleaners and restaurants,

may face particular challenges. However, with the rise in

innovative business models, it might be only a matter of

time until a startup will come up with a suitable busi-

ness model.

After reading this chapter, you will be able to answer

the following:

1. What is the role of information systems and strategy

in identifying a business model?

1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage.

2. Describe how information systems support business models used by companies operating in the digital world.

3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.

FIGURE 2.1 Technology enables new business models, such as cutting out the middleman and bypassing traditional retail channels to interact directly with customers.

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50 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

Enabling Organizational Strategy through Information Systems In Chapter 1, we introduced the notion that information systems can have strategic value to an organization. Because organizations are composed of different levels and functions, a broad range of information is needed to support an organization’s business processes. Business pro- cesses are the activities organizations perform in order to reach their business goals, including core activities that transform inputs and produce outputs, and supporting activities that enable the core activities to take place. As a review, we brief ly describe how organizations are gener- ally structured as well as the common functional areas of most modern organizations. Under- standing how organizations are structured helps to illustrate how different types of information systems can support various business processes and provide different levels of value to the organization.

Organizational Decision-Making Levels Every organization is composed of different decision-making levels, as illustrated in Figure 2.2. Each level of an organization has different responsibilities and, therefore, different informational needs.

OpEratIOnal lEvEl. At the operational level of a firm, the routine, day-to-day business processes and interactions with customers occur. Information systems at this level are designed to automate repetitive activities, such as processing sales transactions, and to improve the efficiency of business processes at the customer interface. A transaction refers to anything that occurs as part of a firm’s daily business of which it must keep a record. Operational planning typically has a time frame of a few hours or days, and the managers at the operational level, such as foremen or supervisors, make day-to-day decisions that are highly structured and recurring. Structured decisions are those in which the procedures to follow for a given situation can be specified in advance. Because structured decisions are relatively straightforward, they can be programmed directly into operational information systems so that they can be made with little or no human intervention. For example, an inventory management system for a shoe store in the mall could keep track of inventory and issue an order for additional inventory when levels drop below a specified level. Operational managers within the store would simply need to confirm with the inventory management system that the order for additional shoes was needed. At the operational level, information systems are typically used to increase efficiency (i.e., the extent to which goals are accomplished faster, at lower cost, or with relatively little time and effort) by optimizing processes and better understanding the underlying causes of any performance problems. Using information systems to optimize processes at the operational level can offer quick returns on the IS investment, as activities at this level are clearly delineated and well- focused. Figure 2.3 summarizes the general characteristics of the operational level.

Executive Level

Managerial Level

Operational Level

FIGURE 2.2 Organizations are composed of different decision-making levels.

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Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS 51

ManagErIal/tactIcal lEvEl. At the managerial level (or tactical level) of the organization, functional managers (e.g., marketing managers, finance managers, manufacturing managers, human resource managers) focus on monitoring and controlling operational-level activities and providing information to higher levels of the organization (Figure 2.4). Managers at this level, referred to as midlevel managers, focus on effectively utilizing and deploying organizational resources to increase effectiveness (i.e., the extent to which goals or tasks are accomplished well) to achieve the strategic objectives of the organization. Midlevel managers typically focus on problems within a specific business function, such as marketing or finance. Here, the scope of the decision usually is contained within the business function, is moderately complex, and has a time horizon of a few days to a few months (also referred to as tactical planning). For example, a marketing manager at Nike may decide how to allocate the advertising budget for the next business quarter or some other fixed time period.

Managerial-level decision making is not nearly as structured or routine as operational-level decision making. Managerial-level decision making is referred to as semistructured decision making because solutions and problems are not clear-cut and often require judgment and exper- tise. For semistructured decisions, some procedures to follow for a given situation can be speci- fied in advance, but not to the extent where a specific recommendation can be made. For example, a business intelligence system could provide a production manager at Nike with per- formance analytics and forecasts about sales for multiple product lines, inventory levels, and overall production capacity. The metrics deemed most critical to assessing progress toward a

Executive Level

Managerial Level

Operational Level

Who: Foremen and Supervisors

What: Automate Routine and Repetitive Activities and Events

Why: Improve Organizational E�ciency

FIGURE 2.3 Information systems at the operational level of an organization help to improve efficiency by automating routine and repetitive activities.

Who: Midlevel Managers and Functional Managers

What: Automate the Monitoring and Controlling of Operational Activities

Why: Improve Organizational E�ectiveness

Executive Level

Managerial Level

Operational Level

FIGURE 2.4 Information systems at the managerial level of an organization help to improve effectiveness by automating the monitoring and controlling of operational activities.

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52 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

certain goal (referred to as key performance indicators [KPIs]) are displayed on digital dash- boards (see Chapter 6, “Enhancing Business Intelligence Using Big Data and Analytics”). The manager could use this information to create multiple hypothetical production schedules. With these schedules, the manager could then perform predictive analyses to examine inventory levels and potential sales profitability, depending on the order in which manufacturing resources were used to produce each type of product.

ExEcutIvE/StratEgIc lEvEl. At the executive level (or strategic level) of the organization, managers focus on long-term strategic questions facing the organization, such as which products to produce, which countries to compete in, and what organizational strategy to follow (Figure 2.5). Managers at this level include the president and chief executive officer, chief information officer, vice presidents, and possibly the board of directors; they are referred to as “executives.” Executive-level decisions deal with complex problems with broad and long-term ramifications for the organization. Executive-level decisions are referred to as unstructured decisions because the problems are relatively complex and nonroutine. In addition, executives must consider the ramifications of their decisions in terms of the overall organization. For unstructured decisions, few or no procedures to follow for a given situation can be specified in advance. For example, top managers may decide to develop a new product or discontinue an existing one. Such a decision may have vast, long-term effects on the organization’s levels of employment and profitability. To assist executive-level decision making, information systems are used to obtain aggregate summaries of trends and projections of the future. At the executive level, information systems provide KPIs that are focused on balancing performance across the organization, such that, for example, product launches are staggered to smooth out the effects of spikes in demand on the supply chain. Other KPIs are used to benchmark the organization’s performance against its competitors. Likewise, information systems used for executive-level decisions need to take into account various types of unstructured data, such as data related to global economic factors, demographic changes, or changing customer tastes and preferences.

In summary, most organizations have three general decision-making levels: operational, managerial, and executive. Each level has unique activities and business processes, each requir- ing different types of information. In other words, it is common that each decision-making level is supported by different types of information systems.

Organizational Functional Areas In addition to different decision-making levels within an organization, there are also different functional areas. A functional area represents a discrete area of an organization that focuses on a specific set of activities. For example, people in the marketing function focus on the activities that promote the organization and its products in a way that attracts and retains customers; peo- ple in the accounting and finance functions focus on managing and controlling capital assets and

Executive Level

Managerial Level

Who: Executive-Level Managers

What: Aggregate Summaries of Past Organizational Data and Projections of the Future

Why: Improve Organizational Strategy and Planning

Operational Level

FIGURE 2.5 Information systems at the executive level of an organization help to improve strategy and planning by providing summaries of past data and projections of the future.

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Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS 53

financial resources of the organization. Table 2.1 lists various organizational functions and lists examples of the types of information systems that are commonly used. These functional area information systems are designed to support the unique business processes of specific func- tional areas (Figure 2.6).

When deploying information systems across organizational levels and functions, there are three general ways the information system can provide value: to enable automating activities, to enable learning, and to enable the execution of organizational strategy (Figure 2.7). These three ways are not necessarily mutually exclusive, but we believe that each is progressively more use- ful to the firm and thus adds more value to the business. This is examined next.

Information Systems for Automating: Doing Things Faster Someone with an automating perspective thinks of technology as a way to help complete a task within an organization faster, more cheaply, and perhaps with greater accuracy and/or consis- tency. Let us look at a typical example. A person with an automating mentality would take a loan application screening process and automate it by inputting the loan applications into a computer database so that those involved in decision making for the loans could process the applications faster, more easily, and with fewer errors. Such a system might also enable customers to com- plete the loan application online. A transition from a manual to an automated loan application process might enable the organization to deploy employees more efficiently, leading to even more cost savings (Table 2.2). Likewise, advances in Internet of Things technologies can help automate business process in various sectors; for example, the Industrial Internet of Things can tremendously improve the performance of companies in the manufacturing sector. Information systems at the operational level of an organization often help in automating repetitive activities,

Accounting Information Systems

Financial Information Systems

Human Resource Information Systems

Marketing Information Systems

Operational Information Systems

Ratio Analysis Portfolio Management Personnel Forecasting Advertising and Promotion Planning Manufacturing Resource Planning

Payroll Processing Cash Management Employee Skill Inventory Pricing and Sales Analysis Manufacturing Resource Utilization

Order Processing Financial Forecasting Compensation Analysis Sales Force Automation Inventory Management

FIGURE 2.6 Business processes supported by various functional area information systems.

Business Value Added

Automating Learning Strategizing

FIGURE 2.7 The business value added from automating, learning, and strategizing with information systems.

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54 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

TABLE 2.1 Organizational Functions and representative Information Systems

Functional Area Information System Sample Applications

Accounting and finance Systems used for managing, controlling, and audit- ing the financial resources of the organization

■ Accounts payable ■ Expense accounts ■ Cash management ■ Payroll processing

Human resources Systems used for managing, controlling, and audit- ing the human resources of the organization

■ Recruiting and hiring ■ Education and training ■ Benefits management ■ Employee termination ■ Workforce planning

Marketing Systems used for managing new product develop- ment, distribution, pricing, promotional effective- ness, and sales forecasting of the products and services offered by the organization

■ Market research and analysis ■ New product development ■ Promotion and advertising ■ Pricing and sales analysis ■ Product location analysis

Production and operations Systems used for managing, controlling, and audit- ing the production and operations resources of the organization

■ Inventory management ■ Cost and quality tracking ■ Materials and resource planning ■ Job costing ■ Resource utilization

TABLE 2.2 activities Involved under three Different loan application processes and the average time for Each activity

Primary Activity Manual Loan Process (Time)

Technology-Supported Process (Time)

Fully Automated Process (Time)

1. Complete and submit loan application

Customer takes the applica- tion home, completes it, and returns it (1.5 days)

Customer takes the applica- tion home, completes it, and returns it (1.5 days)

Customer fills out application from home via the web (15 minutes)

2. Check application for errors

Employee does this in batches (2.5 days)

Employee does this in batches (2.5 days)

Computer does this as it is being completed (1 second)

3. Input data from application into the information system

Applications are kept in paper form, although there is han- dling time involved (1 hour)

Employee does this in batches (2.5 days)

Done as part of the online application process (no extra time needed)

4. Assess loan applications under $250,000 to deter- mine whether to fund them

Employee does this completely by hand (15 days)

Employee does this with the help of the computer (1 hour)

Computer does this automati- cally (1 second)

5. Committee decides on any loan over $250,000

(15 days) (15 days) (15 days)

6. Applicant notified Employee generates letters manually in batches (1 week)

Employee generates letters with the help of a computer (1 day)

System notifies applicant via e-mail (1 second)

Total time Anywhere from 25–40 days, depending on size of loan

Anywhere from 5–20 days, depending on size of loan

Anywhere from 15 minutes to 15 days, depending on size of loan

Note: Many online loan application services can now give you instant “tentative” approval pending verification of data you report in your online application. Also, only some of the activities within the manual and technology-supported processes can occur in parallel.

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Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS 55

but they can also help to gather valuable data for higher decision-making levels within the organization.

Information Systems for Organizational Learning: Doing Things Better We can also use information systems to learn and improve. By analyzing data created when automating a process, improved understanding about the underlying work processes can be developed. The learning mentality builds on the automating mentality because it recognizes that information systems can be used as a vehicle for organizational learning—the ability of an organization to use past behavior and data to improve its business processes—and for change as well as for automation.

To illustrate a learning mentality, let us think again about our loan processing example. Figure 2.8 shows how a computer-based loan processing system can track types of loan appli- cations by date, month, or season. The manager can easily see the trends and plan for the timely staffing and training of personnel in the loan department. The manager can also more efficiently manage the funds used to fulfill loans. This computer-based loan processing sys- tem, focusing on learning, is an example of an information system used at the managerial level of an organization.

A learning approach allows managers to track and learn about the types of applications filed by certain types of people at certain times of the year (e.g., more auto loan applications in the fall, mostly from men in their 20s and 30s), the patterns of the loan decisions made, or the subse- quent performance of those loans. This new system creates data about the underlying business process that can be used to better monitor, control, and change that process. In other words, you learn from this information system about loan applications and approvals; as a result, you can do a better job at evaluating loan applications.

A combined automating and learning approach, in the long run, is more effective than an automating approach alone. If the underlying business process supported by technology is inher- ently flawed, a learning use of the technology might help you detect problems with the process and change it. For instance, in our loan processing example, a learning use of technology may help us uncover a pattern among the accepted loans that enables us to distinguish between low- and high-performing loans over their lives and subsequently to change the criteria for loan acceptance.

If, however, the underlying business process is bad and you are using technology only for automating (i.e., you would not uncover the data that would tell you this process is bad), you are more likely to continue with a f lawed or less-than-optimal business process. In fact, such an automating use of technology may mask the process problems.

With a bad underlying set of loan acceptance criteria (e.g., rules that would allow you to approve a loan for someone who had a high level of debt as long as he or she had not been late on any payments recently), a person might manually review four applications in a day and, because of the problematic criteria used, inadvertently accept on average two “bad” applications per week. If you automated the same faulty process, with no learning aspects built in, the system might help a person review 12 applications per day, resulting in up to six “bad” applications accepted per week on average. The technology would serve only to magnify the existing

Spring Summer Fall Winter

Auto Loan

RV and Boat Loan

Holiday Credit Line

Home Mortgage

FIGURE 2.8 A computer-based loan processing system enables the bank manager to identify trends in loan applications.

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56 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

business problems (Figure 2.9). Without learning, it is more difficult to uncover bad business processes underlying the information system.

Information Systems for Supporting Strategy: Doing Things Smarter Using information systems to automate or improve processes has advantages, as described pre- viously. In most cases, however, the best way to use an information system is to support the organization’s strategy. To understand why, think about organizational strategy—a firm’s plan to accomplish its mission and goals as well as to gain or sustain competitive advantage over rivals—and how it relates to information systems. When senior managers—at the executive level of the organization—conduct strategic planning, they form a vision of where the organization needs to head, convert that vision into measurable objectives and performance targets, and craft a strategy to achieve the desired results. A person with a strategic mentality toward information systems goes beyond mere automating and learning and instead tries to find ways to use infor- mation systems to achieve the organization’s chosen strategy, such as by innovating, streamlin- ing operations, optimizing the supply chain, or better understanding customers. This person wants the benefits of automating and learning but also looks for some strategic, competitive advantage from the system. In fact, in today’s business environment, if a proposed information system isn’t going to clearly deliver some strategic value (i.e., help to improve the business so that it can compete better) while also helping people to work smarter and save money in the pro- cess, then it isn’t likely to be funded. Returning to our loan example, a person with a strategic view of information systems would choose a computer-based loan application process because it can help achieve the organization’s strategic plan to process loan applications faster and better than rivals and to improve the selection criteria for loans. This process and the supporting infor- mation system add value to the organization and match the organization’s strategy. The system is, therefore, essential to the long-term survival of the organization. If, on the other hand, manag- ers determine that the organization’s strategy is to grow and generate new products and services, the computer-based loan application process and the underlying system might not be an effi- cient, effective use of resources, even though the system could provide automating and learning benefits.

Identifying Where to Compete: Analyzing Competitive Forces Organizations struggle with identifying the best uses of their resources to execute their strategy. Whereas some companies have a competitive advantage by being the first to enter a market (i.e., having a first-mover advantage), most organizations have to compete within established indus- tries. Given that every industry is different, organizations need to analyze the competitive forces within their industry to better understand where to focus their resources. One framework often used to analyze an industry is Porter’s (1979) notion of the five primary competitive forces: (1) the rivalry among competing sellers in your industry, (2) the threat of potential new entrants into your industry, (3) the bargaining power that customers have within your industry, (4) the bar- gaining power that suppliers have within your industry, and (5) the potential for substitute prod- ucts or services from other industries (Figure 2.10). Table 2.3 provides examples of how the Internet has influenced the various competitive forces in an industry. Porter’s five-forces model of competition can help you determine which forces may be most important and which specific technologies could be used to address these forces. You can then use this knowledge as the basis for identifying particular investments.

C u m

u la

tiv e

E rr

o rs

Increasing Automation

FIGURE 2.9 Automating a loan processing system requires sound underlying business processes, or errors will rapidly increase.

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Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS 57

Identifying How to Compete: Choosing a Generic Strategy In order to achieve superior returns, a company needs to position itself within the industry it operates in so as to be able to counter the effects of the five forces and gain a competitive advan- tage (Porter, 1985, 2001). In Figure 2.11, we show some common organizational strategies orga- nizations use to position themselves within the industry. An organization might decide to pursue a low-cost leadership strategy, as does Walmart, by which it offers the best prices in its indus- try on its goods and/or services. Alternatively, an organization might decide to pursue a differ- entiation strategy, as do Porsche, Nordstrom, and IBM, by which it tries to provide better products or services than its competitors. A company might aim that differentiation broadly at many different types of consumers, or it might focus on a particular segment of consumers, as Apple did for many years with its focus on high-quality computers for home and educational markets. Still other organizations might pursue a middle-of-the-road strategy, following a best- cost provider strategy, offering products or services of reasonably good quality at competitive prices, as does Dell.

Rivalry Among Existing Firms

Bargaining Power of Suppliers

Threat of New

Entrants

Bargaining Power of

Buyers

Threat of Substitute

Products or Services

TABLE 2.3 the Influence of the Internet on the competitive Forces

Competitive Force Implication for Firm Influence of the Internet

Traditional rivals within your industry

Competition in price, product distribution, and service

Increase of competitors due to wider geographic reach; customers can more easily compare products, so competition focuses more on price.

Threat of new entrants into your market

Increased capacity in the industry, reduced prices, and decreased market share

Reduced barriers to entry, as the Internet reduces the difficulty of obtaining critical resources or entering new markets.

Customers’ bargaining power Reduced prices, need for increased quality, and demand for more services

Wider choices for customers lead to lower switching costs and higher bargaining power of customers.

Suppliers’ bargaining power Increased costs and reduced quality Companies have equal access to suppliers; easier to find new suppliers; suppliers have access to more potential buyers.

Threat of substitute products or services from other industries

Product returns from customers, decreased market share, and losing customers for life

New substitutes are created by the Internet and other information technologies.

Source: Based on Corporate Information Strategy and Management, 8e by Lynda Applegate, Robert Austin, F. Warren McFarlan, published by McGraw-Hill, 2008.

FIGURE 2.10 Five forces influence the profit potential of an industry.

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58 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

Identifying How to Compete: Resources and Capabilities Choosing the right position not only helps a company attract customers but also helps focus invest- ments in resources such as information systems and technologies to help gain a competitive advan- tage. In other words, no matter what generic strategy an organization chooses to pursue, it must have resources and/or capabilities that are superior to those of its competitors so as to gain or sus- tain a competitive advantage. Resources reflect the organization’s specific assets that are utilized to achieve cost or product differentiation from its competitors. Examples of resources might include proprietary technology, brand equity, or a loyal and established customer base. Capabili- ties reflect the organization’s ability to leverage these resources in the marketplace. For example, design quality or efficient operations could be capabilities that help a firm effectively utilize its resources. Together, the resources and capabilities provide the organization with distinctive com- petencies—such as innovation, agility, quality, or low cost—in the marketplace. These competen- cies help to pursue the organizational strategy (low-cost leadership, differentiation, etc.) and make the organization’s product valuable to its customers relative to its competitors; superior value crea- tion occurs when an organization can provide products at a lower cost or with superior (differenti- ated) benefits to the customer (Figure 2.12). This is how organizations gain a competitive advantage. For many organizations, information systems are at the heart of the different resources, capabilities, or distinctive competencies. Figure 2.13 provides examples of resources, capabilities, and distinctive competencies used by companies to sustain competitive advantage.

Broad Market, Low-Cost Strategy

Broader

Market Focus

Narrow

Low Cost Uniqueness

Di�erentiating Attribute

Broad Market, Di�erentiation

Strategy

Narrow Market, Low-Cost Strategy

Narrow Market, Di�erentiation

Strategy

Best-Cost Provider Strategy

FIGURE 2.11 Five general types of organizational strategy: broad differentiation, focused differentiation, focused low- cost leadership, overall low-cost leadership, and best-cost provider.

Resources: • Proprietary technology • Brand recognition • Etc…

Distinctive Competencies: • Product value • Lower cost • Higher quality • Etc…

Cost or Differentiation Advantage

Sustained Competitive Advantage

Capabilities: • Shorter lead times • Engineering design quality • Etc…

FIGURE 2.12 Distinctive competencies lead to value creation and a sustained competitive advantage. Source: Based on Competitive Advantage, published by Quick MBA.com.

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Quality

Toyota

Service

IBM

User Base

Facebook

Proprietary

Coca-Cola

Innovation

Apple

Brand

Nike

Value

Nintendo

Data

Uber

Sources of Competitive Advantage

FIGURE 2.13 Sources of competitive advantage.

GREEN IT The Electric Navy

to effectively execute its mission, the u.S. navy is constantly testing and developing new technology. on common feature of these new technologies is an increased thirst for electric power. With geopolitical instability threatening access to tradi- tional fuels and environmental concerns ever increasing, the navy is seeking newer, greener options for powering the next generation of ships.

Modern naval combat can be as much about technological prowess as it is about brute force. the u.S. navy’s new Zum- walt-class destroyers are intended to up the technological ante. Designed with stealth features, the ship has the radar cross-section of a small fishing boat. However, introducing state of-the-art technologies also introduces new challenges. the ship’s radar, sonar, and command and control systems draw tremendous amounts of power that on previous genera- tions of ships would have had to come from generators. next- generation weapons like rail guns, lasers, and particle weapons that are currently under development will increase the need for electric power even more. To help address this challenge, the uSS Zumwalt, the first ship of the class, is the first navy ship with a hybrid propulsion system. Just like a hybrid automobile, the ship has fuel-burning motors that power generators to fill storage batteries. Power from the batteries is then used to run both electric propulsion motors and the ship’s systems. this arrangement allows for more efficient generation and flexible distribution of power between propulsion, sensors, and weap- ons systems.

Given the ever-increasing need for power and fuel, the navy is also looking for alternatives to fossil fuels. Because technologies like nuclear power generation are too large and complex for smaller ships, the navy is investigating biofuels as a greener, more available solution. in 2016, the navy pur- chased 77 million gallons of biofuel made from beef fat to launch a fleet tour partially powered by green fuel. The fuel only constitutes 10 percent of the fleet’s needs, however. the use of biofuels has also been criticized by politicians and envi- ronmentalists for not being particularly green—the amount of energy and petrochemicals that goes into growing the biomass used to produce the biofuel can be more than what would be used with traditional fossil fuels. unfortunately, the use of renewable sources of power like solar and wind has its own challenges, such as requiring great leaps in energy storage technology. until a better solution is found, the navy will keep steaming ahead.

Based on:

anonymous. (2016, february 16). navy to launch carrier group powered partly by biofuels. CBS8.com. Retrieved May 29, 2016, from http://www.cbs8.com/ story/31016171/navy-to-launch-carrier-group-powered-partly-by-biofuels

Biomass. (2016, May 20). In Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index .php?title=Biomass&oldid=721248424

Zumwalt-class destroyer. (2016, may 18). in Wikipedia, The Free Ency- clopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/ index.php?title=Zumwalt-class_destroyer&oldid=720944689

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Identifying How to Compete: Analyzing the Value Chain Managers use value chain analysis to identify opportunities where information systems can be used to gain a competitive advantage (Porter, 1985, 2001; Shank & Govindarajan, 1993). Think of an organization as a big input/output process. At one end, supplies are purchased and brought into the organization. The organization integrates those supplies to create products and services that it markets, sells, and then distributes to customers. The organization also provides customer service after the sale of these products and services. Throughout this process, opportunities arise for employees to use information systems to add value to the product or service by acquiring supplies in a more effective manner, improving products, and selling more products. This set of activities that add value throughout the organization is known as the value chain within an organization.

Whereas the value chain model was initially created to focus on manufacturing, it can also be applied to service industries (sometimes with different activities being performed). For exam- ple, in a hotel, inbound logistics activities may include the receiving of supplies as well as han- dling reservations, and operations would include the day-to-day activities of checking guests in or out, cleaning rooms, preparing breakfast, and so on. Sales and marketing activities include promoting the hotel or attracting business meetings and conventions. Finally, customer service activities performed after the guest has left may include registering or resolving guest com- plaints. A typical hotel may, however, not perform any activities related to outbound logistics. Nevertheless, the supporting activities are likely to resemble those of other organizations. Other organizations may even lack both inbound and outbound logistics activities, and different activi- ties may be classified differently. In the end, however, you should note that the value chain should serve as a tool to identify and analyze the different activities performed.

Value chain analysis is the process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred for doing so. In value chain analysis, you first draw the value chain for your organization by fleshing out each of the activities, functions, and processes where value is or should be added and where perfor- mance can be improved. Next, you determine the costs—and the factors that drive costs or cause them to f luctuate—within each of the areas in your value chain diagram. You then determine which activities need to be optimized so as to improve performance, cut costs, and ultimately gain or sustain competitive advantage.

The Role of Information Systems in Value Chain Analysis Because information systems can automate and optimize many activities along the value chain, the use of information systems has become one of the primary ways that organizations improve their value chains. In Figure 2.14, we show a sample value chain and some ways that informa- tion systems can improve productivity within it. For example, many organizations use the

Inbound Logistics Operations

Administration

Firm Infrastructure

Human Resources

Product Research and Development (R&D), Technology, and Systems Development

Procurement

Outbound Logistics

Sales and Marketing

Service

Supply Chain and Customer Relationship Management Systems

Computer-Aided Manufacturing

Systems

Websites, Facebook, and Twitter

Customer Service System

Financial Decision Support System

Private Cloud

Computer-Aided Design Systems

Employee Self-Service Portal

Supply Chain Management System

FIGURE 2.14 Information systems can improve an organization’s value chain.

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Internet to connect businesses with one another electronically so that they can exchange orders, invoices, and receipts online in real time. Likewise, organizations use various social media such as blogs, Twitter, or Facebook to connect with their customers.

The Technology/Strategy Fit You might be asking, if any information system helps do things faster and better and helps save money, who cares whether it matches the company’s strategy? Good question. If money grew on trees, you probably would build and use just about every information system you could imagine. Organizations could build or acquire many different valuable systems, but they are constrained by time and money to build or acquire only those that add the most value: those that help auto- mate and learn as well as have strategic value. The old way for managers to think about informa- tion systems was that they were a necessary service, a necessary evil, and a necessary, distasteful expense that was to be minimized. Managers cannot afford to think this way anymore. Success- ful managers now think of information systems as a competitive asset to be nurtured and invested in and think of them as an enabler of opportunities and mechanism for supporting or executing their business model. In other words, organizations are trying to maximize business/IT align- ment, and in most cases, they do not want systems that do not match the strategy, even if they offer automating and learning benefits. Further, while spending on information systems is rising, most companies are willing to spend money on projects only when they can see clear, significant value. Often, however, organizations have no choice in making some types of investments that may or may not coincide with their overall strategy. Such investments are called a strategic necessity—something the organization must do in order to survive.

Given this focus on the value that the system will add, an organization probably does not want a system that helps differentiate its products based on high quality when the organizational strategy is to be the overall industry low-cost leader. In other words, if a firm were pursuing a strategy for low-cost leadership, investments to help drive costs down would be valued over those that didn’t. Throughout this book, we introduce various technologies, infrastructures, and services that can help to support an organization’s competitive strategy.

We should also caution that merely choosing and implementing new or innovative informa- tion systems is not sufficient to gain or sustain competitive advantage. In any significant IS implementation, there must be commensurate, significant organizational change. This typically comes in the form of business process management and other similar methods of improving the functioning of the organization as opposed to merely dropping in an information system with no attempts at changing and improving the organization. We will talk more in Chapter 7, “Enhanc- ing Business Processes Using Enterprise Information Systems,” about the role of business pro- cess management for transforming organizational business processes. Further, an information system can be only as effective as the business model that it serves, and bad business models can’t be overcome by good information systems. Next, we will discuss different business models in the digital world.

Business Models in the Digital World We have examined how organizations can leverage technology investments to accomplish things faster, smarter, and more strategically. We also examined how to focus technology investments toward activities that provide competitive advantage and improve the performance of the organi- zation’s value chain. Taken together, organizations need to align their technology investments with their business model. A business model is a summary of a business’s strategic direction that outlines how the objectives will be achieved; a business model specifies the value proposi- tion as well as how a company will create, deliver, and capture value (Osterwalder & Pigneur, 2010) and identifies its customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure. In other words, a business model reflects the following:

1. What does a company do? 2. How does a company uniquely do it? 3. In what way (or ways) does the company get paid for doing it? 4. What are the key resources and activities needed? 5. What are the costs involved?

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How a company answers these questions dictates how and where information systems investments can be utilized to execute a competitive strategy and sustain an advantage over com- petitors. There are several components of a proper business model (Table 2.4). Each component plays a critical role in shaping all aspects of the business, including such factors as the expenses, revenues, operating strategies, corporate structure, and sales and marketing procedures. Gener- ally speaking, anything that has to do with the day-to-day functioning of the organization is part of its business model, and information systems can be utilized to support and execute many aspects of the business model.

Revenue Models in the Digital World Perhaps the most important ingredient for any organization is determining how to generate rev- enue. A revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital (even nonprofit organizations need a revenue model). In addition to sales, transaction fees, and advertising-based business models common in the offline world, the Internet has enabled or enhanced other revenue models, such as affiliate marketing (see Table 2.5). Many companies selling products or services (such as Amazon.com) use the web as an economic medium to reach a large customer base; large numbers of customers allow these companies to turn over their inventory quickly, thus enabling the company to offer low prices while still making a profit. Other companies (such as Netflix.com) generate revenue using a sub- scription model where customers pay a monthly or annual fee for using the product or service. In addition, the freemium model has become a popular way of providing digital products or ser- vices in the digital world. This is discussed next.

WHO’S GOING MOBILE Digital Nomads

The widespread availability of the Internet and the ever- increasing performance and capabilities of mobile technology have changed the way we work even while we’re traveling. E-mail can be checked from the beach and documents edited from the airport. one side effect of these changes has been the opportunity to work in a location-independent way. If you can stay connected from wherever you are, why does it matter where you are when you work? This new approach has enabled the lifestyle of the “digital nomads.” Digital nomads are people who live and work wherever they feel like, using the Internet and mobile technologies to connect with their customers or employers.

Popular locations for digital nomads share a few impor- tant criteria. The location must be an appealing place to live. As low cost of living and good weather are key drivers for many, digital nomads often choose places like Thailand, Indo- nesia, and Morocco. Those who seek more urban activities have located in cities like Bangkok, while beaches and resort towns are a draw for those looking to escape urban life. next is good network connectivity. For digital nomads to be able to function effectively, they need to be able to connect to the Internet via Wi-Fi or cellular networks or otherwise in a reli- able manner. Finally, community is important. The types of enterprises and business activities that are conducive to the digital nomad lifestyle often require collaboration. For exam- ple, entrepreneurial activities are more successful when you

have access to like-minded individuals to share and develop ideas.

While the digital nomad lifestyle may seem like a dream come true, there are many challenges. For a digital nomad, it can be hard to earn as much money as a traditional employee, even with the same skill set—nomads often are challenged to maintain the kinds of relationships with their customers and employers that lead to lucrative contracts and more interesting assignments. There can also be a degree of resentment when customers and employers see pictures of nomads working in a hammock on the beach—whether or not this affects the qual- ity of their work.

To be a successful digital nomad, it is not enough to just live location free through technology. The job you do must be conducive to the work style, and the skills you need will be dif- ferent from those of a traditional employee. More emphasis is placed on building and retaining networks in order to keep the pipeline of opportunities full. However, with the right skill set, the right opportunities, and some careful planning, a digital nomad lifestyle may be right for you.

Based on:

altringer, B. (2015, december 22). Globetrotting digital nomads: The future of work or too good to be true? Forbes. Retrieved May 29, 2016, from http://www.forbes.com/sites/forbesleadershipforum /2015/12/22/globetrotting-digital-nomads-the-future-of-work-or-too- good-to-be-true

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TABLE 2.4 components of a Business Model

Component Description Questions to Ask

Customer segments

The customers targeted with the product/ service offering

Who will be our target customers? Who are the most important customers?

Value proposition

The utility that the product/service has to offer to customers

Why do customers need our product/service? What problems will our product/service solve? Why would customers choose our product/ser- vice over our competitors’ products/services?

Channels The ways in which the product/service offerings reach the target customers

How will our customers be reached? Which channels are best in terms of cost and convenience for the customers?

Customer relationships

The relationships formed with the target customers

What types of relationships do we build with our customers (e.g., one- off vs. long-term)? How do we maintain these relationships?

Revenue streams

The way a firm generates income How do we generate income? What are we selling? What are customers willing to pay for?

Key resources The most important assets needed to make the business model work

What key resources are needed to enable our value proposition, chan- nels, customer relationships, and revenue streams?

Key activities The most important activities needed to make the business model work

What key activities are needed to enable our value proposition, chan- nels, customer relationships, and revenue streams?

Key partners The network of partners and suppliers needed to make the business model work

Who are our key partners and suppliers? What resources do they offer, and what activities do they perform?

Cost structure The costs incurred when operating the business model

What are the costs incurred when operating the business model? Which resources and activities are most expensive?

Source: Based on Business Model Generation by Alexander Osterwalder, Yves Pigneur, published by Wiley, 2010.

TABLE 2.5 typical revenue Models in the Digital World

Revenue Type Description Who Is Doing This?

Affiliate marketing Paying businesses that bring or refer customers to another business. Rev- enue sharing is typically used.

Amazon’s Associates program

Advertising Free services are provided to customers and paid for by a third party. Yahoo!, Google, Facebook, Twitter

Subscription Users pay a monthly or yearly recurring fee for the use of the product/ service.

Netflix, World of Warcraft, Spotify

Licensing Users pay a fee for using protected intellectual property (e.g., software). Symantec, Norton

Transaction fees/ Brokerage

A commission is paid to the business for aiding in the transaction. PayPal, eBay, Groupon, Scottrade, Airbnb, Uber

Traditional sales A consumer buys a product/service from the website. Amazon, Zappos, Nordstrom .com, iTunes

Freemium Basic services are offered for free, but a premium is charged for special features.

Flickr, Skype, Dropbox.com

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FrEEMIuM. According to basic economics within a competitive marketplace, the price of something is set by its marginal cost—the cost of producing an additional unit of output. In recent years, the prices of computer processing, storage, and bandwidth—the fundamental building blocks for providing digital products or services—have been in a free fall, and cloud computing has turned many of these costs into variable costs. As the marginal costs of providing digital products of services continues to decrease, organizations are able to use a freemium (“free” + “premium”) approach; using a freemium approach, an organization gives away limited versions of a product or service for free in order to build a large customer base and charges a premium for unrestricted versions (typically on a subscription basis). For example, the online photo-sharing application Flickr (owned by Yahoo!) allows users to store, share, organize, and tag a limited number of pictures for free, and users can upgrade to a paid “pro account,” providing additional features, such as unlimited storage and advertisement-free browsing. Likewise, the cloud storage provider Dropbox offers free accounts with limited storage capacity and allows users to subscribe to accounts with larger storage space. Depending on the product or service offered, the restrictions of free versions can include limitations of features, bandwidth, storage, or number of users, or the product or service can be restricted to a certain class of users, such as educational users (see Figure 2.15).

Internet startups and app developers alike benefit from the ability to scale up quickly under the freemium approach; further, companies benefit from the paying subscribers as well as the free users, many of whom are likely to refer the product or service to their friends. However, a company choosing to use a freemium model has to carefully choose which features to offer for free. On the one hand, the free offerings have to be compelling enough to attract new users; on the other hand, if too many features are offered in the free versions, few people will be willing to pay for the more feature-rich versions. Often, a process of fine tuning and adjustments is needed to strike this balance; this is especially difficult if it involves reducing service levels of the free offering (as was the case when Microsoft reduced the free storage space of its OneDrive service from 15GB to 5GB in 2016).

The freemium business model has become extremely popular with mobile apps and, in particular, games. Mobile games such as Candy Crush Saga or Clash of Clans are free to down- load but offer players the option to make in-app purchases, allowing them to purchase access to extra features, content, or in-game currency. This allows the games to quickly build a huge user base in addition to generating continuous revenue streams. For example, in 2015, the free

30 40 50 60

70

80

90 1000

10

20

MPH

0 9 7 5 3 67

VS.

FIGURE 2.15 Under the freemium approach, typical restrictions of free versions include limitations of features, bandwidth, storage, type of user, or number of users.

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game Clash of Clans raked in more than US$1.3 billion, merely through in-app purchases. This, in turn, is beneficial for the players as well, as the game’s developers depend on the reve- nue stream and are therefore incentivized to continuously update and upgrade the game experience.

Platform-Based Business Models and the Sharing Economy Traditionally, many business models functioned like pipes, where products were produced and pushed to the customers (Choudary, 2013). The advent of the Internet, together with the mega- trends mobile, social, and cloud computing, has enabled new business models, which are built around the concept of a platform. Rather than providing a product or service, a digital platform enables others—both other businesses and users—to co-create value (see Table 2.6). In essence, these business models are creating digital ecosystems where some users create value and other users consume. For example, users uploading content to Flickr or Wikipedia are producers of value that is consumed by others. Likewise, Uber and Airbnb are successful platforms that do not offer services themselves but depend on users to offer and consume services. As a result, the suc- cess of a platform is dependent on the network effect, and a platform only has value if users par- ticipate in the production or consumption; thus, any platform-based business model has to be

WHEN THINGS GO WRONG The Pains of Uber in China

using a combination of social, mobile, and Big data, the car hailing service uber has built a successful business in many locations around the world by disrupting the local transporta- tion industry. Entrenched, protected taxi monopolies have a hard time reacting and competing. What happens when the local transportation industry is willing to be just as disruptive? Many locales have attempted to protect their existing taxi sys- tems legislatively or through the courts—uber has been sued countless times. In China a competitor has taken a different tact—”out-disrupt” uber.

Didi Kuaidi was formed by the merger of rival taxi-hailing services from alibaba and tencent—two of China’s internet giants. the service competed directly with uber in the private car ride-sharing market but also went much further. Later renamed Didi Chuxing, the service let users select between a taxi, private car, shared car, shuttle van, or even bus. This gave Didi Chuxing enormous reach and market potential. In 2015, it arranged more than 1.4 billion rides—more than uber has done worldwide since it was founded in 2009. in China’s pri- vate car ride-sharing market, it was estimated that uber had captured about a third while Didi Chuxing had the entire remaining two-thirds. however, as uber first launched in China in 2014 and as of early 2016 only operated in the country’s four largest cities, the question remained as to whether uber would be able to recapture market share from Didi Chuxing as it expanded throughout the country.

At the same time, Didi Chuxing was not just sitting still and waiting for uber to catch up. in addition to transportation ser- vices, Didi Chuxing planned to take advantage of the informa- tion it collected about users and usage, and even planned to start offering car loans to drivers and potentially even passen- gers. Further, Didi Chuxing let passengers book test drives of

new cars from a variety of manufacturers—nearly 1.4 million test drives had taken place in less than a year. Lastly, Didi Chuxing was exploring the matchmaking business. The service let drivers and passengers select each other based on shared interests; started in partnership with LinkedIn, it allowed peo- ple to join their accounts across the two networks. Didi Chuxing has also invested in and forged partnerships with uber’s rivals in other markets like india and the united States. While uber has been successful by following a strategy to dis- rupt traditional markets and power structures and to compete ruthlessly, it learned—as companies from amazon to Google did before—that the regulatory environment in China often tends to favor local businesses. Facing an increasingly hostile regulatory environment, uber was unable to compete with the powerful state-backed rival, and in mid-2016, decided to with- draw from the Chinese market, selling all its assets to its Chi- nese competitor in return for a minority stake in the company.

Based on:

Anonymous. (2016, January 30). More than mobility. The Economist. Retrieved May 29, 2016, from http://www.economist.com/news/ business-and-finance/21689487-companys-ambitions-go-far- beyond-taxi-hailing-didi-kuaidi-dominating-uber-chinas

Kirby, W. C. (2016, august 2). the real reason uber is giving up in China. Harvard Business Review. Retrieved August 9, 2016, from https://hbr.org/2016/08/the-real-reason-uber-is-giving-up-in-china

naughton, J. (2016, august 7). Why uber has been taken for a ride in China. The Guardian. Retrieved August 8, 2016, from h t t p s : / / w w w. t h e g u a rd i a n . c o m / c o m m e n t i s f re e / 2 0 1 6 / a u g / 0 7 / uber-china-free-trade-brexit

uber (company). (2016, may 28). in Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index .php?title=uber_(company)&oldid=722506162

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attractive to both producers and consumers. Whereas platforms tend to be attractive as they often have negligible (or zero) marginal costs, they carefully have to think about how to monetize their services. For instance, Airbnb uses a transaction fee–based revenue model (charging both parties), whereas YouTube charges neither the producers nor the consumers but a third party (advertisers). Today, many pipe-based businesses include platform elements, such as reviews created by users. As we move further into the digital future, every business has to consider in how far its business model will include platform elements and how these will influence its business strategy.

Many of these platforms match producers and consumers directly without the need for tra- ditional middlemen, a concept referred to as disintermediation (see Chapter 4, “Enabling Busi- ness-to-Consumer Electronic Commerce”). As increasingly, individuals are sharing not only content (such as opinions or media) but physical goods or services on dedicated platforms, many believe that we are moving toward a sharing economy. A sharing economy (sometimes referred to as collaborative economy) has been defined as “an economic system in which assets or ser- vices are shared between private individuals, either free or for a fee, typically by means of the Internet” (Oxford Dictionary, 2016). As ownership is shared, assets can often be used more effectively. For example, increasing population density makes individual car ownership increas- ingly infeasible but enables efficient car sharing. At the same time, shared ownership, facilitated by technological platforms, can help to utilize the car during (otherwise) idle times. In other words, it is not ownership that counts but being able to access the asset or resource. While ini- tially, the concept of a sharing economy included social goals, such as waste reduction or increasing human interaction, this is now of lesser importance. Yet many companies within the sharing economy contribute to achieving greater social welfare. For example, research has shown that a vehicle used by a car-sharing platform such as car2go (a subsidiary of German automaker Daimler) can replace up to 13 privately owned vehicles, and for some, Uber replaces the need for owning a vehicle (see Figure 2.16). Likewise, platforms such as Craigslist or eBay encourage the selling of used goods, extending the usable life of many products.

Platform-based business models and the sharing economy are touted as offering many prom- ises. In addition to benefits such as reduced car ownership or the reuse of otherwise-discarded goods, often-cited benefits include increasingly flexible work arrangements or people’s ability to earn extra income by renting out their apartments to strangers using Airbnb or working as drivers for Uber. These business models, however, are not without criticism. For example, whereas the business models used by Uber or Airbnb disrupt traditional business models, often promising greater choices for end customers, they do so at a cost for humans and society. In this “gig economy,” workers are not employed by the company, but are only hired for short-term, tempo- rary jobs. In many cases, worker’s rights—which people have fought for since the industrial revolution—are neglected, with workers having no protection against discrimination, no social security, little job security, and so on; likewise, income opportunities as well as social interactions

TABLE 2.6 Examples of platform-Based Business Models

Value Created/Exchanged Examples

Products Amazon Marketplace, eBay

Services Airbnb, Uber

Payments Square, PayPal

Investments and funding Kickstarter, Lending Club

Content Wikipedia, Twitter, YouTube

Communication WhatsApp, Skype

Collaboration Dropbox

Social relationships Facebook, LinkedIn

Source: Based on What is a Platform? by Alex Moazed, May 1, 2016, http://www.applicoinc.com/blog/what-is-a- platform-business-model/. Published by APPLICO INC.

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with coworkers are often severely limited. Further, in their endeavor to disrupt traditional business models (such as hotels or limousine services), companies such as Uber and Airbnb try to gain a competitive advantage over traditional businesses by breaking (or at least bypassing) existing laws and regulations. While arguably, laws and regulations will (have to) adapt to new technolo- gies in the short or long term, such behavior can often be regarded as unfair competition.

Service-Based Business Models The Internet of Things, the rise in mobile devices, Big Data, and cloud computing have enabled another type of business models, centered around not selling products but providing these as services (sometimes referred to as XaaS, or “X as a service”). Many traditional man- ufacturers use pipe-based business models to produce goods which are then sold to the end users. Under a service-based business model, a manufacturer can offer equipment services, such as offering the product itself as a service or offering operations and optimization ser- vices, or information services, such as selling data or insights generated by the customer’s usage of the product (see Figure 2.17). For example, manufacturers of jet engines, such as Rolls-Royce or GE, traditionally would sell engines to the owners of aircraft (such as air- lines); however, as the bargaining power of buyers is high in the industry, the market for new engines is competitive, so much of the manufacturers’ revenue typically comes from perform- ing maintenance and selling spare parts. Under a service-based business model, in contrast, a manufacturer such as GE is being paid for guaranteeing continuous uptime, essentially

Traditional Economy

Sharing Economy

FIGURE 2.16 In the sharing economy, shared ownership reduces the need for individual ownership of cars and other goods.

Pipe‐based business model  Service‐based business model

Equipment services: Thrust as a service

Information services: Fleet e�ciency analytics

Sell engines and parts 

FIGURE 2.17 Under a service-based business model, a manufacturer can offer equipment services or information services. Source: Sergioboccardo/Shutterstock; Christian42/Fotolia.

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providing “thrust as a service.” The customer thus does not have to purchase the engine or spare parts but pays for hours of usage, transforming fixed costs into variable costs; the engine manufacturer only earns money for operating engines and thus has an incentive to improve the engine’s design and perform preventive maintenance. Obviously, such business models are only possible through rapid advances in Internet of Things technology; using a multitude of sensors integrated throughout the engines and connected to the Internet, GE can continuously monitor and analyze engine performance and use advanced analytics to predict potential engine failure and better schedule maintenance events. Similarly, Philips provides lighting as a service for 25 parking garages of the Washington Metropolitan Area Transit Authority; the transit authority needs no upfront capital for the lighting, and Philips installs and maintains the lighting and earns revenue through continuous energy-cost savings. These business mod- els, however, require new thinking by the players involved. First of all, rather than focusing on minimizing manufacturing costs so as to increase profit margins, the manufacturers have to focus on life span and ease of maintenance/repair. Likewise, in order to maximize revenues, the manufacturers have to be able to monitor performance, predict outages, and schedule

ETHICAL DILEMMA The Ethics of the Sharing Economy

The sharing economy is taking off. Two standouts have been uber and airbnb. uber is a service that connects people in need of rides with drivers willing to give one. As of early 2016, uber was available in more than 60 countries and 400 cities worldwide. Airbnb is a service that connects people looking for a place to stay with people who have a room or a house avail- able to rent. As of early 2016, Airbnb had more than 1.5 mil- lion listings in 34,000 cities in 190 countries. As with any successful new business, many people are looking to duplicate successful business models and try to understand the secrets of success. Since both uber and airbnb have thrived on dis- rupting existing markets that are heavily regulated (i.e., taxi services and hotels), the question that comes to many people’s mind is: are uber and airbnb breaking any laws or regulations to drive their success?

Taxi services are heavily regulated. To provide for rider safety, drivers must undergo extensive screening and background checks, and vehicles are regularly inspected. In addition, to con- trol markets and limit the number of taxis in the street, the eco- nomics of taxi systems are often regulated at the city level. A medallion (taxi permit) is required to provide taxi services, and there are a limited number of them available. To own a medal- lion, a driver (or taxi company) must comply with all of the regu- lations and pay an often-substantial fee. to drive for uber, no such fees or inspections are required—though the service has added background checks in certain jurisdictions. Likewise, hotels and other forms of lodging are regulated as well. In addi- tion to the properties themselves being regulated for safety and security, many jurisdictions are interested in maintaining consis- tency in their zoning laws and ensuring the proper collection of tax revenue. Those renting out their apartment or house via Airbnb are not affected (or ignore) such regulations; further, as Airbnb hosts typically do not collect lodging (or occupancy)

taxes from the guests, municipalities typically lose out on consid- erable tax revenues. Another criticism is the reduction of long- term housing associated with the unregulated renting of properties in residential neighborhoods.

Both uber and airbnb would argue that they are simply removing transactional friction from markets for services that are already permissible under existing laws. others argue that uber and airbnb are simply shifting costs to others involved in the value chain for these services, such as drivers and home- owners. The challenge remains that the existing laws and regu- latory frameworks provide for and protect existing economic stakeholders and interests. Whether new sharing economy entities like uber and airbnb are playing fair or not, these stakeholders will not take such challenges lying down. Expect more challenges and highly public disputes to come.

Questions 1. Should services like uber and airbnb have to follow the

same rules and regulations as a taxi company or hotel? Why or why not? Explain.

2. Imagine creating a platform for individuals to connect and sell meals out of their home or apartment to paying custom- ers in a way similar to uber. What concerns could this raise?

Based on:

Airbnb. (2016, May 22). In Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index.php?title=Airbn b&oldid=721592341

Millard, D. (2015, February 11). The sharing economy is not your friend. Vice. Retrieved May 29, 2016, from http://www.vice.com/read/ the-case-against-Airbnb-and-uber

uber (company). (2016, may 28). in Wikipedia, The Free Encyclope- dia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index .php?title=uber_(company)&oldid=722506162

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maintenance; all of this would not be possible without sensors connected to the Internet that provide continuous data streams and advanced Big Data analytics.

Making the transition from a product-oriented toward a service-based business model, however, is not without challenges. For example, whereas selling a product typically involves negotiating price and features, selling services involves not only developing new pricing mod- els and implementing new business processes but also negotiating service level agreements with the customers (see Chapter 3, “Managing the Information Systems Infrastructure and Services”). Likewise, managing inventories and capacities is more challenging due to f luctua- tions in demand for services. Finally, the targeted customer segment for products is often dif- ferent from that for services, which necessitates changes to marketing and communication with customers.

valuing Innovations Innovation is key for organizations attempting to gain or sustain a competitive advantage, be it through cost or differentiation. Companies that are leaders in their respective markets or have strong brands often tend to find it difficult to react appropriately to new trends, and Cisco’s for- mer CEO John Chambers predicted that almost half of today’s leading businesses might not see the next decade (EY, 2016a). For organizations, innovation involves creating new products, pro- cesses, or services that return value to the organization (note that in contrast to merely inventing new products, services, or processes, innovation involves realizing the value). The most common form of innovation is incremental innovation, which involves enhancing or upgrading existing products, services, or processes. In contrast, radical innovations (sometimes called disruptive innovations) use a markedly new or different technology to access new customer segments and/ or provide significantly greater benefits to existing customers and eventually marginalize or replace existing products or services (Chandy & Tellis, 1998) (see Table 2.7). When hearing innovation, people often only think about innovative products or services. Innovative products or services (even radical innovations), however, can easily be copied, and only focusing on these can be a dangerous path; in fact, many leading companies, ranging from Apple to Dyson, all too frequently have to engage in lawsuits to protect their innovations from copycats. Successful organizations thus go beyond product and service innovation and introduce other innovations such as new ways of earning revenue or entirely new business models. In their book Ten Types of Innovation, Keeley et al. (2013) outline how different types of innovations can help organiza- tions gain or sustain competitive advantage (see Table 2.8).

Given that product performance innovations can often be easily copied, companies often combine multiple types of innovations to sustain competitive advantage. For example, Apple is typically known for its product innovations; yet, while the design and functionality of Apple’s innovative products have been widely imitated, other companies find it difficult to copy Apple’s product system innovations or customer engagement innovations. Likewise, computer manufacturer Dell combined profit model innovations (collecting money before building the product), process innovations (the built-to-order model), and channel innovations (selling com- puters online rather than in stores) as well as other types of innovation to challenge established computer manufacturers.

Most (if not all) of these innovations are enabled by or would not even be possible without information systems. For example, platform-based business models, such as used by Airbnb, would not be possible without the Internet; likewise, Uber’s business model could not exist with- out mobile devices used by riders and drivers, and Uber would not be able to implement its dynamic pricing feature (called “surge pricing”) without real-time analysis and prediction of traffic conditions and demand for services. For companies manufacturing physical products, process innovations enabled by robotics and the Industrial Internet of Things offer tremendous improvements in efficiency, product quality, agility, and flexibility, allowing companies to mass- produce customized products (see Chapter 4). Thus, an organization often must deploy new, state-of-the-art technologies to gain or sustain a competitive advantage. Although firms can choose to continually upgrade older systems rather than investing in new systems, these improve- ments can often at best give only a short-lived competitive edge.

To gain and sustain significant competitive advantage, firms must often deploy the latest technologies or redeploy and reinvest in existing technologies in clever, new ways. For example, architects and interior designers use virtual reality (VR) headsets—head-mounted devices

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enabling immersive three-dimensional experiences—such as Oculus Rift to allow customers to virtually explore planned buildings or offices before construction has started; likewise, Marriott used the Oculus Rift headset to “teleport” users to vacation destinations, and the tourism board of British Columbia produced 360-degree tours of the province. Virtual reality headsets are quickly becoming mainstream, with companies such as Samsung offering virtual reality cameras that allow capturing 360-degree videos that can be edited and viewed using Samsung’s own “Gear 360” virtual reality headset. Similar to virtual reality, augmented reality uses information systems to enhance a person’s perception of reality by providing relevant information about the user’s surroundings; typically, special glasses or other devices are used to augment the user’s view of the real-world environment with computer-generated content. An early application of augmented reality was Google Glass, eyeglasses with a tiny embedded screen, which augmented reality by displaying information about the wearer’s surroundings, including weather informa- tion, public transportation schedules, reviews about a restaurant the wearer is looking at, and other useful information. Microsoft’s HoloLens takes this concept a step further by enabling mixed reality, where the user’s view of the real-world environment is augmented with 3D holo- graphic content. While as of 2016, Google Glass was on hold, Microsoft’s HoloLens was shipped to developers. No matter which products will eventually succeed in the marketplace, exciting new technologies are on the horizon.

But with the plethora of new information technologies and systems available, how can you possibly choose winners? Indeed, how can you even keep track of all the new breakthroughs,

TABLE 2.7 Examples of radical Innovations and their associated Displaced or Marginalized technology

Radical Innovation Displaced or Marginalized Technology

Digital photography Chemical photography

Desktop publishing Traditional publishing

Online stock brokerage Full-service stock brokerage

Online retailing Brick-and-mortar retailing

Free, downloadable greeting cards Printed greeting cards

Distance education Classroom education

Unmanned aircraft Manned aircraft

Nurse practitioners Medical doctors

Semiconductors Vacuum tubes

Automobiles Horses

Airplanes Trains

Compact discs Cassettes and records

MP3 players, music downloading, streaming Compact discs and music stores

Smartphones MP3 players, dedicated GPS navigation

Mobile telephony Wire-line telephony

Tablets Notebook computers

Xbox, PlayStation, smartphones Desktop computers

3D printing CNC milling

Camera drones Helicopters for aerial filming/photography

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new products, new versions, and new ways of using technologies? For example, in Figure 2.18 we present a small subset of some new information technologies and systems, ranging from some that are here now and currently being used to some that are easily a decade away from being a reality. Which one is important for you? Which one will make or break your business? Does this list even include the ones that you need to be concerned about?

The Need for Constant IS Innovation Sir John Maddox, a physicist and the editor of the inf luential scientific journal Nature for 22 years, was quoted in Scientific American in 1999 as saying, “The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive.” Think about that for a moment. Most of the important discoveries of the next 50 years are likely to be things that, at present, we have no clue about. To illustrate that point, think back to the state of the Internet back in 1999. Then the Internet was not on the radar screens of many business organiza- tions. Those that had websites were mostly providing an electronic brochure to customers and weren’t exploiting the technology to streamline business processes as is the norm today. Look now at how the Internet has transformed modern business. How could something so transforma- tional not have been easier for businesses to imagine or predict a decade earlier? It is difficult to see these things coming. Next, we examine how you can improve your ability to spot and exploit new innovations.

TABLE 2.8 ten types of Innovation

Innovation Description Examples

Profit model innovation

Finding novel ways of generating rev- enues from offerings

Dropbox using a freemium approach; Microsoft offering Office 365 on a subscription basis; GE selling “thrust as a service”

Network innovation Harnessing the capabilities and strengths of others

GlaxoSmithKline or Marriott using open innovation for new prod- uct or service ideas; Netflix running contests for improving movie recommendation algorithm; luxury hotels partnering with fashion designers

Structure innovations

Using the company’s talent and assets in innovative ways

Southwest Airlines focusing on one aircraft type; Google allowing employees to use of 20 percent of their time for own projects

Process innovations Changing primary processes used to pro- duce product or service

Toyota pioneering lean production; Zara moving fashion from initial design to stores in 3 weeks

Product perfor- mance innovations

Creating novel products or improving existing products through differentiation

Dyson’s Airblade hand dryers; Corning’s “unbreakable” Gorilla Glass; Coke’s customizable Coke bottles

Product system innovations

Creating bundles of complementary offerings

Microsoft bundling individual office programs into Office suite; Apple offering developer tools and app store to enable developers to create novel apps; Marriott letting users test drive GoPro HERO action cams

Service innovations Supporting and enhancing value of offering

Zappos’s WOW philosophy of delivering excellent customer service; Men’s Wearhouse offering its customers to purchase free lifetime pressing

Channel innovations

Using innovative ways to connect offer- ings with customers

Niketown offering immersive experiences; Nespresso partnering with hotels and airlines

Brand innovations Positioning the brand in innovative ways Virgin family of brands; German discount grocer Aldi’s Trader Joe’s markets

Customer engage- ment innovations

Developing meaningful connections with customers

Swarm encouraging users to frequently “check in” to places; Apple tying customers to its ecosystem

Source: Based on Ten Types of Innovation: The Discipline of Building Breakthroughs by Larry Keeley, Helen Walters, Ryan Pikkel, Brian Quinn, published by John Wiley & Sons, 2013.

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Successful Innovation Is Difficult As we hinted at previously, there are limits to using emerging information systems to innovate and gain or sustain a competitive advantage. Information systems are often bought from or built by someone else. They are often either purchased from a vendor or developed by a consultant or outsourcing partner. In these situations, the information systems are usually not proprietary tech- nologies owned by the organization. For example, although a soft-drink company can patent the formula of a cola or a pharmaceutical company can patent a new drug, an organization typically cannot patent its use of an information system, particularly if someone else developed it. The data in the system may be proprietary, but the information system typically is not.

InnOvatIOn IS OFtEn FlEEtIng. Given the pace of change in the digital world, advantages gained by innovations often have a limited life span. For example, even in situations where an organization has developed an innovative information system in-house, it usually did so with hardware, software, and networking components that others can also purchase. In other words, rivals can copy innovative information systems, so this form of competitive advantage can be short-lived. Indeed, if use of the new system causes one organization to gain a significant advantage over others, smart rivals are quick to duplicate or improve on that use of the system. Likewise, rivals can copy innovative products, services, or processes. One classic counterexample, however, is Amazon.com’s patented “one-click” ordering process that has been successfully defended in the courts.

InnOvatIOn IS OFtEn rISky. Choosing among innovative IS-related investments or potential product, service, or process innovations always entails risk. The classic example from consumer electronics is the choice of a videocassette recorder (VCR) in the early days of that technology and the competing Betamax (developed by Sony) and VHS (developed by JVC) formats. Most experts agreed that the Betamax had superior recording and playback quality, but VHS ultimately won the battle in the marketplace. People who made the “smart” choice at the time probably would have chosen a VCR with the Betamax format. Ultimately, however, that turned out to be an unfortunate choice. Recently, consumers again had to choose between two competing formats, namely, for high-definition (HD) DVD players, where the Blu-ray and HD DVD formats competed to become the industry standard. In this battle, Microsoft, Toshiba, and many others backed the HD DVD format, while Sony led the fight for Blu-ray (and even incorporated it into its PlayStation 3 gaming console). This time around, Sony (and the Blu-ray format) won the “format war,” with the dissolution of the HD DVD Promotion Group in early 2008, effectively making Blu-ray the dominant format for HD video discs (Figure 2.19). Choosing among innovative IS-related investments is just as risky as choosing consumer electronics. In fact, for organizations, choosing among the plethora of available innovative technologies is far

Sooner Later

What’s on the Horizon?

Flexible Displays

Quantum Computing

Brainwave Interface

Solid-State Supercomputers

Voice Print Nanotubes

Augmented Reality

Intelligent Searching

Massively Multiplayer Educational

Gaming

Context- Aware

Computing Knowledge

Webs

Glasses-Free 3D Movies

Optical WLAN

Laser-Based Hard Drives

Nano-Scale Processors

Programmable Cells

FIGURE 2.18 Some enabling technologies on the horizon.

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riskier, given the size and often mission-critical nature of the investment. Choosing a suboptimal DVD player, although disappointing, is usually not devastating.

InnOvatIOn chOIcES arE OFtEn DIFFIcult. Choosing new technologies in the IS area to develop innovative products, services, or processes is like trying to hit one of several equally attractive fast-moving targets. You can find examples of the difficulty of forecasting emerging technologies in the experiences that many organizations have had in forecasting the growth, use, and importance of the Internet. The 1994 Technology Forecast prepared by the major consulting firm Price Waterhouse (now PwC) mentioned the word Internet on only five pages of the 750- page document. The next year, more than 75 pages addressed the Internet. Only 3 years later, in the 1997 briefing, the Internet was a pervasive topic throughout. Back in 1994, it would have been difficult, perhaps even foolish, to forecast such pervasive, rapidly growing business use of the Internet today. Table 2.9 illustrates how many people and organizations have had difficulty making technology-related predictions.

Given the pace of research and development in the IS and components area, staying current has been nearly impossible. Probably one of the most famous metrics of computer evolution has been “Moore’s law.” Intel founder Gordon Moore predicted that the number of transistors that could be squeezed onto a silicon chip would double every 24 months (this number is now often reduced to 18 months), and this prediction has proven itself over the past 40 years (see Chapter 3). In fact, some computer hardware and software firms roll out new versions of their products every 3 months. Keeping up with this pace of change can be difficult for any organization.

Open Innovation Given the difficulties associated with innovation, organizations increasingly realize that potential for innovation often exists outside of their boundaries and try to harness the creativity of external stakeholders. Open innovation, or the process of integrating external stakeholders into the inno- vation process, can thus prove very beneficial. For example, pharmaceutical giant Eli Lilly cre- ated a site called InnoCentive, where companies can post scientific problems and everybody can take a shot at solving the problem. Usually, a reward is paid to a successful solver. This way, an ad hoc research-and-development network is created, and companies have to rely less on a dedicated research-and-development department or on hiring specialists to solve a certain problem. At the same time, people can use their spare time and expertise to solve problems and earn rewards for their contributions. Other companies, such as P&G (Connect + Develop), Starbucks (My Star- bucks Idea), Lego (Lego Ideas), Heineken (Innovators Brewhouse), and Marriott (Travel Bril- liantly), successfully use open innovation to solicit ideas for novel products, services, or processes. Integrating external stakeholders into the innovation process, however, often involves making organizational data and knowledge accessible to the external stakeholders, so companies have to carefully balance the benefits and potential drawbacks of engaging in such initiatives.

FIGURE 2.19 Blu-ray has become the industry standard for high-definition DVD players. Source: Matthew Jacques/Shutterstock.

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TABLE 2.9 Some predictions about technology that Were not Quite correct

Year Source Quote

1876 Western Union, internal memo “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.”

1895 Lord Kelvin, president, British Royal Society

“Radio has no future. Heavier-than-air flying machines are impossible. X-rays will prove to be a hoax.”

1899 C. H. Duell, commissioner, U.S. Office of Patents

“Everything that can be invented has been invented.”

1927 H. M. Warner, Warner Brothers “Who the hell wants to hear actors talk?”

1943 Thomas Watson, chairman, IBM

“I think there is a world market for maybe five computers.”

1949 Popular Mechanics “Where a calculator on the ENIAC is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and weigh only 1.5 tons.”

1957 Editor, business books, Prentice Hall

“I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won’t last out the year.”

1968 BusinessWeek “With over 50 foreign cars already on sale here, the Japanese auto industry isn’t likely to carve out a big slice of the U.S. market.”

1977 Ken Olsen, president, Digital Equipment Corporation

“There is no reason anyone would want a computer in their home.”

1989 Bill Gates, Microsoft “We will never make a 32-bit operating system.”

2004 Bill Gates, Microsoft “Spam will be a thing of the past in two years’ time.”

2005 Sir Alan Sugar “Next Christmas the iPod will be dead, finished, gone, kaput.”

2007 Steve Ballmer, Microsoft “There’s no chance that the iPhone is going to get any significant market share.”

2010 Steve Jobs, Apple “This size is useless unless you include sandpaper so users can sand their fingers down to a quarter of their size.” (speaking about 7-inch tablets)

Organizational Requirements for Innovation Certain types of competitive environments require that organizations remain at the cutting edge in their use of information systems. For example, consider an organization that operates within an environment with strong competitive forces (Porter, 1979). The organization has competitive pres- sures coming from existing rival firms or from the threat of entry of new rivals. It is critical for these organizations to do things better, faster, and more cheaply than rivals. These organizations are driven to use information systems to develop innovative products, services, or processes.

These environmental characteristics alone, however, are not enough to determine whether an organization should deploy a particular information system. Before an organization can deploy any new system well, its processes, resources, and risk tolerance must be capable of adapting to and sustaining the development and implementation processes.

prOcESS rEQuIrEMEntS. To sustain competitive advantage through innovation, people in the organization must be willing to do whatever they can to bypass and eliminate internal bureaucracy, set aside political squabbles, and pull together for the common good. Can you imagine, for example, a firm trying to deploy a web-based order entry system that enables customers to access inventory information directly when people in that firm do not even share such information with each other?

rESOurcE rEQuIrEMEntS. Organizations focusing on innovation must also have the human capital necessary to implement innovative systems or to develop innovative products, services,

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or processes. The organization must have enough employees available with the proper systems knowledge, skills, time, and other resources to deploy these systems. Alternatively, the organization must have resources and able systems partners available to outsource the development of such systems if necessary.

rISk tOlErancE rEQuIrEMEntS. The last characteristic of an organization focusing on innovation is that its members must have the appropriate tolerance for risk and uncertainty as well as the willingness to deploy and use new systems that may not be as proven and pervasive as more traditional technologies. If people within the organization desire low risk in their use of information systems, then gambling on cutting-edge systems will probably not be desirable or tolerable for them. Likewise, open innovation initiatives typically require sharing organizational knowledge with outside partners, and organizations trying to leverage outsiders in their innovation process have to be willing to accept the potential risks involved.

The Innovation Process As you can see, using innovation to gain and sustain competitive advantage is difficult. For example, if you are using information systems to gain a competitive advantage in the area of operating efficiencies, it is likely that your rivals can just as easily adopt the same types of infor- mation systems and achieve the same gains. There are certainly ways to use information systems to create innovative products, services, or processes to gain a longer-lasting, sustainable com- petitive advantage; if you can use information systems to make your products or services unique or to cause your customers to invest so heavily in you that their switching costs are high (i.e., if switching to a competitor’s product involves significant investment in terms of time and/or

COMING ATTRACTIONS The CITE Project

Smart technology is popping up in more and more places. Everything from our watches to our toasters to our cars can communicate on the Internet. However, not every smart tech idea will integrate well with the real world. How can manufac- turers and innovators test their technologies prior to bringing them to market to avoid risking complete failure? The CITE Project may be the answer.

When an innovative technology is released into the real world, it is not always used the way the inventor originally envisioned. The so-called “law of unintended consequences” can yield some interesting side effects based on how people actually use technologies. Texting while driving, for example, has only recently been realized to be a substantial safety issue. new and innovative approaches are needed to mitigate these types of risks. In order to get a better handle on what some of these potential issues may be before technologies are widely deployed, the telecommunications and tech firm Pegasus Global holdings is working with a variety of partners to build a complete city in the desert.

The Center for Innovation, Testing, and Evaluation (CITE) will be a full-scale city designed to represent a broad swath of environments from across the united States. there will be a city center with civic buildings and parks, office space, indus- trial parks, and a variety of residential areas. The goal is to be as realistic as possible, with the exception of actual residents. the plan is to build Cite in the desert of southern new mexico,

between the White Sands Missile Test Range (where the atomic bombs were tested) and the Mexico border.

CITE will allow new innovations to be tested at scale with minimal risk to the public. Everything from self-driving cars to smart homes to advanced thorium-based power supplies can be tried out in a controlled environment. This will give inventors the opportunity to see how their inven- tions actually behave in a real environment and make adjustments and improvements prior to bringing the tech- nology to market. If successful, then maybe some of the pitfalls of widespread deployment of new technologies can be avoided. The challenge however, is that many of the unintended consequences of technologies are not realized until real people are allowed to use, misuse, and abuse them. Without actual residents and a real-world social con- text, critics doubt that CITE will be able to do more than serve as a glorified playground. As with any technology, though, the proof is in the doing—CITE could be opera- tional as soon as 2018.

Based on:

monks, K. (2015, october 6). Cite: the $1 billion city that nobody calls home. CNN. Retrieved May 29, 2016, from http://edition.cnn .com/2015/10/06/business/test-city/index.html

the Center, new mexico. (2016, march 12). in Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia .org/w/index.php?title=the_Center,_new_mexico&oldid=709651961

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money for the customer), then you are better able to develop a competitive advantage that is sus- tainable over the long haul. For example, you might combine heavy investments in computer- aided design systems with very bright engineers in order to perfect your product and make it unique and something relatively difficult to copy. Alternatively, you might use a customer rela- tionship management system to build an extensive database containing the entire history of your interaction with each of your customers and then use that system to provide very high-quality, intimate, rapid, and customized service that would convince customers that if they switched to a rival, it would take them years to build up that kind of relationship with the other firm.

OrganIzIng tO MakE InnOvatIOn chOIcES. Given the need for constant innovation, how do organizations make decisions on which innovations to embrace and which to ignore? In the book The Innovator’s Solution, Christensen and Raynor (2003) outline a process called the disruptive growth engine, which all organizations can follow to more effectively respond to radical innovations in their industry. This process has the following steps:

1. Start Early. To gain the greatest opportunities, become a leader in identifying, tracking, and adopting radical innovations by making these processes a formal part of the organiza- tion (budgets, personnel, and so on).

2. Display Executive Leadership. To gain credibility as well as to bridge sustaining and radi- cal product development, visible and credible leadership is required.

3. Build a Team of Expert Innovators. To most effectively identify and evaluate potential radical innovations, build a competent team of expert innovators.

4. Educate the Organization. To see opportunities, those closest to customers and competi- tors (e.g., marketing, customer support, and engineering) need to understand how to iden- tify radical innovations.

In addition to formalizing the identification of innovations within the organization, shifts in business processes and fundamental thinking about radical innovations are needed. Next, we examine how to implement the innovation identification process.

IMplEMEntIng thE InnOvatIOn prOcESS. Executives today who are serious about using information technology in innovative ways have made it a point to have their people be continually on the lookout for new radical innovations that will have a significant impact on their business. Wheeler (2002) has summarized this process nicely as the disruptive innovation cycle (Figure 2.20). The model essentially holds that the key to success for modern organizations is the

Or ga

niz ati

on al L

ear ning

ET

Time

V a

lu e

P o

te n

ti a

l V

a lu

e R

e a

liz a

ti o

n

Low

Low

Hi

Hi

External Market

Internal Organization

Taking Value Propositions to Market

Communicating E-business Initiatives

Conveying New IT Insights

ET ET

Choosing Enabling/Emerging Technologies (ET)

Matching with Economic Opportunities

Executing Business Innovation

for Growth

Assessing External Customer &

Internal Client Value

FIGURE 2.20 The disruptive innovation cycle. Source: Based on Information Systems Research, vol. 13, no. 2, pp. 125–146, 2002.

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extent to which they use information technologies and systems in timely, innovative ways. The vertical dimension of the disruptive innovation cycle shows the extent to which an organization derives value from a particular information technology, and the horizontal dimension shows time. Next, we examine the cycle.

Choosing Enabling/Emerging Technologies The first bubble (lower-left) shows that successful organizations first create jobs, groups, and processes that are all devoted to scanning the environment for new emerging and enabling technologies (i.e., information technologies that enable a firm to accomplish a task or goal or to gain or sustain competitive advantage in some way) that appear to be relevant for the organization. For example, an organization might designate a small group within the IS department as the “Emerging Technologies” unit and charge the group with looking for new technologies that will have an impact on the business. As part of its job, this group will pore over current technology magazines, participate in Internet discussion forums on technology topics, go to technology conferences and conventions, and have strong, active relationships with technology researchers at universities and technology companies.

Matching Technologies to Opportunities Next, in the second bubble, the organization matches the most promising new technologies with current economic opportunities. For example, the Emerging Technologies group might have identified advances in 3D printing as a key enabling technology that now makes faster and cheaper prototyping feasible. In addition, managers within the marketing function of the firm have recognized that competitors have not released new models recently, and reducing product development cycle times can provide an opportunity to gain customers and market share.

Executing Business Innovation for Growth The third bubble represents the process of selecting—among myriad opportunities to take advantage of—those emerging technologies that have the biggest potential to address the current opportunities. The organization decides to acquire 3D printers that enable it to create prototypes much faster, helping the company to release new product models at shorter intervals, in order to attract new customers.

Assessing Value The fourth bubble represents the process of assessing the value of that use of technology, not only to customers but also to internal clients (sales representatives, marketing managers, the chief operating officer, and so on).

thInkIng aBOut InvEStMEntS In raDIcal InnOvatIOnS. The disruptive innovation cycle suggests three new ways to think about investments in radical innovations:

1. Put Technology Ahead of Strategy. This approach says that technology is so important to strategy and to success that you have to begin with technology. Notice that the first bubble involves understanding, identifying, and choosing technologies that are important. The first bubble does not begin with strategy, as a traditional approach to running a business orga- nization would suggest. In fact, many would argue that given how important technology is today and how fast it changes, if you start with a strategy and then try to retrofit technology into your aging strategy, you are doomed. This approach argues that you begin by under- standing technology and develop a strategy from there. This approach is admittedly very uncomfortable for people who think in traditional ways and/or who are not comfortable with technology. We believe, however, that for many modern organizations, thinking about technology in this way is key.

2. Put Technology Ahead of Marketing. The second way that this approach turns conven- tional wisdom on its head is that, like strategy, marketing also takes a backseat to technol- ogy. Think about it carefully, and you will see that marketing does not come into play until later in this model. A very traditional marketing-oriented approach would be to go first to your customers and find out from them what their needs are and what you ought to be doing with technology. The trouble with this approach is that, given the rapid evolution of technology, your customers are not likely to know about new technologies and their capabilities. In some sense, they are the last place you ought to be looking for ideas about new technologies and their impact on your business. Indeed, if they know about the new technology, then chances are your competitors already do too, meaning that this technology

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is not the one to rest your competitive advantage on. As Steve Jobs of Apple put it, “You can’t just ask people what they want and then try to give that to them. By the time you get it built, they’ll want something new.”

3. Innovation Is Continuous. The third way that this approach is interesting—and potentially troubling—is that the process has to be ongoing. As shown along the time dimension at the bottom of the graph, the first bubble repeats over and over again as the Emerging Technolo- gies group is constantly on the lookout for the “next new thing” that will revolutionize the business. The rate of information technology evolution is not likely to slow down, and inno- vative organizations truly cannot—and do not—ever rest.

Today, dealing with rapid change caused by radical innovations is a reality for most industries. If you are a leader in an industry, you must continually learn to embrace and exploit radical innova- tions, potentially destroying your existing core business while at the same time building a new business around the radical innovation. If you fail to do this, your competition may do it for you.

Startups and Crowdfunding In recent years, we have witnessed the emergence of many highly successful innovative start- u p s , w i t h s o m e h av i n g q u i c k l y d eve l o p e d i n t o m u l t i b i l li o n - d o l l a r c o m p a n i e s .

SECURITY MATTERS The Bangladesh SWIFT Theft

Information systems have made business faster and more effi- cient in almost any industry, from agriculture to banking. This has widely benefitted our society, but the flip side is that crime and theft can be faster and more efficient as well. Two banks in Southeast Asia recently learned the hard way that cybertheft can be massive and quick, with nearly uS$81 million disap- pearing almost instantly and without a trace.

The Society for Worldwide Interbank Financial Telecommu- nication (SWIFT) is an organization that enables banks to rap- idly clear financial transactions on a global basis. The society is owned by its members, who pay fees to provide for the tech- nological infrastructure that enables quick and seamless finan- cial transactions, such as clearing international money orders or settling very large transactions between governments and large financial services entities. The system has been in place since the 1970s and, as of September 2010, linked more than 9,000 financial institutions in 209 countries and territories, which were exchanging an average of more than 15 million messages per day.

In February 2016, attackers successfully penetrated the central banking system of Bangladesh and used the SWIFT sys- tem to initiate the transfer of nearly a billion dollars out of the country’s accounts. uS$81 million worth of these transactions cleared before a spelling error caught the attention of a recipi- ent institution and the transfers were halted. The hackers not only gained access to the system and initiated the transfers, but they used malware to cover up their activity as well—as all transactions were logged to a hard-copy printer, the hackers intercepted the print jobs, effectively making the transactions invisible. This type of combined social-engineering and malware-based attack is very difficult to defend against and

serves to illustrate the disparity in the level of sophistication between the attackers and the bank employees charged with protecting their systems. A few months later, the attackers struck again and moved an undisclosed amount of money in the Philippines.

one of the more disturbing aspects of these crimes is the fact that the SWIFT system itself was not compromised. However, attackers were able to exploit the weaknesses in security at a member organization bank and use that organization as a step- ping-off point to the broader network. once they were inside the system, they were assumed to be trusted actors executing legiti- mate transactions. SWIFT is investigating the implementation of additional network level security protocols and procedures but is simultaneously reminding member banks of the pressing need to secure their own houses as well. Still, the issues continue; in mid- 2016, attackers had stolen large sums not only in Bangladesh but also from banks in ecuador and the ukraine.

Based on:

Corkery, m. (2016, may 12). once again, thieves enter Swift financial network and steal. The New York Times. Retrieved May 29, 2016, from http://www.nytimes.com/2016/05/13/business/dealbook/swift-global- bank-network-attack.html

Gladstone, r. (2016, march 15). Bangladesh bank chief resigns after cyber theft of $81 million. The New York Times. Retrieved May 29, 2016, from http://www.nytimes.com/2016/03/16/world/asia/ bangladesh-bank-chief-resigns-after-cyber-theft-of-81-million.html

Society for Worldwide Interbank Financial Telecommunication. (2016, May 27). In Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index.php?title=Society_ f o r _ Wo r l d w i d e _ i n t e r b a n k _ f i n a n c i a l _ te l e c o m m u n i c a t i o n & o l did=722327785

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Startups—typically technology-based new ventures with high potential for scalability and growth—are often cofounded by entrepreneurs, developers, designers, or others with a prom- ising idea. In the past, startups have been founded around services or platforms enabled by information systems. Advances in technologies such as 3D printing (see Chapter 1) have enabled hardware startups that build their business models around innovative physical objects, ranging from Coin’s electronic credit card to the Square Reader developed by pay- ment startup Square (which in early 2016 filed to go public). At the same time, 3D printing has the potential to disrupt traditional supply chains, as consumers will eventually be able to produce products in their own homes, opening up an even larger market for new, innovative ventures (EY, 2016b).

However, even with the ability to relatively quickly develop prototypes of innovative prod- ucts, going from invention to developing product designs and manufacturing processes and then manufacturing enough stock to meet the planned initial demand requires not only a great idea for an excellent product but also knowledge about the business environment, connections with the business community, and often substantial financial resources. To obtain the needed support, many startups turn to so-called startup incubators, which provide various types of education and other resources. Relatedly, startup accelerators typically provide education, investment, and intense mentorship for cohorts of startups. On the other hand, angel investors can be a valuable source for funding (but often only provide limited education or mentorship). Recently, crowd- funding—though platforms such as Kickstarter or Indiegogo—has emerged as a novel form of obtaining project funding. Crowdfunding is the securing of business financing from individuals in the marketplace—the “crowd”—to fund an initiative (see Figure 2.21). Individuals who sup- port a given initiative—called “backers”—pledge a certain amount of financial support to the project in return for certain benefits. In the case of Kickstarter, a funding campaign usually cen- ters around a product—such as a smartphone case, a belt, an electronic gadget, or even a board game. Interested backers pledge money in support of the product, generally above a minimum

FIGURE 2.21 Inventors and startups can draw on many sources for support.

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amount in return for one count of the item being backed. If (and only if) the campaign reaches its funding goal, the backers are charged the amount they pledged and the product goes into pro- duction. If too few backers are interested and the goal is not met, the campaign fails and no backers are charged any money. Kickstarter in particular has been very successful and has helped many campaigns get funded, totaling more than 135,000 projects with more than US$1 billion generated in pledges. Similarly, equity crowdfunding (sometimes called crowdinvesting) is the securing of financing from individuals, but the backers receive equity in return for their investment.

In this chapter, we examined how organizations can use information systems strategically, enabling them to gain or sustain competitive advantage over their rivals. As ongoing success depends on a sustained commitment to continuously learn and innovate, organizations must con- tinuously search and apply the most effective business models.

INDUSTRY ANALYSIS Education

for decades, the cost of higher education in the united States has steadily increased (an average increase of 16 percent every 5 years for the past four decades), and the average col- lege graduate entered the workforce with about uS$37,000 in student loans in 2016. Several emerging changes in the education industry hold the promise of bringing those costs down. Information systems are at the core of these exciting developments.

one way education is changing is through globalization. universities increasingly partner with other universities around the world, encouraging collaboration among researchers, con- sistency in curriculum design, and cross-border movement of students, graduates, and faculty. Many countries outside of the united States and other Western countries are investing heavily in their education systems, and there are now many universities in less developed parts of the world that can com- pete with the best of the “old-school” Ivy League universities. The global economy has produced an equally global education system.

Along with the trend of globalization, many universities are extending their reach by implementing online courses or, in many cases, whole degrees that can be obtained via remote, self-directed courses delivered over the Internet. These pro- grams are typically far less expensive to administer because once the materials are produced and refined, they can be used repeatedly by large groups of (paying) students. Some argue that such courses are less engaging and/or less effective, and there may be some truth to that. Regardless, universities continue to forge ahead in finding new ways to reach more students.

Another recent trend in education is the proliferation of so- called massively open online courses (mooCs). these courses,

which are freely available to the public, are able to effectively reach millions of students. Some very prestigious schools par- ticipate in providing these free courses, including Stanford, Wharton School of Business, uC Berkley, mit, and harvard. While the course content is provided free of charge, many of these institutions generate revenue by charging students for certifications or tutoring services.

Clearly, higher education is changing rapidly and in very significant ways, and technology has enabled each of these changes.

Questions 1. Are online courses better or worse as compared with tradi-

tional, face-to-face courses? Why? 2. In what ways could technology be used to improve on the

deficiencies of online courses?

Based on:

anonymous. (2016, may 2). african universities urged to utilize online inter- actions. Citi FM Online. Retrieved May 29, 2016, from http://citifmonline .com/2016/05/02/african-universities-urged-utilize-online-interactions

Anonymous. (2016). A look at the shocking student loan debt statistics for 2016. Student Loan Hero. Retrieved May 29, 2016, from https:// studentloanhero.com/student-loan-debt-statistics-2016

friedman, J. (2016, may 12). 3 reasons to try out mooCs before applying to college. US News and World Report. Retrieved May 29, 2016, from http://www.usnews.com/education/online-education/ articles/2016-05-12/3-reasons-to-try-out-moocs-before-applying-to- college

Massive open online course. (2016, May 24). In Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/ index.php?title=massive_open_online_course&oldid=721913401

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key points review 1. Discuss how information systems can be used for

automation, organizational learning, and strategic advantage. Information systems are used at different levels of an organization to support automating and organizational learning and to support strategy. To apply information systems strategically, you must understand the organization’s competitive landscape as well as the value chain and be able to identify opportunities in which you can use information systems to make changes or improvements in the value chain to gain or sustain a competitive advantage.

2. Describe how information systems support business models used by companies operating in the digital world. Organizations utilize information systems investments as a central component for executing their business models and delivering their value proposition. Common revenue models include affiliate marketing, subscriptions, licensing, transactions fees, sales, and web advertising revenue. The freemium model for providing digital products or services has become a widely used strategy for quickly building a large user base and monetizing additional features provided. Fueled by information systems, many organizations are extremely successful by building platforms or offering their products as services.

3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. In order to gain or sustain competitive advantage, organizations have to continuously innovate. As product innovations are often easily copied, organizations have to combine various types of innovation in their business models. Given that new technologies are not as stable as traditional ones, being at the technological cutting edge is typically quite difficult to execute. To best deploy new technologies, organizations must be ready for the business process changes that will ensue, have the resources necessary to deploy new technologies successfully, and be tolerant of the risk and problems involved in being at the cutting edge. Deploying emerging information systems is an ongoing process in which organizations should continuously scan the environment for emerging and enabling (and potentially disruptive) technologies, narrow down the list to those technologies that match with the challenges the firm faces or that create economic opportunities, choose a particular technology, implement it in a way that enables them to gain or sustain a competitive advantage, and assess the value of the technology.

key terms affiliate marketing 62 augmented reality 70 automating 53 best-cost provider strategy 57 business/IT alignment 61 business model 61 business process 50 capabilities 58 collaborative economy 66 crowdfunding 79 differentiation strategy 57 disruptive innovation 69 disruptive innovation cycle 76 distinctive competency 58 economic opportunities 77 effectiveness 51 efficiency 50

enabling technology 77 executive level 52 first-mover advantage 56 freemium 64 functional area information system 53 gig economy 66 in-app purchases 64 innovation 69 key performance indicator (KPI) 52 low-cost leadership strategy 57 managerial level 51 open innovation 73 operational level 50 organizational learning 55 organizational strategy 56 platform 65 radical innovation 69

resources 58 revenue model 62 semistructured decision 51 sharing economy 66 startup 78 strategic necessity 61 strategic planning 56 structured decision 50 transaction 50 unstructured decision 52 value chain 60 value chain analysis 60 value creation 58 value proposition 61 virtual reality (VR) headset 69 XaaS 67

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

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82 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

review Questions 2-1. Compare and contrast the characteristics of

the operational, managerial, and executive levels of an organization.

2-2. Compare and contrast automating and learning. 2-3. Describe competitive advantage and list six

sources. 2-4. How do an organization’s resources and capa-

bilities result in a competitive advantage? 2-5. Compare and contrast pipe- and platform-

based business models.

MyMISLab 2-6. What is the freemium model, and how can a business successfully use this approach?

2-7. Why is successful application of innovative technologies and systems often difficult?

2-8. How can information systems help in com- bining multiple types of innovation?

2-9. Using past examples, explain what is meant by a radical innovation.

2-10. Describe the disruptive innovation cycle.

MyMISLab

MyMISLab

Self-Study Questions 2-11. ______________ is using technology as a way to help

complete a task within an organization faster and, per- haps, more cheaply. A. Automating B. Learning C. Strategizing D. Processing

2-12. What are new technologies, products, or services that eventually surpass the existing dominant technology or product in a market called? A. open innovation B. radical innovation C. incremental innovation D. radical change

2-13. Which of the following is not improving the value chain? A. improving procurement processes B. increasing operating costs C. minimizing marketing expenditures D. streamlining production processes

2-14. A company is said to have ______________ when it has gained an edge over its rivals. A. monopoly B. profitability C. competitive advantage D. computer advantage

2-15. Each of the following was described in this chap- ter as a source of competitive advantage except for ______________. A. delivering superior customer service B. achieving lower cost than rivals C. being the subject of a hostile takeover D. having shorter lead times in developing and testing

new products 2-16. ______________ involves creating new products, pro-

cesses, or services that return value to the organization. A. Startup culture B. Creativity C. Invention D. Innovation

2-17. What is the process of choosing, matching, executing, and assessing innovative technologies called? A. environmental scanning B. disruptive innovation cycle C. strategic planning D. none of the above

2-18. The revenue model involving the referring of custom- ers to another business is called ______________. A. referral marketing B. Internet marketing C. affiliate marketing D. ad marketing

2-19. At the ______________ level of the organization, functional managers (e.g., marketing managers, finance managers, manufacturing managers, and human resource managers) focus on monitoring and controlling operational-level activities and providing information to higher levels of the organization. A. operational B. managerial C. organizational D. executive

2-20. A supervisor’s having to decide when to reor- der supplies or how best to allocate personnel for the completion of a project is an example of a(n) ______________ decision. A. structured B. unstructured C. automated D. delegated Answers are on page 84.

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problems and Exercises 2-21. Match the following terms with the appropriate

definitions: i. value chain analysis

ii. freemium iii. managerial level iv. value chain v. disruptive innovation cycle

vi. sharing economy vii. platform

viii. open innovation ix. radical innovation x. operational level

a. A business model that enables others—both other businesses and users—to co-create value, such that some users create value and other users consume

b. The process of analyzing an organization’s activi- ties to determine where value is added to products and/or services and the costs that are incurred for doing so

c. An economic system in which assets or services are shared between private individuals, either free or for a fee, typically by means of the Internet

d. The middle level of the organization, where func- tional managers focus on monitoring and control- ling operational-level activities and providing information to higher levels of the organization

e. A model suggesting that the extent to which mod- ern organizations use information technologies and systems in timely, innovative ways is the key to success

f. Giving away limited versions of a digital product or service for free in order to build a large customer base, and charging a premium for unrestricted versions

g. The set of primary and support activities in an organization where value is added to a product or service

h. An innovation that uses markedly new or differ- ent technology to provide significantly greater customer benefits, and eventually marginalizes or replaces existing products or services

i. The process of integrating external stakeholders into the innovation process

j. The bottom level of an organization, where the rou- tine day-to-day interactions with customers occur

2-22. Using a business or organization that you are famil- iar with, contrast the operational, managerial, and

executive levels by contrasting each level’s typical activities, types of decisions, and information needs.

2-23. Using your own life, contrast several structured versus unstructured decisions that you regularly have to make.

2-24. Identify a company utilizing the distinct competitive strategies shown in Figure 2.11; provide evidence to support your selection.

2-25. Of the five competitive forces presented in the chapter (Porter’s model), which is the most significant for an organization in terms of making IS investment deci- sions? Why? Which is the least significant? Why?

2-26. Using a company or organization that you are familiar with, map its various business processes into a value chain.

2-27. Using a business or organization that you are famil- iar with, analyze the organization’s business model, including its customer segments, value proposition, channels, customer relationships, revenue streams, key resources, key activities, key partners, and cost structure.

2-28. Go to Amazon.com’s affiliate site. How does affiliate marketing at Amazon.com work? How do Amazon .com’s business partners get paid? Who can sign up for this service?

2-29. Find and describe an example not discussed in this chapter that demonstrates the freemium revenue model.

2-30. Find and describe an example not discussed in this chapter that demonstrates the use of multiple types of innovation.

2-31. Find and describe an example not discussed in this chapter that demonstrates the transition from a product-based to a service-based business model.

2-32. Find and describe an example not discussed in this chapter that demonstrates the successful application of a platform-based business model.

2-33. Why shouldn’t every organization deploy innovative information systems? What are some of the recom- mended characteristics of an organization that are necessary for that organization to successfully deploy innovative technologies?

2-34. Identify examples not discussed in the chapter of radi- cal innovations that successfully displaced or margin- alized an industry or technology.

2-35. What are the benefits of open innovation? For an orga- nization, why may open innovation be problematic?

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application Exercises Note: The existing data files referenced in these exercises are available on the book’swebsite: www.pearsonhighered.com/valacich.

Spreadsheet Application: Valuing Information Systems

2-36. The cost of maintaining information systems is high for Campus Travel. You have been assigned to evalu- ate the total cost of ownership (TCO) of a few systems that are currently in use by Campus Travel employees. Take a look at the TCO.csv file to obtain the list of systems that are in use and the costs associated with maintaining the software, hardware, and the associated personnel for each type of system. Calculate the fol- lowing for your operations manager:

■ The costs for server hardware by adding a new row to include web servers. This includes US$4,500 for the main campus and US$2,200 for the other campuses.

■ The TCO for the entire information system used at Campus Travel. Hint: Sum all the values for all the systems together.

■ The TCO for servers and network components of the information system.

■ Make sure that you format the table, including using the currency format, in a professional manner.

Database Application: Building a System Usage Database

2-37. To understand the assets in Campus Travel, the IS manager has asked you to design a database that would be able to store all the assets. Your manager asks you to do the following:

■ Create a new blank database called asset.mdb. ■ Create a new table called “assets” in the asset data-

base with the following fields: a. Item ID (Text field) b. Item Name (Text field) c. Description (Memo field) d. Category (hardware, software, other) e. Condition (new, good, fair, poor) f. Acquisition Date (Date field) g. Purchase Price (Currency field) h. Current Value (Currency field)

team Work Exercise Net Stats: Online Searching

The Google search engine has become so popular with Internet users that the word Google is often used as a verb (“I Googled the restaurant to see its reviews”), but there are other well- known search engines, such as Yahoo! and Microsoft’s Bing. Table 2.10 shows the percentage of Internet surfers who used each search engine (i.e., the search engines’ market share) in June 2016 as compared with June 2014.

Questions and Exercises 2-38. Search the web for the most up-to-date statistics about

the search engine market. 2-39. As a team, interpret these numbers. What is striking/

important about these statistics? How do the numbers compare to your own search behavior?

2-40. How have the numbers changed? Will there be other important players in the search engine market?

2-41. Using your spreadsheet software of choice, create a graph/figure that effectively visualizes the statistics/ changes you consider most important.

TABLE 2.10 top Search Engines by Market Share, June 2016 compared with June 2014

Search Engine June 2016 Market Share (%) June 2014 Market Share (%) Change (percentage points)

Google 77.6 73.4 3.2

Baidu 6.0 14.4 –8.4

Yahoo! 6.2 6.6 –0.4

Bing 8.7 4.9 3.8

Others 1.5 0.8 0.7

Source: Based on Top Search Engine Share Trend, published by Net Applications.com, 2015.

answers to the Self-Study Questions 2-11. A, p. 53 2-12. B, p. 77 2-13. B, p. 60 2-14. C, p. 56 2-15. C, p. 60 2-16. D, p. 69 2-17. B, p. 69 2-18. C, p. 62 2-19. B, p. 51 2-20. A, p. 50

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It comes as no surprise that the Internet has not only helped advance traditional business models but also enabled entirely new types of business models. The web is more flexible than real-life society in many ways, chang- ing how we communicate with friends and family, changing how we work, and clearly changing the way we shop for products and services. This flexibility is a catalyst for the creation of a seemingly endless array of new types of businesses or the reinvention of tried-and-true business models of the past.

One example is the highly popular web- site Groupon, which prompts consumers to buy daily group deals in order to benefit from discounts from national and local busi- nesses. Groupon’s business model is to part- ner with established merchants looking to clear out seasonal stocks or excessive supply or to work with newer businesses looking to build a customer base. As the merchants sell higher volume, the cost per unit decreases (at least up to some point). This is where the “group” in Groupon comes in: A deal only goes through when a certain, predetermined number of Groupon subscribers signs up for it; once this number is reached, everyone who signed up for the deal enjoys the lower price. Groupon took the old-fashioned busi- ness model of using coupons to attract cus- tomers and married it with the network effects and economies of scale capabilities of the Internet to create a new and reasonably successful business model.

In 2016, Groupon had nearly 50 million active customers in 27 countries, operating i n m o r e t h a n 5 0 0 c i t i e s w o r l d w i d e ;

Groupon’s annual revenue was about US$6.2 billion. Being an early player in the group- buying market and rapidly gaining market share, Groupon enjoyed a first-mover advan- tage and grew very quickly. In 2010, Grou- pon went public at a valuation of US$13 billion, trading up to nearly US$20 billion on the first day. Soon after, the stock value “tanked,” and the company has been worth about half (or less) of its IPO value ever since. Today, Groupon’s market value is about US$5.3 billion. So, from an invest- ment standpoint, Groupon has clearly under- performed expectations.

There are a variety of reasons why Grou- pon has had mixed success. For many small businesses, Groupon has been a fantastic partner, and for others, a disaster. In particu- lar, the buying frenzy that may result from coupon purchases is a tricky matter that should not be underestimated. Consider, for instance, the experience of an Oregon-based coffee shop called Posies Café, whose owner eventually lost more than US$8,000, thanks to unexpected increases in customer volume and the stress of hiring additional manpower, from a Groupon-enabled tidal wave of cus- tomers. Most small businesses are not capa- ble of coping with a sudden flood of hundreds, or even thousands, of new custom- ers. Think of the logistics of juggling over- whelming customer traffic and associated service quality issues. In addition, if a deal offers a 50 percent discount, Groupon takes about a 40 percent share of the deal’s price (the numbers depend on factors such as size of the deal), leaving the merchant with

30 percent of the original price. Many busi- nesses forget (or are not advised) to cap the number of deals, so that they end up having more business than they can handle and may not be able to limit the losses incurred. Thus, businesses that miscalculate the impact of a Groupon campaign usually end up either suf- fering huge losses or garnering a crushed reputation as service quality goes down the drain.

Aside from miscalculating the capacity of one’s business to handle a rush of new clients, businesses often overestimate the long-term impact of a deal on the business. Many customers are looking for a one-time deal and never visit the business afterward. (How often would you repeat that helicop- ter trip if you had to pay full price, or how often do you need Lasik eye surgery?) Thus, businesses are advised to make the most out of the publicity brought about by Groupon’s coupon campaign. Instead of relying solely on the one-time increase of buyers, which does not always generate profits, business owners should use the opportunity to sell additional products to customers. Likewise, service-oriented busi- nesses should consider offering incentives for customers to come back by signing up f o r a d d i t i o n a l a p p o i n t m e n t s . E - m a i l addresses and other personal information should be collected for future promotional needs. If Groupon is perceived more as an advertising strategy that requires careful management, business owners may, after all, achieve the ends of boosting their repu- tation and generating enhanced revenue.

CASE 1 Groupon

Questions 2-42. How have information systems enabled new, interesting busi-

ness models like that of Groupon? 2-43. What are the key components of Groupon’s current business

model? 2-44. How might Groupon leverage technology to strategically cre-

ate a competitive advantage?

Based on:

Anonymous. (2016). 1Q16 fact sheet. Groupon. Retrieved May 29, 2016, from http://investor.groupon.com

Griffith, E. (2015, March 20). Counterpoint: Groupon is not a success. Fortune. Retrieved May 29, 2016, from http://fortune.com/2015/03/20/groupon-success

Groupon. (2016, May 18). In Wikipedia, The Free Encyclopedia. Retrieved May 29, 2016, from https://en.wikipedia.org/w/index.php?title=Groupon&ol did=720943890

Hall, J. (2011, November 22). Groupon demand almost finishes cupcake- maker. The Telegraph. Retrieved May 29, 2016, from http://www.telegraph .co.uk/finance/newsbysector/retailandconsumer/8904653/Groupon-demand- almost-finishes-cupcake-maker.html

Purewal, S. J. (2010, December 5). Groupon nightmares (and how to avoid them). PCWorld. Retrieved May 29, 2016, from http://www.pcworld.com/ article/212328/how_to_avoid_groupon_nightmares.html

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86 Chapter 2 • GaininG Competitive advantaGe throuGh information SyStemS

Remember the old brick-and-mortar movie rental services? You drove to the physical location, scanned shelves for your movie of choice (too frequently, it wasn’t in), paid the clerk, and left. The flick was due back in 24 hours (or, at most, 3 to 5 days later), or you were billed a hefty late fee. In some cases, forgetful customers answered the door to find a police officer asking why they hadn’t returned a rental movie.

Movie rental stores still exist but in quickly dwindling numbers. Many alterna- tives have spawned, beginning with Netflix, the first and now the world’s largest online movie service. Though originally started as a mail-order DVD rental service, Netflix has rapidly embraced the streaming video mar- ket. As of December 2013, Netflix offered its 81 million subscribers in 190 countries tens of thousands of movie and television titles and, in 2015, accounted for 37 percent of all downstream web traffic during prime- time hours (the major streaming services combined accounted for a whopping 70 per- cent). Though Netflix continues to battle ris- ing costs as movie and TV studios raise their licensing fees, the company continues to dominate in the streaming market.

Other competitors have entered the mar- ket as well. Amazon’s Prime subscription service, in addition to providing discounts on fast shipping for all products, provides sub- scribers access to a vast library of movie and TV content. This content is available to users via Amazon’s mobile devices, like the

Kindle Fire, as well as the recently released Amazon FireTV, a US$99 set-top box that also supports gaming.

Apple and Google also compete in this space, though currently with a slightly differ- ent approach. iTunes has long been the leader in digital music distribution, and Apple moved seamlessly to movie and TV distribution as those became popular. The distinction from the Netflix and Amazon models is that iTunes provides a rental and purchasing marketplace, where customers can pay for temporary rights to a movie (rental) or may pay a higher price to pur- chase the movie for indefinite ownership. The Google Play store uses a similar rental/ purchase model. The advantage of this model is that movie and TV studios are much more willing to participate in this type of distribu- tion (which mirrors physical movie and TV distribution and the accompanying reve- nues). As a result, these marketplaces typi- cally provide the latest, most popular movies. In contrast, a drawback of Netflix and Ama- zon’s streaming services is their limited selection of popular or recent titles, as their streaming libraries are dependent on content deals they have made with individual studios.

One of the major advantages to these digital video distribution services is their ability to personalize a customer’s experi- ence to a degree previously not possible. These personalized services learn about a user’s preferences according to the movies

they frequently watch. From this data, the company creates a profile of each customer and a list of recommended movies. If, for example, a customer liked the movie Pro- metheus, he or she may also like the 1979 sci-fi classic Alien, and that movie will be included in a list of suggested movies. Cus- tomers can refine the recommendations by rating titles according to their preferences. These systems allow customers to tap large databases of movies, many of which they may not have been aware of at all.

Consider how fast things are changing. Just a few years ago, the only way to watch a movie other than paying to purchase it was to drive to a movie rental store like Blockbuster or Hollywood Video and pay to borrow a DVD for a few days. Today, that same entertainment can be obtained via any computer or mobile device or through an increasing number of “connected” TVs, Blu-ray players, or small video-streaming devices like the Amazon FireTV, AppleTV, or Google’s Chromecast. These services and devices have completely disrupted the movie rental business. Hollywood Video, once a major competitor to Blockbuster Video with stores all over the U.S., declared bankruptcy in 2010 and closed all of its stores. Blockbuster Video slowly bled cus- tomers until it too declared bankruptcy in 2010. Some stores remained open for a few years, but as of June 2016, customers could f i n d t h e B l o c k b u s t e r n a m e o n a m e r e 19 locations.

CASE 2 Streaming Video

Questions 2-45. In what ways has technology enabled the transformation and

destruction of the traditional video rental industry? 2-46. Paid programming from cable companies still largely follows

the model it has been following for the past few decades. How will technology and the public’s appetite for on- demand, streaming video change the cable television indus- try in the coming years?

2-47. Discuss whether and how Netflix or Amazon can continue to grow their business and revenues in the streaming video market.

Based on:

Blockbuster LLC. (2016, June 26). In Wikipedia, The Free Encyclopedia. R e t r i eve d J u n e 2 6 , 2 0 1 6 , f r o m h t t p s : / / e n . w i k i p e d i a . o rg / w / i n d ex .php?title=Blockbuster_LLC&oldid=727037281

Netf lix. (2016, June 24). In Wikipedia, The Free Encyclopedia. Retrieved June 26, 2016, from https://en.wikipedia.org/w/index.php?title=Netf lix&ol did=726823307

The Canadian Press. (2015, December 7). Netf lix, YouTube video streaming dominate internet traffic in North America. CBC news. Retrieved June 26, 2016, from http://www.cbc.ca/news/technology/video-streaming-traffic-1.3354182

Go to mymislab.com for auto-graded writing questions as well as the following assisted-graded writing questions.MyMISLab

TM

2-48. List and describe five general types of organizational strategy. 2-49. What is a business model, and what are its primary components?

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9090

Preview

Managing in the Digital WorlD:

From Google to Alphabet

Nearly everyone in the entire world knows a few global brands such as Apple, Coca-Cola, Sam-sung, and Toyota. Another powerful brand, Google, has become known around the world for its

ubiquitous search engine (Figure 3.1). But Google is

much more than a search engine. Google has very

diverse interests, from driverless cars and other technol-

ogies to life sciences, investment capital, and space

exploration through investments in SpaceX. Given this

diversity, many things that Google was exploring didn’t

fall neatly under a search engine company, not to men-

tion spending billions of dollars on many “blue ocean”

R&D projects that were not always viewed favorably by

investors. To make the point that Google is interested in

far more than search engines and to help sharpen the

focus of the various Google-owned companies, a hold-

ing company called Alphabet was created. This giant

restructuring of the Google empire has placed 10 com-

panies under the Alphabet umbrella (in early 2016) and

allows Alphabet to have different types of companies,

allowing investors the choice of investing in Alphabet

or in one of the subsidiary companies that are publicly

traded.

With this move to Alphabet, it has become much eas-

ier for investors to understand the Google business

model and how each of the various companies are con-

tributing to (or harming) Alphabet’s bottom line. For

example, Alphabet owns the robotics business Boston

Dynamics, life sciences company Verily, and home

Managing the Information Systems Infrastructure and Services3

Just as any city depends on a functioning infrastructure,

companies operating in the digital world are relying on a

comprehensive information systems (IS) infrastructure to

support their business processes and competitive strategy.

Transactions are conducted with ever-increasing speed; like-

wise, with ever-increasing amounts of data to be captured,

analyzed, and stored, companies have to thoroughly plan

and manage their infrastructure needs in order to gain the

greatest returns on their IS investments. When planning and

managing their IS architectures, organizations must answer

many important and difficult questions. For example, how

will we utilize information systems to enable our competitive

strategy? What technologies and systems best support our

core business processes? Which vendors should we partner

with, which technologies do we adopt, and which do we

avoid? What hardware, software, or services do we buy,

build, or have managed by an outside service provider? How

can we use cloud computing to increase our agility? Clearly,

effectively managing an organization’s IS infrastructure is a

complex but necessary activity in today’s digital world.

This chapter focuses on helping managers understand

the key components of a comprehensive IS infrastructure

and why its careful management is necessary. With the

increasing complexity of an organization’s information

needs and the increasing complexity of the systems

needed to satisfy these requirements, the topic of infra-

structure management is fundamental for managing in

the digital world.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab. com for simulations, tutorials, and end-of-chapter problems.

M03_VALA5200_08_SE_C03.indd 90 02/12/16 4:12 pm

91

After reading this chapter,

you will be able to do the

following:

the intention is for the various Alphabet companies to

be independent and develop their own brands and

innovations. This way, the likelihood of finding the next

new idea that can change the world is much higher.

Brin and Page believe that large companies get com-

fortable with their success and business model. Both

want to continue to innovate and create inventions that

can transform the world. For now, Google’s search

engine is bringing in most of the revenue and is highly

profitable. But these tech pioneers are looking toward

the future, aiming to take a long term view and

“improving the lives of as many people as [they] can.”

Clearly, Alphabet is about more than search engines,

and its founders are about more than resting on prior

accomplishments.

After reading this chapter, you will be able to answer

the following:

1. How does Google benefit from a well-functioning

infrastructure?

2. What are the major components of Google’s

infrastructure?

3. What are the factors organizations should consider

when building on infrastructure provided by Google?

Based on:

Anonymous. (n.d.). Our history in depth. Retrieved April 7, 2016, from http://www.google.com/about/company/history

Hempel, J. (2016, April 1). Google’s Alphabet transition has been tougher than A-B-C. Wired. Retrieved April 7, 2016, from http://www .wired.com/2016/04/googles-alphabet-transition-tougher-b-c

Nieva, R. (2016, January 29). Alphabet? Google? Either way, it’s ready to rumble. CNet.com. Retrieved April 7, 2016, from http://www.cnet .com/google-alphabet

Page, L. (2015). 2015 Update from the CEO. Alphabet.com. Retrieved April 7, 2016, from https://abc.xyz/investor/founders-letters/2015

automation company Nest Labs. With the restructuring,

financial reporting shows where revenue is generated

and where investments in new ideas are made. Investors

are thrilled with this new transparency, and many feel

that Alphabet will be more disciplined about where it

will place investment bets as successes and failures will

be more visible and tightly associated with a particular

company.

Alphabet is now one of the biggest companies in the

world. For most of us who use Gmail and Google Docs or

watch countless YouTube videos, the shift to Alphabet

won’t even be noticeable. However, for those in the

business and technology world, they better take notice!

Google’s founders Sergey Brin and Larry Page don’t

want to relax as simply the giants of online search; they

have “always strived to do more, and to do important

and meaningful things with the resources [they] have.”

Alphabet is not intended to be a big consumer brand;

1. Describe how changes in businesses’ competitive landscape influence changing IS infrastructure needs.

2. Describe the essential components of an organization’s IS infrastructure.

3. Discuss managerial issues associated with managing an organization’s IS infrastructure.

4. Describe cloud computing and other current trends that can help an organization address IS infrastructure–related challenges.

FIGURE 3.1 Google search page inside Google’s Chrome browser. Source: 2016 Google Inc. All rights reserved. Google and the Google Logo are registered trademarks of Google Inc.

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92 Chapter 3 • Managing the inforMation SySteMS infraStruCture and ServiCeS

The IS Infrastructure Most people expect a variety of basic municipal services, such as sanitation, security, transporta- tion, provision of energy and water, and so on, to be provided by the city they live in. Any area where people live or work needs a supporting infrastructure, which entails the technical struc- tures enabling the provision of services (Figure 3.2); many infrastructure components, such as power, telephone, water, and sewage lines, are “invisible” to the users, meaning that the users typically do not know (or even care) where, for example, their water comes from, as long as it f lows when they open their faucets. Other, more visible, infrastructure components include streets, schools, hospitals, and parks. Both the area’s inhabitants and businesses depend on the services provided by that infrastructure, and cities with a good infrastructure are considered more livable than cities with poorer infrastructure and are much more likely to attract businesses and residents.

For organizations, many decisions are based on the provision of such services, such as when choosing a site for a new manufacturing plant or company headquarters. Indeed, many munici- palities attempt to attract new businesses and industries by setting up new commercial zones with a well-planned infrastructure. In some cases, specific infrastructure components are of spe- cial importance, such as access to freeways or rail tracks or sufficient availability of cheap energy. Just as an aluminum smelter needs access to rail tracks or an ample supply of energy, the data centers powering much of the digital world need connectivity to the Internet backbone and energy for powering and cooling the computers. With rising costs of energy, companies such as Google, Apple, and Facebook are not only looking for technological advances to increase the efficiency of their data centers but also trying to find geographical locations where energy effi- ciency can be optimized (Figure 3.3). One such example is search engine giant Google, which built a data center in an abandoned paper mill in Hamina, Finland, where the cool climate reduced the need for cooling. This location also provided the necessary connectivity and allowed for using seawater for cooling. Likewise, Apple and Facebook built data centers in the high des- ert in Oregon, where power is cheap and the cool climate significantly reduces the need for cooling.

For organizations operating globally, local differences in infrastructure pose additional chal- lenges, particularly when operating in developing nations. For example, in many parts of the

Sanitation Transportation

Provision of Water and Energy…

FIGURE 3.2 Infrastructure components of a city enable the provision of basic services. Source: Edin Ramic/Shutterstock.

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Chapter 3 • Managing the inforMation SySteMS infraStruCture and ServiCeS 93

world, organizations cannot count on an uninterrupted supply of water or electricity. Conse- quently, many of the large call centers in India that support customers around the world for com- panies like Dell Computers or Citibank have installed massive power generators to minimize the effects of frequent power outages or have set up their own satellite links to be independent from the local, unreliable communications networks.

Just as people and companies rely on basic municipal services to function, businesses rely on an information systems infrastructure (also referred to as digital infrastructure) (consist- ing of hardware, system software, storage, networking, and data centers) to support their deci- sion making, business processes, and competitive strategy. Earlier, we defined business processes as the activities organizations perform in order to reach their business goals, including core activities that transform inputs and produce outputs and supporting activities that enable the core activities to take place. To enable such processes, organizations rely on three basic capabilities supported by information systems: processing, storage, and transmission of data (Figure 3.4). Hence, almost all of an organization’s business processes depend on the underlying IS infra- structure, albeit to different degrees.

Organizations nowadays are facing continuously changing business environments. Tradition- ally, companies were operating in relatively stable markets and could gain or sustain competitive advantage from relatively few innovations. Advances in information and communication technol- ogies have leveled the playing field, allowing even small companies from all over the world to compete on a global scale. As new competitors can literally come out of nowhere, any competi- tive advantage will be increasingly short-lived, forcing organizations to keep innovating.

This suggests that digital infrastructures can have a profound inf luence on not only busi- nesses but also individuals and society in at least three important ways. First, over time, new systems and capabilities are built on top of prior systems, acting to refine and extend the capa- bilities of prior generations of systems in ways much easier than physical infrastructure like roads and electrical grids, which are much more difficult to fundamentally change. This acts to accelerate innovation and change in ways never before possible. Second, again in contrast to other types of traditional infrastructure components, digital infrastructures are typically not con- trolled by a single business or government actor but are provided by companies such as Amazon, Google, and Switch. In other words, there is a competitive and market-based environment that acts to accelerate innovation and change. Third, digital infrastructures allow for platform-based business models that permeate almost every aspect of our daily lives, from having your Fitbit monitor your sleep and waking you in the morning, to making a Skype call with a friend in

FIGURE 3.3 Google uses solar energy to power its main campus in Mountain View, California. Source: Kimberly White/Thomson Reuters (Markets) LLC.

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94 Chapter 3 • Managing the inforMation SySteMS infraStruCture and ServiCeS

WHO’S GOING MOBILE Mobile Payments Are Transforming Developing Countries

In a relatively short period of time, mobile technologies have transformed the technology scene in many developing coun- tries. These countries have historically had poor infrastructure for communications technologies such as telephone lines. With the comparatively low cost of cellular communications technologies, however, citizens of developing nations have rapidly adopted cell phones and, increasingly, smartphones. For many people in developing countries, these devices are the only point of connection to the Internet and worldwide com- munications. But these devices have not only enabled individ- ual users to connect with the Internet, they have also transformed whole economies and societies.

in the united States and other Western countries, there is frequent talk of mobile payment systems using cell phones. Many payment platforms have been developed, but none has obtained wide enough adoption for the service to become ubiquitous. Slow adoption in Western countries is likely due to the widespread use of alternatives such as credit and debit cards and easy access to cash through banks and atMs. these established methods are comfortable and relatively secure.

However, in the developing world, such established and secure infrastructure, for the most part, is nonexistent. As such, the developing world is embracing mobile payment. In fact, do you care to make a guess where the largest of such mobile payment platforms is located? M-pesa, located in Kenya, has revolutionized mobile technology for millions. As in much of the developing world, widespread banking

infrastructure does not exist in Kenya. So, when people need to pay for a meal or a cab ride, especially in rural locations, mobile payments have become mainstream. In Kenya, it is eas- ier to pay for a cab ride with your mobile phone than it is just about anywhere else in the world. nearly 60 percent of Kenyans with cell phones use them for mobile payment and banking, primarily through the M-pesa system, and using mobile payments is rapidly spreading throughout the develop- ing world, from Afghanistan to Zimbabwe.

Mobile phones are still on the rise in the developing world. But their use is transforming society in many developing coun- tries. The ability to make and accept payments is fueling com- merce, resulting in many positive developments and change.

Based on:

Anonymous. (2014, February 13). Emerging nations embrace Internet, mobile technology. Pew Research. Retrieved April 9, 2016, from http://www.pewglobal.org/2014/02/13/emerging- nations-embrace-internet-mobile-technology

anonymous. (2015, May 5). Why are mobile payments so success- ful in developing countries? BBVA Innovation Center. Retrieved April 9, 2016, from http://www.centrodeinnovacionbbva.com/en/ news/why-are-mobile-payments-so-successful-developing-countries

anonymous. (2016, March 9). the financial inclusion revolution. Thom- son Reuters. Retrieved April 9, 2016, from https://blogs.thomsonreuters .com/answerson/financial-inclusion-mobile-money-revolution

fingas, J. (2016, March 2). apple leads the (tiny) mobile payment world. Engadget. Retrieved April 9, 2016, from http://www.engadget .com/2016/03/02/mobile-payment-market-share

Processing Storing

Transmitting

FIGURE 3.4 The information systems infrastructure enables processing, storing, and transmission of data.

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Europe, to working on your homework on the train, to Liking a post on Facebook in the evening. All day, everywhere, digital infrastructures are a key part of your life, whether you are a student, working full time, or retired. Given this pervasiveness, new digital ventures are leveraging these infrastructures to innovate and create value for customers. Likewise, with all this change and innovation, governments struggle to introduce policies that can enable adequate security and privacy without stifling innovation.

Facing this accelerating change enabled by digital infrastructures, organizations have to adapt or will sooner or later go out of business. Quickly adapting to a constantly changing com- petitive environment necessitates that businesses are increasingly flexible and agile. To achieve this flexibility and agility, organizations seek to align their organizational strategy and business processes with the right collection of systems and capabilities in the IS infrastructure. The for- mal definition of an organization’s technologies, systems, and processes that support an organi- zation’s specific business processes and strategy is referred to as the information systems architecture. In other words, the IS infrastructure has a broad and flexible set of capabilities that can be utilized in a variety of ways. The IS architecture reflects the specific capabilities from this overarching set of capabilities to support the specific strategy and processes of an organization. As discussed in Chapter 2, “Gaining Competitive Advantage Through Information Systems,” business–IT alignment is a continuous process of adjusting business goals and the IS architec- ture to achieve business objectives (Figure 3.5). To achieve alignment, changing business condi- tions drive changes in what IS infrastructure components and capabilities are utilized, resulting in a refinement of the organization’s IS architecture. Likewise, changes and enhancements in the IS infrastructure enable innovative business models and processes and associated refinements to the IS architecture. In addition, any lack of availability, performance, or security (e.g., the news of an organization’s website being attacked by hackers or collapsing under unanticipated cus- tomer demand) is often immediately visible to customers or other stakeholders, potentially lead- ing to loss of business, trust, and goodwill. Thus, organizations’ business processes need to be supported by the right applications and the right data, which in turn rely on a robust and evolving IS infrastructure (Figure 3.6). In sum, organizations rely on a complex, interrelated IS infrastruc- ture to thrive in the ever-increasingly competitive digital world.

To get a better understanding of an IS infrastructure, we first provide a brief overview of how applications and databases support business processes and then discuss how hardware,

Business Changes Drive

Changing Needs

IS Infrastructure

Enables Innovation

FIGURE 3.5 Business–IT alignment drives IS infrastructure changes to enable innovative business models and processes.

Business Processes

Applications  Databases

Infrastructure Hardware

System Software Storage

Networking Data Centers

FIGURE 3.6 A robust and evolving IS infrastructure is needed to support an organization’s strategy and business processes.

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system software, storage, networking, and data centers interact to form an organization’s IS infrastructure. Note that in this chapter, we will primarily focus on these components from a business perspective. For more technical details, please refer to the Technology Briefing.

Applications and Databases Supporting Business Processes Data are probably among the most important assets an organization has, as data are essential for both executing business processes and gaining business intelligence. No matter what the business process is, data are used, processed, or generated along the way. For example, business processes associated with manufacturing products need data about inventory levels of raw materials, pro- duction capacities, and demand forecasts; likewise, back-office business processes associated with accounts receivable need data about customers, sales, receipts, and so on. In addition, increasing amounts of data are used for gaining business intelligence. Data once taken for granted or never collected at all are now used to make organizations more productive and competitive. Stock prices in the market, potential customers who meet a company’s criteria for its products’ target audiences, as well as the credit rating of wholesalers and customers are all types of data that organizations collect and analyze to turn into useful information. Yet just having access to data is not sufficient; it is through applications that the data can be used effectively. Next, we brief ly describe the role of application software in supporting an organization’s business processes.

ApplIcATIon SofTwAre. Organizations are continuously looking for ways to streamline and automate business processes so as to generate more revenue or reduce costs and make the organization more profitable. Application software helps to automate business processes and enables processes that would otherwise not even be possible. Accountants have for centuries used thick books for maintaining the accounting records of a business; automating the associated tasks using accounting software applications not only has helped to make the tasks less effortful and reduce error rates but in addition allows quick analysis of accounting records so as to examine sales trends, delinquencies, profit margins, and the like. Similarly, automating inventory management functions using specialized inventory management software not only helps keep a more accurate and up-to-date inventory but can also generate a wealth of data that can be used to optimize inventory levels, taking into account the costs of keeping inventory and the potential costs of stockouts. E-commerce websites such as Amazon.com would not be possible without the applications needed for automatically processing transactions.

In addition to various types of application software for different business functions, other types of application software let users perform tasks such as writing business letters, managing stock portfolios, or manipulating forecasts to come up with the most efficient allocation of resources for a project. Application software also includes personal productivity software such as Microsoft Office; supply chain management systems to support the coordination of suppliers as well as the production and distribution of products or services; or customer relationship man- agement (CRM) systems to help companies win and retain customers, gain marketing and cus- tomer insights, and focus on customer service (as discussed in Chapter 1, “Managing in the Digital World”).

Many types of application software supporting business processes interact with databases, which allow them to efficiently retrieve and store the data needed for executing business pro- cesses and gaining business intelligence. Databases are discussed next.

DATAbASeS. Databases, which are collections of related data organized in a way that facilitates data searches, are vital to an organization’s operations and often are vital to competitive advantage and success. In organizations, databases are performing various important functions. On the most fundamental level, databases are used to store data and to make the data accessible where and when needed. More specifically, the use of databases to store organizational data ranging from inventory to demand forecasts to customer data enables applications from across an organization to access the data needed. Typically, various business processes throughout an organization make use of the same data, and providing the associated applications with quick and easy access to the data can help streamline and optimize these processes. For example, if a salesperson has access to inventory levels, she can quickly give precise estimates of delivery times, which may help close the sale. Similarly, if business processes associated with inbound logistics or operations have access to order forecasts, this can help to streamline procurement and production processes, helping to avoid stockouts and minimize money tied up in excess inventory. Likewise, the use of databases enables the automation of various processes in the

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organization. Well-managed databases can help to provide organization-wide access to the data needed for different business processes.

Additionally, database technology fuels electronic commerce, from helping to display avail- able products for sale to providing customer service. For example, any product information you see on e-commerce sites such as Amazon.com is dynamically retrieved from databases; any changes to product information, pricing, or shipping estimates do not require changes to the product’s web page itself but can be accomplished by simply changing the associated entry in the database. A customer viewing a product on Amazon.com receives a web page that is assem- bled by a web server using data coming from different databases (e.g., containing data about products, inventory, pricing, or customer reviews), a content server (e.g., for product images), and other sources (Figure 3.7); the actual transaction then involves product data, inventory data, customer data, payment data, confirmation e-mails, and so on. In order to harness the power of the data contained in the databases, organizations use database management systems (DBMSs), which are a type of software that allows organizations to more easily store, retrieve, and analyze data.

ETHICAL DILEMMA Putting People’s Lives Online

Is that a man breaking into an apartment? There’s obviously a house on fire. The lady in this picture looks exactly like my next- door neighbor, and those are obviously my clothes drying in my backyard. Search a random location on google Maps, and you may find—via the Street view feature—the most unexpected candid shots of people walking on the street, waiting for a bus, or even hanging out in places they may not want others to know about. Without doubt, google Maps can be tremendously use- ful; combining traditional maps, information from the web, and innovative technology, the application is a helpful assistant for planning trips, locating businesses, and so on. However, Google Maps has been under fire since the introduction of the Street view feature, with many questioning whether a strict line has been unnecessarily crossed in the invasion of public privacy.

The biggest argument behind the dilemma is the collective sense of intrusion that has stimulated concerns of losing one’s privacy—parents are worried pictures of their children could possibly make them targets of child predators, and people vis- iting adult shops simply do not find it essential for the entire world to know where they went last Saturday afternoon. Although Google has so far attempted to ease public concern by blurring the faces of people, license plate numbers, and house numbers, it still is rather awkward to find, say, a good shot of your underclothes hanging on the clothesline and be informed about it by another person. the way Street view operates indeed creates a sense of insecurity; many critics erro- neously believe that Street view resembles having a gigantic security camera capturing their every move without their con- sent or further, even without their being aware of it. Addition- ally, when collecting pictures for Street view, google conceded that it violated privacy when it scooped up passwords, e-mail, and other personal information from unsuspecting computers as it drove through cities and neighborhoods.

the issues surrounding google’s Street view highlight an even broader issue: With ever more (often very personal) data being stored, shared, and exchanged in the cloud, companies such as Google, Facebook, and Apple effectively become the custodians of data that have the potential to ruin the lives of an untold number of people. Having access to vast amounts of data provides the potential of monetizing the data in some way.

Questions 1. What laws should govern how Facebook, Google, and

other companies handle their customers’ online data? What should be the penalties of misuse?

2. How can a company balance the responsibility that comes with having access to the data with the responsibility toward the company’s shareholders to maximize profits?

Based on:

anonymous. (2014, May 17). Cut that link. The Economist. Retrieved April 9, 2016, from http://www.economist.com/news/ b u s i n e s s / 2 1 6 0 2 2 3 9 - e u ro p e a n - c o u r t - j u s t i c e - f o rc e s - g o o g l e - remove-links-some-personal-information-cut

google Street view privacy concer ns. (2016, March 25). in Wikipedia, The Free Encyclopedia. Retrieved April 10, 2016, f r o m h t t p s : / / e n . w i k i p e d i a . o r g / w / i n d e x . p h p ? t i t l e = G o o g l e _ Street_view_privacy_concerns&oldid=711939470

Scott, M. (2016, March 24). google fined by french privacy regula- tor. The New York Times. Retrieved April 9, 2016, from http://www .nytimes.com/2016/03/25/technology/google-fined-by-french-privacy- regulator.html

Streitfeld, d. (2013, March 12). google concedes that drive-by prying violated privacy. The New York Times. Retrieved April 9, 2016, from http://www.nytimes.com/2013/03/13/technology/google-pays-fine- over-street-view-privacy-breach.html

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Finally, databases support storing and analyzing Big Data from a variety of sources. Gain- ing insights from internal and external sources (such as social media) can provide valuable busi- ness intelligence for organizations.

How these data are collected, stored, and manipulated is a significant factor influencing the success of modern organizations. As databases have become a critical component for most orga- nizations, they rely on a solid underlying IS infrastructure (note that sometimes, databases are considered part of the infrastructure; given their importance and role in an organization’s busi- ness processes, we do not consider them infrastructure). In Chapter 6, “Enhancing Business Intelligence Using Big Data and Analytics,” we talk more about the benefits of effectively and efficiently collecting, storing, and manipulating data stored in databases.

IS Infrastructure components Computing, storage, and networking technologies can create value by enabling efficiency, effec- tiveness, and agility. In recent times, fueled by globalization, e-commerce, and advances in tech- nology, a well-functioning IS infrastructure has become increasingly important for organizations, leading to the need for making informed infrastructure decisions. In this section, we will intro- duce hardware, system software, storage, networking, and data centers and discuss how making the right choices about the IS infrastructure can contribute to business success.

Hardware A fundamental component of the IS infrastructure is the hardware—that is, the computers that run the applications and databases necessary for processing transactions or analyzing business data. As organizations need to carry out hundreds or thousands of different activities belonging to various business processes, they need different types of computers to support these processes. The six general classes of computers are supercomputer, mainframe, server, workstation, per- sonal computer, and mobile device (Table 3.1). A supercomputer is the most expensive and most powerful kind of computer. Typically, supercomputers are not used by business organiza- tions; they are used primarily to assist in solving massive scientific problems. In contrast, large mainframe computers are used primarily as the main, central computing system for major cor- porations; optimized for high availability, resource utilization, and security, mainframes are typi- cally used for mission-critical applications, such as transaction processing. A server is any computer on a network that makes access to files, printing, communications, and other services available to users of the network. Servers are used to provide services to users within large orga- nizations or to web users. Servers are optimized for access by many concurrent users and there- fore have more advanced microprocessors, more memory, and more disk storage than single-user computers; servers also boast high reliability and fast network connectivity. To support different business processes, organizations often have many different servers in different configurations. For example, whereas some web servers display the same static web pages for every visitor (as is the case with many informational websites), others are designed to dynamically create web pages based on user requests (e.g., Facebook displays content based on each individual user’s network of friends); such servers have different requirements (e.g., in terms of processing power, network connectivity, or software) than e-mail servers, print servers, or other types of servers.

Inventory Database

Content Server

Product Database

Web Server

FIGURE 3.7 Dynamic web pages are assembled using data from various databases.

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In contrast to mainframes and servers, which are designed for multiple concurrent users, workstations and personal computers are typically used by one user at a time. Workstations, designed for medical, engineering, architectural, or animation and graphics design uses, are optimized for visualization and rendering of 3D models and typically have fast processors, large memory, and advanced video cards. Personal computers (PCs) and notebook computers are used for personal computing and small business computing. Finally, mobile devices—tablets and smartphones—have increasingly become part of an organization’s information systems infrastructure. In contrast to general-purpose computers, embedded systems are optimized to perform a well-defined set of tasks, ranging from playing MP3 music files to controlling engine performance, traffic lights, or DVD players. Relatedly, programmable logic controllers (PLCs) are used to automate machines and can control everything from manufacturing processes to ski lifts. In addition to the processing components, IS hardware also encompasses input devices (such as computer mice, touch screens, or cameras) and output devices (such as monitors, print- ers, or speakers). With the advent of the Internet of Things (IoT), various sensors, controllers, and other single-purpose, nontraditional computing devices are used to provide valuable data as input to different processing technologies. For example, in one of the electronics factories of Siemens, a combination of sensors, PLCs, and manufacturing machines handles 75 percent of the entire production process (and, along the way, generates 50 million pieces of data per day); further, the use of Industrial Internet of Things devices such as sensors and intelligent product codes enables the products to tell the machines what should be done, enabling self-organizing production processes. Another key IoT technology helping to monitor product f lows is radio frequency identification (RFID), which is rapidly replacing the standard bar codes you find on almost every product. RFID uses electromagnetic energy to transmit data between a reader (transceiver) and a processing device, or RFID tag.

TABLE 3.1 characteristics of computers currently being Used in organizations

Type of Computer

Number of Simultaneous Users Physical Size Typical Use

Random Access Memory

Typical Cost (in US$)

Supercomputer One to many Like an automobile to as large as multiple rooms

Scientific research

5,000+ GB

Up to $200 million

Mainframe 1,000+ Like a refrigerator

Transaction processing, enterprise- wide applications

Up to 3,000+ GB

Up to $10 million

Server 10,000+ Like a DVD player and mounted in a rack to fitting on a desktop

Providing websites or access to data- bases, applica- tions, or files

Up to 512 GB

Up to $50,000

Workstation Typically one

Fitting on a desktop to the size of a file cabinet

Engineering, medical, graphic design

Up to 512 GB

Up to $10,000

Personal computer

One Fitting on a desktop

Personal productivity

512 MB to 32 GB

Up to $5,000

Mobile device One Handheld Personal productivity

512 MB to 6 GB

Up to $750

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RFID tags can be used just about anywhere a unique identification system might be needed, such as on clothing, pets, cars, keys, missiles, or manufactured parts. RFID tags can range in size from being a fraction of an inch, which can be inserted beneath an animal’s skin, up to several inches across and affixed to a product or shipping container (Figure 3.8). The tag can carry data as simple as the name of the owner of a pet or as complex as how a product is to be manufac- tured on the shop floor.

RFID systems offer advantages over standard bar code technologies in that RFID eliminates the need for line-of-sight reading. RFID also does not require time-consuming hand scanning, and RFID data is readable regardless of the entity’s position or whether the tag is plainly visible. RFID tags can also contain more data than bar codes. Further, a company can program any data that it wants or needs onto an RFID tag, enabling a vast array of potential uses. Thus, it is possi- ble to retrieve data about an entity’s version, origin, location, maintenance history, and other important data and to manipulate that data on the tag. RFID scanning can also be done at greater distances than can bar code scanning. Passive tags are small and relatively inexpensive (starting from a few cents) and typically have a range up to several feet. Active tags, on the other hand, cost upward of US$5, include a battery, and can transmit hundreds of feet. Together with other IoT devices and Big Data, RFID systems have the potential to revolutionize production pro- cesses in countless industries (see Chapter 8, “Strengthening Business-to-Business Relation- ships via Supply Chain and Customer Relationship Management”).

The application software used for various business processes cannot directly interact with these various types of hardware. Rather, the application software interacts with the system soft- ware, which, in turn, interacts with the computer hardware.

System Software System software is the collection of programs that control the basic operations of computer hardware. The most prominent type of system software, the operating system (e.g., Windows, OS X, Ubuntu Linux), coordinates the interaction between hardware components (e.g., the CPU and the monitor), peripherals (e.g., printers), application software (e.g., office programs), and users, as shown in Figure 3.9. Operating systems are often written in assembly language, a very low-level computer programming language that allows the computer to operate quickly and effi- ciently. The operating system is designed to insulate you from this low-level language and make computer operations unobtrusive. Further, the operating system provides a common layer for different underlying devices so that applications only have to be developed for different operat- ing systems rather than for each different computer model (Figure 3.10); device drivers allow the computer to communicate with various different hardware devices. The operating system performs all of the day-to-day operations that we often take for granted when using a computer, such as updating the system clock, printing documents, or saving data to a hard drive. Just as our brain and nervous system control our body’s breathing, heartbeat, and senses without our con- scious realization, the system software transparently controls the computer’s basic operations. Mobile operating systems, such as Android, Windows 10 Mobile, or iOS, are optimized for mobile devices.

FIGURE 3.8 RFID tags can range in size from being a fraction of an inch up to several inches across. Source: albert Lozano-nieto/fotolia.

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common operATIng SySTem fUncTIonS. Many tasks are common to almost all computers. These include getting input from a keyboard or mouse, reading from and/or writing to a storage device (such as a hard disk drive), and presenting information to you via a monitor. Each of these tasks is performed by the operating system. For example, if you want to copy a word processing file from a f lash drive onto your computer, the operating system makes this very easy for you, as all it takes is simply using the mouse to point at a graphic icon of the word processing file on the flash drive, then clicking and dragging it onto an icon of your hard disk. The operating system makes this process appear easy. However, underlying the icons and simple dragging operations is a complex set of coded instructions that tell the electronic components of the computer that you are transferring a set of bits and bytes located on the f lash drive to a location on your internal hard disk. Imagine if you had to type sets of instructions every time

OP ERATI

NG SYSTEM

Users

Peripherals Application Software

Word Processing Software

FIGURE 3.9 Operating systems coordinate the interaction between users, application software, hardware, and peripherals.

Application

Operating System

FIGURE 3.10 Operating systems provide a common layer for different underlying devices so that applications only have to be developed for different operating systems rather than for each different computer model.

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you wanted to copy a file from one place to another. The operating system manages and executes these types of system operations so that you can spend your time on more important tasks.

Storage In addition to processing and analyzing vast amounts of data, efficiently storing and retrieving data is key for organizational success. Further, governmental regulations such as the Sarbanes– Oxley Act mandate archiving business documents and relevant internal communication, includ- ing e-mail and instant messages. Hence, organizations are faced with the need to reliably process and store tremendous amounts of data, and this storage requirement is growing at an increasing rate. Earlier, we discussed the role of databases in supporting organization-wide business pro- cesses. To enable efficient storage and retrieval of the content of such databases (as well as digi- tal content not stored in databases), organizations need to have a solid storage infrastructure. One can distinguish between three distinct types of data, based on their purpose, each with dis- tinct requirements in terms of timeliness, searchability, access speed, and life span (Figure 3.11):

■■ Operational data—data used for managing business processes, such as for processing trans- actions or for data analysis

■■ Backup data—short-term copies of organizational data, used to recover from system- related disaster (Backup data are frequently overwritten with newer backups.)

■■ Archival data—long-term copies of organizational data, often used for compliance and reporting purposes

COMING ATTRACTIONS Making Death Optional?

As medical science races forward with brain-controlled artificial limbs, nano-implants, and life-saving and extending treat- ments, it seems that almost anything is possible. Many compa- nies, including Google, are working on ways to extend our lives by tens if not hundreds of years, but Humai, a small Los Angeles-based research company, wants to turn this idea on its head. Humai researchers are actually trying to extend the human lifetime indefinitely by being able to upload your con- sciousness onto computers that can control a robot. Humai will use artificial intelligences techniques to capture and store a person’s conversational styles, behavior, and thought pro- cesses. Its plan is to take this data and fuse it with a brain from a deceased human, which will then control an artificial body. It sounds like a movie plot from nearby Hollywood, but this is not fiction. At this time, Humai believes that it may take up to 30 years to solve the various technical challenges.

To achieve this vision, Humai will need to solve many tech- nical challenges. Between now and the time it is possible to complete the process, Humai will collect an extensive amount of data for years prior to a person’s death. At a person’s death, it will freeze the brain using cryonics technology until it is able to implant the brain into an artificial body. It believes that the embedded brain will be able to control the artificial body much like we control our own.

Humans have always been fascinated with living forever, from the myth of a “fountain of youth” that would restore youth to anyone who drinks or bathes in its waters to many

popular movies including the classic Dracula, Avatar, and Forever Young. Many skeptics believe that humai is not likely to succeed with its 30-year projection, but many prominent scientists believe that such advances are possible and may eventually be achieved someday. do you want to live forever, even if it’s in a body of a robot?

Based on:

gershgorn, d., & fecht, S. (2015, november 24). humai wants to res- urrect humans within 30 years. Australian Popular Science. Retrieved May 20, 2016, from http://www.popsci.com.au/science/medicine/ humai-wants-to-resurrect-humans-within-30-years,412164

humai. (n.d.). retrieved May 20, 2016, from http://humaitech.com

Lambrechts, S. (2015, november 25). new startup could make death obsolete within 3 decades. TechRadar. retrieved May 20, 2016, from http://www.techradar.com/news/world-of-tech/ new-startup-could-make-death-obsolete-within-3-decades-1309696

Moye, d. (2015, november 28). dear future dead people, don’t trust this guy’s plan to resurrect you. The Huffington Post. Retrieved May 20, 2016, from http://www.huffingtonpost.com/entry/tech- company-humai-aims-to-resurrect-dead-people-within-30-years_ us_56549096e4b0879a5b0c7b65

Woollaston, v. (2015, november 26). Bringing people back from the dead using artificial intelligence: humai plans to wire brains of the deceased to “personality” chips. The Daily Mail. retrieved May 20, 2016, from http://www.dailymail.co.uk/sciencetech/article-3335080/ Bringing-people-dead-using-artificial-intelligence-humai-plans-wire- brains-deceased-personality-chips.html

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These different uses of organizational data call for different physical storage technologies. For example, operational data are typically stored in databases (e.g., data from transaction pro- cessing systems or customer data) or files (e.g., business documents, images, or company bro- chures) using disk-based storage media such as hard drives. Hard drives offer high access speeds and are thus preferred for data that are frequently accessed or where response time is of the essence (as in an e-commerce website); in addition, flash-based storage is increasingly used for situations where access speed is of crucial importance. To ensure continuous business operations in case disaster strikes, organizations periodically back up their data to a secure location; often, companies have completely redundant systems so as to be able to seamlessly continue business if the primary systems fail (see Chapter 10, “Securing Information Systems”). Storing backup data on hard drives enables quick recovery without slowing the company’s operations. Data that are no longer used for operational purposes (such as old internal e-mails) are archived for long- term storage, typically on magnetic tapes. As data are stored sequentially on magnetic tapes, access speed can be very slow and data is not quickly searchable; however, magnetic tape has a shelf life of up to 30 years, is very low cost as compared to other storage media, and is remov- able, meaning that it is highly expandable and tapes can be easily stored in a secure, remote location (see the Technology Briefing for more on different storage technologies).

Networking As you have seen, organizations depend on a variety of different applications, hardware, and storage technologies to support their business processes: Organizations have servers, main- frames, personal computers, storage devices, mobile devices, environmental control systems, and various other devices. Yet, taken alone, each individual piece of technology has little value; it is through connecting the different pieces that business value can be realized: For example, the best-performing database would be useless if it could not be accessed by those people or appli- cations throughout the organization that depend on the data. Further, one of the reasons why information systems have become so powerful and important is the ability to interconnect, allowing internal and external constituents to communicate and collaborate with each other, and many innovative business models would not exist without the Internet. The infrastructure sup- porting this consists of a variety of components, such as the networking hardware and software that facilitate the interconnection of different computers, enabling collaboration within organiza- tions, across organizations, and literally around the world.

HUmAn commUnIcATIon AnD compUTer neTworkIng. Human communication involves the sharing of information and messages between senders and receivers. The sender of a message formulates the message in his brain and codes the message into a form that can be communicated to the receiver—through voice, for example. The message is then transmitted

Access Speed Searchability

Timeliness

Life Span

Recovery NEXT EXIT

FIGURE 3.11 Operational, backup, and archival data have different requirements.

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along a communication pathway to the receiver. The receiver, using her ears and brain, then attempts to decode the message, as shown in Figure 3.12. This basic model of human communication helps us to understand telecommunications or computer networking. Computer networking is the sharing of data or services. The information source produces a message, which is encoded so that it can be transmitted via a communication channel; a receiver then decodes the message so that it can be understood by the destination. Thus, analogous to human communication, computer networks require three things:

■■ A sender (source) and a receiver (destination) that have something to share (a message) ■■ A pathway or transmission medium, such as a cable, to send the message ■■ Rules or protocols governing communication between senders and receivers

The easiest way to understand computer networking is through the human communication model. Suppose you are applying for a job in France after graduation. You need information about different employers. The first requirement for a network—information to share—has now been met. After contacting a few potential employers, a company sends you information about its hiring process (the encoded message) via e-mail. This is the second requirement: a means of transmitting the coded message. The Internet is the pathway or transmission medium used to send the message. Transmission media refers to the physical pathway—cable(s) and wireless— used to transmit data. At this point, you may run into some difficulties. If the potential employer has sent you information in French, you may not understand what he or she has written—that is, decode the message—if you don’t speak French; if the message is not understood by the receiver, there is no communication. Although you have contacted the receiver, you and the receiver of your message must meet the third requirement for successful communication: You must estab- lish a language of communication—the rules or protocols governing your communication. Pro- tocols define the procedures that different computers follow when they transmit and receive data. You both might decide that one communication protocol will be that you communicate in English. This communication session is illustrated in Figure 3.13.

1. Sender develops and codes message

2. Sends message 3. Receiver receives and decodes message

Sender Receiver

How are you?

How are you?

FIGURE 3.12 Communication requires senders, a message to share, and receivers.

1. Coding message 2. Sending message 3. Receiving and decoding message

@

Is this French? I speak only English."Monsieur,..."

FIGURE 3.13 Coding, sending, and decoding a message.

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compUTer neTworkS. A fundamental difference between human and computer communication is that human communication consists of words, whereas computer communication consists of bits, the smallest unit of data used by computers. Virtually all types of content can be transmitted on a computer network—documents, art, music, or film—although each type has vastly different requirements for effective transmission. For example, a page of text is approximately 14 KB of data, whereas a publication-quality photograph could be larger than 200 MB of data. Similarly, to support different business processes, businesses operating in the digital world transmit vast amounts of data, ranging from customer data to sales data to design blueprints. To transmit such vast amounts of data in a timely manner from one location to another, adequate bandwidth is needed. Bandwidth is the transmission capacity of a computer or communications channel, measured in bits per second (bps) or multiples thereof, and represents how much binary data can be reliably transmitted over the medium in one second. To appreciate the importance of bandwidth for speed, consider how long it would take to download a 45-minute TV show (about 200 megabytes) from iTunes. It would take about six minutes at 1 megabit per second (Mbps) (regular cable or DSL connection) and two minutes at 15 Mbps (high-speed cable or DSL connection). In contrast, using an old-fashioned PC modem that transmits data at a rate of 56 kilobits per second (Kbps), it would take almost nine hours to download the same TV show. Hence, different types of information have different communication bandwidth requirements (see www.numion.com/Calculators/Time.html for a tool that helps you calculate download times). Typical local area networks have a bandwidth of 10 Mbps to 1 Gbps.

Telecommunications advances have enabled individual computer networks—constructed with different hardware and software—to connect together in what appears to be a single net- work. Networks are increasingly being used to dynamically exchange relevant, value-adding information and knowledge throughout global organizations and institutions. The following sec- tions take a closer look at the fundamental building blocks of these complex networks and the services they provide.

Servers, Clients, and Peers Computers in a network typically have one of three distinct roles—servers, clients, and peers—as depicted in Figure 3.14. A server is any computer on the network that makes access to files, printing, communications, and other services available to users of the network. Servers only provide services. A client is any computer, such as a user’s PC or laptop, on the network or any software application, such as Microsoft’s Outlook e-mail client, that uses the services provided by the server. Clients only request services. A client usually has only one user, whereas many different users share the server. So-called thin clients— microcomputers with minimal memory, storage, and processing capabilities—use desktop virtualization to provide workers with a virtual desktop environment, helping to reduce costs for software licensing or maintenance and to comply with stringent privacy and data protection laws. A peer is any computer that may both request and provide services. Businesses typically use client-server networks, in which servers and clients have defined roles. With ubiquitous access to company local area networks (LANs) and the Internet, almost everyone works in a client-server environment today. In contrast, peer-to-peer (P2P) networks enable any computer

Server

Client

Client

Peer Peer

FIGURE 3.14 A server is a computer on the network that enables multiple computers (or “clients”) to access data or services. A peer is a computer that may both request and provide services.

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or device on the network to provide and request services; these networks can be found in small offices and homes. In P2P networks, all peers have equivalent capabilities and responsibilities; this is the network architecture behind the Internet telephony service Skype and popular file- sharing protocols such as BitTorrent, which allow peers to connect directly to the hard drives of other peers on the Internet that are utilizing the software.

Types of Networks Computing networks are commonly classified by size, distance covered, and structure. The most commonly used types are personal area networks, local area networks, and wide area networks (Table 3.2). These networks are typically used to connect devices within an organization or across organizational subunits. Wide area networks can range from spanning multiple buildings (sometimes called a campus area network) to covering the area of a city (sometimes called a metropolitan area network) to worldwide (the Internet). To enable the connection of mobile devices or to install a network where running cables is infeasible, organizations install wireless local area networks (WLANs) using high-frequency radio-wave technology; WLANs are also referred to as Wi-Fi (wireless fidelity) networks. The ease of installation has made WLANs popular for business and home use, and public WLANs can be found in many coffee shops, airports, or university campuses. For more on the different types of networks, see the Technology Briefing.

THe InTerneT. One global network that has enabled organizations and individuals to interconnect in a variety of ways is the Internet, a large worldwide collection of networks that use a common protocol to communicate with each other. The name Internet is derived from the concept of internetworking, which means connecting host computers and their networks together to form even larger networks.

worlD wIDe web. One of the most powerful uses of the Internet is something that you probably use almost every day—the World Wide Web. The World Wide Web is a system of interlinked documents on the Internet, or a graphical user interface to the Internet that provides users with a simple, consistent interface to access a wide variety of content. A web browser is a software application that can be used to locate and display web pages, including text, graphics, and multimedia content.

A key feature of the web is hypertext. A hypertext document, otherwise known as a web page, contains not only content but also hyperlinks, which are references or links to other docu- ments. The standard method of specifying the structure and content of web pages is called Hypertext Markup Language (HTML). Specific content within each web page is enclosed within codes, or markup tags, that specify the structure and content of a document. These web pages are stored on web servers, which process user requests for pages using the Hypertext Transfer Protocol (HTTP). Web servers typically host a collection of interlinked web pages (called a website) that are owned by the same organization or by an individual. Websites and specific web pages within those sites have a unique Internet address. A user who wants to access a web page enters the address, and the web server hosting the website retrieves the desired page

TABLE 3.2 Types of networks

Type Usage Size

Personal area network (PAN) Wireless communication between devices, using tech- nologies such as Bluetooth

Under 10 meters

Local area network (LAN) Sharing of data, software applications, or other resources between several users

Typically within a building

Wide area network (WAN) Connect multiple LANs, often with distributed ownership and management

Large physical distance, from spanning multiple buildings or the area of a city to worldwide (Internet)

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from its hard drive and delivers it to the user. In addition, web servers often employ scripting languages to assemble pages on the fly or retrieve data from databases and insert it into the page presented to the user (see the Technology Briefing). As data traveling between a server and a the user’s computer can easily be intercepted and there are growing concerns about legitimate and illegitimate monitoring of web traffic, many organizations now routinely use the more secure HTTPS protocol for any data that are being transmitted over the web (a padlock icon in your browser’s address bar signals that a secure protocol is being used).

Web Domain Names and Addresses A Uniform Resource Locator (URL) is used to identify and locate a particular web page. For example, www.google.com is the URL used to find the main Google web server. The URL has three distinct parts: the domain, the top-level domain, and the host name (Figure 3.15).

The domain name is a term that helps people recognize the company or person that the domain name represents. For example, Google’s domain name is google.com. The prefix google lets you know that it is very likely that this domain name will lead you to the website of Google. Domain names also have a suffix that indicates which top-level domain they belong to. For example, the “.com” suffix is reserved for commercial organizations. Some other popular suf- fixes are listed here:

■■ .edu—educational institutions ■■ .org—organizations (typically nonprofit organizations) ■■ .gov—U.S. government entity ■■ .de—Germany (there are more than 240 two-letter country code top-level domains)

Domain names can be registered through many different companies (known as registrars) that compete with one another. Given the proliferation of domain names, more generic top-level domains (gTLDs) have been added, such as .aero for the air transport industry, .name for indi- viduals, .coop for business industry cooperatives, and .museum for museums. In 2012, the ICANN (Internet Corporation for Assigned Names and Numbers—the organization that coordi- nates the domain name system) relaxed the strict rules for gTLDs so that regions, businesses, or other entities can apply for their own gTLD. For example, new gTLDs include .bike, .club, .tips, and .cab as well as many other gTLDs coming soon. The new gTLDs also allow for the use of non-Latin characters, such as in the Russian gTLD .онлайн (meaning “online”).

The host name is the particular web server or group of web servers (if it is a larger website) that will respond to the request. In most cases, the “www” host name refers to the default web- site including the home page of the particular domain. Other host names can be used. For exam- ple, drive.google.com will take you to the group of web servers that are responsible for serving up Google’s cloud-based storage for documents. Larger companies have several host names for their different functions. Some examples used by Google are the following:

■■ mail.google.com (Google’s free e-mail service) ■■ photos.google.com (Google’s application for organizing and editing photos) ■■ maps.google.com (Google’s mapping application)

All the domain names and the host names are associated with one or more Internet protocol (IP) addresses. IP addresses serve to identify all the computers or devices on the Internet. The IP address serves as the destination address of that computer or device and enables the network

Host Name

Domain Name

Top-Level Domain Name

www.google.com

FIGURE 3.15 Dissecting a URL.

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to route messages to the proper destination. Traditionally, the format of an IP address (version 4) is a 32-bit numeric address written as four numbers separated by periods (the latest version, IPv6 uses 128-bit addresses, enabling more devices to be connected to the Internet). Each of the four numbers can be any number between 0 and 255. For example, 128.196.134.37 is an underlying IP address of www.arizona.edu, the University of Arizona’s main web page.

IP addresses can also be used instead of URLs to navigate to particular web addresses. This practice is not done regularly, as IP addresses are far more difficult to remember than domain names, and an organization may assign its domain name to a server with a different IP address; for example, whereas the IP address behind google.com may change, the domain name stays the same.

In addition to specifying the address of the web server, URLs typically also include the path to the requested resource, such as a particular page located in a particular directory (e.g., http:// mis.eller.arizona.edu/faculty/index.asp).

World Wide Web Architecture The web consists of a large number of interconnected web servers, which host the pages users access with their web browsers. The Internet uses the Transmission Control Protocol/Internet Protocol (TCP/IP) to facilitate the transmission of web pages and other information. Users can access web pages by entering the URL of the web page into their web browser. Once the user enters the URL into the address bar of the web browser, TCP/IP breaks the request into packets and routes them over the Internet to the web server where the requested web page is stored. When the packets reach their destination, TCP/IP reassembles them and passes the request to the web server. The web server understands that the user is requesting a web page (indicated by the “http://” prefix in the URL) and retrieves the web page, which is packetized by TCP/IP and transmitted over the Internet back to the user’s computer. TCP/IP reassembles the packets at the destination and delivers the web page to the web browser. In turn, the web browser translates the HTML code contained in the web page, formats its visual appearance, and displays the results. If the web page contains a hyperlink, the user can click on it and the process repeats.

The Deep Web In addition to searchable content on the web, much content cannot be indexed by search engines such as Google. The term deep web refers to those parts of the web that cannot be indexed by conventional search engines. The common web (called “surface web”) that you know and use every day—sites like YouTube, Google, Wikipedia, and news agencies— comprises as little as 1 percent of the total size of the web. Beyond this surface, the deep web is composed of tens of trillions of web pages that most people have never seen. The deep web consists of private areas requiring authentication, dynamic web pages created from connected databases, and static web pages that are not connected to other pages via hyperlinks. Some of this content is in public databases, such as data from the U.S. National Oceanic and Atmospheric Administration, NASA, or the Patent and Trademark Office. Search engines cannot traverse such pages because their contents are dynamically generated from databases and displayed on demand based on database queries. Other databases are private or behind a paywall, such as the government documents on LexisNexis and Westlaw or the academic journals on Elsevier. Organizations that maintain these databases charge users and institutions for access, and their contents are thus not freely available for search engine indexing. In addition, internal content behind corporate or university firewalls is not accessible to search engines. Not to be confused with the deep web, the term dark web is used to refer to those areas of the World Wide Web that are used for various nefarious purposes (such as trading drugs, stolen credit card information, or illegal porn) and that are typically only accessible using specialized browsers that anonymize the user and hide traces (see Case 2 at the end of the chapter).

InTrAneTS AnD exTrAneTS. As organizations have realized the advantage of using the Internet and web to communicate public information outside corporate boundaries, they can also leverage web-based technologies to support proprietary, internal communications through the implementation of an intranet. An intranet looks and acts just like a publicly accessible website and uses the same software, hardware, and networking technologies to transmit and display data. All intranet pages are behind the company’s firewall, which secures proprietary data stored within the corporate local area network and/or wide area network so that the data can be viewed only by authorized users.

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In the simplest form of an intranet, communications take place only within the confines of organizational boundaries and do not travel across the Internet. Organizations can use intranets for disseminating corporate information, employee training, project management, collaboration, or enabling employee self-service for administering benefits, managing retirement plans, or other human resources–based applications through employee portals.

Increases in employees’ mobility necessitate that an intranet be accessible from anywhere. Thus, most companies allow their employees to use virtual private networks (VPNs) to securely connect to the company’s intranet while on the road or working from home (i.e., telecommut- ing). Figure 3.16 depicts a typical intranet system architecture (see Chapter 10 for more on fire- walls and VPNs).

Similar to an intranet, an extranet, which can be regarded as a private part of the Internet that is cordoned off from ordinary users, enables two or more firms to use the Internet to do busi- ness together. Although the content is “on the web,” only authorized users can access it after logging on to the company’s extranet website. As an extranet uses the public (and normally inse- cure) Internet infrastructure to connect two or more business partners, it often uses VPNs to ensure the secured transmission of proprietary information between business partners (Figure 3.17). To access information on an extranet, authorized business partners access their

GREEN IT Alphabet Renewables

Running the Alphabet (i.e., Google) empire requires a tremen- dous amount of electricity, not just in the united States but throughout the world. To reduce its carbon footprint, Alphabet is aggressively transitioning to renewable sources. The com- pany has a widely publicized goal to use 100 percent clean energy by 2025. To reach this goal, Alphabet is signing long- term contracts with clean energy providers, investing in clean energy companies, and building its own “green” facilities. Alphabet has focused on renewable energy for a long time. In 2007, for example, google had the largest corporate solar panel installation of its kind, generating 1.7 megawatts on its Mountain view, California, campus. it also operates a natural gas–powered generator at the local landfill, producing 990 kilowatts to provide for its electrical needs.

Alphabet is truly a global leader in renewable energy; long- term contracts with clean energy providers range from a 51-megawatt solar project by duke energy in north Carolina to a 76-megawatt wind generation project in Sweden and an 80-megawatt project in Chile. in addition to these contracts, it is also investing throughout the world to improve the clean energy infrastructure. For example, in early 2016, Alphabet announced a uS$12 million investment in the Lake turkana Wind Power Project in Kenya to build the largest wind genera- tion project in Africa. This project is the largest single private investment project in the history of the country. In total, Alpha- bet has made 22 investments in clean energy infrastructure at a total of more than uS$2 billion.

In late 2015, Alphabet had increased its renewable energy capacity to nearly 2 gigawatts. To put that another way, Google has enough clean energy to power a city twice the size of San Francisco. In addition, other tech giants such as

facebook, amazon, Microsoft, and apple are also embracing the move to renewable energy. And it is not just the tech com- panies; alcoa, Bank of america, Coca-Cola, upS, and Walmart, to name a few, are making strong commitments to renewable energy. While the move to renewable is good corporate responsibility, it is also good business. developing a compre- hensive plan that includes long-term contracts and investments will help to lock in prices, improve reliability throughout the world, and signal customers about the company’s commitment to a clean energy and sustainability.

Based on:

Brueck, h. (2016, april 7). google backs renewable energy in asia. For- tune. retrieved May 22, 2016, from http://fortune.com/2016/04/07/ google-backs-renewable-energy-in-asia

Chow, L. (2015, december 3). google announces “largest purchase of renewable energy ever.” Ecowatch. retrieved May 22, 2016, from http://ecowatch.com/2015/12/03/google-renewables-purchase

Lozanova, S. (2016, March). how google became the world’s largest corporate purchaser of renewable energy. Triple Pundit. retrieved May 22, 2016, from http://www.triplepundit.com/2016/03/ google-became-worlds-largest-corporate-purchaser-renewable-energy

Metz, C. (2015, december 3). google buys enough clean energy to power two San Franciscos. Wired. retrieved May 22, 2016, f ro m h t t p : / / w w w. w i re d . c o m / 2 0 1 5 / 1 2 / g o o g l e - b u y s - e n o u g h - clean-energy-to-power-two-san-franciscos

Sverdlik, y. (2015, July 20). Cleaning up data center power is dirty work. Data Center Knowledge. retrieved May 22, 2016, from http://www.datacenterknowledge.com/archives/2015/07/20/ cleaning-data-center-power-dirty-work

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Client Inside Local Network

Firewall

Internet

Server/Data

Corporate Network

Corporate Client Outside Local Network

Virtual Private Network Connection (VPN)

FIGURE 3.16 Typical intranet system architecture.

Client Firewall

Firewall

Internet

Server/Data

Supplier’s  Network

Corporate  Network

Virtual Private Network Connection (VPN)

FIGURE 3.17 Typical extranet system architecture.

business partner’s main extranet web page using their web browsers. Table 3.3 summarizes the similarities and differences between intranets, extranets, and the Internet.

Extranets benefit corporations in a number of ways. For example, extranets can dramati- cally improve the timeliness and accuracy of communications, reducing the potential for mis- understandings within the organization as well as with business partners and customers. In the business world, very little information is static; therefore, information must be continu- ally updated and disseminated as it changes. Extranets facilitate this process by providing a cost-effective, global medium over which proprietary information can be distributed. Fur- thermore, they allow central management of documents, thus reducing the number of ver- sions and the amount of out-of-date information that may be stored throughout the organization. While security is still considered to be better on proprietary networks, the Internet can be used as a relatively secure medium for business. Further, a company can use extranets to automate business transactions, reducing processing costs and achieving short- ened cycle times. Extranets can also reduce errors by providing a single point of data entry from which the data can be updated on disparate corporate computing platforms without

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having to reenter the data. Management can then obtain real-time data to track and analyze business activities.

Data Centers To satisfy the increasing requirements for processing and storing the ever-growing volume of data, large organizations need hundreds or even thousands of servers. Organizations such as UPS need tremendous amounts of computing power to route and track packages, online stores such as Zappos need to provide product information and track customer orders, and social net- working game developers such as Riot Games need to track each and every action users take on the popular game League of Legends. As you can imagine, an organization’s hardware and stor- age infrastructure can quickly grow quite large, and companies typically set aside dedicated space for their infrastructure components (such data centers can range in size from a single dedi- cated server room to buildings the size of a large warehouse). Storing and processing massive amounts of data requires lots of power as well as air-conditioning to keep the equipment running within the optimal temperature range (which helps to increase the life span of the equipment). Keeping this infrastructure in one location helps in managing, repairing, upgrading, and secur- ing the equipment, and organizations go to great lengths in selecting locations that strike the optimal balance between protection from the elements (such as earthquakes or hurricanes) and proximity to the customers/users (to reduce latency).

Today, almost any business can be considered an e-business. Given that data are the life- blood of almost all organizations, reliably accessing these data is a key concern. This is espe- cially true for data-intensive organizations, ranging from e-commerce companies to logistics companies to government agencies. All such organizations are striving for the highest level of availability of their hardware, storage, and networking components, often reaching for “five- nines” (i.e., 99.999 percent availability, which translates into just over five minutes of down- time per year). To ensure this availability, there are not only specific demands for the individual components (e.g., being able to quickly swap hard drives or other parts in case of failure) but also for the data center overall (e.g., in terms of connectivity, f loor space, provision of energy and cooling, and security). In addition, data centers need to be modular so as to be easily expandable in case of changing needs. The facilities for UPS in Atlanta, Georgia, and Mahwah, New Jersey, are prime examples of such high-availability facilities. To ensure uninterrupted service, the data centers are self-sufficient, and each can operate for up to 2 days on self-gener- ated power. The power is needed not only for the computers but also for air-conditioning, as each facility needs air-conditioning capacity equaling that of more than 2,000 homes. In case power fails, the cooling is provided using more than 600,000 gallons of chilled water, and the UPS facilities even have backup wells in case the municipal water supply should fail. Other protective measures include raised f loors (to protect from f loods) and buildings designed to withstand winds of 200 miles per hour. Alternatively, organizations can rent space for their

TABLE 3.3 characteristics of the Internet, Intranet, and extranet

Focus Type of Content Users Access

Internet External communications

General, public content

Any user with an Internet connection

Public and not restricted

Intranet Internal communications

Specific, corporate, and proprietary content

Authorized employees

Private and restricted

Extranet External communications

Communications between business partners

Authorized business partners

Private and restricted

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servers in collocation facilities, which are data centers managed by a third party that rents out space to multiple organizational customers (see Chapter 10 for more on securing data centers and collocation facilities).

Issues Associated with managing the IS Infrastructure Needless to say, for organizations, obtaining, operating, maintaining, and upgrading the infor- mation systems infrastructure can be a tremendous challenge, especially when these tasks are not part of their core business.

As you have undoubtedly noticed, computing technology has evolved rapidly and will most likely continue to evolve rapidly in the future. In general, because of the increasing pace of change with modern technologies, most organizations face accelerating obsolescence of their hardware and software investments as well as increasing storage and space constraints, demand fluctuations, and increasing energy costs (Figure 3.18). In the following section, we discuss how the interplay between the different infrastructure components both encourages and necessitates continuous upgrading of the infrastructure.

Rapid Obsolescence and Shorter IT Cycles Over the past 75 years, information systems have gone through many radical changes. Rapid advances in both hardware and software capabilities have enabled or facilitated many business processes, and organizations are continuously faced with the need to upgrade the IS infrastruc- ture so as to gain or maintain competitive advantage. In this section, we discuss the history of computing as well as the effects of rapid advances in technology.

Increasing Obsolescence

Expanding Storage

Expanding Consumption

Fluctuating Demand

Diminishing Space

FIGURE 3.18 Information systems infrastructure challenges for modern organizations.

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TABLE 3.4 Six generations of computing

Generation Time Period Major Characteristic Events

1 1946–1958 Vacuum tubes • Mainframe era begins • ENIAC and UNIVAC were

developed

2 1958–1964 Transistors • Mainframe era expands • UNIVAC is updated with transistors

3 1964–1990s Integrated circuits • Mainframe era ends • Personal computer era begins • IBM 360 with general purpose

operating system • Microprocessor revolution: Intel,

Microsoft, Apple, IBM PC, MS-DOS

4 1990s–2000 Multimedia and low- cost PCs

• Personal computer era ends • Interpersonal computing era begins • High-speed microprocessors and

networks • High-capacity storage • Low-cost, high-performance

integrated video, audio, and data

5 2000–2010 Widespread Internet accessibility

• Interpersonal computing era ends • Internetworking era begins • Ubiquitous access to Internet with a

broad variety of devices • Prices continue to drop; performance

continues to expand

6 2010–present Ubiquitous mobile connectivity

• Advent of powerful mobile devices and ubiquitous mobile connectivity

• Big Data • Cloud computing • Internet of Things • Social networking

brIef HISTory of compUTIng. When the Zuse Z1 Computer (a mechanical computer using program punch cards) was introduced in 1936, almost all business and government information systems consisted of file folders, filing cabinets, and document repositories. Huge rooms were dedicated to the storage of these records. Information was often difficult to find, and corporate knowledge and history were difficult to maintain. Only certain employees knew specific information. When these employees left the firm, so did all their knowledge about the organization. The computer provided the solution to the information storage and retrieval problems facing organizations up to the 1940s. Shifts in computing eras were facilitated by fundamental changes in the way computing technologies worked. Each of these fundamental changes is referred to as a distinct generation of computing. Table 3.4 highlights the technology that defined the six generations of computing.

moore’S lAw. In 1965, Intel cofounder Dr. Gordon Moore hypothesized that the number of transistors on a chip would double about every 2 years. When Moore made this bold prediction, he did not limit it to any specified period of time. This prediction became known as Moore’s law. Interestingly, whereas the first CPU had 2,200 transistors, the newest models have broken the 5-billion-transistor mark, so Dr. Moore’s prediction has been fairly accurate so far (see www .intel.com/technology/mooreslaw). The number of transistors that can be packed into a modern CPU and the speed at which processing and other activities occur are remarkable. For example,

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the Intel Core i7 Extreme CPU can complete hundreds of millions of operations every second. Given technological and economic limitations, today gains in computing power are increasingly being realized by adding more computing cores that can perform tasks in parallel. Further, advances in quantum computing promise a leap in computing power.

fASTer IT cycleS AnD conSUmerIzATIon. For organizations, this increase in capabilities is both a blessing and a curse. On the one hand, increases in processing power enable applications that were previously not possible; on the other hand, managers have to continuously think about when to upgrade the hardware components of the IS infrastructure. Beyond Moore’s law, there are two other factors exacerbating this problem. First, IT cycles are becoming increasingly faster, with manufacturers releasing new devices at an ever-increasing pace. Whereas traditionally, IS managers would think in terms of 5 years, nowadays new versions of devices are released every 6–12 months. Second, with the increasing trend toward consumerization of IT, managers have to consider how to integrate their users’ various mobile devices into the organization’s IS infrastructure. We discuss mobile device management in Chapter 10.

SofTwAre obSoleScence. In addition to constant increases in hardware capabilities, companies such as Microsoft are continuously developing new and improved software that uses this power to help people be more productive. New operating systems such as Windows 10 can use new processor architectures and offer a richer set of features than older operating systems such as Windows XP. However, these new operating systems often require new hardware, and older-generation application software may not be compatible with the new operating system (Figure 3.19). Further, new generations of application software promise better performance and more (or improved) features, enabling higher productivity. One example is Microsoft Office 2007 (and its most recent successor Office 2016); when developing Office 2007, Microsoft conducted many usability studies to improve the human– computer interface (see Chapter 9, “Developing and Acquiring Information Systems”) so as to facilitate the execution of common tasks and, as a result, introduced the so-called “Ribbon” interface. Although people used to the “old” interface were initially reluctant to switch—because of the associated learning curve—many have now realized the benefits this new feature brings. Manufacturers of hardware and software often apply the concept of planned obsolescence, meaning that the product is designed to last only for a certain life span. For hardware, this can mean that certain components are not built to be serviceable, and the device has to be replaced once one of these components breaks down; similarly, older versions of software may not be able to open newer file formats, or a company may cease support for a product (mainstream support for the Windows XP operating system ended in 2009, and paid support as well as critical security updates ended in 2014), effectively forcing users to switch to newer versions. Hence, organizations are constantly faced with the decision of when and how to upgrade their current information systems infrastructure. Although such upgrades may increase productivity, often they do not but are still a large cost factor, both in terms of costs for hardware and software and in terms of the time and resources needed for upgrading tens, hundreds, or thousands of computers. Further, the

Powerful Hardware

Powerful Software

Requires Enables

FIGURE 3.19 New hardware enables more powerful software; more powerful software often requires new hardware.

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rapid obsolescence of computer hardware carries a high price tag for the environment in terms of resources needed both to manufacture the new systems and to dispose of the old ones (Figure 3.20).

Big Data and Rapidly Increasing Storage Needs Another issue facing organizations is the amount of data available and the amount of data needed to stay ahead of the competition. Today, organizations can collect and analyze vast amounts of data for business intelligence (see Chapter 6) and other purposes (such as compli- ance). For example, organizations can analyze each visitor’s actions on the company’s website in order to improve the site’s performance. Similarly, organizations are increasingly trying to make use of Big Data, that is, trying to analyze structured and unstructured data from media reports, social media, customer support calls, and other sources. Obviously, capturing more data requires ever more storage space and ever more powerful computing hardware and data- base management systems for managing and analyzing the data. Further, Internet bandwidth grew tremendously during the dot-com bubble, allowing organizations to provide their custom- ers with richer (and more bandwidth-hungry) content. At the same time, services such as You- Tube and videos streamed by Netf lix create a need for even more bandwidth. Hence, this is another example of a “vicious circle” where enhanced capabilities enable new applications, which in turn require a certain level of capabilities in terms of both data and communications infrastructure.

Demand Fluctuations An additional challenge for many organizations is that the demands for computing resources are often fluctuating, leading to either having too few resources at some times or having too many idle resources most of the time (according to estimates, up to 70 percent of organizations’ IS infrastructures are utilized at only 20 percent of their capacity). Companies engaged in (or supporting) business-to-consumer electronic commerce (such as Amazon.com or FedEx; see Chapter 4, “Enabling Business-to-Consumer Electronic Commerce”), for instance, face large spikes in demand during the pre-holiday season in December; consequently, increased capacity is needed to handle this demand. While it is relatively easy to hire temporary staff to handle an increase in orders, it is typically not that easy to make quick changes to the IS infrastructure based on changing needs. Just a few years ago, launching a startup involved purchasing lots of

FIGURE 3.20 The rapid obsolescence of computer hardware carries a high price tag for the environment. Source: tonis valing/Shutterstock.

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hardware and installing web servers in one’s basement, with no real idea of how much demand would need to be met; f luctuation in demand for computing resources is especially difficult to cope with for new entrants who are not able to forecast demand and may not have the resources to quickly expand their IS infrastructure to meet increases in demand for their products or services.

For organizations with a growing customer (or user) base, the facilities infrastructure has to grow along with any increase in computing needs (as Google grew, it eventually had to move its equipment out of a friend’s garage; now Google is said to have more than 30 major data centers). This can be especially problematic for fast-growing companies, as renting (let alone building) additional facilities is expensive and significant time is needed for locating the right facilities, contract negotiations, and setup of the hardware and software; further, long-term contracts limit the companies’ f lexibility to scale the infrastructure down in times of lower demand.

Increasing Energy Needs Finally, the worldwide increase in demand for energy has become another concern for organiza- tions. As computers process data, they consume electricity; further, various components (such as the CPU and the power supply) generate heat, and most computers have multiple fans to control the temperature. More powerful hardware needs more energy to enable the increase in comput- ing power; at the same time, having more powerful hardware requires more energy for cooling. A typical desktop uses between 40 and 170 watts when idling and can use up to 300 watts or more under full load. A typical server rack (holding multiple servers) in a data center can easily consume 15–17 kilowatts, the equivalent of power needed for more than 10 homes. Although you may not feel the impact of your personal computer usage on your home energy bill, for organizations having hundreds or thousands of computers, rising energy costs are becoming a major issue. Further, power consumption and heat emissions continue to rise as hardware manu- facturers pack more and more processing power into servers, often without providing much improvement in energy efficiency. Thus, power and cooling can be a significant cost factor for companies. Google has invested many resources into developing more efficient data centers. Google now uses modular data centers that use specially equipped shipping containers for hous- ing servers so as to be able to maximize efficiency by optimizing airf low, cooling, and power transformation (we will talk more about another trend, “green computing,” later in the chapter as well as throughout the book in the Green IT case).

Given these issues, organizations have been looking for ways to better manage their IS infrastructure so as to enhance flexibility and agility while reducing costs. In the following sec- tion, we will discuss cloud computing and how it can address some of these infrastructure- related challenges.

cloud computing Managing the IS infrastructure can be a challenge for many organizations due to the evolution of hardware and software, the demand for more storage and networking bandwidth, and the rising costs of energy. Further, organizations need dedicated staff to support their infrastructure, which incurs further costs; often, managing the IS infrastructure is not among the organization’s core competencies, so others may be better at managing the infrastructure for them.

In many organizations, the infrastructure has grown over the years, leading to a fragmented infrastructure that tends to be difficult to consolidate. However, efficiency, effectiveness, and agility are key for successfully competing in the digital world, and organizations require a flexi- ble, scalable infrastructure for their applications and databases. As a result, over the past decades, there has been a shift away from thinking about developing and maintaining the IS infrastructure toward thinking about what services the infrastructure should deliver. For example, people and organizations just want to be able to use e-mail rather than having to think about purchasing an e-mail server and dealing with associated issues such as administration, maintenance, storage, energy consumption, and so on. In addition, organizations increasingly buy or rent, rather than build, applications (except for highly specialized systems that help gain or sustain competitive advantage, as is the case with Amazon.com or Dell) to support their business processes; in other words, organizations leave the building of applications to other parties and assume that these applications will work. Given this trend, a solid infrastructure is important, as the infrastructure

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determines how quickly new systems can be implemented and how well they will function; turn- ing over the responsibility for the lower levels of the infrastructure to other organizations allows a business to focus on developing and implementing those applications that help to gain or sus- tain competitive advantage. This becomes even more important as any lack of robustness or integration of an organization’s infrastructure will be immediately noticed by customers or other stakeholders, potentially leading to loss of business, trust, or goodwill.

What Is Cloud Computing? Technological advances such as increasing Internet bandwidth and advances in virtualization have given rise to cloud computing (the “cloud” is a metaphor for the Internet; see Figure 3.21). As defined by the National Institute of Standards and Technology (NIST), “Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services)

WHEN THINGS GO WRONG Old and Dirty Energy Drives Global Internet Growth

The Internet has become central to nearly every aspect of the modern economy. While traditional web browsing, shopping, and sending e-mail on a desktop or notebook computer are still important and widely performed activities, the Internet is being increasingly utilized for entertainment where high-defi- nition video can be viewed from every corner of world on a smartphone, a tablet, or even a watch. In the coming years, IoT gadgets and sensors will communicate with massive data centers through ubiquitous networks, and autonomous vehi- cles will take you to work or deliver your online purchases. Clearly, the reliance of society on the Internet, and all its related infrastructural components, is going to continue to rapidly increase throughout the world. In fact, the amount of data generated by all of this activity is growing at an estimated 20 percent a year. Additionally, as smartphones become main- stream in the developing world, nearly 80 percent of the world’s adult population will be connected to the Internet by 2020. And, with IoT, the number of devices connected to the internet will be roughly twice the global population by 2018 (more than 15 billion). In fact, Internet traffic from mobile devices increased 69 percent in 2014 alone. The biggest driver of data usage has been online video, where tv and movies accessed through streaming services like youtube, netflix and Hulu have become a method of mainstream information gath- ering and entertainment across the globe.

These increases in the number of users, the amount of data storage, and the desire for bandwidth-hungry applica- tions like video suggest that energy consumption to drive the Internet will continue to increase rapidly over the next decades. Many of the largest tech companies are aggressively pursuing renewable and sustainable energy sources to power their facili- ties; much of the energy generated within the developing world, however, still comes from cheap energy sources like coal. In 2013, coal provided approximately 41 percent of the world’s electricity needs. China, the world’s leading emitter of greenhouse gases from coal, has been slow to move toward

greener, and more expensive, energy sources. A recent Green- peace report, Clicking Clean: A Guide to Building the Green Internet, reports that Apple is the most aggressive tech com- pany in powering its data center operations with renewable energy, with other name brand companies like Facebook, google, amazon, and Microsoft also making great strides at reducing their dirty energy usage.

one of the challenges for transforming the world to clearer and more renewable energy is not only the relatively low price for coal but also the subsidies funneled into fossil fuel produc- tion, estimated to be near uS$5 trillion worldwide each year. energy activists like elon Musk (the founder of tesla Motors) are asking people to rise up against big fossil fuel companies. With environmental awareness fast on the rise, tech giants believe they can help lead such change. But as the world relies more on the Internet, we are also relying more on old and dirty energy sources.

Based on:

Buckley, C. (2015, november 3). China burns much more coal than reported, complicating climate talks. The New York Times. Retrieved May 22, 2016, from http://www.nytimes.com/2015/11/04/world/asia/ china-burns-much-more-coal-than-reported-complicating-climate- talks.html

Greenpeace. (2015). Clicking clean: A guide to building the green Internet. Greenpeace. retrieved May 22, 2016, from http://www .greenpeace.org/usa/wp-content/uploads/legacy/Global/usa/planet3/ pdfs/2015ClickingClean.pdf

IEA. (n.d.). Coal. International Energy Agency. retrieved May 22, 2016, from http://www.iea.org/aboutus/faqs/coal

Medlock, K. (2015, May 9). elon Musk calls for a global revolt against dirty energy. Inhabitat. retrieved May 22, 2016, from http://inhabitat .com/elon-musk-calls-for-a-global-revolt-against-dirty-energy

Zik, o., & Shapiro, a. (2016). Coal computing: how companies mis- understand their dirty data centers. Lux Research. retrieved May 22, 2016, from http://web.luxresearchinc.com/how-dirty-is-your-cloud- download-the-complimentary-lux-research-white-paper

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that can be rapidly provisioned and released with minimal management effort or service pro- vider interaction” (NIST, 2011). Using a utility computing model (i.e., organizations “rent- ing” resources such as processing, data storage, or networking from an external provider on an as-needed basis, and paying only for what is actually used), cloud computing thus helps to transform IS infrastructure costs from a capital expenditure to an operational expenditure (Figure 3.22). One prime example of a cloud computing provider is Amazon Web Services; having built an immense infrastructure (in terms of both information technology and logistics) for supporting its online store, Amazon.com has decided to use these resources to generate additional revenue streams. For example, individuals and organizations can rent storage space on Amazon’s Simple Storage Service (S3) or computing time on Amazon’s Elastic Compute Cloud (EC2), all on an as-needed basis. The ability to create an entire infrastructure by com- bining Amazon’s various services has facilitated many successful startup companies, such as the social scrapbooking site Pinterest and the community travel marketplace Airbnb. As

Processing Storage

Transmission

FIGURE 3.21 Processing, storage, and transmission of data taking place in the cloud.

FIGURE 3.22 Cloud computing uses a utility computing model, allowing companies to pay for computing resources on an as-needed basis.

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Airbnb grew in popularity with travelers all over the globe, the company found itself being limited by challenges and constraints imposed by its original service provider. Moving to Amazon Web Services allowed Airbnb to quickly obtain 200 servers without needing to nego- tiate service contracts or commit to minimum usage. Flexibly scaling the infrastructure would have been close to impossible were Airbnb using its own data center because of both the time and the money needed to acquire this number of servers, and at the time, who knew whether Airbnb’s business would actually take off? With a traditional in-house infrastructure, Airbnb would have had to add capacity in “chunks,” leading to either having too many unused resources or not being able to satisfy its users’ demand; using a cloud infrastructure, Airbnb can elastically scale the resources to be just above what is needed to keep the users satisfied (Figure 3.23).

cloUD cHArAcTerISTIcS. The cloud computing model has several unique and essential characteristics that distinguish cloud computing from an in-house infrastructure and provide various benefits to users (NIST, 2011). These characteristics are discussed next.

On-Demand Self-Service To allow for most f lexibility, users can access cloud resources in a buffet-style fashion on an as-needed basis without the need for lengthy negotiations with the service provider; in many cases, resources in the cloud are accessible by the customer with no need for human interaction with the provider. In the case of Amazon Web Services, a customer needs only a credit card (for billing purposes) and can set up server instances or expand storage space via a web-based control panel. For businesses whose needs may rapidly change, this allows for unprecedented flexibility, as it greatly facilitates scaling the infrastructure up or down as needed.

Rapid Elasticity Typically, servers and other elements of an IS infrastructure take several weeks to be delivered and days or weeks to be configured (as a company’s IS personnel has to install and configure system software, databases, and application software, depending on the organization’s needs); in contrast, in a cloud environment, computing resources can be scaled up or down almost instantaneously and often automatically, based on user needs. Hence, there is no need to purchase expensive equipment to prepare for an anticipated surge in demand (which ultimately may not materialize) during the holiday season. If, however, the surge in demand does materialize, businesses can access the required resources instantaneously at almost any quantity.

Broad Network Access As cloud services are accessed via the Internet, they are accessible from almost anywhere and from almost any web-enabled device. For organizations, this enables real-time management of business processes, as applications hosted in the cloud can be accessed whenever needed, from any location, be it from one’s desktop or laptop or using an iPhone, iPad, or Android smartphone app. Thus, knowledge workers can swiftly respond to anything that may require their immediate attention without having to be physically in their office.

Resource Pooling Rather than renting out space or time to each customer on one specific, physical machine, cloud providers manage multiple distributed resources that are dynamically assigned to multiple customers based on their needs. Hence, the customer only rents a resource

Demand

Demand

Capacity

Capacity

In-House Infrastructure Cloud Infrastructure

FIGURE 3.23 It is difficult to match demand using an in-house infrastructure; with a cloud infrastructure, resources can be added incrementally, on an as-needed basis.

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with no knowledge or control over how it is provided or where it is located. In some cases, however, service providers allow for specifying particular geographic areas of the resources; for example, a California company may want to rent resources located in California (close to its customers) so as to reduce response latency, or a European company may need to rent storage space on servers located in Europe so as to comply with data protection directives.

Measured Service Measured service is typically used in a utility computing model, where providers monitor usage and customers pay only for what they use. Different resources can have different types of metering. For example, customers could either be charged on an hourly basis for the use of server instances (the price typically depends on the instance’s computing power, memory, and operating system), or be charged based on volume of data stored and/or transferred into or out of the cloud. For customers, the fixed costs associated with the IS infrastructure are thus transformed into variable costs, which are very easy to track and monitor.

ServIce moDelS. As can be seen from the previously mentioned examples, various services are provided in the cloud. Whereas some users require access only to certain software, others want to have more control and be able to run the software of their choice on a server in the cloud (Figure 3.24). Different cloud computing service models (NIST, 2011) are discussed next.

Infrastructure as a Service In the infrastructure as a service (IaaS) model, only the basic capabilities of processing, storage, and networking are provided. Hence, the customer has the most control over the resources. For example, using Amazon Web Services, customers can choose computing power, memory, operating system, and storage based on individual needs and requirements, thus being able to build (almost) their entire infrastructure in the cloud. Using such infrastructure, Netflix migrated its own IS infrastructure to Amazon Web Services to transcode movies into various formats, power its customer-focused website, and host other mission-critical applications. The IaaS model provides the customer with the greatest f lexibility; on the other hand, while the infrastructure is provided, managing software licenses is still the responsibility of the customer, and setup costs are relatively high.

Platform as a Service In the platform as a service (PaaS) model, customers can run their own applications, which are typically designed using tools provided by the service provider. In this model, the user has control over the applications but has limited or no control over the underlying infrastructure. One example is Microsoft’s Windows Azure, which acts as a cloud services operating system that customers can use to deploy custom applications. Using this platform, Outback Steakhouse launched a viral marketing campaign when it first introduced its Facebook Fan Page. To support the spikes in demand, Outback developed and deployed an e-mail marketing campaign using Windows Azure. As the underlying computing platform is provided, the customer does not have to worry about purchasing software licenses, for example, for the web servers’ operating systems or for database management systems, and the service provider manages

P a

a S

Ia a

S

Operating System Web Server Database Management System Programming Language

Application Software Salesforce.com

S a

a S

FIGURE 3.24 Services by IaaS, PaaS, and SaaS providers.

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the functioning and updating of the platform provided. A new trend is serverless computing. Designed to free users from having to set up virtual machines, serverless computing platforms such as Amazon’s AWS Lambda allow for simply running small, specific functions, which can be integrated to develop applications. The service takes care of all management of the underlying platform, enabling continuous scaling, and the user is charged on the basis of usage time.

Software as a Service In the software as a service (SaaS) model, the customer uses only applications provided via a cloud infrastructure. Typically, such applications include web- based e-mail services (e.g., Google’s Gmail) and web-based productivity suites (such as Zoho or Google Docs) but also advanced applications such as CRM systems, as provided by Salesforce.com (see Chapter 8). Typically, the customer cares only about the application, with no knowledge or control over the underlying infrastructure and typically has only limited ability to control or configure application-specific settings. Applications under the SaaS model are typically easiest to deploy because the customer does not have to worry about maintaining or updating the software, the underlying platform, or the hardware infrastructure.

TypeS of cloUDS. Cloud service providers such as Amazon.com offer what is referred to as a public cloud. Services in a public cloud can be used by any interested party on a pay-per-use basis; hence, they are often used for applications that need rapid scalability (i.e., the ability to adapt to increases or decreases in demand for processing or data storage) or in cases where there is insufficient capital or other resources to build or expand an IS infrastructure. In contrast, a private cloud (or internal cloud) is internal to an organization and can help the organization balance demand and supply of computing resources within the organization; similar to a public cloud, a private cloud provides self-service access to resources, allowing business users to provision resources on-demand using a utility computing model. A private cloud does not free an organization from the issues associated with managing the cloud infrastructure, but it does give the organization a high degree of customizability, flexibility, and control over its data and applications (Figure 3.25).

Managing the Cloud Because of its various benefits, cloud computing has gained much popularity, especially among executives who try to harness the potential of scalability and increase the business’ agility. How- ever, there are also various issues management should consider when moving infrastructure to the public cloud. The first consideration is which applications, services, or data to move to the cloud. Typically, there is no single cloud computing provider that can meet all needs of an orga- nization. Rather, organizations often have to partner with different service providers, selecting IaaS, PaaS, and SaaS models based on the business’s needs and often combining public and

Private Cloud

Availability Control

Privacy Security

Increased e�ciency

Capital expenditure

Owned by client

Centralized

Public Cloud

Operational expenditure

Flexible

Standardized Fast & easy setup

Owned by service provider

Measured serviceElastic

FIGURE 3.25 Public clouds versus private clouds.

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private clouds; as there is not one solution that fits all, organizations have to carefully weigh the benefits and downsides of cloud computing. In addition, organizations must carefully consider which cloud services provider to choose. Some of the long-term, strategic issues that manage- ment should consider when evaluating different public cloud service providers include availabil- ity, reliability, scalability, viability, security, privacy, compliance, diversity of offerings, openness, and, not least, cost (Figure 3.26). These are discussed next (see also Hofmann & Woods, 2010).

AvAIlAbIlITy/relIAbIlITy. The availability of the service is a primary concern for most organizations. As shown by examples from Google, Amazon, and Microsoft, not even the largest public cloud computing providers are immune from problems, be it hardware failures, programming errors, or some network outage. Organizations thus have to evaluate which applications to move to the cloud and how to ensure the availability of cloud-based applications. In addition to examining what the promised uptime of the application/system is, what backups are made to the servers and storage, or whether sufficient bandwidth will be provided to access large amounts of data, organizations have to implement their own precautionary measures. As it is often too costly (e.g., in terms of lost business or goodwill) to be affected by negative events, organizations should plan ahead and replicate their cloud-based infrastructure in different locations. Related to this, an important criterion to consider is the provider’s support policies. In case something does not work as promised, how will issues be resolved? One of the advantages of cloud computing is self-service, allowing clients to provision resources as needed. At the same time, this can be a potential downside, as there is not always the guarantee of having help available if needed. Thus, organizations must ensure that acceptable support capabilities and personnel are available, especially for mission-critical applications, to rapidly solve technical issues when they arise.

ScAlAbIlITy. One of the biggest promises of cloud computing is scalability, such that organizations can scale up or down their infrastructure as needed. Yet not every provider will be able to meet every organization’s demands. Thus, organizations have to carefully evaluate to what extent the provider will be able to meet current and future business needs in terms of data storage, transaction volumes, and so on.

vIAbIlITy. Another important issue is associated with the viability and stability of the provider in the long run. As an organization moves to a public cloud infrastructure, it puts much data and processing capabilities into the hands of an outside entity. If this outside entity happens to go out of business, this can have many repercussions for the organization, such as costs and efforts involved in setting up a new infrastructure, migrating applications, or transferring the data from the old provider to the new infrastructure.

SecUrITy, prIvAcy, AnD complIAnce. In addition to concerns related to availability, reliability, scalability, and viability of the vendor, security, privacy, and compliance are critical aspects to consider when deciding which data and applications to move to the cloud and which provider to select. Especially when sensitive data are concerned, organizations have to question how secure the data will be from outside intruders, how the privacy of customer data will be protected, and whether the data storage complies with regulations such as the Sarbanes–Oxley Act and the Health Insurance Portability and Accountability Act (HIPAA) and standards such as the Payment Card Industry Data Security Standard. By definition, a public cloud infrastructure is shared among different companies with different applications running on the same hardware; as a result, it is impossible for organizations to know where exactly (physically) the data are located, and thus auditing who has access to the data is extremely difficult if not impossible.

Viability

Costs Openness

Privacy

Security AvailabilityReliability

Compliance Diversity of O�erings

Scalability

FIGURE 3.26 Organizations have to consider various issues when managing their cloud infrastructure.

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Whereas using an in-house infrastructure, a company has complete control over its own data, this control is lost in a cloud infrastructure, and organizations have fewer legal rights if their data are stored in the cloud. Similarly, cloud computing providers may be asked to hand over sensitive data stored on their servers to law enforcement, leaving the organization with little control. Especially for industries heavily concerned with privacy and data protection, such as firms in the medical or legal fields, these issues are of critical importance. On the other hand, public cloud computing providers are certainly aware of these issues, and organizations have to weigh which applications or data to move to the cloud and which to keep in-house.

Issues such as availability, reliability, and security are normally covered in service-level agreements (SLAs), which are contracts specifying the level of service provided in terms of performance (e.g., as measured by uptime), warranties, disaster recovery, and so on. A big caveat is that such service-level agreements do not guarantee the availability of resources; rather, they only promise certain service levels and provide for refunds or discounts if these promises are not met and can thus be regarded mostly as a vehicle for resolving conflicts in case of problems.

For businesses, this poses a serious dilemma, as such refunds and discounts normally only cover the costs paid for the service but can never offset the opportunity costs arising from lost business. On the other hand, when evaluating the benefits and drawbacks of moving the infra- structure to the public cloud, organizations also have to critically evaluate in how far they would be able to maintain certain uptime using an in-house infrastructure and at what costs; often, organizations realize that even though certain SLAs may not be met by the provider, the provider can still offer better uptime than a poorly managed in-house infrastructure. In evaluating their options, organizations often choose a hybrid approach, having certain mission-critical applica- tions in-house while moving other, less demanding applications (in terms of uptime, etc.) to the public cloud.

DIverSITy of offerIngS. As discussed earlier, there are various providers of cloud computing services, ranging from IaaS to SaaS. As a larger number and diversity of providers is more difficult to manage, many organizations prefer to deal with fewer providers that can meet all needs. Thus, an important question to ask is which provider can offer the services needed both presently and in the future.

openneSS. A related question organizations face is the issue of interoperability. Most cloud providers use different infrastructures, different ways to store data, and so on. This, however, makes migrating data between providers extremely difficult and can lead a company to be locked in by a certain provider. In addition to different infrastructures and storage models, existing network bandwidth (and data transmission costs) poses an additional limitation to interoperability, as moving terabytes of data from one provider to another, even using very high-speed networks, can prove extremely time-consuming and expensive (as cloud computing providers often charge for transferring data into or out of their infrastructure).

coSTS. A final issue to consider when moving to a public cloud infrastructure is costs. The utility computing model used by cloud computing providers gives organizations control over the resources used and paid for—the organization only pays for the resources used and can scale the resources up or down when needed. Thus, this provides the organization with much transparency in the cost of the resources. Yet there is considerable disagreement over whether moving to the public cloud is cheaper than maintaining an in-house infrastructure. For example, the online game developer Zynga moved from a public cloud infrastructure to an in-house private cloud and decided to own, rather than rent, its infrastructure. Comparing the costs of owning versus renting is not an easy feat. Whereas it is easy to calculate the costs per month of a server in Amazon’s EC2 cloud, many organizations do not know how much exactly it costs to run a comparable server in an in-house infrastructure, including the costs of the server itself, the fees for software licenses, the electricity, the data center, the staff, and so on. Thus, organizations have to carefully balance the benefits and costs of the flexibility and scalability the cloud offers, such as by using a cloud infrastructure only for periods of peak demand; needless to say, this adds another layer of complexity to the IT operations.

In sum, there are various issues to consider when moving to a cloud infrastructure, and each organization has to make various informed choices about how to harness the opportunities the cloud offers while minimizing potential drawbacks. In the next section, we will provide a brief discussion of various other applications enabled by the cloud.

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Advanced Cloud Applications Clearly, the cloud offers many ways for businesses to solve their IS infrastructure–related issues. In addition to the different cloud services models, the cloud has enabled other trends, such as using a service-oriented architecture for flexibly deploying new applications, grid computing to help solve large-scale computing problems, content delivery networks for increasing web appli- cation performance, and IP convergence for transmitting voice and video communication over the Internet. These applications are discussed next.

ServIce-orIenTeD ArcHITecTUre. In order to achieve greater f lexibility and agility, organizations have tried to move away from deploying large, monolithic applications in favor of a service-oriented architecture (SOA). Using SOA, business processes are broken down into individual components (or services) that are designed to achieve the desired results for the service consumer (which can either be an application, another service, or a person). To illustrate this concept, think about the next oil change for your car. As you can’t be expert in everything, it is probably more effective to have someone change the oil for you. You may take your car to the dealership, you may go to an independent garage or oil change service, or you may ask your friend to do it for you. For you, all that matters is that the service will be provided at the expected level of quality and cost, but you typically do not care if different service providers do things differently or use different tools.

By breaking down business processes into individual services, organizations can more swiftly react to changing business needs. For example, using an SOA approach, multiple ser- vices (such as “check inventory” or “order supplies”) would be orchestrated to handle the indi- vidual tasks associated with processing customer orders and could be changed relatively easily if the business process changes.

To facilitate online collaboration with suppliers, business partners, and customers, SOA uses and reuses individual services as “building blocks” so that systems can be easily built and reconfigured as requirements change. To achieve these benefits, services have to follow three main principles:

■■ Reusability. A service should be usable in many different applications. ■■ Interoperability. A service should work with any other service. ■■ Componentization. A service should be simple and modular.

Following these principles, multiple applications can invoke the same services. For exam- ple, both an organization’s point-of-sale system and e-commerce website could invoke the ser- vice “process credit card,” and a digital dashboard could invoke the services “display products,” “display inventory,” and “display sales” (Figure 3.27). Hosting and deploying such services in the cloud can help in building applications using SOA. In addition, various services an organiza- tion may need are available in the cloud, eliminating the need to “reinvent the wheel.” However, whereas an SOA approach appears to be appealing for many companies, it requires tremendous

Services Applications

Process Credit Card

Ship Product

Display Sales

Display Inventory

Display Product

E-commerce Website

Point-of-Sale System

Digital Dashboard

FIGURE 3.27 Using SOA, multiple applications can invoke multiple services.

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effort and expertise to plan the architecture, select the right services from hundreds or thousands of available services, and orchestrate and deploy the services. Hence, while an SOA approach helps to increase f lexibility, the integration of various services can be extremely complex and can be well beyond the means of small enterprises.

grID compUTIng. Businesses and public organizations heavily involved in research and development face an ever-increasing need for computing performance. For example, auto manufacturers, such as the GM German subsidiary Opel or Japanese Toyota, use large supercomputers to simulate automobile crashes and to evaluate design changes for vibrations and wind noise. Research facilities such as the Oak Ridge National Laboratory use supercomputers to model neutron transport in nuclear reactors or to study climate change scenarios (Figure 3.28), while others simulate earthquakes using supercomputers; such research sites have a tremendously complex hardware infrastructure.

Although today’s supercomputers have tremendous computing power, some tasks are even beyond the capacity of a supercomputer. Indeed, some complex simulations can take a year or longer to calculate even on a supercomputer. Sometimes an organization or a research facility would have the need for a supercomputer but may not be able to afford one because of the extremely high cost. For example, the fastest supercomputers can cost more than US$200 mil- lion, and this does not represent the “total cost of ownership,” which also includes all the other related costs for making the system operational (e.g., personnel, facilities, storage, software, and so on; see Chapter 9). Additionally, the organization may not be able to justify the costs because the supercomputer may be needed only occasionally to solve a few complex problems. In these situations, organizations either have had to rent time on a supercomputer or have decided simply not to solve the problem.

One way for overcoming cost or use limitations is to utilize grid computing. Grid comput- ing refers to combining the computing power of a large number of smaller, independent, net- worked computers (often regular desktop PCs) into a cohesive system in order to solve problems that only supercomputers were previously capable of solving. Similar to cloud computing, grid computing makes use of distributed resources; however, in contrast to cloud computing, the resources in a grid are typically applied to a single large problem. To make grid computing work, large computing tasks are broken into small chunks, which can then be completed by individual computers (Figure 3.29).

However, as you can imagine, grid computing poses a number of demands in terms of the underlying network infrastructure or the software managing the distribution of the tasks. Further, the slowest computer often creates a bottleneck, thus slowing down the entire grid.

FIGURE 3.28 The Titan supercomputer can perform more than 20,000 trillion calculations per second. Source: Courtesy of oak ridge national Laboratory, u.S. dept. of energy.

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SECURITY MATTERS Car Hacking

The thought of riding down the highway in an automobile or bus and having the driver lose control because a malicious hacker has embedded malware into one of the vehicle’s onboard computers is frightening. In many high-visibility dem- onstrations in a variety of magazines and news programs, hackers (or maybe it is better to call them researchers) have shown how they can break into many of these onboard systems.

Many potential onboard systems are vulnerable to hacking. Modern vehicles have a number of control units—essentially small computers—to operate and integrate a variety of sys- tems, including the engine and transmission, airbags, steering and braking, remote keyless entry, and many others. Each of these systems is coupled together through a maze of net- works. Modern vehicles also contain Bluetooth so the driver can connect a smartphone for hands-free mobile phone calls and even Wi-Fi hotspots to provide connectivity for gadgets, entertainment, and passengers. There is a tremendous amount of programming code in modern vehicles, and most of this code is from a broad range of vendors, making it virtually impossible for vehicle manufacturers to understand all poten- tial vulnerabilities. Each of these systems has the potential to be exploited by hackers if design or security flaws are not identified.

A successful break-in typically isn’t easy, however, often requiring several researchers several months to figure out. Because of this, some view this vulnerability as more hype than reality, suggesting that hacking into such onboard systems

should not be viewed as being a huge safety or security con- cern. The truth is likely somewhere in the middle between hype and reality. While it may take a particular team a long time to figure out a particular hack into an onboard system, others can learn from these successful efforts to greatly shorten the learning curve. To address this, both technology and vehicle component vendors are working together to stan- dardize approaches, share information, and make supply chains more secure to prevent tampering or counterfeit parts entering a vehicle. At the same time, manufacturers must also learn about vulnerabilities so that any security flaws can be quickly repaired.

Based on:

greenberg, a. (2016, March 17). the fBi warns that car hacking is a real risk. Wired. retrieved april 8, 2016, from http://www.wired .com/2016/03/fbi-warns-car-hacking-real-risk

Huddleston, Jr., T. (2015, September 15). This graphic shows all the ways your car can be hacked. Fortune. retrieved april 8, 2016, from http://fortune.com/2015/09/15/intel-car-hacking

Intel. (n.d.). Automotive security best practices. Intel. Retrieved april 8, 2016, from http://www.intel.com/content/www/us/en/ automotive/automotive-security-best-practices-white-paper.html

pogue, d. (2016, february 22). Why car hacking is nearly impossible. Scientific American. retrieved april 8, 2016, from http://www .scientificamerican.com/article/why-car-hacking-is-nearly-impossible

vanian, J. (2016, January 26). Security experts say that hacking cars is easy. Fortune. retrieved april 8, 2016, from http://fortune .com/2016/01/26/security-experts-hack-cars

FIGURE 3.29 Grid computing: Computers located around the world work on parts of a large, complex problem.

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A dedicated grid, consisting of a large number of homogeneous computers (and not relying on underutilized resources), can help overcome these problems. A dedicated grid is easier to set up and manage and, for many companies, much more cost effective than purchasing a supercomputer.

conTenT DelIvery neTworkS. Another recent trend in IS hardware infrastructure management is the use of content delivery networks to increase performance of websites. Typically, the larger the geographical distance between a user and the web server hosting certain content, the longer it takes to transmit the content; this can be especially noticeable for content such as streaming media but also for other content presented on a web page. Content delivery networks help reduce this latency by providing a network of servers in various geographical locations, which store copies of particular websites. If a user in a particular geographic location requests a certain web page, the content delivery server closest to the user’s location delivers the content, significantly speeding up the delivery of the content (Figure 3.30), a process that is normally unnoticed by the user. This process not only saves valuable resources such as bandwidth but also offers superior performance that would otherwise be too expensive for organizations to offer.

convergence of compUTIng AnD TelecommUnIcATIonS. Today, much of an organization’s communication and collaboration needs are supported by Internet technologies; for example, texting and e-mail have become the communications methods of choice for many people. However, for some topics, other forms of communication are more suited, so managers turn to the telephone, instant messaging, meetings, or videoconferences. The growing convergence of computing and telecommunications can help satisfy such diverse communication and collaboration needs. The computing industry is experiencing an ever-increasing convergence of functionality of various devices. Whereas just a few years ago a cell phone was just capable of making phone calls and people used personal digital assistants to support mobile computing needs, such devices are now converging such that the boundaries between devices are becoming increasingly blurred. Today, smartphones, such as the iPhone 7 or Samsung’s Galaxy S7, offer a variety of different functionalities—formerly often available only on separate dedicated devices—to address differing needs of knowledge workers and consumers alike (e.g., phone, e-mail, web browser, navigation system, camera, music player, and so on).

In addition to a convergence of capabilities of devices, there is also increasing convergence within the underlying infrastructures. For example, in the past, the backbone networks for the

Internet

Content Delivery Server

Content Delivery Server

Content Delivery Server

Washington State

Data Center

Germany

China

FIGURE 3.30 Content delivery networks store copies of content closer to the end user.

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IP Network

FIGURE 3.31 IP convergence allows various devices to communicate using IP technologies.

telephone and Internet were distinct. Today, increasingly, voice and data traffic share a common network infrastructure. IP convergence, or the use of the Internet protocol (IP) for transporting voice, video, fax, and data traffic, has allowed enterprises to make use of new forms of commu- nication and collaboration (e.g., instant messaging and online whiteboard collaboration) as well as traditional forms of communication (such as phone and fax) at much lower costs (Figure 3.31). In the following sections, we discuss two uses of IP for communication: voice over IP and vid- eoconferencing over IP.

Voice over IP Voice over IP (VoIP) (or IP telephony) refers to the use of Internet technologies for placing telephone calls. Whereas just a few years ago the quality of VoIP calls was substandard, recent technological advances now allow the quality of calls to equal or even surpass the quality of traditional calls over (wired) telephone lines. In addition to the quality, VoIP offers a number of other benefits; for example, users can receive calls from almost anywhere they connect to the Internet. In other words, knowledge workers are not bound to their desk to receive VoIP calls; instead, using IP routing, their telephone number “follows” them to wherever they connect to the Internet. For example, Christoph, who lives in Hong Kong, has VoIP telephone numbers in the United States and Germany so that friends and family members living in these countries can call him at local rates. Organizations can also benefit from tremendous cost savings, as often there is little cost incurred over and above the costs for a broadband Internet connection (e.g., VoIP software such as Skype allows users to make Skype-to-Skype calls for free).

Videoconferencing over IP In addition to voice communications, IP can also be used to transmit video data. Traditionally, videoconferences were held either via traditional phone lines, which were not made to handle the transfer of data needed for high-quality videoconferencing, or via dedicated digital lines, which was a very costly option. Similar to VoIP, the Internet also helped to significantly reduce costs and enhance the versatility of videoconferences by enabling videoconferencing over IP.

For some videoconferences, desktop videoconferencing equipment (consisting of a web- cam, a microphone, speakers, and software such as Google Hangouts or Skype) may be

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sufficient (Figure 3.32); for others, higher-end equipment may be needed. Such infrastructure can include specific videoconferencing hardware, or it can be a dedicated virtual meeting room featuring life-sized images allowing people from across the globe to meet as if they were sitting in the same room.We discuss videoconferencing in more detail in Chapter 5, “Enhancing Orga- nizational Communication and Collaboration Using Social Media.”

Green Computing Fueled by the rapid advances of developing nations, the world has seen a tremendous increase in demand for and cost of energy. For organizations having hundreds or thousands of comput- ers, rising energy costs are becoming a major issue. Further, organizations are being increas- ingly scrutinized for their contribution to societal issues such as climate change (see Chapter 1); more and more organizations are trying to portray a “greener” image when it comes to the use of energy and natural resources, as company executives have realized that they cannot afford the consequences of inaction on the company’s reputation. As “green” efforts can save money on energy and water use, waste disposal, and carbon taxes and can be subsidized by grants, rebates, or free technical advice, they can also have positive impacts on a company’s bottom line.

Green computing, or attempts to use computing resources more efficiently to reduce envi- ronmental impacts, as well as the use of information systems to reduce negative environmental impacts, can contribute to these efforts by helping to use computers more efficiently, doing the same (or more) with less. For example, organizations can save large amounts of money for power and cooling by using virtualization to replace hundreds of individual servers with just a few powerful mainframe computers. As studies have shown, computing resources in organiza- tions are often very much underutilized, and using virtualization can help lower an organiza- tion’s energy bill and carbon footprint. Similarly, cloud computing has been argued to contribute to reduced energy consumption, as the service provider’s infrastructure is shared by many users.

FIGURE 3.32 Desktop videoconferencing equipment helps organizations and individuals to reduce their telecommunications costs.

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Installing sophisticated power management software on individual desktops can save much energy that is wasted by leaving computers idling or on standby overnight. Further, discouraging employees from printing out e-mails or business documents can help to reduce the waste of paper—an average office worker prints more than a tree’s worth of paper each year.

A related issue is the retiring of obsolete hardware. Today, companies cannot just send retired equipment to a landfill. Rather, companies as well as individuals have to evaluate how to best dispose of unwanted computers, monitors, and parts. Whereas the first step is to make the decision when to retire equipment, the next steps are equally important. Needless to say, it has to be ensured that old computers are wiped of all user data. Many third-party outsourcers (“IT asset disposition” vendors) offer services including wiping all computer hard drives and either refur- bishing and selling usable equipment or dismantling the components to recycle valuable raw materials and properly dispose of hazardous waste.

INDUSTRY ANALYSIS Movie Industry

do you remember the original Star Wars movies or movies such as King Kong (1976) or Godzilla (1954)? Compare these to recent box office hits such as Star Wars VII: The Force Awak- ens (2015), Deadpool (2016), or animated movies such as Finding Dory (2016). With each new generation of movies, there is also a tremendous increase in computing power, enabling film studios such as dreamworks and universal Stu- dios or special effects studios such as Weta digital and pixar to create animations and special effects of hitherto unimaginable quality using specialized powerful software and hardware for computer-generated imagery (CGI, also known as computer graphics).

As for major studios, rapidly evolving digital technology (specifically, recording hardware and sophisticated yet easy- to-use digital editing software) has opened vast opportunities for independent filmmakers who are producing studio-quality films without having to rely on expensive lighting, film devel- opment, and postproduction facilities. Thus, people who could never afford all the necessary equipment can now produce movies digitally. Further, digital cameras and projectors and advances in software have made the transition from celluloid to digital more attainable for filmmakers who until recently used traditional technology. And it is not just the little indepen- dent filmmakers embracing the digital trend. Today, most films made by large studios such a Paramount Studios and Warner Brothers are shot and edited using 100 percent digital formats. Another big innovation is the use of drones for recording the action. drones are a very low-cost alternative to expensive heli- copters and have the added benefit of being able to go places that humans or helicopters simply cannot due to size or safety constraints. This is a particular advantage for independently developed movies that don’t have the budget of major block- busters as well as for sports reporting.

The impact of technology on the movie industry does not stop with movie production. Many movie theaters across the

world have shifted to digital projection technologies, reducing the need for duplicating and shipping large reels of film and reducing distribution costs by up to 90 percent while speeding up the time from the studio to the theater. Rather than on reels of film (that are susceptible to out-of-focus projection, scratches, or “pops”), the movies are stored on central servers, from which they are accessed and downloaded via the Internet by individual theaters. Theater owners can much more swiftly react to fluctu- ating demand and easily show movies on more than one screen in case of high demand. Clearly, the use of information systems has tremendously changed the movie industry.

Questions 1. Can digital technologies help movie theaters compete with

the increasing trend toward more sophisticated home the- aters? If so, how?

2. What are the ethical issues associated with special effects becoming more and more realistic with the help of digital technologies?

3. From the perspective of movie studios and theaters, list the pros and cons of using digital distribution technologies.

Based on:

alexander, h., & Blakely, r. (2014, September 12). the triumph of digital will be the death of many movies. New Republic. Retrieved april 8, 2016, from https://newrepublic.com/article/119431/ how-digital-cinema-took-over-35mm-film

digital cinematography. (2016, March 4). in Wikipedia, The Free Ency- clopedia. retrieved april 8, 2016, from https://en.wikipedia.org/w/ index.php?title=digital_cinematography&oldid=708195035

Jardin, X. (2005, July 28). hollywood plots end of film reels. Wired. retrieved april 8, 2016, http://archive.wired.com/entertainment/music/ news/2005/07/68332

Watercutter, a. (2015, March 6). drones are about to change how directors make movies. Wired. retrieved april 8, 2016, from http:// www.wired.com/2015/03/drone-filmmaking

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key points review 1. Describe how changes in businesses’ competitive

landscape influence changing IS infrastructure needs. Organizations are facing continuously changing business environments, and quickly adapting to a constantly changing competitive environment necessitates that businesses are increasingly flexible and agile. Modern organizations use various applications and databases to support their business processes; these applications and databases rely on a solid underlying IS infrastructure consisting of hardware, system software, storage, networking, and data.

2. Describe the essential components of an organization’s IS infrastructure. Organizations use various types of IS hardware to meet their diverse computing needs. The most prominent type of system software, the operating system, coordinates the interaction between hardware devices, peripherals, application software, and users. Further, organizations need to store massive amounts of data for operational, backup, and archival purposes. Networking is one of the reasons why information systems have become so powerful and important to modern organizations. Finally, organizations use data centers to house the different infrastructure components so as to ensure security and availability.

3. Discuss managerial issues associated with managing an organization’s IS infrastructure. Radical advances in information technology have opened many opportunities for organizations but have also brought about challenges. Advances in hardware have enabled advances in software. Hardware and software obsolescence, faster IT cycles, and consumerization

present issues such as when and how to upgrade the current infrastructure. Further, organizations’ storage needs are growing at an ever-increasing pace, and organizations also have to deal with fluctuations in demand for computing power while often being unable to quickly scale the IS infrastructure accordingly. The increasing need for both computing power and storage fuels an increasing demand for energy, which can affect a company’s image as well as its bottom line.

4. Describe cloud computing and other current trends that can help an organization address IS infrastructure–related challenges. Cloud computing uses a utility computing business model where customers can draw on a variety of computing resources that can be accessed on demand with minimal human interaction. Characteristics of cloud computing include on-demand self-service, rapid elasticity, broad network access, resource pooling, and measured service. Typical cloud computing service models are infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). When considering the move to a public cloud-based infrastructure, organizations have to weigh issues such as availability, reliability, scalability, viability, security, privacy, compliance, openness, diversity of offerings, and, not least, cost. Other applications in the cloud include SOA, grid computing, content delivery networks, voice over IP, and videoconferencing over IP. Finally, a recent trend is green computing, as companies realize potential cost savings and a positive effect on the company’s image by implementing ways to reduce energy consumption and waste.

key Terms application software 96 bandwidth 105 campus area network 106 client 105 client-server network 105 computer networking 104 content delivery network 127 database 96 database management system

(DBMS) 97 dedicated grid 127 deep web 108 desktop virtualization 105 device driver 100 digital infrastructure 93 domain name 107 embedded system 99 extranet 109

green computing 129 grid computing 106 hyperlink 106 hypertext 106 Hypertext Markup Language

(HTML) 106 Hypertext Transfer Protocol

(HTTP) 106 information systems architecture 95 information systems infrastructure 93 infrastructure 92 infrastructure as a service (IaaS) 120 Internet 106 intranet 108 IP address 107 IP convergence 128 local area network (LAN) 106 mainframe 98

measured service 120 metropolitan area network 106 Moore’s law 113 network 105 operating system 100 peer 105 peer-to-peer (P2P) network 105 peripheral 100 personal area network 106 personal computer (PC) 99 planned obsolescence 114 platform as a service (PaaS) 120 private cloud 121 protocols 104 public cloud 121 radio frequency identification

(RFID) 99 RFID tag 100

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scalability 121 server 98 service 124 service-level agreement (SLA) 123 service-oriented architecture (SOA) 124 software as a service (SaaS) 121 supercomputer 98 system software 100 thin client 105

top-level domain 107 Transmission Control Protocol/Internet

Protocol (TCP/IP) 108 transmission media 104 Uniform Resource Locator (URL) 107 utility computing 118 videoconferencing over IP 128 voice over IP (VoIP) 128 web browser 106

web page 106 web server 106 website 106 wide area network 106 Wi-Fi (wireless fidelity) network 106 wireless local area network

(WLAN) 106 workstation 99 World Wide Web (www) 106

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

Self-Study Questions 3-15. All of the following are examples of infrastructure

components except A. hardware B. system software C. data centers D. applications

3-16. Which of the following is not a consequence of lack of availability, performance, or security? A. loss of managerial oversight B. loss of business C. loss of trust D. loss of goodwill

3-17. Engineering drawings are typically prepared using ______________. A. mainframes B. servers C. personal computers D. workstations

3-18. Magnetic tape is typically used for ______________. A. storing operational data B. backing up critical data C. maintaining customer records D. archiving data

3-19. Which of the following is the protocol of the Internet? A. URL B. HTML C. TCP/IP D. ARPA

3-20. All of the following are correct domain suffixes except A. .edu —educational institutions B. .gov—U.S. government C. .neo—network organizations D. .com—commercial businesses

3-21. The ability to adapt to increases or decreases in demand for processing or storage is referred to as ______________. A. adaptability B. flexibility C. scalability D. agility

3-22. In cloud computing, services are typically offered using ______________. A. private clouds B. heterogeneous grids C. a utility computing model D. edge computing

Review Questions 3-1. How do applications support organizational

business processes? 3-2. How do databases support organizational

business processes? 3-3. Describe the key functions of system

software. 3-4. For which purposes are data stored in

organizations? 3-5. What are the distinguishing characteristics of

different storage media? 3-6. How does computer networking work? 3-7. What are the major types of networks? 3-8. What is the World Wide Web, and what is its

relationship to the Internet?

MyMISLab

3-9. What are URLs, and why are they important to the World Wide Web?

3-10. What are the problems associated with soft- ware obsolescence?

3-11. Describe the characteristics of the cloud com- puting model.

3-12. Define grid computing and describe its advan- tages and disadvantages.

3-13. Describe what is meant by the term IP convergence.

3-14. Describe why green computing has become so important to modern organizations.

MyMISLab

MyMISLab

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3-23. For the most flexibility in the use of computing resources, companies choose a(n) ______________ provider. A. utility computing B. software as a service C. platform as a service D. infrastructure as a service

3-24. Large-scale computing problems can be solved using ______________ computing. A. grid B. utility C. cloud D. edge Answers are on page 135.

problems and exercises 3-25. Match the following terms with the appropriate

definitions: i. Utility computing

ii. Service-level agreement iii. System software iv. Software as a service v. Voice over IP

vi. Cloud computing vii. Bandwidth

viii. Server ix. Planned obsolescence x. Scalability

a. The incorporation of a life span into the design of a product

b. The use of Internet technology for placing tele- phone calls

c. A cloud computing model in which the customer uses an application provided via a cloud infrastructure

d. A model for enabling convenient, on-demand net- work access to a shared pool of configurable com- puting resources

e. Any computer on a network that makes access to files, printing, communications, and other services available to users of the network

f. The transmission capacity of a computer or com- munications channel

g. A business model where computing resources are rented on an as-needed basis

h. Contracts specifying the level of service provided in terms of performance, warranties, disaster recovery, and so on

i. The collection of programs that control the basic operations of computer hardware

j. The ability to adapt to increases or decreases in demand for processing or data storage

3-26. Take a look at the website of an online retailer. Which pieces of content are likely assembled from data stored in databases?

3-27. Which applications are mission-critical for an online retailer? For a bank? Justify your assessment.

3-28. How do software programs affect your life? Give exam- ples of software from areas other than desktop comput- ers. Are the uses for software increasing over time?

3-29. Interview an IS professional about IS infrastructure. Which infrastructure components does this profes- sional regard as most important? Why?

3-30. Using the web, find information about archiving your data. What options are available? What are the advan- tages and disadvantages of each option?

3-31. Scan the popular press and/or the web for clues concerning emerging technologies for computer net- working. This may include new uses for current tech- nologies or new technologies altogether. Discuss as a group the “hot” issues. Do you feel they will become a reality in the near future? Why or why not? Prepare a 10-minute presentation of your findings to be given to the class.

3-32. Do you have your own website with a specific domain name? How did you decide on the domain name? If you don’t have your own domain, research the pos- sibilities of obtaining one. Would your preferred name be available? Why might your preferred name not be available?

3-33. How does hardware and software obsolescence affect your life? Give examples of experiences with outdated hardware or software. How did you deal with these situations?

3-34. Using information on the web, find (or try to estimate) your computer’s energy consumption. What are ways to reduce your computer’s energy consumption?

3-35. Research the web for an example of a startup using a cloud infrastructure. What were the main reasons for choosing a cloud infrastructure? What alternatives did the startup have?

3-36. Are you using any services offered in the cloud? If so, what service model is offered by your provider? If not, what are your primary reasons for not using services offered in the cloud?

3-37. Interview an IS professional about cloud computing. Does this professional have a preference for public versus private clouds? Additionally, find out what data he or she would most likely entrust to a public cloud.

3-38. Research the web for service-level agreements of two different providers of cloud services and compare these based on availability, security, and privacy. How do the agreements differ? Are the agreements reason- able? Which provider would you select for your cloud infrastructure if you were to start a company?

3-39. Using a search engine, enter the key phrase “voice over IP providers.” Who are the large vendors in this industry? What type of solutions do they offer to their clients? Does any vendor suit your communication needs?

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Application exercises Note: The existing data files referenced in these exercises are available on the book’s website: www.pearsonhighered.com/valacich.

Spreadsheet Application: Tracking Frequent-Flier Mileage

3-40. You have recently landed a part-time job as a busi- ness analyst for Campus Travel. In your first meeting, the operations manager learned that you are taking an introductory MIS class. As the manager is not very proficient in using office software tools, he is doing all frequent-flier mileage in two separate Excel work- books. One is the customer’s contact information, and the second is the miles flown. Being familiar with the possibilities of spreadsheet applications, you suggest setting up one workbook to handle both functions. To complete this, you must do the following:

■■ Open the spreadsheet frequentflier2.csv. You will see a tab for customers and a tab labeled “miles flown.”

■■ Use the vlookup function to enter the miles flown column by looking up the frequent-flier number. (Hint: If done correctly with absolute references, you should be able to enter the vlookup formula in the first cell in the “miles flown” column and copy it down for all the cells.)

■■ Use conditional formatting to highlight all frequent fliers who have less than 4,000 total miles.

■■ Finally, sort the frequent fliers by total miles in descending order.

Database Application: Building a Knowledge Database

3-41. Campus Travel seems to be growing quite rapidly. Now it has franchises in three different states, totaling 16 locations. As the company has grown tremendously over the past few years, it has become increasingly difficult to keep track of the areas of expertise of each travel consultant; often, consultants waste valuable time trying to find out who in the company possesses the knowledge about a particular region. Impressed with your skills, the general manager of Campus Travel has asked you to add, modify, and delete the following records from its employee database:

■■ Open employeedata.mdb. ■■ Select the “employee” tab. ■■ Add the following records:

a. Eric Tang, Spokane Office, Expert in Southwest, Phone (509) 555-2311

b. Janna Connell, Spokane Office, Expert in Delta, Phone (509) 555-1144

■■ Delete the following record: a. Carl Looney from the Pullman office

■■ Modify the following: a. Change Frank Herman from the Pullman office

to the Spokane office b. Change Ramon Sanchez’s home number to

(208) 549-2544

Team work exercise Net Stats: Internet Access Continues to Grow

Internet access in the United States and throughout the world is continuing to grow steadily. In early 2016, nearly 50 percent of the world’s total population was accessing the Internet. In the United States, 88.5 percent of the population was accessing the Internet. Whereas many western European countries are in the mid-90 percent range and slowly move toward 100 percent penetration, Iceland is still ranked as the only country having 100 percent of its population online. At the other end of the spectrum, many small and very poor countries are still strug- gling to gain access. In countries such as Guinea, Somalia, and Eritrea, less than 2 percent of the population is online. In between the bottom and the top, access varies widely. In Asia, about 50 percent of the population has access, while less than 10 percent of those living in Africa have access.

Questions and exercises 3-42. Search the web for the most up-to-date statistics. 3-43. As a team, interpret these numbers. What is striking/

important about these statistics? 3-44. As a team, discuss how these numbers may look in 5

years and 10 years. What changes have to be made to the global networking infrastructure? What issues and opportunities do you see arising?

3-45. Using your spreadsheet software of choice, create a graph/figure that effectively visualizes the statistics/ changes you consider most important.

Based on:

Akamai. (2015). The state of the Internet, Q4, 2015 report. Akamai.com. Retrieved April 7, 2016, from https://www.akamai.com/us/en/multimedia/ documents/content/state-of-the-internet/q4-2015-state-of-the-internet- connectivity-report-us.pdf

Anonymous. (n.d.). Broadband technology fact sheet. Pew Research. Retrieved April 7, 2016, from http://www.pewinternet.org/fact-sheets/ broadband-technology-fact-sheet

Internet Live Stats. (2016). Internet users. Internet Live Stats. Retrieved April 7, 2016, from http://www.internetlivestats.com

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Answers to the Self-Study Questions 3-15. D, p. 93 3-16. A, p. 95 3-17. D, p. 99 3-18. D, p. 103 3-19. C, p. 108

Amazon Web Services, or AWS, a subsid- iary of Amazon.com, offers a suite of large- s c a l e c l o u d c o m p u t i n g s e r v i c e s t o organizations throughout the world. AWS allows organizations to more quickly and less expensively deploy massive amounts of computing capabilities as opposed to build- ing and equipping a traditional data center with servers, networks, and related infra- structural components. AWS’s best-known services are EC2, which stands for Amazon Elastic Computing Cloud, and S3, which stands for Amazon Simple Storage Service. Countless companies are using AWS to run major parts of their business, including Net- flix, Spotify, Pinterest, Airbnb, Lyft, Yelp, and Gilt to name a few. In 2015, Gartner estimated that AWS customers were deploy- ing ten times more infrastructure on AWS than the combined adoption of the next 14 providers. Estimates are that AWS has more than a million active customers in more than 190 countries, including nearly 2,000 gov- ernment agencies, 5,000 education institu- tions, and more than 17,500 nonprofits. AWS is the 800-pound gorilla of cloud com- puting infrastructure companies. In early 2016, AWS had grown into a US$10 billion b u s i n e s s w i t h a 2 3 p e r c e n t o p e r a t i n g margin.

Many companies are leveraging the AWS global infrastructure to build their business. For example, Netflix delivers

billions of hours of content globally by run- ning on AWS. AWS enables Netflix to deploy thousands of servers and terabytes of storage throughout the world. Users can stream Netflix shows and movies anywhere in the world, supporting a range of devices from smart televisions to tablets and smart- phones. Likewise, Airbnb is also leveraging AWS to rapidly expand its global market- place that allows property owners and travel- ers to connect with each other for the purpose of renting unique vacation spaces. Owners and travelers can access Airbnb’s system via their web browser or by using a smartphone app. Airbnb supports property rentals in nearly 25,000 cities in more than 190 coun- tries. AWS has been a key part of Airbnb’s global strategy. Another example is Lyft, a ridesharing company founded in 2012. Lyft’s challenge was how to deploy mobile applica- tion support where riders could quickly and reliably find a driver to give them a ride. These and countless other companies, many of which you are likely familiar with, utilize AWS’s cloud infrastructure to execute their value proposition for their customers.

As successful as AWS has been, Ama- zon is not content with simply dominating the cloud infrastructure business. While it is currently a US$10 billion business, some believe that AWS could ultimately be Ama- zon’s biggest play. Recently, technology investor Chamath Palihapitiya, CEO of

Social Capital LP, called AWS the “blue chip of technical infrastructure,” predicting it will ultimately become a US$1.5 trillion business. He went on, “in order to under- stand the value of AWS, we think that Jeff [Bezos; Amazon’s CEO] is going to com- pletely disrupt this market. There are going to be unbelievable numbers of losers as AWS gets to scale … What [Bezos] did to retail, he will do to IT.” Ten billion dollars is a long way from 1.5 trillion dollars, but AWS is growing fast. As AWS gets bigger, its economies of scale allow for undercutting the prices competitors charge their custom- ers. Clearly, AWS has the potential to become the Walmart of IT services and fur- ther strengthen its position in numerous markets.

Amazon is becoming a central part of the global economy and society. While Ama- zon is one of many online retailers, it is growing rapidly and looks destined to eclipse Walmart as the world’s largest retailer. In addition, with its AWS and S3 services, Amazon provides the IT backbone for count- less successful companies and startups and is the world’s dominant player in cloud service infrastructure. Amazon is also our bookstore and becoming our grocery store, Alexa answers our questions or plays our music, and Amazon is planning same-day product delivery with a fleet of drones. And all of this innovation runs on AWS.

CASE 1 A Catalyst for Innovation: Amazon Web Services

Questions 3-46. Is Amazon too successful? If so, what should be done? If

not, why not? Give specific examples to justify your position. 3-47. Why has Amazon been so successful in so many different

areas? List specific examples of how it has generated and maintained competitive advantages. Is it unstoppable? In what areas has it been less successful?

3-48. If you had a startup tech company, would you use AWS? List advantages and disadvantage and explain your rationale.

Based on:

Amazon Web Services. (2016). Case studies and customer success stories, powered by the AWS cloud. Amazon.com. Retrieved May 23, 2016, from https://aws.amazon.com/solutions/case-studies

A m a z o n We b S e r v i c e s . ( 2 0 1 6 , M a y 1 1 ) . I n Wi k i p e d i a , T h e Fre e Encyclopedia. Retrieved May 23, 2016, from https://en.wikipedia.org/w/index .php?title=Amazon_Web_Services&oldid=719688469

Morisy, M. (2016, May 16). Amazon’s AWS ambition: “What [Bezos] did to retail, he will do to IT.” Windows IT Pro. Retrieved May 23, 2016, f r o m h t t p : / / w i n d ow s i t p r o . c o m / c l o u d / a m a z o n s - aw s - a m b i t i o n - w h a t - bezos-did-retail-he-will-do-it

Soper, T. (2016, April 28). Amazon’s cloud computing cash cow: AWS, now a $10B business, fuels record quarter for company. GeekWire. Retrieved May 23, 2016, from http://www.geekwire.com/2016/amazons-cloud-computing-cash- cow-aws-now-10b-business-fuels-record-quarter-company

3-20. C, p. 107 3-21. C, p. 121 3-22. C, p. 118 3-23. D, p. 120 3-24. A, p. 124

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136 Chapter 3 • Managing the inforMation SySteMS infraStruCture and ServiCeS

Most people don’t think too much about the web as long as they are able to visit their favorite websites. Popular websites like nytimes.com reside on what is called the sur- face web—meaning that they display content that a search engine like Bing or Google can find when you are searching the web. In addi- tion to the surface web, there is a vast amount of non-indexed content that cannot be found with a normal search engine. This non- indexed content is collectively referred to as the deep web. The deep web is many times larger than the surface web. It has been sug- gested that the Internet can be visualized as a giant iceberg of information, with the content of the surface web being relatively smaller and visible and the deep web having a mas- sive amount of content that is unseen by search engines and is typically more difficult to find and navigate.

The deep web contains a variety of con- tent, both lawful and unlawful. Lawful con- tent that resides on the deep web includes corporate and academic databases that can- not be found with a search engine but can be viewed with a normal browser. The deep web also houses content from mainstream websites, like Facebook posts that are only visible to a poster’s friends or transaction data that you provide to Amazon when plac- ing an order. All of this lawful content resides on the deep web, and much of it is

only available to those authorized by the owner of the system to view or access it.

There is also a vast amount of unlawful content on the deep web, and this content is referred to as the dark web. Interest in the dark web has been on the rise following several high-profile data leaks that have been extensively discussed in the media. For example, after the hacking group called “The Impact Team” stole user data from the extramarital cheating website Ashley Madi- son, it posted this data on the dark web. Content on the dark web is arranged in a special way in order to provide anonymity to those who browse and share content. As such, you cannot access the dark web with a normal web browser. The most popular part of the dark web is called Tor. To access Tor, you need a special version of the Firefox browser. Tor, an acronym of The O n i o n R o u t e r , d i r e c t s I n t e r n e t t r a f f i c through a worldwide volunteer network of relays and virtual tunnels (rather than the usual direct connections to Internet sites)— each representing a layer of the onion. These relays allow users to conceal their location or usage from anyone conducting network surveillance or traffic analysis and are intended to protect the personal privacy of users. There are additional ways to fur- ther increase your anonymity on Tor by uti- lizing the Tails operating system, made

famous by Edward Snowden, who used it to evade NSA watchdogs.

This high level of privacy within Tor allows people to conduct a wide range of confidential activities. Some use it for sensi- tive communications, including political dis- sent. But in the past decade, it’s also become a hub for black markets that sell or distribute weapons, drugs, stolen credit cards, illegal pornography, pirated media, and more. You can even hire assassins. It is important to note, however, that Tor was initially created by researchers supported by the U.S. govern- ment’s Defense Advanced Research Projects Agency, or DARPA, as a tool for fostering democracy in repressive regimes. So, while the dark web has many nefarious uses, it also has great value in many parts of the world where free expression is outlawed.

Because of the noted difficulties in searching and accessing the massive dark web, very little has been done to make it more accessible to the general public. Given the tremendous infrastructure resources required to search just the surface web, it is difficult to imagine the technologies, hard- ware, and software that would be required to allow the same search capabilities in the dark web. And given the nefarious nature of much of the dark web’s content, perhaps society is better off making it difficult for most to navi- gate and utilize its content.

CASE 2 The Dark Web

Questions 3-49. What infrastructure components are most important for pro-

viding the surface web to the public users of the Internet? 3-50. Should more effort be expended to enable wider access to the

dark web? Why or why not? 3-51. What are the implications of the dark web for individuals?

Companies? Governments?

Based on:

Ashley Madison data breach. (2016, May 19). In Wikipedia, The Free Ency- clopedia. Retrieved May 23, 2016, from https://en.wikipedia.org/w/index .php?title=Ashley_Madison_data_breach&oldid=721001290

Dark web. (2016, May 22). In Wikipedia, The Free Encyclopedia. R e t r i eve d M a y 2 2 , 2 0 1 6 , f r o m h t t p s : / / e n . w i k i p e d i a . o rg / w / i n d e x .php?title=Dark_web&oldid=721467067

Tor (anonymity network). (2016, May 19). In Wikipedia, The Free Ency- clopedia. Retrieved May 22, 2016, from https://en.wikipedia.org/w/index .php?title=Tor_(anonymity_network)&oldid=721032200

Vilches, J. (2016, May 20). The dark web: What is it and how to access it. TechSpot. Retrieved May 22, 2016, from http://www.techspot.com/ article/1177-dark-web

Go to mymislab.com for auto-graded writing questions as well as the following assisted-graded writing questions:MyMISLab

TM

3-52. Describe the difference between SaaS, PaaS, and IaaS. 3-53. Describe the different types of computers and their key distinguishing characteristics.

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Chapter 3 • Managing the inforMation SySteMS infraStruCture and ServiCeS 137

references Amazon. (2016). Amazon Web Services. Amazon.com. Retrieved

May 23, 2016, from http://aws.amazon.com Belson, D. (2015). The state of the Internet. 4th quarter, 2015 report.

Akamai. Retrieved May 23, 2016, from https://www.akamai.com/ us/en/our-thinking/state-of-the-internet-report/index.jsp

Comer, D. E. (2015). Computer networks and internets (6th ed.). Boston, MA: Pearson.

Constantinides, P., Henfridsson, O., & Parker, G. (2016). Special issue on digital infrastructure and platforms. Information Systems Research. Retrieved April 20, 2016, from http://pubsonline .informs.org/page/isre/calls-for-papers

Evans, A., Martin, K., & Poatsy, M.A. (2017). Technology in action complete (13th ed.). Boston, MA: Pearson.

Finley, K. (2014, April 17). It’s time to encrypt the Internet. Wired.com. Retrieved April 18, 2016, from http://www.wired .com/2014/04/https

Green computing. (2016, May 18). In Wikipedia, The Free Encyclo- pedia. Retrieved May 23, 2016, from https://en.wikipedia.org/w/ index.php?title=Green_computing&oldid=720941132

Greenpeace (2015, May). Clicking clean: A guide to building the Green Internet. Retrieved May 23, 2016, from http://www .greenpeace.org/usa/wp-content/uploads/legacy/Global/usa/ planet3/PDFs/2015ClickingClean.pdf

Google. (2016). Google green. Google.com. Retrieved May 23, 2016, from http://www.google.com/green

Hoffer, J., Ramesh, V., & Topi, H. (2016). Modern database manage- ment (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Hofmann, P., & Woods, D. (2010, November/December). Cloud computing: The limits of public clouds for business applications. IEEE Internet Computing, 90–93.

Kreutzer, U. (2014, October 1). Defects: A vanishing species? Siemens.com. Retrieved April 18, 2016, from http://www.siemens .com/innovation/en/home/pictures-of-the-future/industry-and- automation/digital-factories-defects-a-vanishing-species.html

McKendrick, J. (2016, May 23). The new cloud computing eco- nomics: Too big to measure. Forbes. Retrieved May 23, 2016, from http://www.forbes.com/sites/joemckendrick/2016/05/23/ the-new-cloud-computing-economics-too-big-to-measure

NIST. (2011, September). The NIST definition of cloud computing. Retrieved May 23, 2016, from http://nvlpubs.nist.gov/nistpubs/ Legacy/SP/nistspecialpublication800-145.pdf

Netcraft. (2016, April 21). April 2016 web server survey. Netcraft .com. Retrieved May 23, 2016, from http://news.netcraft.com/ archives/2016/04/21/april-2016-web-server-survey.html

Panko, R., & Panko, J. (2015). Business data networks and security (10th ed.). Boston, MA: Pearson.

Stallings, W. (2017). Cryptography and network security: Principles and practice (7th ed.). Boston, MA: Pearson.

Te’eni, D., Carey, J. M., & Zhang, P. (2007). Human-computer inter- action: Developing effective organizational information systems. New York: Wiley.

Top 500. (2016, June). Retrieved July 26, 2016, from http://www .top500.org/lists/2016/06

Laudon, K.C., & Traver, C. (2017). E-commerce 2016: Business, technology, society (12th ed.). Boston, MA: Pearson.

Valacich, J.S., & George, J. F. (2017). Modern systems analysis and design (8th ed.). Boston, MA: Pearson.

Weinman, J. (2012). Cloudnomics: The business value of cloud computing. Hoboken, NJ: Wiley.

Weinman, J., (2015). Digital disciplines: Attaining market leadership via the cloud, Big Data, social, mobile, and the Internet of Things. Hoboken, NJ: Wiley.

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138138

Preview

Managing in the Digital WorlD:

Taobao and the World of E-commerce

Most people in this world have heard of eBay and Amazon.com, two U.S.-based online retail sites where one can typically find any desired product. The online shopping fever has spread

to China in the form of companies like Taobao and JD

.com. Taobao, owned by Alibaba, was founded in 2003

and only 8 years later had 370 million registered users,

more than the entire population of the United States. If

you have tried any of Taobao’s services, you know that it

has various branches. There’s Taobao Marketplace, Chi-

na’s eBay, which dominates the country’s online con-

sumer-to-consumer (C2C) e-commerce business with its

90 percent market share. Then there’s Tmall.com, a sep-

arate site where renowned brands sell directly to con-

sumers in a business-to-consumer (B2C) manner. In fact,

Taobao has fostered such a holistic shopping experience

that international names like Gap, Adidas, and Levi’s,

just to name a few, decided to launch their own official

online retail storefronts in the virtual mall. By 2014, Tao-

bao, Tmall.com, and Juhuasuan (another Alibaba site

for “flash sales”) had more than 231 million active buy-

ers and 8 million sellers and took 11.3 billion orders a

year. On the Chinese “Single’s Day” alone, the Alibaba

Group recorded US$9.3 billion in sales and shipped 278

million orders.

However, shoppers should beware. Taobao might be

the talk of the town, but it is also known as a notorious

Enabling Business-to- Consumer Electronic Commerce4

This chapter focuses on electronic commerce (e-commerce,

or EC), explaining how companies conduct business with

customers over the Internet. The Internet and information

technology (IT) megatrends, such as increases in mobile

devices and social connectivity, have introduced unprece-

dented opportunities for the marketing of products and

services, accompanied by features, functionality, and inno-

vative methods to serve and support consumers. At the

same time, conducting business transactions online has

introduced various challenges. With e-commerce repre-

senting a growing proportion of overall retail sales, an

understanding of e-commerce can be a powerful tool in

your arsenal. People with e-commerce skills are in high

demand in the marketplace; therefore, the more you

know about e-commerce, the more valuable you will

become.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab. com for simulations, tutorials, and end-of-chapter problems.

M04_VALA5200_08_SE_C04.indd 138 02/12/16 4:14 pm

139

After reading this chapter,

you will be able to do the

following:

3. How can these companies address issues related to

trust and fraud?

Based on:

JD.com. (2016, June 16). In Wikipedia, The Free Encyclopedia. Retrieved June 24, 2016, from https://en.wikipedia.org/wiki/JD.com

Steimle, J. (2015, January 26). A beginner’s guide to Alibaba Group. Forbes. Retrieved May 31, 2016 from http://www.forbes.com/sites/ joshsteimle/2015/01/26/a-beginners-guide-to-alibaba-group

Taobao. (2016, June 24). In Wikipedia, The Free Encyclopedia. Retrieved June 24, from https://en.wikipedia.org/wiki/Taobao

market for piracy and counterfeit goods. You

may want to try out JD.com instead (short for

Jingdong Mall, formerly 360Buy) which has

not made it to the list of notorious markets.

The company is expanding fast, with an

ambitious plan of solving logistics and deliv-

ery troubles that are a hallmark of the Chi-

nese market, given the country’s size and

differences in population density (Figure 4.1).

JD.com hopes to build a trucking fleet of

close to 300 trucks and enter the logistics and

distribution market, specifically to get rid of

long-distance transport headaches. The

greatest barrier to online shopping in China

remains trust; within China, people fear

being defrauded or receiving substandard

products. Outside China, potential customers

often face language barriers when attempt-

ing to communicate with the suppliers. While

low-priced offers directly from Chinese sup-

pliers may seem tempting, these factors can

easily convince overseas consumers to turn to the more

familiar Amazon.com or eBay.

After reading this chapter, you will be able to answer

the following:

1. How have Taobao and JD.com evolved their e-com-

merce strategies to remain competitive in the global

marketplace?

2. How does the proliferation of mobile devices change

the competitive landscape for these companies?

1. Describe different approaches to competing in cyberspace as well as different forms of electronic government and e-finance.

2. Describe business-to-consumer electronic commerce strategies.

3. Understand the keys to successful electronic commerce websites and explain the different forms of Internet marketing.

4. Describe mobile commerce, consumer-to-consumer electronic commerce, and consumer-to-business electronic commerce.

5. Describe how to conduct financial transactions and navigate the legal issues of electronic commerce.

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FIGURE 4.1 Companies serving the Chinese market face tremendous logistical challenges.

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140 Chapter 4 • enabling business-to-Consumer eleCtroniC CommerCe

E-Commerce and E-Government The Internet provides a set of interconnected networks for individuals and businesses to com- plete transactions electronically. Electronic commerce (EC) refers to the exchange of goods, services, and money1 among firms, between firms and their customers, and between customers, supported by communication technologies and, in particular, the Internet. The Census Bureau of the Department of Commerce reported that while total U.S. annual retail sales in 2015 increased by 1.5 percent from 2014, online retail sales were up by nearly 15 percent and that EC accounted for 7.2 percent of total retail sales, resulting in sales of more than US$341.8 billion (Figure 4.2). Research firm eMarketer forecasts steady growth, anticipating global business-to-consumer e-commerce sales to exceed US$3.6 trillion by 2017. Considering all online markets, it is clear that online transactions have become a major segment of the global economy. With this much money at stake, it is little wonder that no other information systems (IS) issue has captured as much attention as has EC. Already during the Berlin airlift in 1948, the foundations for EC trans- actions between businesses were laid, as the Military Air Transport Service of the U.S. Air Force in Europe realized that the airlifted cargo was important but that information about the cargo— such as what exactly was contained in a shipment, where it was located, or when it was sched- uled to arrive—was equally important and devised standard universal codes for transmitting these data via teletype (Seideman, 1996). The emergence of the Internet and web further facili- tated EC and, in addition, paved the way for marketing and selling products and services to indi- vidual consumers. This has led to the creation of an electronic marketplace where a virtually limitless array of services, features, and functionality can be offered. As a result, a presence on the web has become a strategic necessity for most companies.

Types of Electronic Commerce Contrary to popular belief, EC goes beyond consumers merely buying and selling products online. EC can involve the events leading up to the purchase of a product as well as customer service after the sale. Furthermore, EC is not limited to transactions between businesses and

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2Q 3Q 4Q 1Q 2007

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2Q 3Q 4Q 1Q 2010

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FIGURE 4.2 Online retailing continues to grow rapidly. source: u.s. Census bureau news, u.s. Department of Commerce.

1EC can also include the distribution of digital products, such as software, e-books, music, movies, and digital images.

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Chapter 4 • enabling business-to-Consumer eleCtroniC CommerCe 141

consumers, which is known as business-to-consumer (B2C) EC. EC is also used by organiza- tions to conduct business with business partners such as suppliers and intermediaries. This form of EC, not involving the end consumer, is commonly referred to as business-to-business (B2B) EC. As many firms concentrate solely on B2B transactions, B2B EC is by far the largest form of EC in terms of revenues, with U.S manufacturers reporting e-commerce shipments totaling US$3.6 trillion in 2014 and wholesalers reporting e-commerce sales of US$2 trillion. Further, almost all companies focusing on the B2C arena, such as the clothing and home furnishing retailer Eddie Bauer, also engage in B2B EC. In the process of producing goods and services, a business typically sources its raw materials from a variety of specialized suppliers (in B2B trans- actions); after the production, the business sells each finished product to a distributor or whole- saler (in a B2B transaction) or directly to the end consumer (in a B2C transaction). We will discuss B2B EC in Chapter 8, “Strengthening Business-to-Business Relationships via Supply Chain and Customer Relationship Management.”

Some forms of EC do not even involve business firms, as would be the case with transac- tions between consumers on an online auction site such as eBay; these forms of EC are referred to as consumer-to-consumer (C2C) EC. A related EC model is consumer-to-business (C2B) EC, where consumers offer products, labor, and services to companies, a complete reversal of the traditional B2C model. These basic types of EC are summarized in Table 4.1.

The five megatrends—social, cloud computing, the Internet of Things, mobile, and Big Data—have inf luenced various aspects of the digital world, and e-commerce is no exception. Fueled by the rise of social media, organizations are trying to leverage social networks to build lasting customer relationships, advertise products, or otherwise create value—a trend referred to as social commerce. Digital products and services are provided through the cloud (think iTunes, Dropbox, or Gmail). The Internet of Things enables companies to offer various innovative prod- ucts and services that go beyond the initial purchase (such as the Nest thermostat that not only can be controlled from one’s smartphone but also learns the user’s schedules and habits, opti- mizing home energy use). The tremendous increase in the use of mobile devices has given rise to mobile commerce (m-commerce)—that is, any electronic transaction or information interaction conducted using a wireless, mobile device and mobile networks (wireless or switched public network) that leads to the transfer of real or perceived value in exchange for information, ser- vices, or goods (MobileInfo, 2016). Forrester Research estimates that U.S. B2C m-commerce sales will exceed US$142 billion in 2016, accounting for 38 percent of retail e-commerce sales; by 2020, 49 percent of retail e-commerce transactions will be made on mobile devices, for a forecast total of US$252 billion. In addition, B2B transactions are increasingly taking place on mobile platforms. Together, these megatrends generate a wealth of data, allowing companies to obtain an in-depth understanding of each individual customer so as to deliver individualized value propositions and build long-lasting customer relationships. Next, we examine the use of information systems for interactions with and between governments.

E-government E-government is the use of information systems to provide citizens, organizations, and other governmental agencies with information about public services and to allow for interaction with

TABLE 4.1 Types of EC

Type of EC Description Example

Business-to-consumer (B2C)

Transactions between businesses and their customers

A person buys a book from Ama- zon.com.

Business-to-business (B2B)

Transactions among businesses A manufacturer conducts business over the web with its suppliers.

Consumer-to-business (C2B)

Transactions between customers and businesses

A person offers his or her photography at shutterstock.com.

Consumer-to- consumer (C2C)

Transactions between people not necessarily working together

A person purchases some memora- bilia from another person via eBay.

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142 Chapter 4 • enabling business-to-Consumer eleCtroniC CommerCe

the government. Similar to the EC business models, e-government involves three distinct rela- tionships (Figure 4.3).

GovErnmEnT-To-CITIzEns. Government-to-citizen (G2C) EC allows for interactions between federal, state, and local governments and their constituents. The U.S. Internal Revenue Service’s Internet tax filing, or e-filing, is one of the more recognizable G2C services, saving resources in terms of time and paper. Other services provided by governments include the online application for ID cards and municipal services, e-voting, or the provision of electronic access to public government data.

GovErnmEnT-To-BUsInEss. Government-to-business (G2B) is similar to G2C, but this form of EC involves businesses’ relationships with all levels of government. This includes e-procurement, or a government’s streamlining its supply chain by purchasing materials directly from suppliers using proprietary Internet-enabled procurement systems. Also included in G2B initiatives are forward auctions that allow businesses to buy seized goods and surplus government equipment (these transactions can take place on a G2C level as well). Other G2B services include online applications for export licenses, verification of employees’ Social Security numbers, and online tax filing.

GovErnmEnT-To-GovErnmEnT. Finally, government-to-government (G2G) EC is used for electronic interactions that take place between countries or between different levels of government within a country. Since 2002, the U.S. government has provided comprehensive e-government tools that allow foreign entities to find government-wide information related to foreign trade or business topics. Other G2G transactions relate to the intergovernmental collaboration at the local, state, federal, and tribal levels.

E-finance As we move further into the digital age, various products, services, and industries are being dis- rupted (see Chapter 2, “Gaining Competitive Advantage Through Information Systems”), and the financial industry is no exception. E-finance is the use of information systems to provide financial services and markets. Ubiquitous accessibility, the proliferation of mobile devices, advances in cloud computing, and Big Data analytics have brought about many radical changes for the financial services industry, and many foresee further radical changes in the near future. For example, financial companies can now operate on a global scale, and many services tradi- tionally offered by banks can now be offered by other, nontraditional players. Likewise,

Internet

E-government Initiative

CorporationsCitizens Other Governments

FIGURE 4.3 E-government initiatives include interaction with citizens, corporations, and other governments. source: photographs in the Carol m. highsmith archive, library of Congress, prints and photographs Division.

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disintermediation has enabled firms to provide many financial services directly to the end cus- tomers, and the Internet has enabled customers to easily compare prices for financial services. These changes have affected not only traditional banks but also brokerage firms, insurance com- panies, and other players in the financial market.

E-BankInG anD onlInE BrokEraGE. One type of services frequently offered online is managing financial transactions. Whereas traditionally consumers had to visit their bank to conduct financial transactions, they can now manage credit card, checking, or savings accounts online using online banking or pay their bills using electronic bill pay services. Increasingly, financial service providers offer ways for their customers to use their mobile devices for conducting banking transactions. For example, many banks created mobile banking apps for checking account balances or initiating transactions. Large banks like Chase, Citibank, USAA, Capital One, and Charles Schwab offer mobile check deposit apps, allowing customers to deposit a check by simply taking a picture of the check with a smartphone’s camera. E-finance has also had a large impact on payment services as well as the development of cryptocurrencies; we will discuss these later in the chapter.

In addition to online banking, online brokerage has seen steady growth over the past sev- eral years. For example, many people turn to sites such as MSN Money, Yahoo! Finance, or CNN Money to get the latest information about stock prices, firm performance, or mortgage rates, and use online brokerage firms to buy or sell stocks. Further, most large online brokerage services offer trading apps for various smartphone platforms. In addition, e-finance has brought about tremendous changes to financial markets. For example, many stock markets around the world now use electronic trading, such that stock traders from around the world can trade with- out having to be at the stock market’s physical location. Further, electronic trading greatly increases trading speed and reduces transaction costs. Likewise, foreign exchange markets now operate electronically.

FInTECh. Fintech (financial technology) refers to technologies that support activities in the financial sector. Often, fintech is associated with companies (often startups) that use technologies in innovative ways to disrupt activities in the financial sector; many fintech startups focus on specific types of interactions, segments, or business processes. For example, successful fintech startups range from crowdfunding platforms such as Indiegogo or Kickstarter to mobile payment processors such as Square, peer-to-peer lenders such as Prosper and Lending Club, small-business lenders such as Behalf, or digital investment managers such as FutureAdvisor. Another fintech innovation is the use of artificial intelligence for providing investment advice or managing financial portfolios. However, many of the innovative services provided by fintech startups are not captured by traditional financial regulations. Therefore, many innovations in the fintech sector will necessitate changes in regulation of financial services and public policy, often on a global scale; likewise, for organizations and individuals alike, managing risks becomes paramount, especially when dealing with players who are not established in the market.

Business-To-Consumer E-Commerce Technological forces are driving business, lowering barriers to entry and leveling the playing field, allowing small and large businesses from around the globe to sell products to a global customer base. For small companies, this opens up vast opportunities. Unlike in international sports tourna- ments such as the Ironman World Championship, where athletes first have to compete locally to qualify for the big event, online businesses can “participate in the world championships” (i.e., com- pete on a global scale) right from the start. Companies are exploiting the capabilities of the web to reach a wider customer base, offer a broader range of products, and develop closer relationships with customers by striving to meet their unique needs (Valacich, Parboteeah, & Wells, 2007).

While it is beneficial for many small companies to access a global marketplace, this also means that every company participating in a market faces increased competition, and companies must strategically position themselves. Before the Internet, retailers (except for catalog mer- chants) operated solely using traditional physical stores; today, this approach is referred to as brick-and-mortar business strategy. Companies following this strategy solely operate physical locations such as retail stores and do not offer their products or services online. The advent of the web has enabled companies to move beyond their physical location and engage in the online

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sales of goods and services, or e-tailing. In the most extreme form of e-tailing, companies fol- low a click-only business strategy and only conduct business electronically in cyberspace. These firms (sometimes called virtual companies) have no physical store locations, allowing them to focus purely on EC. An example of a click-only company is the online retailer Amazon .com, which does not have a physical storefront in the classic sense. In e-business terminology, click-only companies are sometimes called “pure play companies,” focusing on one very distinct way of doing business; other firms, such as the bookseller Barnes & Noble, choose to utilize the Internet to extend their traditional offline retail channels. These firms employ a click-and-mor- tar business strategy approach (also referred to as a bricks-and-clicks business strategy). The three general approaches are depicted in Figure 4.4.

ThE ClICk-anD-morTar sTraTEGy. The greatest impact of the web-based EC revolution has occurred in companies adopting the click-and-mortar approach. Click-and-mortars continue to operate their physical locations and have added an EC component to their business activities. With transactions occurring in both physical and virtual environments, it is imperative that click-and-mortars learn how to exploit commercial opportunities in both domains. Conducting physical and virtual operations presents special challenges for these firms, as business activities must be tailored to each of these different environments in order for the firms to compete effectively (e.g., differential pricing or shipping and inventory management can suddenly become huge concerns for companies selling physical products). Traditionally, a company would only offer its customers a single channel, be it the physical retail store, a catalog, or

COMING ATTRACTIONS The AI Hedge Fund

For many years hedge funds and money managers have relied on statistical models to improve their trading strategies. Trained in a variety of mathematical disciplines, specialists called “quants” use historical data and other sources of information to develop sophisticated models. However, these models tend to be highly complex and can be challenging to update and adapt to changing market conditions. To speed up the process of developing and refining these models, several startup hedge funds are turning to techniques from artificial intelligence (AI).

the field of ai is vast and varied. many different approaches have been developed in attempts to emulate the intelligence and capabilities of humans (see Chapter 6, “enhancing busi- ness intelligence using big Data and analytics”), with some being very successful and others less so. Recent innovations in the sub-discipline of machine learning have led to widespread practical application; in particular, improvements in genetic algorithms (where many approaches are tried out and only the best survive) and deep learning (where multiple layers of neu- ral networks are trained simultaneously) have enabled applica- tions such as improved image and voice recognition and processing—siri, Cortana, and alexa are but a few examples.

Typically, machine learning algorithms are able to bring together data from many sources and use historical outcome information to train and improve their models. Whereas humans can operate in a similar way, the difference is that the machines can consider hundreds of thousands, even millions, of possibilities, evaluate them automatically, and then choose the ones that generate the best outcomes. The settings that

led to the better outcomes, called “parameters,” can then be fed back into the models for another iteration of improvement. While the resulting models can be extremely complex, the question is how to design the models such that the parameters and outcomes are actually useful for making trading decisions. Critics doubt that in the long run, the new machine learning based funds will be any better at this than existing players. For example, David harding, the billionaire founder and Ceo of Winton Capital management is generally skeptical of the hype over machine learning and AI. “If I squinted a little and looked at Winton, I’d say that’s more or less what we’ve been doing for the past 30 years,” he says. Even believers in AI-based trad- ing foresee other issues. As AI-based trading is expected to level the playing field, in the long run, everyone is likely to have access to the same intelligence. Yet if everyone is having access to the same intelligence, how could anyone outperform the market?

based on:

Knight, W. (2016, February 1). W ill AI-powered hedge funds outsmart the market? MIT Technology Review. Retrieved June 27, 2016, from https://www.technologyreview.com/s/600695/ will-ai-powered-hedge-funds-outsmart-the-market

metz, C. (2016, January 25). the rise of the artificially intelligent hedge fund. Wired. retrieved June 27, 2016, from http://www.wired .com/2016/01/the-rise-of-the-artificially-intelligent-hedge-fund

Wigglesworth, r. (2016, march 25). ai progress fails to convince all investors. Financial Times. retrieved June 27, 2016, from http://www .ft.com/intl/cms/s/0/1c249b10-ed49-11e5-888e-2eadd5fbc4a4.html

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an online store. As companies grew, many started using a multichannel approach, offering the customer different (independent) touchpoints, such as a retail store and a catalog (a concept referred to as multichannel retailing). Increasingly—and especially due to the proliferation of mobile devices—transactions take place across multiple environments, a concept referred to as cross-channel retailing. For example, in-store pickup refers to situations where a customer orders a product online and picks it up in a retail store; similarly, customers may evaluate products offline and purchase the products through the retailer’s website. Finally, omni-channel retailing entails providing seamless, simultaneous interactions using different channels, such that a customer does not interact with a single channel but with the brand as a whole (see Figure 4.5). For example, a shopper in a retail store of electronics retailer Best Buy can scan a QR code to receive more information or product reviews, which are located on Best Buy’s mobile site. Likewise, sales beacons—Bluetooth devices that can detect proximate smartphones and send messages—are likely to become a widely used way to send marketing messages or personalized coupons to the mobile phones of in-store shoppers.

No matter which approach click-and-mortars pursue, they face various challenges due to increasing IS complexity. Design and development of complex computing systems are required to support each aspect of the click-and-mortar approach, especially when attempting to offer seamless experiences across channels.

ThE ClICk-only sTraTEGy. Click-only companies can often compete more effectively on price because they do not need to support the physical aspects of the click-and-mortar approach. Thus, these companies can reduce prices to rock-bottom levels (although a relatively small click-only firm may not sell enough products and/or may not order enough from suppliers to be able to

Brick and Mortar

Physical Virtual

Click OnlyClick and Mortar

FIGURE 4.4 General approaches to conducting commerce.

Multichannel retailing

Cross-channel retailing

Omni-channel retailing

FIGURE 4.5 Supported by information systems, companies can interact with their customers using various touchpoints.

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realize economies of scale and thus reduce prices). Click-only firms, such as Amazon.com or eBay, also tend to be highly adept with technology and can innovate very rapidly as new technologies become available. This can enable them to stay one step ahead of their competition. However, conducting business in cyberspace has some problematic aspects. For example, it is more difficult for a customer to return a product to a purely online company than simply to return it to a local department store. In addition, some consumers may not be comfortable making purchases online. Individuals may be leery about the security of giving credit card numbers to a virtual company. We will discuss these potential drawbacks later in this chapter.

E-tailing: Capabilities and Opportunities Powerful web technologies have given rise to a global platform where firms from across the world can effectively compete for customers and gain access to new markets. Global customers do not have to rely on potentially outdated information from printed catalogs or account state- ments that arrive in the mail once a month but can access websites that are linked to corporate databases to provide real-time access to personalized information. Likewise, companies in the travel industry, such as airlines, can dynamically adjust fares based on availability, booking time, current and historical demand, forecast demand, and other factors to maximize revenues (a practice referred to as yield management) and disseminate the most current fares in real time on the company’s website. Further, the web has opened new avenues for communication between companies and their customers; firms have augmented telephone-based ordering and customer support with web-based support, electronic mail, online text or video chat applica- tions, and social media. In many cases, these are provided to allow customers to communicate with a customer service representative in real time through the corporate website. The web not only has facilitated the dissemination of information and facilitated communication with cus- tomers but often is used to facilitate all stages of a transaction, allowing companies to conduct business online without human assistance, greatly reducing transaction costs while enhancing operational efficiency. For example, once a customer places an order, the customer’s address and payment information are stored in the company’s customer database, the customer’s credit card is automatically charged, the inventory is checked, and the order is routed to the fulfill- ment center, where the shipping label is automatically generated. Aside from picking and pack- ing the actual product, most of the transaction requires little to no human interaction. For the business, this tremendously reduces the costs associated with the transactions by reducing the demand for phone representatives taking the order or back-office staff handling the orders. In addition, the Internet has enabled various new approaches to doing business. These are dis- cussed next.

DIsInTErmEDIaTIon. The web has disrupted many traditional business models by offering the ability to sell products directly to the end customers without the need for distributors or retailers. This phenomenon of cutting out the “middleman” and reaching customers more directly and efficiently is known as disintermediation. Disintermediation creates both opportunities and challenges. On the one hand, producers or service providers can offer products at lower prices (or reap greater profits) by bypassing traditional distribution and retail channels; on the other hand, they also have to take on those activities previously performed by these middlemen. For example, when airlines started selling tickets online and dealing directly with customers, they disintermediated travel agents. As a result, the airlines directly had to deal with upset travelers in case of delays or cancellations, while the travel agents had to find ways to make up for lost revenue, such as by charging booking fees when arranging a person’s travel. In contrast, reintermediation refers to the design of business models that reintroduce middlemen in order to reduce the chaos brought on by disintermediation. For example, without middlemen like Travelocity.com, Orbitz.com, and other travel websites, a consumer would have to check all airline websites in order to find the f light with the best connection or lowest price.

ThE lonG TaIl. Another opportunity enabled by the web is the ability to focus on the “long tails.” Coined by Chris Anderson (2004, 2006), the concept of the long tail refers to catering to niche markets in addition to (or instead of) purely selling mainstream products. The distribution of consumers’ needs and wants can be compared to a statistical normal distribution: The center of the distribution reflects the “mass market,” characterized by relatively similar “mainstream”

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needs and wants shared by many people; the tails are the niche markets, catering to very diverse needs and wants (but comparatively few people share the same needs and wants) (Figure 4.6). Because of high storage and distribution costs, most traditional brick-and-mortar retailers and service providers are forced to limit their product offerings to serving the needs and wants of the mainstream customers in the center of the distribution. For example, large mainstream movie productions typically draw a huge audience and are shown in many movie theaters; in contrast, most independent movie productions are not shown at local cinemas, as they are unlikely to draw a large enough audience to cover the movie theater’s costs to show the movie. Similarly, record stores carry only CDs of which a certain number of copies is likely to be sold each year to cover the costs for shelf space, sales personnel, and so on. Given the limited local reach of brick- and-mortar stores, this ultimately limits the stores’ product selection.

In contrast, enabled by their extended reach, many e-tailers can focus on the long tails, that is, on products outside the mainstream tastes. For instance, whereas a local video rental store is unlikely to have a large selection of documentaries (because of a lack of local demand), Netflix can afford to have a very large selection of rather unpopular movies and still make a profit with it. Rather than renting a few “blockbusters” to many people, many (often outside the main- stream) titles are rented to a large number of people spread out on the long tails. Similarly, online bookseller Amazon.com can carry a tremendous selection of (often obscure) titles, as the costs for storage are far lower than those of its off line competitors. In fact, more than half of Amazon.com’s book sales are titles that are not carried by the average physical bookstore, not even by megastores such as Barnes & Noble. In other words, focusing on those titles that are on the long tails of the distribution of consumers’ wants can be a very successful strategy in the digital world.

mass CUsTomIzaTIon. Mass consumption, one of the hallmarks of modern economic activity, is based on the concept of mass production, which reduces costs by producing large numbers of identical goods. The Ford Model T is one of the earliest successful examples of mass production; all customers were offered the same model, which was produced on an assembly line (instead of being handcrafted, as other automobiles at that time); subsequently, mass production was adopted as the standard way of producing goods to be sold at affordable prices. Web technologies, combined with the ability to interact directly with the end customers, have allowed firms to focus on the long tails by tailoring their products and services specifically to each customer’s particular needs on a large scale, a model referred to as mass customization. Linking online product configuration systems with just-in-time production allows companies to assemble each individual product based on a customer’s specifications so that companies are able to provide individualized products while at the same time reaping the economies of scale provided by mass production. For instance, Dell Computer Corporation allows customers to customize their computers based on their specific performance needs. Likewise, customers can design personalized tennis shoes at Nike.com, customize their Mini at miniusa.com, or even

Long Tail (niche focus)

D em

an d

Mainstream Tastes (traditional focus)

Long Tail (niche focus)

FIGURE 4.6 The long tails.

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have their personalized cookies baked at kekswerkstatt.de. While manufacturing a customized product tends to be more expensive than traditional mass production, the product’s value for the customer increases, allowing the producer to charge a higher price, leading to higher profit margins (Figure 4.7).

GroUp BUyInG. Another innovative business model enabled by the Internet is group buying. Companies such as Groupon or LivingSocial negotiate special volume discounts with local businesses and offer them to their members in the form of “daily deals”; if enough people agree to purchase the product or service, the customers typically get significant discounts over the original purchase price. The business offering the product or service uses these deals to either reduce unsold inventory or to get new customers “into the door”; yet local businesses face the danger of making significant losses on these deals, as the group purchasing site typically takes a hefty share of the deal’s price (often about 50 percent), or they may not be able to cope with the sudden increase in demand (see Case 1 at the end of Chapter 2 for more on Groupon and its business model).

nEw rEvEnUE anD prICInG moDEls. As discussed in Chapter 2, the Internet has enabled or facilitated various revenue models, with companies earning revenues not only through traditional sales but also through subscription, licensing, or transaction fees. Further, organizations and individuals alike can generate revenues through web advertisement or affiliate marketing programs. Some companies selling products or services have come up with pricing models that transcend traditional menu-driven pricing models. Under a menu-driven pricing model, companies such as Amazon.com or Travelocity.com set the prices that consumers pay for products or services. In contrast, Priceline.com uses a dynamic pricing model to offer consumers discounts on airline tickets, hotel rooms, rental cars, and various other products and services. Customers specify the product they are looking for and how much they are willing to pay for it, and Priceline.com matches the customers’ bids with offers from companies (who often use Priceline.com to get rid of excess inventory). After a user searches for a service and submits a bid on Priceline.com, the system routes the information to appropriate brand-name companies, such as United Airlines and Avis Rent a Car, which either accept or reject the customer’s offer (Figure 4.8).

soCIal CommErCE. Companies operating in the digital world have realized that people’s purchasing decisions are increasingly inf luenced by social media. Using various social media, people explore products or engage with others about their purchasing experiences. Thus, organizations are trying to leverage social networks to advertise products, build lasting relationships, or otherwise create value. Social commerce is the use of social media to influence shopping behavior, from the pre-purchase evaluation stage to post-purchase experiences. One use of social media is to incorporate social functionality into a company’s website, allowing customers to engage with the company or others through reviews or comments. For example,

Value of product to consumer

Increased surplus and

profits

Costs to produce product

Costs to produce product

Producer’s profit

Consumer surplus

Consumer surplus

Producer’s profit

Price

Traditional (Mass) Product

Mass- Customized

Product

Additional value created

with mass customization

FIGURE 4.7 Mass customization generates additional value for customers and profits for producers.

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Amazon.com presents recommendations based on what other shoppers with similar tastes have viewed or purchased and encourages shoppers to share their recent purchases on social networking sites. Likewise, online retailers incorporate social sharing functionality into their websites so that customers can share their purchases with their social networks, effectively promoting the products they purchased. Another use of social media is to use social networks such as Facebook, Twitter, or Instagram to advertise products, distribute content, or otherwise engage with current or prospective customers. Adding social elements to the online shopping experiences not only helps increase sales but also gives the organizations a wealth of data about their customers, their motivations, and their experiences (see Chapter 8 for a discussion of social media and managing customer relationships).

In addition, several business models are built around social interactions in the online world. Consumer-to-consumer marketplaces such as eBay or Etsy allow individuals to sell products to other individuals. Group-buying sites such as Groupon use the network effect to increase buying power and obtain deals and discounts. Shopping discovery sites such as Pinterest or Polyvore allow users to suggest novel and exciting products and let merchants sell these products on the site (or app). Social shopping site Wanelo features 30 million products from 550,000 stores, allowing users to follow brands, stores, or other users and share their wish lists, allowing them to discover new styles or products. Recently, online customers have created their own form of social commerce; with the aim of bypassing traditional retail channels, online users have formed buying co-ops on social networks such as Facebook in order to purchase goods at wholesale prices. Clearly, while social commerce has various facets, it is certain that social aspects will play an ever-increasing role in e-commerce interactions.

Benefits of E-tailing For e-tailers and customers alike, e-tailing can provide many benefits over traditional brick-and- mortar retailing in terms of the marketing concepts of product, place, and price. These are dis- cussed next.

proDUCT. Websites can offer a virtually unlimited number and variety of products because e-tailing is not limited by physical store and shelf space restrictions. For instance, e-tailer Amazon.com offers millions of book titles on the web compared with a local brick-and-mortar– only book retailer, which can offer “only” a few thousand titles in a store because of the restricted physical space.

Rental Car: $30/day

Flight to Paris: $600

Hotel Room in London: $60/Night

Priceline.com

ACME Car Rental

ACME Air Lines

50 Cars in the Lot ACME Hotel

150 Empty Rooms

ACMACMACME CE CE Carar RRenRent ltaltal 35 Unsold Seats

FIGURE 4.8 Priceline.com lets consumers name their own price for travel- related services.

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ETHICAL DILEMMA The Ethics of Reputation Management

If you’re trying to decide on which book to purchase, which movie to watch at the theater, which hotel to stay at, or which restaurant to go to for dinner, you are likely to use the power of the crowd—that is, you probably consult websites such as amazon.com (books), rottentomatoes.com (movies), tripadvi- sor.com or booking.com (hotels), or Yelp.com (restaurants) to read reviews from others. For consumers, online reviews can be a valuable decision aid. on the other hand, online reviews can make or break a business. For example, a restaurant receiv- ing just a few negative reviews on Yelp.com during the pre- opening phase will be much less likely to attract diners in the future, and the restaurant may fail before it even started. For the restaurant owner, who has invested her life’s savings, this would mean that she would have to declare bankruptcy; fur- ther, she may have to lay off the chef, the waitstaff, and the dishwasher, all of whom have families to feed. The owner is tempted to boost the reputation of the restaurant and thinks about composing a few reviews herself and publishing those under different pseudonyms. Alternatively, she is considering giving out free drinks or desserts to diners as an incentive for posting positive reviews.

needless to say, websites that publish customer reviews want to provide unbiased reviews and often have (proprietary) mechanisms in place to minimize (or at least reduce) the potential of biased reviews. in addition, under rules of the u.s. Federal Trade Commission, paying someone to post reviews may actually be illegal. Yet you may have noticed extensive,

raving reviews about a 500-page book posted just a day after the book was released or reviews that sound suspiciously like marketing copy.

the restaurant owner thus faces a dilemma. on the one hand, she may just ignore the negative reviews and hope that diners keep coming in spite of these reviews; however, this may result in having to lay off all her staff and close the restaurant if customers are kept away by the reviews. on the other hand, she may engage in “reputation management” and try to provide a more “balanced” picture of her restaurant on the review site.

Questions 1. What would you do? How about not providing any incen-

tives but merely asking all satisfied customers to write reviews?

2. What would happen if the public found out about the owner’s reputation management?

3. Imagine the owner knew that the initial negative reviews were posted by a competitor trying to drive her out of business. Would this change your assessment? If so, how?

based on:

Roggio, A. (2012, January 31). Fake reviews, a despicable practice? Practical eCommerce. retrieved april 25, 2016, from http://www .practicalecommerce.com/articles/3330-Fake-reviews-a-Despicable- Practice-

Tijerina, A. (2011, February 11). The ethics of online reviews. Driv- ingsales.com. retrieved april 25, 2016, from http://www.drivingsales .com/blogs/arnoldtijerina/2011/02/11/the-ethics-of-online-reviews

For online customers, comparison shopping is much easier on the web. In particular, numer- ous comparison shopping services that focus on aggregating content are available to consumers. Some companies fulfilling this niche are Google Shopping, Shopping.com, and PriceGrabber (focusing on a wide range of products); AllBookstores.com (books); and Booking.com (hotel rooms). By displaying information about prices, sellers’ ratings, or shipping options, these com- parison shopping sites can literally force sellers to focus on providing the best value in order to be successful. If sellers do not have the lowest price, they must be able to offer better quality, better service, or some other advantage. These comparison shopping sites generate revenue by charging a small commission on transactions, by charging usage fees to sellers, and/or through advertising on their site.

plaCE. As company storefronts can (virtually) exist on every computer that is connected to the web, e-tailers can compete more effectively for customers, giving e-tailers an advantage. Whereas traditional retailers are bound to physical store locations and open hours, e-tailers can conduct business anywhere at any time.

The ubiquity of the Internet has enabled companies to sell goods and services on a global scale. Consumers looking for a particular product are not limited to merchants from their own city or country; rather, they can search for the product where they are most likely to get it, where they may get the best quality, or where prices may be lowest. This has enabled customers to pur- chase goods from all over the world (such as various gadgets sold at www.dx.com). At the same time, this has created competition for domestic businesses, as often, overseas e-tailers can offer products much cheaper and may even offer free shipping (due to international postal agree- ments, as in the case of www.madeinchina.com).

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prICE. E-tailers can also compete on price effectively as they can turn their inventory more often because of the sheer volume of products and customers who purchase them. Companies can sell more products, reducing prices for consumers while at the same time enhancing profits for the company. Further, virtual companies have no need to rent expensive retail space or employ sales clerks, allowing them to further reduce prices.

Drawbacks of E-tailing Despite all the hype associated with e-tailing, there are some downsides to this approach, in par- ticular, issues associated with trust.

TrUsT. One of the main factors keeping many consumers from purchasing goods and services online is trust. Especially for new online businesses, this tends to be challenging, as customers may be hesitant to purchase from companies they have never heard of. Often, trust becomes an issue due to the customer’s inability to adequately experience the capabilities and characteristics of a product prior to purchase as well as due to uncertainties surrounding product delivery and returns.

Direct Product Experience For many products, customers desire not only information about product characteristics but also sensory information, such as taste, smell, and feel. When shopping for clothes at Lands’ End, how can you be sure that you will like the feel of the material? Or what if you discover that the pair of size 9 EE hockey skates you just purchased online fits you like an 8 D? Likewise, products such as fragrances and foods can be difficult for consumers to assess via the web. Does the strawberry cheesecake offered online actually taste as good as it looks? How do you know if you will really like the smell of a perfume without actually sampling it? Finally, e-tailing eliminates the social aspects of the purchase. Although growing in popularity, e-tailers won’t soon replace the local shopping mall because going to the mall with some friends or interacting with a knowledgeable salesperson cannot be replicated online. On the other hand, online shopping provides certain anonymity, allowing people to shop for products they may not feel comfortable buying in a physical retail store.

Product Delivery and Returns Except for digital products, such as music, games, or electronic magazines, e-tailing requires additional time for products to be delivered. If you have run out of ink for your printer and your research paper is due this afternoon, chances are that you will visit your local office supply store to purchase a new ink cartridge rather than ordering it online. The ink cartridge purchased electronically needs to be packaged and shipped, delaying use of the product until it is delivered. To combat these issues, large online retailers now offer 1-day delivery or, as is the case with Amazon.com’s Prime Now, 2-hour delivery in select cities. Similarly, many click-and-mortar businesses offer in-store pickup and ship-from-store services to address issues associated with product delivery and to effectively compete with click-only companies. Other issues can also arise. The credit card information that you provided online may not be approved, or the shipper may try to deliver the package when you are not home. Finally, the customer may be unsure about product returns in case the product is not of the expected size or quality. When purchasing goods off line, people can easily return the product to the store; likewise, many click-and-mortar retailers offer in-store returns. However, when interacting with a click-only company, customers will have to carefully follow the merchant’s instructions in order to receive a replacement or refund, leading to uncertainties for the customer. These issues become even more problematic when conducting transactions across national borders.

Electronic Commerce websites and Internet Marketing The basic rules of commerce are to offer valuable products and services at fair prices; a sound underlying business model is key for a successful business both online and offline. However, as is the case with effects of retail store layout and design on off line purchasing behavior, the design of an online retailer’s website inf luences online purchasing behavior. In addition, to be successful, companies in the digital world have to market their products or services across a variety of online channels. These topics are discussed next.

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Designing Websites to Meet Online Consumers’ Needs Successful companies design their websites to enhance their online customers’ experience when interacting with the website. Valacich, Parboteeah, and Wells (2007) found that online consum- ers’ needs can be categorized in terms of the site’s structural firmness (characteristics that influence the website’s security and performance), functional convenience (characteristics that make the interaction with the website easier or more convenient), and representational delight (characteristics that stimulate a consumer’s senses). These are discussed next.

Structural Firmness For websites to be successful, structural firmness is a must. Online customers are unlikely to trust and revisit a website (let alone make a transaction) if the website does not function well (at least reasonably well). For example, the website should not have (or at least minimize) bad links, it should provide understandable error messages should something go wrong, and it should ensure privacy and security of the customers’ data (EC websites often use trust seals to signal that privacy and security are ensured). Further, the website should be fast; if online customers have to wait for pages to load, they are not apt to stay at the site long or to return. In fact, studies suggest that the average length of time that a web surfer will wait for a web page to load is only a couple of seconds.

Functional Convenience The website must be easy to use. As with nearly all software, websites that are easy to use are more popular. If visitors have trouble finding things on a page or navigating through the website’s links, they are unlikely to make a transaction or return to the site. Thus, websites should provide easy navigation for users to find their way (and back),

SECURITY MATTERS Too Small to Be Hacked?

stealing secret data is only valuable if someone is willing to pay for it, and one of the challenges facing cybercriminals is how to turn their exploits into hard currency. In recent years, many cybercriminals have turned to stealing data that can be easily converted into hard currency. Credit card numbers can be used directly to purchase merchandise or gift cards until the theft gets reported and the account canceled. Personal data can be used to steal someone’s identity in order to apply for loans to get cash. However, as consumers, retailers, and banks get better at recognizing illicit activity and preventing data theft, it is getting more difficult for cybercriminals to monetize their activities. a recent trend has been taking data hostage.

many small to medium-sized businesses lack the sophisti- cation and resources to adequately protect their information systems. The data contained in these systems, however, are usually of limited value to others outside the business. so, instead of stealing the data, cybercriminals lock it up in such a way that it cannot be accessed. usually, instead of transferring the data out, criminals simply encrypt the data in place. With- out properly designed backup systems, many businesses are unable to access or recover their data. The cybercriminals then demand a ransom payment in order to restore access to the data. A small business’s data may not be valuable to others, but the data are often extremely important to the operation of the business. Without extensive IT support or sophistication, the owners of the business may be willing to pay the ransom

to regain access to their data, thus providing immediate income to the criminals. unfortunately, paying off the crimi- nals may or may not get the data back, and the vulnerabilities that led to the attack in the first place may still be in place.

To prevent becoming a victim in the first place, experts rec- ommend paying for a third-party service to audit, enhance, and maintain system security. While a small business may not be able to afford a sophisticated staff and specialized technol- ogy to monitor and secure its information systems, there are many outsourcing providers that can provide the required expertise and capabilities for a reasonable fee. As with many types of risks, an ounce of prevention can be worth a pound of cure. security audits and enhancements are only part of the equation, however. It is also important to ensure that proper backup and disaster recovery policies and procedures are in place and to test them regularly. Finally, users are a key part of the equation. Technology alone cannot protect a business if the system user is the weak link, so it is essential to train users to recognize phishing scams and not to perform risky actions like clicking on unknown links or executing unknown attach- ments that can contain malware.

based on:

gustke, C. (2016, January 13). no business too small to be hacked. The New York Times. retrieved June 26, 2016, from http://www .nytimes.com/2016/01/14/business/smallbusiness/no-business-too- small-to-be-hacked.html

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provide indications about where the users are on the site, and offer help features. Further, features such as one-click ordering, offering a variety of payment methods, or order tracking can increase the perceived functional convenience of a website.

Representational Delight Finally, the website must be aesthetically pleasing. People are more likely to visit, stay at, and return to a website that looks good, as the design of a website can signal other characteristics of an online business, such as professionalism (Wells, Valacich, & Hess, 2011). Thus, successful firms have web sites that are nice to look at and have a unique look and feel to separate their website from their competition. Aesthetics can include the use of color schemes, fonts, backgrounds, and high-quality images. Furthermore, websites should have a clear, concise, and consistent layout, taking care to avoid unnecessary clutter.

ThE onlInE ConsUmErs’ hIErarChy oF nEEDs. In a perfect world, an organization would strive to maximize all three sets of characteristics. In reality, businesses constantly have to make trade-offs between complexity, resource limitations, and other factors; thus, it is important to understand online consumers’ relative needs. Valacich and colleagues’ (2007) “online consumer’s hierarchy of needs” suggests that overall, a site’s structural firmness is most critical; once visitors’ needs for structural firmness have been met, functional convenience is the next most important set of characteristics, followed by representational delight. In other words, if a website is only nice to look at but difficult to navigate or appears not secure, visitors are unlikely to stay or make a transaction.

Needless to say, a basic level of structural firmness, functional convenience, and representa- tional delight should be provided by any website (in other words, online visitors have a “zone of intolerance”). Beyond this basic level, the importance of the different sets of characteristics depends on the objective of a particular page on a website (Figure 4.9). For example, for a very utilitarian web page, such as the login page of your online banking site, structural firmness should be emphasized to the user (though both functional convenience and representational delight should not be neglected). In contrast, for a relatively more hedonic web page, such as a page designed to engage a visitor into considering a new home loan, representational delight should be emphasized (again, not neglecting the other factors). Hybrid pages, offering both hedonic and utilitarian value, such as those within Amazon.com or eBay, should balance the dif- ferent factors (though typically checkout pages on such sites emphasize aspects related to struc- tural firmness).

sETTInG Up yoUr onlInE sTorE. As numerous examples show, the web allows almost anyone to set up an online store. The first step in starting a B2C e-commerce business is to set up an online storefront that is easy to use, fast, reliable, and aesthetically pleasing. However, especially small companies often lack the resources to set up a professional e-commerce site. One solution for companies wanting to benefit from being associated with large, successful e-businesses is to turn to the e-commerce giants eBay and Amazon.com, which let others sell products on their sites on a large scale. In addition, online businesses can choose from various (often freely available) e-commerce solutions that offer numerous well-designed store templates. E-commerce solutions offered by commercial providers such as Intuit, GoDaddy, Shopify, or Yahoo! or open

Utilitarian Web Page

Hybrid Web Page

Hedonic Web Page

Zone of Intolerance Low

Minimum Acceptable

Level

High Representational Delight

Functional Convenience

Structural Firmness

FIGURE 4.9 Different websites (pages) must focus on different design features. source: based on Valacich et al. (2007).

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source solutions such as osCommerce or PrestaShop offer various store templates, an integrated shopping cart, and so on; typically, such e-commerce solutions are customizable, giving businesses the option of integrating customer reviews, reward programs, or tracking information.

An additional challenge for f ledgling online merchants is the effort involved in picking, packing, and shipping the orders. To address this problem, many smaller companies choose to outsource order fulfillment. For example, Fulfillment by Amazon “rents out” warehouse and information systems infrastructure to anyone wanting to run a successful online business, essen- tially offering fulfilment as a service, where all a company has to do is ship the products (in bulk) to Amazon’s warehouses, where the products will be stored until an order is received. Employees from the fulfillment service then pick, pack, and ship the order, allowing the compa- nies to concentrate on managing the online business, attracting new customers, and so on.

Internet Marketing One fundamental mistake companies can make when taking a current business online or creating an online business is assuming that if you build it, they will come. As with an offline business, marketing is a critical activity in any online endeavor, and a website cannot be successful with- out customers. As companies must attract visitors to their site and away from the thousands of other sites they could be visiting, companies advertise their firm’s web presence by including the website address on all company materials, from business cards and letterheads to advertising copy. Further, it is now common to see a company’s URL listed at the end of its television com- mercials, and more and more companies integrate QR codes into their offline ads. QR codes are two-dimensional bar codes with a high storage capacity. In a consumer context, QR codes are typically used to point the consumer to a particular web page when he or she scans the bar code with a mobile device’s camera (Figure 4.10). Alternatively, QR codes can trigger certain actions, such as initiating a phone call to a sales representative or sending a text message to a prespeci- fied number.

Historically, companies’ advertising budgets were mostly spent on noninteractive advertis- ing campaigns, such as using billboards or newspaper, radio, or television ads. However, as it is becoming the norm to access the Internet multiple times a day from multiple devices and loca- tions, companies are reallocating their advertising budgets; in 2014, organizations spent 24 per- cent of their advertising budget on Internet marketing; research firm Forrester estimates that by 2019, companies will spend 35 percent of their advertising budget on Internet marketing, includ- ing search marketing, display ads, e-mail marketing, social media, and mobile marketing (Van- Boskirk, 2014). All of these are discussed next.

FIGURE 4.10 Scanning a QR code can trigger certain actions, such as opening a web page. source: scanrail1/shutterstock.

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sEarCh markETInG. Whereas people would traditionally obtain information about products or companies from offline sources, many web surfers now just enter the name of a product into a search engine such as Google or Bing and then visit the resulting pages. Given this trend, it is not surprising that search marketing is now big business. Research firm Forrester reports that by 2019, companies in the United States will spend US$45.4 billion on search marketing (Figure 4.11). Included in search marketing are search engine optimization and paid search, both of which are discussed next.

Search Engine Optimization The results presented by search engines such as Google or Bing are typically separated into organic results (i.e., based on the page’s content) and sponsored results. The organic results of a user’s search are presented based on complex, proprietary formulas, and the ranking (position of the link to a particular page) in the search results is largely outside the control of the web page’s owner (Figure 4.12). Given the incredible numbers of results that are returned for common searches such as “apparel,” “sportswear,” or “digital camera,” most surfers visit only the first few links that are presented and rarely venture beyond the first page of the search results; thus, companies use search engine optimization (SEO) in an attempt to boost their ranking in the organic search engine results. Although the exact formulas for a web page’s rank in the organic results of a search engine are kept as trade secrets, the major search engines give tips on how to optimize a page’s ranking, including providing unique and valuable content, keeping the content updated, and including key words for which a user might query.

There are a multitude of companies promising to improve a page’s ranking, but because search engines’ algorithms are usually proprietary and are frequently changed and there can be literally hundreds of factors influencing a page’s rank, the success of using such services is often limited. Further, search engines such as Google try to detect whether a page is using unethical

Share in US$ million

3,067

17,342

37,574

45,386

E-mail marketing Social media Display advertising Search marketing

FIGURE 4.11 Search marketing is forecast to have the largest share of interactive marketing by 2019. source: based on Vanboskirk, s. (2014, november 18). US Digital Marketing Forecast, 2014 to 2019. Cambridge, ma: Forrester research.

FIGURE 4.12 It is hard to influence the ranking of your company’s page in the organic search results. source: 2016 google inc. all rights reserved. google and the google logo are registered trademarks of google inc.

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“tricks” (such as “hidden” key words) to improve its ranking and ban sites using such tricks from the listing altogether. Nevertheless, even slight modifications to a page can have a large impact on the page’s ranking in search results, and investments in SEO are often worthwhile, especially in times of tight marketing budgets.

Paid Search A way to ensure that your company’s page appears on the first page users see when searching for a specific term is using search advertising (or sponsored search). For example, using Google’s “AdWords,” a company can bid for being listed in the sponsored search results for the term “4K TV” (Figure 4.13). In order to present the most relevant ads to its users, Google then determines the relevance of the ad and the content of the linked page to the search term, and, depending on the amount of the bid, the company’s web page is listed in the sponsored results; Google is paid on a pay-per-click basis (see the following discussion of pricing models). As you can imagine, this can quickly become very expensive for advertisers, especially when the sponsored link is associated with a popular search term, and the advertiser has to bid against many competitors. On the other hand, a system such as Google’s AdWords ensures high-quality leads, as the ads are presented only to users actually searching for a specific key word (in contrast to traditional ads, which are presented to anyone). As programs such as AdWords can be tweaked in myriad ways (such as by key words, negative key words, region, time of day, and so on), many companies turn to professional consultants who help to optimize sponsored search campaigns. Alternatively, some search engines offer to elevate a page’s position in the organic results after paying a fee (paid inclusion). Many search engines that pride themselves on offering unbiased results (such as Google), however, do not offer paid inclusion. Overall, Forrester Research estimates that spending on paid search will increase from US$25.2 billion to US$41.3 billion between 2014 and 2019.

DIsplay aDs. In the early days of the web, display advertising was the prevalent form of online advertising. Similar to traditional newspaper ads, companies would advertise their presence on other popular websites, such as nytimes.com, using static banner ads, video ads, or interactive banner ads, which allow users to interact with the advertisement. A recent trend in display advertising has been contextual advertising, where the ads placed on a page are in some way related to the content of that page. If, for example, you are reading tournament results from a PGA golf event at a popular sports website such as espn.com, you will also likely see an advertisement to buy new golf equipment or to visit a golf resort. A variety of interactive features, rich media ads, and the ability to place ads in online videos as well as the ability to accurately measure an ad’s impact contribute to display advertising’s increasing popularity.

E-maIl markETInG. E-mail marketing has been, and continues to be, a very popular aspect of advertisers’ overall interactive marketing mix (VanBoskirk, 2014). Given the low cost of less

FIGURE 4.13 Companies pay per click for being included in the sponsored listings. source: 2016 google inc. all rights reserved. google and the google logo are registered trademarks of google inc.

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than US$1 per 1,000 e-mails, advertisers are increasingly trying to move away from direct-mail advertising and replace it with e-mail advertising. In addition to low cost, the effectiveness of e-mail advertising campaigns can be measured directly (such as by including special links or images in the e-mail that allow the sender to track which e-mails the recipients have opened or reacted to). Further, e-mail marketing saves tremendous amounts of paper over traditional direct mail advertising, allowing a company to build a positive green image.

soCIal mEDIa markETInG. One continuing trend in Internet marketing is harnessing the power of social media, such as Facebook or Twitter. More and more people rely on social media to stay in contact with their friends or business associates, so including such sites in the interactive marketing mix is a natural move for companies. In addition to placing display ads on such sites, companies increasingly use social networking sites for interactive communication with their customers. For example, the Coca-Cola Company has created a page on Facebook, allowing it to interact with its more than 97 million “fans” (i.e., Facebook users who “like” the page) in various ways; Coke’s fans can download free virtual goodies, can upload pictures related to everything Coke, or can use interactive apps. By creating this page (which is free for Coke, except for the time needed to set it up, monitor, and maintain it), Coke can build strong relationships with a large group of its target customers. Similarly, people can follow Coke on Twitter or visit Coke’s channel on the video-sharing site YouTube. A recent trend for companies is establishing “social media listening centers” to feel the pulse of public opinion across a variety of social media.We discuss social media marketing in more detail in Chapter 5, “Enhancing Organizational Communication and Collaboration Using Social Media.”

moBIlE markETInG. Finally, mobile marketing is forecast to skyrocket between 2014 and 2019 (VanBoskirk, 2014). Increasing use of smartphones and tablets has provided marketers with yet another channel for highly targeted advertising (such as based on a user’s location). This is true especially for tablets (with their relatively large screens), which allow for various innovative interactive ad formats. Further placing ads into mobile phone apps allows app developers to offer apps for lower prices (or free, under the freemium model; see Chapter 2) and provides marketers with another opportunity to reach their target audience through their favorite channels. Finally, the growth in mobile commerce further contributes to the growth of mobile marketing, as companies are trying to reach their customers wherever, whenever.

paymEnT moDEls In InTErnET markETInG. In offline advertising, an ad’s exposure can only be guessed and pricing is typically fixed. For example, the cost for renting an outdoor billboard is determined by the size of the billboard, the location, or the estimated number of cars passing by that billboard in a certain time period; likewise, the price for a newspaper ad is determined by the ad’s size, the paper’s circulation, and so on. On the web, in contrast, it is possible to determine exactly how many people have been exposed to or clicked on an ad. Thus, one common pricing model for online advertising is the impression based model; under this model, pricing is based on the number of times the page containing an ad is displayed, typically expressed in cost per thousand impressions (i.e., cost per mille, or CPM). Depending on advertising volume and the popularity of the site where the ad is placed, costs can range from US$8 to US$40 per thousand impressions. However, research firms estimate that between 30 and 60 percent of website visits may be generated by nonhuman traffic; further, many web surfers do not even look at the online ads and web browsers such as Firefox offer the option to block certain ads. Thus, the trend in web advertising is moving toward performance-based pricing models, where the return on investment is more direct, such as pay-per-click models. Under this type of pricing model, the firm running the advertisement pays only when a web surfer actually clicks on the advertisement; the cost per click is typically between US$0.01 and US$0.50 per click, depending on the site, its viewers, and so on. One drawback, however, of pay-per-click models is the possibility of abuse by repeatedly clicking on a link to inf late revenue to the host or increase the costs for the advertiser; this is known as click fraud. Click fraud has become increasingly problematic, and companies such as Google are constantly monitoring clicks to detect potentially fraudulent activity.

assEssInG pErFormanCE oF InTErnET markETInG. One major benefit of Internet marketing is the ability to target specific recipients based on location, time of day, page content surrounding an ad, or the viewer’s demographics, “likes,” or interests (e.g., on a social network such as Facebook), making Internet marketing campaigns very effective; further, in contrast

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to traditional marketing campaigns, it is easy to assess viewer’s reactions to an ad. Given that Google and Facebook know (or are able to infer) various characteristics of their users (and Google manages ads across a variety of partner websites ranging from AOL to the Washington Post), it comes as no surprise that these two companies reap 85 cents of each new online advertising dollar spent by companies, according to analysts. How is the success of Internet marketing campaigns measured? The performance of Internet marketing can be assessed by metrics such as click-through rate, ref lecting the number of surfers who click on an ad (i.e., clicks) divided by the number of times it was displayed (i.e., impressions), or conversion rate, reflecting the percentage of visitors who actually perform the marketer’s desired action (such as making a purchase, signing up for a newsletter, watching a video, and so on). Targeting a well- defined audience with an ad campaign can help to attract high-quality leads, ultimately resulting in higher conversion rates. In addition, tracking visitors’ behavior on a website can provide a host of useful information. For example, a firm can track the path that visitors take through the many pages of its website and record the length of the visits, page views, common entry pages, a page’s bounce rate and exit rate, and even the user’s region, browser, or Internet service provider, among other statistics. Exit rate is defined as the percentage of visitors who leave the website (i.e., terminate the session) after viewing that page; in other words, it reflects the percentage of users for whom a particular page is the last page they view before moving on to a different site or closing their browser window. In contrast, bounce rate is defined as the percentage of single- page visits; in other words, it reflects the percentage of users for whom a particular page is the only page visited on the website during a session. As the different metrics can be affected by the page itself as well as by the quality of the traffic being attracted, the company can use this information to improve its website or attempt to attract higher-quality traffic. If the exit rate for a particular page is abnormally high, the company can try to find out why this occurs and redesign the page to entice the users to stay. Similarly, pages that go unused can be eliminated from the site, reducing maintenance and upkeep. This process of analyzing web surfers’ behavior in order

WHEN THINGS GO WRONG Buying Likes

We’ve all seen them in our social network feeds: “like this page for a chance to win a cash prize” or “share this link to help John Doe get a backstage pass to the concert!” social media sites like Facebook are a great platform for businesses to generate buzz and, with a well-executed marketing campaign, get noticed by millions of users. many businesses entice users to “like” their business page for some reward—a discount or chance to win a prize—and in turn, the users who “like” the business spread the word to each of their network connections automatically. users of twitter and instagram can also promote topics or businesses using hashtags (keywords denoted with a “#” symbol; see Chapter 5). These campaigns can be very effective. For example, in 2015, starbucks hosted a photo con- test in which participants who posted a photograph with a red starbucks cup could win us$500. to be eligible to win, the contestants had to post the picture on Instagram along with the hashtag #RedCupContest. This simple campaign resulted in more than 40,000 entries competing for one of five prizes.

sometimes, however, these campaigns and contests can be deeply biased by automated “likes” and submissions, giv- ing unfair advantage to users who try to game the system. There are many services that offer “like buying” and other forms of electronic voting fraud. one such company, based in

Chennai, india, employs dozens of people whose job is to use a multitude of social media accounts to “like,” follow, vote for, or otherwise promote whatever campaign their clients hire them to promote. some of these companies use special soft- ware to spoof and rapidly change their IP address, preventing filtering from contest sponsors who try to prevent multiple votes from the same IP address or who limit valid entries to only those within a specified geographical region.

social media platforms try to suppress this type of devious behavior, but, as with many such practices, it turns into a cat- and-mouse game with both the social networks and the fraud- sters constantly finding new ways to outsmart the other. Do a search for “vote buying services” online and see who is cur- rently ahead.

based on:

permenter, C. (2013, June 6). buying likes and rigging votes: Facebook’s seedy underworld. The Daily Dot. retrieved June 27, 2016, from http:// www.dailydot.com/business/facebook-buy-votes-rig-contests-likes

Young, h. (2015, December 14). the 30 most brilliant social media campaigns of 2015. Salesforce.com. Retrieved June 27, 2016, from https://www.salesforce.com/blog/2015/12/2015-most-brilliant-social- media-campaigns.html

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to improve website performance (and, ultimately, maximize sales) is known as web analytics (for more on this topic, see Case 1 at the end of this chapter and Chapter 6).

mobile Commerce, Consumer-To-Consumer EC, and Consumer-To-Business EC Fueled by the megatrends, mobile commerce has seen tremendous growth in the past few years. As defined earlier in the chapter, m-commerce is any electronic transaction or information inter- action conducted using a wireless, mobile device and mobile networks (wireless or switched public network) that leads to the transfer of real or perceived value in exchange for information, services, or goods (MobileInfo, 2016).

Powerful mobile devices such as Apple’s iPhone and iPad or Samsung’s Galaxy, supporting high-speed data transfer and “always-on” connectivity, provide a wide variety of services and capabilities in addition to voice communication, such as multimedia data transfer, video stream- ing, video telephony, a sheer unlimited number of useful apps, and full Internet access, allowing consumers to access information or make transactions on the go. Mobile payment systems such as Apple Pay further facilitate mobile commerce. Indeed, research firm Forrester expects 270 million U.S. shoppers to use mobile devices by 2020 (up from 244 million in 2015; Lindner, 2016). In other regions of the world, mobile commerce has an even larger impact, with almost 50 percent of all e-commerce transactions in China having taken place on a mobile device in 2015 (a number that is forecast to reach 71 percent by 2019; eMarketer, 2015a).

The increasing use of tablets is seen as another major driver of mobile commerce. Although providing for mobility, tablets are often used in people’s living rooms as “couch computers”; thus, tablets allow people to shop from the comfort of their homes without being tied to a desk and a computer screen (Figure 4.14). In addition, tablets provide larger screen sizes, allowing for better product presentation. An analysis of 16.2 billion transactions from 150 online retailers showed that tablet users tend to spend significantly more per order than shoppers using smartphones or personal computers (Adobe, 2012); given that tablet users tend to have above-average incomes, tablets may be the perfect channel for selling products or ser- vices online.

loCaTIon-BasED m-CommErCE. Another key driver for m-commerce is location-based services, which are highly personalized mobile services based on a user’s location. Location- based services are implemented via the cellular network, Bluetooth and Wi-Fi networks, and global positioning system (GPS) functionality, now built into most modern smartphones. Location-based services allow the service provider to offer information or services tailored to the users’ needs, depending on their location. For example, search engines can provide specific information about attractions or restaurants located in the user’s vicinity, retail stores

FIGURE 4.14 Tablets are often used as “couch computers.” source: Diego Cervo/shutterstock.

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can enhance store locators with navigation instructions, or users can receive real-time traffic or public transport information (Table 4.2).

InFormaTIon on ThE Go. In the digital world, people have become increasingly used to having tremendous amounts of information available. Mobile devices have taken this to the next level, in that people now have the information available whenever, wherever (Figure 4.15). For instance, when deciding on whether to visit a particular restaurant, people can get further information or customer reviews from sites such as Yelp using their mobile devices; similarly, when standing in a retail store, customers can easily retrieve a host of information and reviews about particular products. For customers, this capability can help tremendously when making purchase decisions; for companies operating in the off line world, this has turned into a mixed blessing. On the one hand, they can augment the off line shopping experience by being able to provide much more information than they would typically be able to, which can open up many opportunities for cross-channel and multichannel retailing and can allow bricks-and-clicks retailers to compete with their click-only counterparts. On the other hand, the rise in smartphone

TABLE 4.2 Gps-Enabled location-Based services

Service Example

Location Determining the basic geographic position of the cell phone

Mapping Capturing specific locations to be viewed on the phone

Navigation The ability to give route directions from one point to another

Tracking The ability to see another person’s location

FIGURE 4.15 Using mobile devices, information is always at your fingertips. source: 2016 google inc. all rights reserved. google and the google logo are registered trademarks of google inc.

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use has led to showrooming—that is, shoppers coming into a store to evaluate the look and feel of a product to then purchase it online or at a competitor’s store. Obviously, click-only companies benefit from this practice; online retailer Amazon.com even offers an app that lets the user scan a product’s bar code with the smartphone’s camera and then displays the product information and price offered by Amazon.com.

In addition to providing information on the go, service providers offer mobile tickets or even mobile boarding passes; typically a QR code is sent to the smartphone of the user, who then just has to present the code to a QR code reader to verify the ticket or boarding pass. This adds convenience for the user, who does not have to keep track of paper tickets, physical boarding passes, and the like, and the service provider can offer additional information and services, such as automatic notifications of delays or gate changes for passengers.

proDUCT anD ConTEnT salEs. Mobile users increasingly use their mobile devices to purchase products or content on the go. In an attempt to harness this trend, many online retailers design mobile versions of their websites so as to facilitate the shopping process on mobile devices. With the increasing popularity of mobile commerce, companies have to strategically decide whether to go beyond mobile versions of their websites and create dedicated mobile apps, which can offer many features that cannot be provided on mobile websites. However, mobile apps are typically costly to develop as they have to be tailored to different platforms (e.g., Apple’s iOS versus Android) and device form factors (such as different screen sizes of smartphones and tablets) (Figure 4.16). In any case, firms operating in the digital world should accommodate for unique aspects of mobile interactions (e.g., interactions are often short and fragmented or users face frequent distractions). According to research firm EPiServer, mobile users regard user reviews, direct customer support, adaptation to different screen sizes, location-based functions, and wish list functions as the most important features of mobile retail sites (eMarketer, 2016).

Especially among commuters, accessing content from mobile devices is extremely popular. Content providers ranging from newspapers to TV stations are now offering various ways to access their content from mobile devices. The increasing field of mobile content is obviously an important part of many companies’ mobile marketing mix, as it allows reaching people in more places and provides for extremely targeted marketing efforts (such as based on a user’s location).

C2C EC C2C commerce has been with us since the start of commerce itself. Whether it was bartering, auctions, or tendering, commerce has always included C2C economics. Electronically facilitated interactions create unique opportunities (such as a large pool of potential buyers) and unique problems (such as the potential of being defrauded; see Table 4.3). This section discusses

FIGURE 4.16 Businesses have to decide whether to build apps for different platforms and form factors. source: scanrail/Fotolia.

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e-auctions and online classifieds, two of the most popular mechanisms consumers use to buy, sell, and trade with other consumers.

E-aUCTIons. E-auctions provide a place where sellers can post goods and services for sale and buyers can bid on these items. Relatedly, bartering typically takes place on a one-on-one basis, but websites such as swap.com bring together many people listing items to swap.

The largest e-auction site, as you probably know, is eBay (www.ebay.com). eBay’s revenue model is based on small fees that are associated with posting items, but these small fees quickly add up, so that in 2015 eBay’s net revenues exceeded US$8.5 billion. Whereas eBay is hugely popular, there continue to be cases of fraud. According to the Internet Crime Complaint Center (2016), e-auctions are marred with fraud, with e-auction fraud being among the top five most common crime types filed with the center. In particular, non-shipment of goods and counterfeit items tend to be the biggest problems; with the proliferation of fake goods ranging from hand- bags to brake pads, air bags, and chain saws, purchasing and using counterfeit goods can not only lead to legal complications but can potentially have dangerous or even deadly conse- quences. Needless to say, online auction sites warn users to exercise caution when purchasing goods; in addition, e-auction providers such as eBay offer swift conflict resolution mechanisms to preserve people’s trust in the marketplace and use sophisticated business intelligence applica- tions (see Chapter 6) to detect and minimize e-auction fraud, attempting to make C2C EC a safer shopping experience.

onlInE ClassIFIEDs. Another type of C2C e-commerce is online classifieds. Although online classifieds sites such as craigslist.com are enabled by web capabilities, no transactions take place online. Yet online classifieds have f lourished in recent years, enabling people to sell anything from flowers to furniture. A related concept that has gained popularity is “freecycling,” that is, giving away goods for free to anyone who is willing to pick them up.

plaTForm-BasED C2C BUsInEss moDEls. As discussed in Chapter 2, digital platforms enable users to co-create value, and fueled by the megatrends social and mobile, many platforms focus on enabling C2C interactions. For example, ride-sharing platforms such as Uber, Linq, and Juno allow everyday people to use their own vehicles to provide an alternative to traditional cabs. Likewise, Airbnb allows people to rent their apartments to others, C2C marketplaces such as Etsy allow individuals to sell vintage or handmade products to other consumers, and the mobile photo-sharing service Instagram enables people to easily set up online storefronts.

C2B EC Just as the web has enabled small businesses to participate in global EC, it has also enabled con- sumers to sell goods or services to businesses, reversing the more typical B2C model. Con- sumer-to-business (C2B) EC has seen a few implementations. One prime example is microstock photo sites such as Shutterstock, which sell pictures, videos, or artwork to publishers, newspa- pers, web designers, or advertising agencies. Up until a few years ago, clearinghouses such as Getty Images were the primary source for stock photography used by advertisers, book publish- ers such as Pearson Prentice Hall, or publishers of newspapers or magazines; however, the images purchased from these clearinghouses tended to be expensive, as the clearinghouses sourced the pictures from professional photographers. In contrast, Shutterstock sources much of

TABLE 4.3 opportunities and Threats of C2C EC

Opportunities Threats

Consumers can buy and sell to broader markets

Eliminates the middleman that increases the final price of products and services

Always available for consumers, 24/7/365

Market demand is an efficient mechanism for setting prices in the electronic environment

Increases the numbers of buyers and sellers who can find each other

No quality control

Higher risk of fraud

Harder to use traditional payment meth- ods (checks, cash, ATM cards)

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its content not from professionals but from amateur photographers (Figure 4.17). Today, high- quality digital cameras can be had for far less than US$1,000, and with the right editing soft- ware, amateur photographers can create images that almost match those of professional photographers. Amateur photographers can upload their pictures to microstock photo sites, where interested parties can license and download the images for US$1 to US$5 per image, which is a fraction of the price of a regular stock photo. Given that overhead costs are almost negligible, the microstock photo sites can make a profit while still sharing part of the revenue with the pictures’ creators. Similarly, companies use crowdsourcing on micro-task marketplaces such as Amazon’s Mechanical Turk (see Chapter 5) in order to have small, well-defined tasks (such as tagging pictures or describing products) completed by a scalable ad hoc workforce of everyday people. However, it can be argued that consumers who regularly engage in C2B trans- actions and make parts of their living with such transactions can be considered businesses; hence, the line between C2B and B2B transactions is somewhat blurry.

securing payments and navigating legal Issues in EC Within a short period of time, radical developments in technology and systems have brought EC from a fringe economic activity to one of the most prevalent in today’s global economy. This innovation has not slowed down and has opened some promising new areas within EC. This sec- tion outlines web-based financial transactions and legal issues related to engaging in EC.

Securing Payments in the Digital World One of the most crucial aspects of B2C EC, C2C EC, and m-commerce is ensuring that online transactions are secure. Although the transfer of money is a critical factor in online shopping, online banking, and online investing, security researchers and software companies are lamenting that people are often reluctant to change their habits when surfing the web and carelessly reveal sensitive information to unknown or fraudulent sites. In fact, more than 17.6 million consumers in the United States (or 7 percent of U.S. adults) became victims of identity theft in 2014 (see Chapter 10). Security concerns and other factors (such as impatience, lengthy checkout proce- dures, or comparison shopping) lead shoppers to frequently abandon their shopping carts and to not follow through with a purchase—reports show that more than half of the online shopping carts are abandoned. Traditionally, paying for goods and services was limited to using credit and debit cards, but using these methods can open up many security issues. To address these issues, there are now different ways of exchanging funds when buying and selling goods or services online. Issues related to different forms of online payment are discussed next.

paymEnT sErvICEs. Concerns for security have led to the inception of independent payment services such as PayPal (owned by eBay), Apple Pay, Square, or Google Wallet. These services allow online customers to purchase goods online without having to reveal much private information to the actual sellers. Rather than paying a seller by providing credit card information, an online shopper can simply pay by using his or her account with the payment service. Thus, the customer has to provide the (sensitive) payment information only to the payment service, which keeps this information secure (along with other information such as e-mail address or purchase

Web designers

Publishers

Advertising agencies

Newspapers

FIGURE 4.17 Amateur and professional photographers can sell their creations through microstock photo sites such as shutterstock.com.

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history) and does not share it with the online merchant. Google linked its payment service to the search results so that Internet users looking for a specific product can immediately see whether a merchant offers this payment option; this is intended to ease the online shopping experience for consumers, thus reducing the number of people abandoning their shopping carts. Another payment service, PayPal, goes a step further by allowing anyone with an e-mail address to send and receive money. In other words, using this service, you can send money to your friends or family members, or you can receive money for anything you’re selling. This easy way to transfer money has been instrumental in the success of eBay, where anyone can sell or buy goods from other eBay users. With the increase in mobile interactions, mobile payment services such as Apple Pay or Square are seeing an increase in popularity. Such services greatly facilitate making in-store payments and offer an alternative to carrying cash or credit cards (e.g., by allowing the user to pay for a cup of coffee using a smartphone). A recent development of mobile payment services is to allow for peer-to-peer payments, such that a group of friends could easily split the bill for a meal at a restaurant. For example, the hugely successful Chinese messaging platform WeChat not only allows making online and off line payments but also allows for peer-to-peer transactions.

GREEN IT Green Online Shopping

Have you ever spent endless hours in different stores looking for a particular item? unless the different stores are located in the same mall (or in the same general vicinity), driving between the stores requires using fossil fuels and contributes to increased pollution and road traffic. When shopping online, in contrast, you can easily search for products at different stores and compare prices, availability, shipping options, and so on, so you only need energy to power the device you use for your online “shopping trip.”

unfortunately, calculating the environmental impact of online shopping versus shopping in a brick-and-mortar store is not always easy. Products purchased online are typically deliv- ered by companies such as ups or Dhl; as the delivery vans travel optimized routes and deliver packages destined for hun- dreds of other people, they potentially save hundreds of trips taken to a store. likewise, stores do not have to print out and handle paper receipts and other paperwork, lowering the need for chopping down trees. on the other hand, incredible amounts of cardboard boxes are needed to prevent damage to the items in transit.

a study conducted by Carnegie mellon’s green Design Institute estimated that purchasing a thumb drive from online retailer buy.com (where the products are shipped directly from the distributor to the customer) can result in 35 percent sav- ings in energy consumption and carbon dioxide emissions, compared with the same product purchased in a physical retail store. According to the researchers, the primary drivers for energy consumption for online purchases were packaging and delivery to the customers, whereas the largest driver of energy consumption for traditional retailing was the customer’s drive to and from the retail store, accounting for 65 percent of the total emissions produced.

recent research conducted at the university of Delaware, however, suggests that online shopping might not be that green after all, due to an increase in fine particulate matter emissions (pm2.5) produced by the delivery vehicles. Further, the comparison is not always easy, as offline shoppers often bundle their purchases (such as by going to big box stores or shopping malls), online shopping may actually stimulate addi- tional consumption (and thus need for transporting items), and delivery vehicles are often only a quarter full (as estimated by london’s transport authority).

The effects of increased particulate emissions and road traffic can especially be felt in large cities such as london, which expects delivery van traffic to increase by 20 percent until 2030—with this increase being entirely due to online shopping. As a result, cities are encouraging alternative energy to power these vans. For example, the city of london is providing subsidies to gnewt Cargo, a company operating an all-electric delivery fleet, and the norwegian postal service has purchased hundreds of electric delivery vans. While this is not going to reduce congestion, it can at least help make online shopping a little greener.

based on:

DeWeert, s. (2016, February 17). how green is online shopping? The Guardian. retrieved June 27, 2016, from https://www.theguardian .com/environment/2016/feb/17/how-green-is-online-shopping

shankleman, J. (2016, may 9). as pollution from online shopping grows, london funds a solution. Bloomberg. Retrieved June 27, 2016, from http://www.bloomberg.com/news/articles/2016-05-09/ as-pollution-from-online-shopping-grows-london-funds-a-solution

swaney, C. & ordiz, e. (2009, march 3). Carnegie mellon study finds shopping online results in less environmental impact. Carnegie Mellon University. retrieved June 27, 2016, from https://www.cmu.edu/news/ archive/2009/march/march3_onlineshopping.shtml

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CrypToCUrrEnCIEs. One radical innovation in the area of making and receiving payments is cryptocurrencies. Cryptocurrencies (the most widely used being Bitcoin) are virtual currencies that are not issued by any central bank and use encryption technologies to secure transactions and to generate new units of the currency. Often described as being primarily used for illicit purposes (such as dealing with drugs or weapons), these cryptocurrencies have various useful legitimate applications. Most of us are comfortable with providing credit card information to a reputable online retailer such as Amazon.com or NewEgg.com. Likewise, many of us have purchased things from other individuals or small companies using a payment service like PayPal. Credit card companies and payment services like PayPal act as trusted middlemen and provide consumers a safety net, giving them the confidence that their purchase will produce the desired good or service and ensuring that their personal financial information remains confidential. These services, however, come at a fairly significant cost. Credit card companies charge vendors between 1 and 3 percent of the purchase amount of every transaction, a cost that is typically passed on to the consumer in the form of higher prices. Payment services such as PayPal also charge fees, which can be as high as several percentage points of the total price.

In contrast, the technology underlying Bitcoin requires no trusted middleman, reducing the transaction costs to negligible amounts. Thus, Bitcoin is very useful for everything from micropayments to international transfers. In fact, many major online companies (including Dell, Expedia, and Overstock.com) as well as offline retailers now provide ways for customers to pay with Bitcoin. In addition to extremely low transaction fees, Bitcoin transactions are anonymous, akin to cash payments. How does Bitcoin work?

Bitcoin was launched around the year 2008 by an anonymous developer pseudo-named Satoshi Nakamoto. Bitcoin is transferred as payment within a completely decentralized

WHO’S GOING MOBILE Mobile Payments

The advent of the credit card and electronic funds transfer (EFT) mechanisms have paved the way for cashless societies. indeed, in the united states, only 7 percent of all transactions are made in cash, and in sweden, the number is only 3 per- cent. Yet, even though the number of cash transactions seems to be on the decline, there are still various scenarios in which using EFT or credit cards is cumbersome or downright impossi- ble. For example, many offline retailers resist accepting credit cards for small purchases, mainly due to the high costs involved, and many small amounts (such as paying at the park- ing meter) cannot be paid using credit cards. similarly, the friend who covered the bill for dinner is unlikely to accept credit cards, and paying for online purchases on your mobile phone (e.g., for movie tickets) is very cumbersome.

With increasing mobility in the digital world, the smart- phone appears to be a natural payment companion: Just like a wallet, most people carry their phone with them at all times. To harness this opportunity, companies have devised various innovative ways to use a smartphone as a payment device. For example, near-field communication (nFC) allows for simply waving an nFC-enabled phone in front of a reading device; the payment amount is typically billed to a linked credit card. simi- larly, the american coffee giant starbucks developed an app that lets users pay for their coffee by having the barista scan a bar code generated by the app, and PayPal developed an app

that allows for sending money to friends or for ordering prod- ucts by simply scanning a Qr code. other novel payment sys- tems use people’s selfies or voice recognition to authorize payments. payment provider Visa is even piloting a chip that enables the use of a car for making payments; built into the vehicle, the chip can communicate with gas pumps or parking meters and charge the payment amounts to a linked credit card account.

mobile payment appears to be here to stay. however, it is not without problems. For example, critics cite the lack of accessibility for older generations as well as costs involved for the merchants and, last but not least, privacy concerns: unlike cash transactions, mobile transactions are always stored some- where, which may put people’s privacy at risk when making purchases or even donations. on the other hand, mobile pay- ments offer a host of opportunities for retailers, enabling them to build ever closer relationships with their customers.

based on:

Cave, A. (2012, April 10). Is mobile the way we’ll all be paying? Telegraph.co.uk. retrieved June 27, 2016, from http://www.telegraph .co.uk/finance/festival-of-business/9195540/is-mobile-the-way-well- all-be-paying.html

Collins, K. (2016, march 2). paying with your face and car is the new paying with your phone. CNet. retrieved June 27, 2016, from http://www.cnet.com/ news/paying-with-your-face-and-car-is-the-new-paying-with-your-phone

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peer-to-peer payment network—the payment processing is handled by thousands of computers around the world, each running the open source Bitcoin software. When someone pays for some- thing using Bitcoin, the transaction is broadcast within the Bitcoin network, and is stored on a secure, public ledger that is accessible to any computer that wants to verify it. The authenticity of each transaction is ensured by digital signatures corresponding to the sending address of the payer and payee, and encryption ensures that the data about the parties involved in the transac- tions remain anonymous. The public ledger is constantly verified and maintained by the Bitcoin network and is thus “open for business” 24 hours a day, 7 days a week, and is not subject to any national holidays. In the Bitcoin network, this public ledger takes the form of a blockchain, an indelible, decentralized public ledger to which transactions are added in blocks, serving as proof of all transactions ever made (Figure 4.18). As the ledger is decentralized (i.e., distributed over a large number of computers), any changes made require consensus by the majority of nodes, making the blockchain highly resilient against tampering, and entries, once made, cannot be deleted. While blockchain technology is most widely known as the technology underlying Bit- coin, organizations from IBM to Wells Fargo are exploring possible ways of using blockchain technology for any other types of transactions that require trust, accountability, and transparency.

manaGInG rIsk In B2C TransaCTIons. When making an online purchase using a credit or debit card, an online customer has to transmit much personal information to a (sometimes unknown) merchant, and many Internet users (sometimes rightfully) fear being defrauded by an untrustworthy seller or falling victim to some other form of computer crime (see Table 4.4 for guidelines on how to conduct safe transactions on the Internet; see also Chapter 10). For online

Amount: 0.5 Bitcoin From: xQdf56yh$$rT28 To: M&dR41!st98Qt

Joe Christoph

FIGURE 4.18 In the Bitcoin network, transactions are stored on a public ledger in form of a blockchain.

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merchants, the risk of people using fraudulent credit card data may be equally high. As in offline transactions, online consumers at times dispute transactions for various reasons. In such cases, the merchant is financially responsible for the transactions, and credit card issuers typically charge back transactions that are disputed by cardholders. For the merchants, such chargebacks normally result in the loss of the transaction amount, loss of the merchandise, processing costs, and chargeback fees; in addition, the merchant’s bank may charge higher fees or even close the merchant account if the chargeback rate is excessively high. Thus, minimizing chargebacks is of prime concern for online merchants. Some of the reasons for chargebacks, such as unclear store policies, product descriptions, shipping terms, or transaction currencies, can be minimized through good web store design; other reasons, such as stolen credit cards, require different safeguards (Visa, 2008).

Any credit card transactions must be authorized by the issuer of the credit card (typically the bank). However, this authorization merely ensures that the credit card was not reported as lost or stolen but does not ensure that the person making the transaction is the actual cardholder. In such card-not-present transactions, there is no imprint of the physical card and no cardholder signature, so online merchants have to be especially careful when deciding whether to make a transaction. While online customers demand a quick checkout process, leaving the merchant with little time to authenticate whether the customer is indeed the cardholder, the transaction date is the date the merchandise is shipped; thus, online merchants typically have one or several days to verify the identity of the cardholder (except for digital products or services). One mecha- nism used to authorize card-not-present transactions is the so-called card security code, a three- digit code located on the back of the card; this code is not stored in the card’s magnetic stripe and is thus only known to a person who is in the possession of the physical card (note that credit card company rules prohibit merchants from storing the code). To further minimize risk, online merchants often use automated fraud-screening services that provide the merchants with a risk score based on a number of variables such as match between shipping address, billing address, and phone number; the time of the order and the customer’s time zone; transaction volume; and the customer’s IP address and its geographic location. Based on the risk score, merchants can then decide whether to let the transaction go through. For such screening services to be most

TABLE 4.4 ways to protect yourself when shopping online

Tip Example

Use a secure browser Make sure that your browser has the latest encryption capabilities; also, always look for the padlock icon in your browser’s status bar before transmitting sensitive information

Check the site’s privacy policy Make sure that the company you’re about to do business with does not share any information you would prefer not to be shared

Read and understand the refund and shipping policies

Make sure that you can return unwanted/defective prod- ucts for a refund

Keep your personal information private

Make sure that you don’t give out sensitive information, such as your Social Security number, unless you know what the other entity is going to do with it

Give payment information only to businesses you know and trust

Make sure that you don’t provide your payment informa- tion to fly-by-night operations

Keep records of your online transac- tions and check your e-mail

Make sure that you don’t miss important notifications about your purchases

Review your monthly credit card and bank statements

Make sure to check for any erroneous or unauthorized transactions

Source: Based on Privacy Rights Clearinghouse (2016).

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effective, the merchant should collect as much data as possible during the checkout process, which may lead some customers to abandon their shopping carts. In addition, online merchants can assess orders based on various fraud indicators (Figure 4.19); Visa recommends looking for fraud indicators such as:

■■ E-mail addresses. Legitimate e-mail addresses often contain some parts of the customer’s name; in contrast, fraudsters often set up e-mail addresses consisting of meaningless char- acter combinations with free e-mail providers.

■■ Shipping and billing addresses. Fraudsters often have the merchandise shipped to foreign, high-risk countries. Thus, merchants may require billing and shipping addresses to be the same. In addition, as many fraudsters come from foreign countries, misspellings of com- mon words or street names may serve as a potential fraud indicator.

■■ Transaction patterns. Fraudulent transactions often show very distinct patterns. For exam- ple, the orders may be larger than normal, may consist of multiple items of the same type, or may consist largely of big-ticket items. Similarly, fraudulent transactions often consist of multiple orders using the same credit card in a short period or multiple orders using dif- ferent cards shipped to the same address. Further, fraudsters often use overnight shipping so as to reduce the merchant’s time for verification checks and to be able to quickly resell the merchandise.

Being alert for such fraud indicators can help an online merchant to reduce the risk of fraud- ulent transactions. Often, it is prudent to either call the customer for verification of the order (though this may be problematic for privacy reasons) or outright reject the transaction.

Legal Issues in EC Although EC is now a viable and well-established business practice, there are issues that have changed the landscape for businesses and consumers and continue to do so. Two of the most important issues for EC businesses are taxation of online purchases and the protection of intellectual property, especially as it pertains to digital products, both of which are out- lined next.

TaxaTIon. Although this issue is a relatively old one, it remains controversial within the American legal system. With EC global transactions increasing at an exponential rate, many governments are concerned that sales made via electronic sales channels have to be taxed in order to make up for the lost revenue in traditional sales methods. As people shop less in

Email Address: [email protected]

Shipping Address: Bellevue Hotel 355 Main Street Springfield, MA

Billing Address: Frank Myers 1737 E University Blvd Tucson, AZ 85719

Shipping Address: Frank Myers PO Box 4551 Smallville, TX

Transaction History

IP Address: 85.186.212.75 (Location: Romania)

E-commerce Fraud?

FIGURE 4.19 Various indicators can signal potential e-commerce fraud.

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local retail stores, many cities, states, and even countries are now seeing a decrease in their sales tax income because of EC. Table 4.5 highlights issues associated with taxation of EC transactions.

According to tax laws such as the Internet Tax Freedom Act, sales on the Internet are treated the same way as mail-order sales, and a company is required to collect sales tax only from customers residing in a state where the business had substantial presence. In other words, only if an EC business had office facilities or a shipping warehouse in a certain state (say, California), it would have to collect sales tax on sales to customers from that state (in that case, California). Many EC businesses thus strategically selected their home bases to offer “tax-free shopping” to most customers. For example, Amazon.com tended to be very selective in where it located shipping facilities and warehouses to offer favorable tax conditions for most customers while still being able to offer fast delivery. Walmart.com, on the other hand, collects taxes on all of its U.S. EC transactions, as it is physically present in every U.S. state. Note that even if the EC business does not collect sales tax on goods or services you may have purchased, you are still liable for paying “use tax” (usually equal to your state’s sales tax) on those goods and services. Currently, Amazon has negotiated tax agreements with various states, and the U.S. legislature has proposed the Marketplace Fairness Act to simplify taxation issues surrounding e-commerce and to allow states to require e-tailers to collect sales tax even if the e-tailer has no physical presence. No matter whether (or when) this act is passed, taxa- tion will remain a difficult issue.

On an international level, taxation is even more difficult. A U.S. customer ordering an item from China may be liable for paying use tax in his or her home state; likewise, a cus- tomer outside the U.S. ordering from a U.S. seller would not have to pay U.S. sales tax but may be liable for paying tax (and/or import duty) in his or her home country on the shipment’s arrival. For digital products (such as software or music downloads), the movement of the product is difficult to track, and the tax revenue is easily lost. Obviously, e-businesses actively doing business in other countries have to comply with the various different tax laws in differ- ent countries.

oThEr lEGal ConsIDEraTIons. In addition to taxation, companies selling goods or services on the web face a myriad of other issues. For example, companies should ensure they have explicit, enforceable terms of contract, terms of sale, and/or terms of website use; such terms may also cover questions surrounding the liability for content and its accuracy. Further, ownership of content and trademarks can be a virtual minefield. When posting content on one’s site, one has to ensure not to infringe on others’ copyrights or trademarks (e.g., by posting product photographs without permission or even by having trademarked names in one’s domain name). Likewise, care has to be taken if third parties develop content for one’s site: Who will own the copyright for that material? However, online businesses should not only ensure not to infringe on others’ intellectual property but also make sure to protect their own intellectual property, such as by displaying copyright notices and the like. Finally, it is important to clearly state the jurisdiction and ensure to comply with the laws and regulations of that jurisdiction.

DIGITal rIGhTs manaGEmEnT. With consumers increasingly using EC as a viable alternative to traditional commerce, the entertainment industry has no choice but to embrace the Internet as a distribution medium. Yet digital media are easily copied and shared by many people, as

TABLE 4.5 arguments For and against Taxation of EC Transactions

For Against

Increases tax income of local, state, and fed- eral governments

Removes unfair advantage for e-tailers over brick-and-mortar stores

Increases accountability for e-tailers

Slows EC growth and opportunity

Creates additional compliance burden for e-tailers

E-tailers located in one state would subsidize other states or jurisdictions

Drives EC businesses to other countries

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the entertainment industry has painfully learned after the introduction of the compact disc. Hence, the entertainment industry has turned to digital rights management (DRM), which is a technological solution that allows publishers to control their digital media (music, movies, and so on) to discourage, limit, or prevent illegal copying and distribution. DRM restrictions include which devices will play the media, how many devices the media will play on, and even how many times the media can be played.

To prevent illegal sharing of DRM-free content, it is often watermarked so that any illegal copy can be traced to the original purchaser (e.g., content purchased on iTunes contains the e-mail address used for the purchase) (Figure 4.20). A digital watermark is an electronic ver- sion of physical watermarks placed on paper currency to prevent counterfeiting.

The entertainment industry argues that DRM allows copyright holders to minimize sales losses by preventing unauthorized duplication, but critics refer to DRM as “digital restriction management,” stating that publishers are arbitrary on how they enforce DRM. Further, critics argue that DRM enables publishers to infringe on existing consumer rights and to stifle innova- tion; for example, restrictions and limitations such as limiting the number of times a game can be activated or limiting on which devices media can be accessed cause much inconvenience to users (such as when purchasing a new computer) and can thus breed piracy. Finally, critics argue that examples such as Amazon.com or Apple’s iTunes show that businesses can be very successful with DRM-free content (CNet Australia, 2012).

nET nEUTralITy. The Internet was designed as an open network, which means that every website, every application, and every type of data (e.g., a game, Skype call, or YouTube video) is treated the same. Because of this openness, virtually anyone or any business, well known or unknown, can access and be found on the web. For example, unknown bloggers can compete with large news providers like CNN for readers. Many believe that this openness has been the primary catalyst for countless innovations and some of today’s most successful companies, like eBay and Google. Without this openness, many fear that startups and entrepreneurs will be muscled out of the marketplace by big corporations that have the money to control what people are able to see or do on the web.

In general, net neutrality is the principle that all Internet data should be treated the same. Proponents of net neutrality believe that the Internet should forward all data packets on a first- come, first-served basis, allowing anyone to freely communicate with any application or content without interference from a third party. Proponents are worried that without strong laws to pro- tect the Internet, governments, providers, and large corporations will be able to block Internet applications and content and even block out competitors.

Many large corporations and telecommunications providers, however, would like to change the way information is accessed and prioritized on the web. Large telecommunication providers would like to charge different rates to access different websites, to have adequate speed to run certain applications, or even to have permission to plug in certain types of devices. Yet this would give larger and more established companies tremendous power over smaller and startup firms, and without legal protection, consumers could find that a network operator has blocked the website of a competitor or slowed the delivery of content from companies unwilling to pay additional fees.

Many believe that retaining net neutrality is critical to preserve current freedoms. It guaran- tees a level playing field for all websites and Internet technologies. Without net neutrality, many of the next generation of innovations may be shut out.

FIGURE 4.20 Digital watermarks are used to trace illegal copies of digital media to the original purchaser. source: notepad 2016, Windows 10, microsoft Corporation.

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INDUSTRY ANALYSIS Retailing

You may make many purchases online in order to benefit from greater convenience or lower prices, but you will likely set foot in a brick-and-mortar retail store at least occasionally, and you may have noticed some changes brought by technology. A few decades ago, large retail chains started introducing com- puterized point-of-sale inventory systems consisting of check- out computers and an inventory control system. A simple bar code scan captures a sale, and the item is automatically deducted from the store’s inventory, allowing real-time track- ing of purchases so that the retailer knows when to reorder merchandise or restock shelves. In addition to a speedier checkout process, such systems help to reduce stockouts, increasing customer satisfaction. In many grocery stores, this system has been taken a step further, allowing the customers to conduct the checkout process themselves, saving time and labor costs. in switzerland, grocery retailer migros introduced a system that allows customers to scan items as they are placed into the shopping cart. At the checkout counter, all the cus- tomer has to do is swipe a credit card.

In the near future, many items may be equipped with radio frequency identification (rFiD) tags (see Chapter 8), eliminat- ing the need to scan each individual item, so that the total price for a cart full of merchandise can be calculated within a second, saving even more time and adding convenience for the customer. Imagine the time you’ll save when all you have to do is pass with your cart through an rFiD reader and swipe your credit card.

Payment systems are also changing. A new “Pay by Fin- gerprint” system allows customers to complete a purchase by placing a finger onto a fingerprint scanner without the need to sign a sales slip or enter a personal identification number (pin); this makes the checkout process extremely convenient and secure. Another innovative way to pay for a purchase is via mobile phone. using a technology called near-field com- munication (nFC; similar to bluetooth), the customer’s mobile phone communicates with the retailer’s payment terminal, and the payment amount is automatically debited from the custom- er’s bank account. nFC-based payment systems have already begun to be implemented; major smartphone manufacturers such as samsung, nokia, motorola, and htC actively support this new technology by integrating it into new handsets.

Further, many brick-and-mortar retailers have had to respond to the phenomenon of showrooming, in which, as

discussed earlier, customers examine products in person at a store and then leave to order the same product online for less. Retailers invest billions to build and maintain their storefronts, and online retailers can often undercut physical stores’ prices; when a customer takes advantage of this, the brick-and- mortar retailer cannot recoup the cost of the storefront. some retailers like best buy and target are embracing this trend, however, by encouraging consumers to browse their shelves and compare prices online. by providing perks such as supe- rior, personal customer service and instituting price-matching policies, these retailers prevent loss of customers due to price while benefiting by selling additional products. other new and exciting in-store technologies include smart fitting rooms that use augmented reality technology to show how an item would look when worn or suggest complementary items. Finally, retail stores are increasingly using bluetooth-enabled sales bea- cons to provide customers with real-time promotional offers.

As you can see, information systems have had a huge impact on retailing, and many more changes are yet to hit the shelves.

Questions 1. How can technology help brick-and-mortar retailers com-

pete against e-tailers? 2. privacy advocates criticize the use of rFiD, as it allows

better tracking of purchasing habits. How can brick-and- mortar retailers alleviate these concerns?

3. As you have read, part of the “human element” in retailing is being replaced by technology. How can brick-and-mortar stores avoid becoming too “sterile” when using informa- tion systems to compete against e-tailers?

based on:

Davies, s. (2015, December 17). the smart fitting room is the future of retail. TechCo. retrieved June 27, 2016, from http://tech.co/ smart-fitting-room-future-retail-2015-12

Fitzgerald, D. (2013, november 3). Fear of “showrooming” fades. The Wall Street Journal. retrieved June 26, 2016, from http://online.wsj.com /news/articles/sb10001424052702303661404579175690690126298

nsubuga, J. (2016, February 27). supermarkets of the future could have no staff. Metro.co.uk. retrieved June 27, 2016, from http:// metro.co.uk/2016/02/27/supermarkets-of-the-future-could-have-no- staff-5721663

While electronic commerce has now existed for several decades, it continues to evolve and mature. Each year, innovative strategies continue to emerge in virtually all sectors of business and government. Technologies evolve as well as how and where people conduct electronic com- merce, from desktops, to laptops, to tablets, and to smartphones at home and while on the road. New capabilities often create unforeseen issues that require new laws and regulations. The best prediction about the future is that change will continue in this rapidly evolving space.

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key points review 1. Describe different approaches to competing in

cyberspace as well as different forms of electronic government and e-finance. EC is the online exchange of goods, services, and money between firms and between firms and their customers. Companies and individuals are engaging in business-to-business, business-to-consumer, consumer-to-consumer, or consumer-to-business e-commerce. In addition, e-government is a government’s use of IS to provide a variety of services to citizens (government-to-citizens), businesses (government-to-business), and other governmental agencies (either within a country or between countries; government-to-government). The Internet has also enabled conducting financial transactions via online banking or online brokerage and has provided the basis for various innovative fintech services.

2. Describe business-to-consumer electronic commerce strategies. Companies must strategically position themselves to compete in the EC environment and choose between operating as brick-and-mortar companies, click-and-mortar (or bricks-and-clicks) companies, or click-only (or virtual) companies. Capabilities of the web have enabled new business models based on mass customization, disintermedia- tion, or group buying as well as social commerce. E-tailers can benefit from being able to offer a wider variety of goods to more people at lower prices. On the other hand, a major drawback is customers’ lack of trust.

3. Understand the keys to successful electronic commerce websites and explain the different forms of Internet marketing. Successful B2C companies have a website that meets online customers’ needs. A company should also advertise its web presence. Popular ways to advertise products or services on the web are search marketing, display ads, e-mail marketing, social media, and mobile marketing. Advertisers pay for search marketing or display ads on

the basis of either the number of impressions or pay- per-click. Various metrics and web analytics can provide valuable information about the effectiveness of Internet marketing campaigns and performance of websites.

4. Describe mobile commerce, consumer-to-consumer electronic commerce, and consumer-to-business electronic commerce. M-commerce is rapidly expanding with the continued evolution of faster cellular networks, more powerful handheld devices, and more sophisticated applications. Location-based services, based on GPS technology, are a key driver, enabling even more innovative m-commerce applications. As mobile consumers not only use their devices to obtain timely information on the go but also increasingly purchase products or content in mobile settings, businesses have to consider the specific settings and devices of their target customers. Further, the Internet has fueled the development of a variety of ways people can trade goods, socialize, or voice their thoughts and opinions. Specifically, e-auctions allow private people to sell goods to large markets. One emerging topic in EC is C2B EC, where individuals offer products or services to businesses.

5. Describe how to conduct financial transactions and navigate the legal issues of electronic commerce. The ability to pay for products or services is key for any form of electronic commerce. Yet securing payments in the digital world is still of concern, both for customers and for merchants, who have to minimize their risk arising from potentially fraudulent credit card transactions; as a result, many (especially smaller) retailers use online payment services; for some applications, cryptocurrencies have become an alternative form of payment. Finally, taxation, legal issues surrounding website content, contracts, and transactions, as well as protecting intellectual property and net neutrality continue to be major issues and impediments to EC.

key Terms brick-and-mortar business strategy 143 bricks-and-clicks business strategy 144 blockchain 166 bounce rate 158 business-to-business (B2B) 141 business-to-consumer (B2C) 141 card security code 167 click fraud 157 click-and-mortar business strategy 144 click-only business strategy 144 click-through rate 158 consumer-to-business (C2B) 141

consumer-to-consumer (C2C) 141 conversion rate 158 cross-channel retailing 145 cryptocurrency 165 digital rights management (DRM) 170 digital watermark 170 disintermediation 146 dynamic pricing model 148 e-auction 162 e-finance 142 e-government 141 electronic bill pay 143

electronic commerce (EC) 140 e-tailing 144 exit rate 158 fintech 143 functional convenience 152 government-to-business (G2B) 142 government-to-citizen (G2C) 142 government-to-government (G2G) 142 group buying 148 impression-based model 157 Internet Tax Freedom Act 169 location-based services 159

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long tail 146 mass customization 147 mobile commerce (m-commerce) 141 menu-driven pricing model 148 mobile banking 143 multichannel retailing 145 net neutrality 170 omni-channel retailing 145

online banking 143 online brokerage 143 paid inclusion 156 pay-per-click model 157 QR code 154 reintermediation 146 representational delight 152 sales beacon 145

search advertising 156 search engine optimization (SEO) 155 showrooming 161 social commerce 148 sponsored search 156 structural firmness 152 virtual company 144 web analytics 159

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

review Questions 4-1. What is EC, and what different approaches to

competing in cyberspace do companies use? 4-2. What are the primary forms of e-government?

Provide examples for each. 4-3. Compare and contrast the click-only and the

bricks-and clicks approaches to conducting business online.

4-4. Describe the effects of disintermediation. 4-5. Describe social commerce and explain how

companies can leverage consumers’ social networks.

4-6. Describe the benefits and drawbacks of e-tailing.

MyMISLab

4-7. What is the online consumer’s hierarchy of needs, and why is it important for e-tailers?

4-8. Describe the differences between SEO, search marketing, and sponsored search.

4-9. Describe m-commerce and explain how it is different from regular EC.

4-10. What is showrooming, and how has it affected offline retailers?

4-11. Compare and contrast online banking and online brokerage.

4-12. How does taxation pose a threat to EC? 4-13. How does net neutrality pose a threat to EC?

MyMISLab

MyMISLab

self-study Questions 4-14. EC is the exchange of ______________ among firms,

between firms and their customers, and between customers, supported by communication technologies and, in particular, the Internet. A. goods B. services C. money D. all of the above

4-15. ______________ are those companies that operate in the traditional, physical markets and do not conduct business electronically in cyberspace. A. Brick-and-mortars B. Click-onlys C. Both A and B D. Dot-coms

4-16. The ability to sell products directly to the end custom- ers, without the need for distributors or retailers, is called ______________. A. disintermediation B. disintegration C. reintegration D. reintermediation

4-17. Business models based on catering to niche markets in addition to (or instead of) purely selling mainstream products are said to center on the ______________. A. far ends B. long ends C. niches D. long tails

4-18. ______________ reflects the percentage of users for whom a particular page is the only page visited on the website. A. Bounce rate B. Exit rate C. Click-through rate D. Conversion rate

4-19. Offering the customer different (independent) touch- points, such as a retail store and a catalogue is referred to as ______________. A. mixed-channel retailing B. cross-channel retailing C. omni-channel retailing D. multichannel retailing

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174 Chapter 4 • enabling business-to-Consumer eleCtroniC CommerCe

4-20. Trying to “outsmart” a search engine to improve a page’s ranking is known as ______________. A. rank enhancement B. SEO C. search engine hacking D. Google fooling

4-21. In order to minimize fraud, e-tailers look for anomalies in ______________. A. e-mail addresses provided B. shipping and billing addresses C. transaction patterns D. all of the above

4-22. According to the Internet Tax Freedom Act, e-tailers ______________. A. have to collect sales tax from all customers regard-

less of their location B. have to collect sales tax based on the place of the

customer’s residence C. have to collect sales tax based on the prevalent tax

rate at the e-tailer’s headquarters D. have to collect sales tax only from customers resid-

ing in a state where the business has substantial presence

Answers are on page 176.

problems and Exercises 4-23. Match the following terms with the appropriate

definitions: i. Click-through rate

ii. Reintermediation iii. web analytics iv. Paid inclusion v. Conversion rate

vi. Long tails vii. Click fraud

viii. Search engine optimization ix. E-government x. Group buying

a. Special volume discounts negotiated with local businesses and offered to people in the form of “daily deals”

b. The design of business models that reintroduce middlemen in order to reduce the chaos brought on by disintermediation

c. The large parts of consumer demand that are outside the relatively small number of mainstream tastes

d. The percentage of visitors who actually perform the marketer’s desired action

e. The number of surfers who click on an ad divided by the number of times it was displayed

f. The use of information systems to provide citizens, organizations, and other governmental agencies with information about and access to public services

g. Methods used to improve a site’s ranking h. The analysis of web surfers’ behavior in order to

improve a site’s performance i. The practice of paying a fee to be included in a

search engine’s listing j. The abuse of pay-per-click advertising models by

repeatedly clicking on a link to inflate revenue to the host or increase the costs for the advertiser

4-24. Visit www.firstgov.gov. What kind of services do you see that would help you? What services would you use? What areas are missing?

4-25. Visit Alaska Airlines’s website (www.alaskaair.com) for real-time pricing and test the custom messenger bag builder at www.timbuk2.com. How have Internet technologies improved over the years?

4-26. Search the web for a company that is purely web- based. Next, find the website of a company that is a hybrid (i.e., the company has a traditional brick-and- mortar business plus a presence on the web). What are the pros and cons of dealing with each type of company?

4-27. Search the web for a click-and-mortar company that is using multichannel retailing and a company that is using cross-channel or omni-channel retailing. How do the customer interactions with those companies dif- fer? Which company would you rather purchase from? Why?

4-28. What is it about a company’s website that draws you to it, keeps you there on the site longer, and keeps you coming back for more? If you could summarize these answers into a set of criteria for websites, what would those criteria be?

4-29. Visit the following services for comparison shop- ping: BestBookBuys (www.bestwebbuys.com/books), Bizrate (www.bizrate.com), and mySimon (www .mysimon.com). These companies focus on aggregat- ing content for consumers. What are the advantages of these websites? What does the existence of such sites mean for the online merchants?

4-30. Compare three different search engines. What tips do they provide to improve a page’s rankings? How much does it cost to advertise a page on their results pages? If you were a company, could you think of any situa- tion where you would pay almost any amount to have the first listing on the first results page?

4-31. Describe your experiences in online shopping. How did you pay for your purchases? What information did you have to reveal to the merchant? Did you feel com- fortable giving out that information?

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4-32. Have you ever used a mobile, wireless device such as a smartphone for online shopping? If so, what did you like or dislike about it? In what ways could your shopping experience be made better? If you have not used a mobile device for shopping, what prevented you from doing so? What would have to happen before you would begin using a mobile device for shopping?

4-33. When you shop online, is sales tax a criterion for you? Do you try to purchase goods where you do not have to pay sales tax? If you would have to pay sales tax for everything you buy online, would that change your online shopping behavior?

application Exercises Note: The existing data files referenced in these exercises are available on the book’s website: www.pearsonhighered.com/valacich.

Spreadsheet Application: Analyzing Server Traffic

4-34. Campus Travel has recently found that its Internet con- nections between offices are becoming slow, especially during certain periods of the day. Since all the online traffic is maintained by another company, an increase in bandwidth requires a formal approval from the gen- eral manager. The IS manager has proposed to increase the bandwidth of the company’s network; in a few days, he has to present the business case for this pro- posal at the weekly meeting of the department heads. You are asked to prepare graphs for the presentation to support the IS manager’s business case. In the file ServerLogs.csv, you will find information about the network traffic for a 1-week period. Prepare the fol- lowing graphs:

■■ Total bandwidth used for each day (line graph) ■■ Bandwidth used per day, by time period (line graph) ■■ Average bandwidth used in each two-hour period

(line graph) Format the graphs in a professional manner and place each graph on a separate page. (Hint: If you are using Microsoft Excel’s Chart Wizard, select “Place chart: As New Sheet.”)

Database Application: Tracking Network Hardware

4-35. As Campus Travel is new to EC, the management suggests following a stepwise approach for using the Internet to conduct business. Before using the Internet for conducting transactions, the managers recommend setting up a site that provides information to custom- ers. Part of this informational site is an agency locator that shows the services each agency has. You have been asked to create a new database. This includes cre- ating relationships between entities. To create this new database, do the following:

■■ Create a database called “agency.” ■■ Create a table called “agencies” and include fields

for agency ID, street address, city, state, ZIP code, phone number, number of service agents, and work- ing hours.

■■ Create a table called “services” that includes service ID, name (i.e., type of service), and description.

■■ Create a third table called “agency_services” that includes the agency ID field from the agencies table and the service ID field from the services table.

■■ Once these tables are created, go to the relation- ship view and connect the agencies (one side) and agency_services (many side) tables and the services (one side) and agency_services (many side) tables using two one-to-many relationships (i.e., each agency can offer many services; each service can be offered by many agencies).

Team work Exercise Net Stats: Who Is Subsidizing Web Content?

When you subscribe to cable television, you typically have to decide between different packages, each offering various channels focusing on sports, movies, cartoons, and so on. In addition, you have the option of subscribing to other chan- nels that interest you. Hence, the charges on your monthly cable bill are for your subscribed services. In contrast, the charges on your Internet bill are for connecting to the

Internet rather than for the content on the web. Hence, con- tent providers on the Internet are typically dependent on other ways to generate revenue. Companies such as CNN, the Washington Post, Google, or Yahoo!, which provide con- tent for free, subsidize their expenses by advertising revenue. One of the most common forms of advertising on the web is display ads, which have moved from simple static images to rich, interactive advertisements. Although the cost per thou- sand views may be only between US$8 and US$40, display ads are big business.

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Which sites do people visit most often? Research firm comScore regularly provides rankings of the web’s most popu- lar “web properties,” based on the number of unique monthly visitors. The top five properties in August 2016 were:

■■ Google Sites: 240.7 million unique visitors ■■ Yahoo Sites: 213.2 million unique visitors ■■ Facebook: 206.3 million unique visitors ■■ Microsoft Sites: 188.8 million unique visitors ■■ Amazon Sites: 186.3 million unique visitors

Questions and Exercises 4-36. Search the web for the most up-to-date statistics. 4-37. As a team, interpret these numbers. What is striking/

important about these statistics?

4-38. How have the numbers changed? Which industries seem to be most interested in online advertising? Why?

4-39. Using your spreadsheet software of choice, create a graph/figure that effectively visualizes the statistics/ changes you consider most important.

Based on:

ComScore (2016, August). Latest rankings. comScore. Retrieved September 22, 2016, from https://www.comscore.com/Insights/Rankings?country=US

Wojcicki, S. (2010, March 15). The future of display advertising. Google Blog. Retrieved June 27, 2016, from http://googleblog.blogspot.com/2010/03/future- of-display-advertising.html

answers to the self-study Questions 4-14. D, p. 140 4-15. A, p. 147 4-16. A, p. 146 4-17. D, p. 146 4-18. A, p. 146 4-19. D, p. 145 4-20. B, p. 155 4-21. D, p. 168 4-22. D, p. 169

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In the 1990s, Josh James enrolled in an infor- mation systems class as part of his business management and entrepreneurship degree program. Being not particularly excited about the topic, Josh sat near the back of the room. During the first class period, Josh noticed a student near the front of the class who was easily answering all of the questions, and he decided he wanted to get to know him. His name was John Pestana, and they quickly became friends. John—a technology whiz with a knack for spinning web code—sug- gested that he and Josh start building websites for companies, and a partnership was born. As their student-run business grew amid the dot- com craze of the late 1990s, their clients began to ask about whether their fancy new websites were drawing any more web traffic. The two young entrepreneurs immediately recognized a compelling business opportu- nity, and they soon founded Omniture, a web analytics company that quickly grew to domi- nate the web analytics market. With innova- tive analytics tools, Omniture attracted many large companies, including Walmart, Com- cast, NBC Universal, and Hyatt. In 2006, Omniture went public and was the number- two performing technology initial public offering (IPO) that year. Three years later, Omniture was acquired by technology giant Adobe Systems for US$1.8 billion. Adobe continues to develop the web analytics tools, which have since been integrated into the company’s suite of online marketing solu- tions, the Adobe Marketing Cloud.

Web analytics is the measurement, col- lection, analysis, and reporting of web traffic

data with the goal of understanding and opti- mizing web usage. The key features of most web analytics tools are enabled by a small bit of programming code that is embedded in each of the pages of a website. As a user nav- igates from page to page, various pieces of information about the user are collected. These include metadata such as the type of browser (Safari versus Chrome versus Inter- net Explorer), the type of device (mobile ver- sus desktop), or the viewable resolution of the user’s screen; browsing data such as how long the user stays on each page or where the user clicks; and navigation path data, such as which page the user came from or how many total pages the user has viewed within the website. The data are collected anonymously and aggregated for later analysis. For popu- lar sites like Walmart.com or Amazon.com, web analytics software can collect millions of points of data within a relatively short amount of time.

Many companies employ entire teams whose sole purpose is to analyze web analyt- ics data. These analytics data can be a gold mine of valuable information that a company can use to inform strategic decisions regard- ing its website. Consider the value of such information to a major online retailer like Zappos.com. Using analytics data, Zappos’s analysts could study the browsing behaviors of thousands of different users to identify potential improvements to their website. They might find that users get stuck on a cer- tain type of page and identify changes to the menu structure to improve the navigation. They may find that many users add items to

their cart but exit the site without completing their order when they are prompted to create a user account. This discovery could lead them to move the account creation process to a different point in the checkout flow or per- haps even make account creation optional. These are only a few of the nearly infinite potential discoveries that web analytics data can help discover.

Given the large mass of web analytics data collected by a site like Walmart.com, there is a high potential for information over- load. Thus, a key feature of successful web analytics solutions is the ability for business users to filter data in helpful ways, allowing them to drill down into items of interest. Another way in which analytics platforms reduce information overload is through the use of easy-to-interpret graphical representa- tions of the data. These range from simple bar charts and line graphs to shaded geo- graphical maps and complex charts depicting users’ flow through a navigational structure. These and many other information summari- zation methods make the vast amount of web analytic data digestible so that business lead- ers can make informed, strategic decisions.

Web analytics is a prime example of business analytics in the digital age. For companies that conduct the majority of their business online, and in particular for retail- ers, entertainment hubs, and news providers, web analytics data provide invaluable insight into the behavior of their customers. Those companies that learn to effectively leverage those data can make significant changes that directly affect their bottom line.

CASE 1 Web Analytics

Questions 4-40. Why do you think Omniture services were so popular, given

the time period in which the company was founded? 4-41. Think of an online service (not retail) that you use fre-

quently. How could this company use web analytics data to improve its website and positively affect its business?

4-42. Do you think that capturing usage data for performing web analytics is an invasion of privacy? Why or why not?

Based on:

Anonymous. (n.d.). Adobe Marketing Cloud. Adobe. Retrieved June 27, 2016, from http://www.adobe.com/marketing-cloud.html

Omniture. (2016, May 8). In Wikipedia, The Free Encyclopedia. Retrieved June 27, 2016, from https://en.wikipedia.org/w/index.php?title=Omniture&ol did=719180958

Web analytics. (2016, June 23). In Wikipedia, The Free Encyclope- dia. Retrieved June 27, 2016, from https://en.wikipedia.org/w/index .php?title=Web_analytics&oldid=726663475

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As many successful online businesses have painfully experienced, innovative business models in the digital world can be easily copied. Being early players in a new market and focusing on rapidly gaining market share, many companies enjoy a first-mover advantage but, due to their success, are cloned by numerous other “impersonators” around the globe: The daily deal website Groupon has a variety of clones all over the world; Uber has been cloned in China but has also attracted me-too companies in vari- ous other countries; Online clothing retailers such as Zappos or Asos have been cloned numerous times. Cloning successful business models can be less risky than coming up with and launching an innovative business idea, and often, developers of clones manage to sell the clones to the original companies later on; for example, in 2010, Groupon decided to buy up its “clones” to reclaim its identity and, most important, fast-track its expansion into foreign markets in Europe and Asia.

Rocket Internet, one of Europe’s biggest Internet companies, has gained notoriety for cloning business models. Founded by the brothers Marc, Alexander, and Oliver Sam- wer, Rocket Internet’s mission is “to become the world’s largest Internet platform outside the United States and China.” To achieve this mission, Rocket Internet’s focus is on build- ing companies rather than innovating; in other words, Rocket Internet looks for innovative and successful Internet-based business mod- els and replicates those in other (often emerg- ing or pre-emerging) markets, striving to

grow the clone as quickly as possible with the aim of later selling the clone. To achieve rapid growth of a clone and gain a first-mover advantage in the clone’s region, Rocket Inter- net attempts to increase the clone’s reach, offers a wider variety of products or services, or tries to price competitors out of the market; typically, this approach requires investing sig- nificant funds not only into building the clone but also in marketing (using not only Internet marketing, such as Google AdWords cam- paigns, but often also traditional television ads). Using this strategy has proven to be very successful; for example, CityDeal (a Groupon clone) was sold to Groupon for US$170 mil- lion less than half a year after the clone was launched. Rocket Internet has successfully cloned a number of innovative online busi- ness models, ranging from Airbnb (Wimdu) to Uber (EasyTaxi) to grubHub (foodpanda) to Zappos (Zalando, one of Europe’s largest fashion retailers). Although Rocket Internet is often accused of “stealing” business ideas, business models cannot be patented, and so there is little danger of facing legal conse- quences for infringing on other’s intellectual property.

While cloning successful Internet-based business models seems easy, this is not nec- essarily the case. Often, the originals are focused on growing their business in their respective home markets. Other markets, however, typically require different approa- ches to operations, marketing, and so on. Being extremely effective at adapting busi- ness models and tailoring them to local mar- ket conditions has been key to the success of

Rocket Internet. This is even more astonish- ing given that Rocket Internet now operates in more than 100 countries, and Rocket Inter- net has built tremendous knowledge about which factors (such as cultural, geographic, legal, and so on) are important for what types of business models. Interestingly, while many of the business models copied by Rocket Internet were developed in the United States, none of Rocket Internet’s clones operates in this market, which Rocket Internet considers oversaturated. Likewise, Rocket Internet has only limited reach in China, facing similar restrictions and protectionist policies as many other Western Internet businesses.

In spite of its impressive growth, Rocket Internet is also facing challenges. Using pro- prietary technologies and processes, Rocket Internet tries to launch a business within less than 100 days, after which it decides whether to continue pursuing the business model. In this process, Rocket Internet learned that cloning business ideas that heavily rely on communities and the net- work effect (such as Airbnb) is infeasible within a short time frame, given the need for building a community and customer trust. Further, although many of Rocket Internet’s businesses have achieved phenomenal growth, many have yet to make a profit, and Rocket Internet has been accused of being intransparent about the valuation of compa- nies in its portfolio. However, as long as innovators continue to come up with new business ideas, there’s a good chance of these ideas being cloned, be it by Rocket Internet or by other companies.

CASE 2 Rocket Internet—Cloning Business Models

Questions 4-43. Rocket Internet has been accused of killing innovation. Is the

practice of copying business models and selling them back to the original ethical? Why or why not?

4-44. What types of business models are easiest to clone? What types are hardest to clone? Why? Give a specific example of each.

4-45. Think about an innovative business model you could “clone” and launch in a particular market. Which factors (such as cultural, geographic, legal, and so on) would be most impor- tant to adapt for this market? Which factors would be least important? Why?

Based on:

Anonymous. (2015, October 12). Can cloning businesses work? Ask Rocket Internet. Knowledge @ Wharton. Retrieved June 27, 2016, f r o m h t t p : / / k n o w l e d g e . w h a r t o n . u p e n n . e d u / a r t i c l e / c a n - c l o n i n g - businesses-work-ask-rocket-internet

Onalaja, G. (2015, June 4). Why does everybody hate Rocket Internet? Techcabal. Retrieved June 28, 2016, from http://techcabal.com/2015/06/04/ why-does-everybody-hate-rocket-internet

Parr, S. (2016, January 25). Rocket Internet: What it’s like to work at a startup clone factory. The Hustle. Retrieved June 27, 2016, from http://thehustle.co/ rocket-internet-oliver-samwer

Go to mymislab.com for auto-graded writing questions as well as the following assisted-graded writing questions:MyMISLab

TM

4-46. Describe mass customization and explain how companies can reap higher profits despite higher production costs for manufacturing cus- tomized products.

4-47. How can online retailers minimize the risk associated with credit card transactions?

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182182

Preview

Managing in the Digital WorlD:

Facebook

Managing our lives in the modern, digital world seems to be far more complex than it was in the past. The same is true for compa- nies. Interactions with customers were limited to one-

way communication using TV ads, billboards, posters, or

radio broadcasts. In return, people showed affinity to a

particular brand by displaying bumper stickers, wearing

T-shirts, or refusing to even try alternative brands. All in

all, no real interaction could be recorded between cus-

tomers and brands.

Things have changed since then. In mid-2016,

Facebook reported impressive usage statistics (Figure 5.1).

Each month, more than 1.65 billion users access the site,

and more than 1.5 billion of those users access the service

via a mobile device. On average, Facebook users upload

more than 300 million photos per day, and five new pro-

files are created every second.

Many companies have also joined Facebook, creating

pages to extend their reach and promote new products.

In addition, celebrities, musicians, public figures, movies,

and almost any other product or service you can think of

now appears to have a Facebook page. Facebook has

become another get-together space for people who

have acquaintances, friends, or beliefs in common. Busi-

nesses use it to build and track customer loyalty, and

connections are made even tighter with the help of

“like” buttons that seem to be on almost every site on

Enhancing Organizational Communication and Collaboration Using Social Media

5 This chapter focuses on social media and how social media

can enhance organizational communication and collabo-

ration. Most likely, you are actively using various social

media applications such as Facebook, Instagram, or Wiki-

pedia, and you may ask, “Why do we need to have a

chapter on this?” Social media introduce unprecedented

ways to connect to friends, share knowledge with your

colleagues, or collaborate with a team of engineers 5,000

miles away, and many of today’s companies cannot afford

to miss this trend. Most young people entering the work-

force have grown accustomed to using Facebook or Twit-

ter for their communication needs (and some even regard

e-mail as an outmoded communication medium); if a

company doesn’t allow the use of these tools, some

employees may leave and work for another company.

Additionally, you may have noticed your parents’ genera-

tion joining sites such as Facebook, as the masses are more

and more taking those tools for granted.

With social media providing a vastly expanded set of

capabilities for individuals and businesses, an understand-

ing of how they can be applied can be very helpful. Being

able to understand and apply these emerging capabilities

and strategies that are associated with social media is a

highly valued skill.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab. com for simulations, tutorials, and end-of-chapter problems.

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183

After reading this chapter,

you will be able to do the

following:

In early 2016, Facebook’s market value was greater than

US$350 billion, making it the sixth most valuable com-

pany in America. Analysts predict that Facebook could

grow more than 30 percent annually for the next few

years. That growth rate is twice the rate that is fore-

casted for Google and nearly triple of what Apple is

expected to grow. If this growth occurs, analysts believe

that Facebook could be the first US$1 trillion-dollar

company.

After reading this chapter, you will be able to answer

the following:

1. How can Facebook be used to address organizations’

needs for communication and collaboration?

2. What are the social media and evolving web capabili-

ties used by Facebook?

3. Facebook started as a “pure” social networking

site. What other social media applications are now

integrated into Facebook, and how do they help

enhance communication, collaboration, cooperation,

and connection?

Based on: Anonymous. (2016, April 27). Facebook reports first quarter 2016 results. Retrieved June 22, 2016, from https://investor.fb.com/investor- news/press-release-details/2016/Facebook-Reports-First-Quarter- 2016-Results-and-Announces-Proposal-for-New-Class-of-Stock

Anonymous. (2016, May). The top 20 valuable Facebook statistics— Updated May 2016. Retrieved June 22, 2016, from https://zephoria.com/ top-15-valuable-facebook-statistics

Facebook. (2016, June 21). In Wikipedia, The Free Encyclopedia. Retrieved June 23, 2016, from https://en.wikipedia.org/w/index.php?ti tle=Facebook&oldid=726328665

LaMonica, P. R. (2016, April 28). Why Facebook could one day be worth $1 trillion. CNN Money. Retrieved June 22, 2016, from http://money .cnn.com/2016/04/28/investing/facebook-trillion-dollar-market-value

the web. Facebook has changed the scope of social inter-

actions, as consumer preferences, collective tastes, and

future demands are now more easily analyzed and pre-

dicted through the number of “likes” or the comments

left by consumers responding to photos regarding the

latest smartphone or that new movie premiering next

Thursday. Through this social media platform, companies

can interact with customers like never before.

In early 2016, most objective measures of Facebook’s

tremendous success appear to continue. Over the past

year, daily active users were more than 1 billion, up

16 percent, with quarterly revenue up 52 percent,

exceeding US$5.3 billion. Of the more than US$5 billion

in quarterly advertising revenue, about 82 percent was

generated through ads delivered on mobile devices.

1. Explain organizations’ needs for communication and collaboration.

2. Explain social media and evolving web capabilities.

3. Describe various social media applications, and explain their role in enhancing communication, collaboration, cooperation, and connection.

4. Describe how companies can manage enterprise-oriented social media applications and deal with potential pitfalls associated with social media.

FIGURE 5.1 Facebook is the most popular social network, with more than 1.65 billion monthly active users. Source: Thomas Pajot/Fotolia.

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184 Chapter 5 • enhanCing OrganizatiOnal COmmuniCatiOn and COllabOratiOn using sOCial media

The Need for Communication and Collaboration Just as you communicate with your friends when planning a vacation or organizing a party, or collaborate with your teammates on a class project, organizations rely on effective communica- tion and collaboration (i.e., two or more people working together to achieve a common goal), both within and outside organizational boundaries. Most organizational business processes require communication and collaboration between employees of different departments as well as with outside business partners (such as suppliers), customers, and other external stakeholders. Many organizations operate on a national or global scale and rely on effective and efficient com- munication between various locations or subsidiaries, and even small, local companies need to communicate with suppliers or promote their products or services to customers. Further, global- ization has enabled companies to source raw materials, parts, or components on a global scale or manufacture products wherever they can find the lowest cost, best quality, or most qualified workforce. In all of these scenarios, effective and efficient communication is essential to convey specifications, coordinate production or delivery schedules, and so on. Similarly, salespeople rely on efficient communication with the customers and with other departments within the orga- nization. With the increased global reach of organizations, the needs for internal communication have also changed tremendously.

Virtual Teams To be competitive, organizations constantly need to bring together the right combinations of people who have the appropriate set of knowledge, skills, information, and authority to solve problems quickly and easily. Traditionally, organizations have used task forces, which are tem- porary work groups with a finite task and life cycle, to solve problems that cannot be solved well by existing work groups. Unfortunately, traditional task forces, like traditional organizational structures, cannot always solve problems quickly, as structure and logistical problems often get in the way of people trying to get things done. Thus, organizations are increasingly trying to har- ness the expertise of highly specialized team members, regardless of their location. With various collaboration and communication tools enabled by the Internet, collaborators on projects or teams do not have to be colocated; rather, businesses increasingly form virtual teams, com- posed of members from different geographic areas and assembled as needed to collaborate on a certain project (Figure 5.2). Membership on these virtual teams is fluid, with teams forming and disbanding as needed, with team size fluctuating as necessary, and with team members coming and going as they are needed.

Employees may, at times, find themselves on multiple teams, and the life of a team may be very short. In addition, team members must have easy, f lexible access to other team members, meeting contexts, and information. Resembling highly dynamic task forces, virtual teams are commonly used for tasks such as developing systems and software; for example, the program- mers are located in India, the project managers are in the United States, and the testers are in Europe. However, systems development is not the only place you will find virtual teams. For instance, the healthcare industry has embraced the idea of using technology to create superior care for patients by creating virtual teams that may include dieticians, physicians, surgeons, pharmacists, and social workers from different cities, all of whom can coordinate care of a patient using various web technologies so as to provide the best healthcare professionals regard- less of where the patient resides.

If you have ever worked on a team project for your class (and you probably have), you have noticed that there are many different communication needs, such as discussing issues, sharing documents, and making decisions. Just as there are many things to discuss within your team project, there are also many ways that you can communicate and collaborate, and different time horizons. One key distinction is between the need for synchronous (i.e., at the same time) and asynchronous (i.e., not coordinated in time) communication. For example, chatting online or making a telephone call are examples of synchronous communication, whereas texting or send- ing e-mails are examples of asynchronous communication. Likewise, meetings of virtual teams typically take the form of virtual meetings using online environments; such meetings can be held synchronously, like a teleconference, or asynchronously, using technologies such as online discussion boards. If time is of the essence, such as when attempting to meet deadlines or resolve urgent customer problems, synchronous media may be best suited, as delays can create process

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inefficiencies or dissatisfied customers and can thus be costly for the organization. Thus, over the years, different tools have emerged to support various communication and collaboration needs (Table 5.1).

Groupware Enabled by computer networking (and later the Internet), groupware—a class of software that enables people to work together more effectively—became a widely used way for collaboration within teams or organizations. Since the appearance of the first mainstream groupware product— Lotus Notes—in 1989, groupware has become ubiquitous in all types of organizations, with many (often free) tools allowing anyone with a connected device to utilize the benefits of groupware. Groupware and other collaboration technologies are often distinguished along two dimensions:

1. Whether the system supports synchronous or asynchronous collaboration and communication

2. Whether the system supports groups working together face-to-face or distributed

FIGURE 5.2 Members of highly specialized virtual teams are often not colocated. Source: Toria/Shutterstock.

TABLE 5.1 Categories of Collaboration Tools

Category Description Instances Examples

Electronic communi- cation tools

Tools allowing users to convey verbal and written informa- tion and send files, documents, or other content

Fax, e-mail, voice mail, blogs, wikis, static websites

MS Outlook, Blogger, Wikipedia

Electronic conferenc- ing tools

Tools allowing information sharing and rich interactions between users

Internet forums, instant messaging, application sharing, videoconferencing

Apple FaceTime, Skype, Google Hangouts, WebEx

Collaboration man- agement tools

Tools used to facilitate virtual or collocated meetings and manage group activities

Electronic calendars, knowledge man- agement systems, intranets, online docu- ment systems

Google Docs, MS Office Online, MS SharePoint

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186 Chapter 5 • enhanCing OrganizatiOnal COmmuniCatiOn and COllabOratiOn using sOCial media

Same Time

Same Place

Di�erent Place

Live Meetings in Electronic

Meeting Facility

Synchronous Distributed Meetings

Virtual Teams Electronic Meeting

Facility as Home Base

Di�erent Time

FIGURE 5.3 Groupware supports various modes of group interaction.

Using these two dimensions, groupware systems can be categorized as being able to support four modes of group interaction, as shown in Figure 5.3.

Depending on the purpose, organizations draw on different types of asynchronous groupware tools, such as e-mail, mailing lists, workflow automation systems, intranets (see upcoming discus- sion), group calendars, or collaborative writing tools. One widely used tool for group communica- tion is discussion forums (also known as discussion boards or online forums), which emulate traditional bulletin boards and allow for threaded discussions between participants. Typically, dis- cussion forums are dedicated to specific topics, and users can start new threads (Figure 5.4). Depending on the owner or host of the forum, the discussion forum may be moderated so that new postings appear only after they have been vetted by a moderator; further, some discussion forums may only allow posts from registered users, whereas others allow anyone to contribute. As the pur- pose of such forums is to enable discussion and/or solve problems, many discussion forums now incorporate collaboration features such as the ability to mark answers as helpful or correct.

Like asynchronous groupware, there are also many forms of synchronous groupware available to support a wide variety of activities, including shared whiteboards, online chat, electronic meet- ing systems, and, of course, video communication systems (discussed in the following section). An electronic meeting system is a sophisticated software tool used to help group members solve problems and make decisions through interactive structured processes such as electronic idea gen- eration, idea evaluation, and voting (Figure 5.5). These structured processes help groups stay on track and avoid costly diversions that regularly occur in meetings. EMSs have traditionally been housed within a dedicated meeting facility; increasingly, web-based implementations support team members around the globe. Many groupware systems used by organizations combine a variety of tools supporting both synchronous and asynchronous communication and collaboration.

Videoconferencing In the 1960s, at Disneyland and other theme parks and special events, the picturephone was first being demonstrated to large audiences. It took another 30 years to take off, but today, organiza- tions are routinely conducting videoconferences to replace traditional meetings, using either desktop videoconferencing or dedicated videoconferencing systems.

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Desktop videoconferencing has been enabled by the growing power of processors power- ing personal computers and faster Internet connections. For desktop videoconferencing, all that is needed is a webcam (i.e., a small video camera that is connected directly to a PC or inte- grated in a laptop PC’s monitor), a speaker telephone or a separate microphone and speakers/ headphones, videoconferencing software (e.g., Skype, Google+, or Apple FaceTime), and a high-speed Internet connection. Similarly, people can now use various apps on their mobile devices, enabling them to make video calls on the go.

Dedicated videoconferencing systems are typically located within organizational confer- ence rooms, facilitating meetings with customers or project team members across town or around the world. These systems can be highly realistic—as if you are almost colocated with your colleagues—but high-end systems can be extremely expensive, ranging from a few thousand dollars up to US$500,000. No matter what type of videoconferencing system is utilized by an organization, this collaboration technology has come a long way from the demonstration at Disneyland in the 1960s and has become mainstream in most modern organizations.

FIGURE 5.4 Microsoft offers discussion forums for questions and feedback related to its various products and services. source: technet 2016, Windows 10, Microsoft Corporation.

FIGURE 5.5 An electronic meeting system utilizes networked computers and sophisticated software to support various group tasks. Source: Konstantinos Kokkinis/ Shutterstock.

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GREEN IT Green IT Fueling Renewable Energy

Everyone is excited about the potential for renewable energy to replace non-renewable sources such as coal, petroleum, and nuclear. Renewable energy is generated from natural processes that are continuously replenished, such as sunlight, rain, tides, and geothermal heat. For individuals and organizations, key considerations are reducing energy bills and reducing carbon footprint; reducing the carbon footprint is especially important for organizations attempting to portray a positive image by engaging in socially responsible behavior. Continuous improve- ments in various energy technologies are rapidly improving the efficiency and reducing the costs of renewable sources. like- wise, IoT sensors allow for analyzing energy needs and perfor- mance to optimize the balance between energy consumption and performance needs for a variety of devices. With such progress, many individuals and companies are going green by buying electric cars, installing solar panels and wind turbines, and so on.

recently, the u.s. military has also started to embrace renewable energy sources. as the department of defense, which includes all branches of the military, is the largest con- sumer of energy in the united states, contributing to about 2 percent of the nation’s total energy consumption, this can have significant impacts on reducing CO2 emissions. While increasing its use of cleaner fuels is a good environmental

outcome, this is not a motivating factor for the u.s. military. According to one source, “We’re concerned about climate change… but the first mission is bombs on target.” Thus, its primary motivation centers around energy security, both on bases and when deployed throughout the world. For instance, by using solar technology when deployed in the Middle East, it reduced the diesel generator loads by 60 percent. however, using alternative energy sources and still being able to provide energy where needed, when needed, requires continuously monitoring and analyzing energy consumption. Senior leaders believe that solar and other renewable sources, coupled with analytic capabilities provided by information systems, will pro- vide the military with greater energy options and improve the resilience of the operations both domestically and when deployed. And there will also be the added benefit of a greener and cleaner military.

Based on:

hepler, l. (2016, June 22). energy meets security: Can the military scale clean power? GreenBiz. retrieved July 1, 2016 from https://www.greenbiz .com/article/energy-meets-security-can-military-scale-clean-power

Kaenel, C. (2016, march 16). energy security drives u.s. military to renewables. Scientific American. retrieved July 1, 2016, from http://www.scientificamerican .com/article/energy-security-drives-u-s-military-to-renewables

Intranets and Employee Portals Internet technologies have given rise to another widely used tool for communicating and collab- orating within organizational boundaries. Specifically, many large organizations have intranet- based employee portals. As discussed in Chapter 3, “Managing the Information Systems Infrastructure and Services,” an intranet is a private network using web technologies, used to facilitate the secured transmission of proprietary information within an organization. An intranet looks and acts just like a publicly accessible website, but the intranet pages are behind the com- pany’s firewall, so only authorized users can access the content using their web browser. Modern intranets allow for dynamically creating customized intranet pages for each employee depending on job functions or even geographical location. Whereas all pages have the same look and feel and draw on the same underlying data, each employee can access only the data needed to per- form his or her job function (following the principles of least permissions and least privileges; see Chapter 10, “Securing Information Systems”). For example, if an employee from human resources logs on to the employee portal, he or she would see only content that pertains to his or her job, such as payroll information or hiring statistics.

All intranet pages are behind the company’s firewall, and in the simplest form of an intranet, communications take place only within the confines of organizational boundaries and do not travel across the Internet. However, increases in employees’ mobility necessitate that an intranet be accessible from anywhere. Thus, most companies allow their employees to use virtual private networks (VPNs) to connect to the company’s intranet while on the road or working from home (i.e., telecommuting). Once connected via a VPN, users can access resources as if they were located within the organization and connected to the organization’s network. Figure 5.6 depicts a typical intranet system architecture (see Chapter 10 for more on firewalls and VPNs).

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REal-TimE aCCEss To iNfoRmaTioN. A major benefit of corporate intranets is the ability to increase the efficiency and effectiveness of collaboration by providing real-time access to information. Unlike paper-based documents, which need to be continually updated and distributed to employees when changes occur, intranets make it less complicated to manage, update, distribute, and access corporate information. For instance, Boeing disseminates corporate news by distributing multimedia content over the company’s intranet, allowing employees to view digital copies of company news releases as they occur, from the convenience of their desktops.

With intranet-based solutions such as those deployed at Boeing, up-to-date, accurate infor- mation can be easily accessed on a company-wide basis from a single source that is both effi- cient and user friendly. Companies can become more flexible with resources required to create, maintain, and distribute corporate documents, while in the process employees become more knowledgeable and current about the information that is important to them.

ENTERpRisE sEaRCh. Another component supporting employee productivity by providing real- time access to information is the integration of enterprise search functionality. As more and more content is accessible via a company’s intranet, relevant information becomes increasingly difficult to locate, especially if the information is in different languages and located on different servers or databases, as is the case in many large global organizations such as Nestlé. Hence, the requirements for enterprise search engines are very different from those of Internet search engines such as Google or Bing. Enterprise search engines such as Microsoft’s Enterprise Search or the Google Search Appliance are designed to retrieve content from various internal data sources, including documents, databases, or applications linked to the company’s intranet. Such capabilities allow organizations to easily share millions of documents located throughout the organization. Thus, providing enterprise search functionality can enhance productivity and be an important factor contributing to users’ satisfaction with the company’s intranet.

CollaboRaTioN. One of the most common problems occurring in large corporations relates to the coordination of and collaboration on business activities in a timely fashion across divisions or functional areas. For instance, Boeing uses its intranet to facilitate collaborative efforts, such as in the process of designing new aircraft components. In this process, three- dimensional digital models of aircraft designs frequently need to be shared between aerospace engineers. Using Boeing’s intranet, an engineer can share a drawing with another engineer at a remote location; the second engineer revises the drawing as necessary and uploads the updated drawing to a shared folder on the intranet. The Boeing intranet provides the company with the capability of reducing product development cycle times as well as the ability to stay abreast of current project, corporate, and market conditions. Likewise, intranets are being used to poll staff about current issues or by employees to communicate with each other and executives in secure nonpublic forums.

Client Inside Local Network

Firewall

Internet

Server/Data

Corporate Network

Corporate Client Outside Local Network

Virtual Private Network (VPN) Connection

FIGURE 5.6 Typical intranet system architecture.

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To further enable collaboration and communication, many intranet solutions now incorpo- rate social components. In contrast to traditional intranets, where typically only select users with editorial privileges can create and update content, these intranets—sometimes referred to as social intranets—allow every user to create and update content and to easily connect with other content creators (see our discussion of social software below). Further, intranet solutions such as Jive are integrated with various other collaboration tools, ranging from Gmail to Dropbox, Skype, or customer relationship management software such as Salesforce.com (see Chapter 8, “Strengthening Business-to-Business Relationships via Supply Chain and Customer Relation- ship Management”).

EmployEE poRTals. In addition to being used for communication and collaboration, organizational intranets are widely used to provide employee portals that enable employee self- service for administering benefits, managing retirement plans, or other human resources–based applications. For example, for large companies, processing human resources–related forms can be a large cost factor. Depending on the complexity of the form, processing a paper-based form can cost US$20 to US$30, according to benefits administration solutions provider Workscape, Inc. Whereas interactive voice response–based telephone applications can cut these costs to US$2 to US$4, using intranet-based employee self-service applications can reduce this further, to a few cents per form. Considering that an employee, on average, conducts 15 human resources– related transactions per year, the savings can be significant. Using the intranet, form templates can be centrally managed, and modifications can be made instantaneously as conditions change; thus, employees can submit the appropriate form electronically with the assurance that they have used the correct version. Further, using online forms can help to significantly reduce error rates, as the entries can be checked for accuracy at the time of data entry, thus preventing the user from inputting incorrect or illogical entries. Using employee portals, employees become self-reliant, reducing time spent dealing with employment-related issues and allowing them to focus on their work responsibilities.

The Evolving Web The traditional collaboration tools previously introduced are based on Internet technologies. However, up until a few years ago, the web was regarded as a one-way medium (sometimes referred to as “web 1.0”), with a relatively strict distinction between content creators and con- tent consumers. Some entities would create content (say, a website), and others would con- sume this content. However, changes in technology have enabled new uses of the web; dynamic web applications, often referred to as web 2.0 applications, allow people to collabo- rate and share content online, shifting the users’ role from passive consumers of content to content creators (Figure 5.7). In contrast to the TV network ABC’s site, where content is pro- vided by ABC, the web 2.0 application YouTube depends on user-generated content, content that is created and uploaded by other users; similarly, whereas Encyclopaedia Britannica invests large sums in professionally researched articles, the articles in the online encyclopedia

Web 1.0 Web 2.0

FIGURE 5.7 Web 2.0 applications shift a web user’s role from a passive consumer of content to its creator.

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COMING ATTRACTIONS Dissolvable Electronics

The pharmaceutical industry is fighting a constant battle against various bacteria that can quickly evolve to become resistant to antibiotic treatments. drug researchers can spend months or years developing a new treatment, only to have that treatment lose effectiveness when the bacteria it was designed to kill become resistant. new antibiotics must then be devel- oped, and these cunning bacteria keep pharmaceutical com- panies on their toes. It is not known whether researchers will be able to stay ahead of the bacteria indefinitely and keep the population healthy. But some researchers are developing alter- native ways of killing bacteria using methods that are not sus- ceptible to the mutations of bacteria.

researchers at the university of illinois are developing spe- cialized electronic devices capable of performing short-term therapeutic tasks without active treatment from a medical pro- fessional. The key characteristic of these devices is their ability to disappear—to dissolve after a time and be absorbed by the person they were helping to heal. For example, after a surgery in which a large incision is made, a key risk for recovering patients is that of bacterial infection. A dissolvable electronic device could be embedded in the incision and emit just enough heat to kill bacteria. After the risk of infection has passed, the device, which is made of “biocompatible” materials, would then dissolve and be absorbed or excreted through the normal biological processes of the body.

Researchers have been working with an array of natural materials to test how well they perform in electronic devices

and whether they might cause side effects or other damage when implanted. A variety of biodegradable materials, includ- ing dna, proteins, and metals, have been tested. One test uti- lized egg proteins and found that the device’s performance matched that of a non-degradable device, worked for more than 3 months in dry conditions, and lasted from 2 to 10 hours when operating in wet conditions. In this experiment, the rest of the chip took about 3 days to dissolve.

So, while this technology is not yet ready for deployment, the researchers have successfully demonstrated that it is possi- ble to create dissolvable electronic circuits. Perhaps the tech- nology will soon develop into something that will help the human race further reduce disease and sickness that still afflicts many around the world.

Based on:

aCs. (2016, april 27). toward dissolvable electronics for implants and sensors. American Chemical Society. retrieved June 28, 2016, from https://www.acs.org/content/acs/en/pressroom/presspacs/2016/acs- presspac-april-27-2016/toward-dissolvable-electronics-for-implants- and-sensors.html

drake, n. (2013, may 24). new wireless electronics could heal wounds and then dissolve. Wired. retrieved June 28, 2016, from http://www .wired.com/2013/05/remote-controlled-dissolvable-electronics

zyga, l. (2015, January 15). Water-soluble silicon leads to dissolvable electronics. Phys.org. retrieved June 28, 2016, from http://phys.org/ news/2015-01-water-soluble-silicon-dissolvable-electronics.html

Wikipedia are jointly written and edited by the online community (owing to societal changes and competition from Wikipedia, Encyclopaedia Britannica decided to stop producing printed encyclopedias in 2012, instead focusing on its online offerings). In addition to these applica- tions, many organizations have successfully incorporated web 2.0 concepts into their business models. For example, Amazon.com adds value to its site by incorporating product reviews from its customers. This way, it gives customers a channel to voice their thoughts; at the same time, a larger number of reviews can help other customers make better decisions, thus attracting more visitors to Amazon.com’s site. Likewise, platform-based business models (such as pur- sued by Airbnb, Uber, or YouTube; see Chapter 2, “Gaining Competitive Advantage Through Information Systems”) are based on web 2.0 concepts. In the following sections, we will dis- cuss technological and societal changes that both enable and necessitate changes in the way many organizations do business.

Evolving Web Capabilities Many successful web 2.0 applications rely on the network effect. The network effect (as defined in Chapter 1, “Managing in the Digital World”) refers to the notion that the value of a network (or tool or application based on a network) increases with the number of other users. In other words, if a network has few users, it has little or no value. Many successful websites or service providers (such as Google) try to provide value to users by making parts of their functionality or data (such as map data) available for other websites to use and thus enable creating unique and dynamic applications, or mashups, quickly and easily.

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The idea of mashups came from popular music where many songs are produced by mix- ing two or more existing songs together; in web 2.0 terminology, a mashup is a new applica- tion (or website) that uses data from one or more service providers. For example, a mashup could combine map data, photos, reference information, hotel prices, and weather informa- tion to provide a comprehensive overview of travel destinations. Rather than having to col- lect or generate all of this information single-handedly, the creator of the mashup could simply draw on services provided by Google Maps, Flickr, Wikipedia, Expedia, and Accu- Weather (Figure 5.8). The online itinerary planner Sygic integrates data from OpenStreet- Map, hotel booking services, and other services to let users plan their next holiday. Likewise, users and companies can create mobile apps by combining various services and data sources. The local search app AroundMe uses data from services such as Booking.com, Opentable .com, or Foursquare to display information, reviews, or driving directions about businesses, restaurants, or medical facilities near a given location. Other websites and mobile apps use data from airlines, radio stations, recommendation services, or any other sources of useful information.

Many organizations have recognized the power and benefits of allowing other sites and apps to incorporate their services and data into mashups. Why are companies doing this? By provid- ing access to useful services and data, organizations extend their reach and build and strengthen customer relationships, providing a base for revenue-generating services (e.g., Google offers mapping services for free for low-volume usage but offers the services as a paid version for high-volume commercial usage, such as integration in a hotel booking site).

Evolving Social Interaction Many successful web 2.0 applications embody core web 2.0 values such as collaboration and social sharing; these can be classified as social media (or social software), allowing people to communicate, interact, and collaborate in various ways. With web 2.0 coming of age, people’s behaviors as well as societies have undergone rapid changes. For example, many people have changed the ways they search for information. Whereas in the past people turned to paper ency- clopedias as sources of unbiased information, people now turn to websites such as Wikipedia or ask their friends and acquaintances on social networks such as Facebook for personalized infor- mation. Similarly, there has been a marked shift in the way people view privacy and share information; although criticized by privacy advocates, people are sharing more personal infor- mation online than ever before. Repeatedly, you can read about people posting the most private information without thinking about the consequences; as Facebook and other social websites have become pervasive in many people’s lives, you have information about your friend’s recent drinking escapades leading to a driving under the inf luence (DUI) arrest, your coworker’s breaking up with his girlfriend, and other things you may or may not want to know, all at your fingertips. Clearly, social software has strongly influenced the lives of many people, and social media have now reached a point where almost everything is interconnected. Further, ongoing conversations on social media generate vast amounts of Big Data, which can used not only by the social media companies themselves but also by organizations using social media to connect with their stakeholders. Table 5.2 highlights the shift in perspectives from the web 1.0 to the web 2.0 era.

Expedia

Wikipedia

Flickr

Google Maps

AccuWeather

FLIGHTS HOTELS CARS

FIGURE 5.8 A mashup is a new application (or website) that uses data from one or more service providers.

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The Evolving Workspace The “millennials,” or “Generation Y,” who grew up being tied to social software such as Myspace (once the world’s largest social network site, which now primarily focuses on music), YouTube, or Facebook, are joining the workforce and have much different expectations for their workplace than prior generations, and some fundamental shifts are taking place in employer–employee relationships (see Accenture, 2016). For example, employees are now looking for a portfolio career rather than a cradle-to-grave job, tend to view themselves as citizens rather than employ- ees, and “loan their talent” to the employer rather than being a “human resource.” Accenture feels that this new generation of “born digital” workers have new expectations about how work should be organized and performed. For instance, companies no longer just serve customers, compete with rivals, or are limited to industry boundaries. Today, successful companies collabo- rate with customers, partner with rivals, and evolve their business as needed. Thus, to be suc- cessful, companies must create a corporate culture that is embracing the trends of the digital world. For instance, millennials bring with them many new and valuable skills but also attitudes that may be difficult to integrate with more traditional business environments. A great example of this relates to the use of social networking in the office. If a business bans the use of social networking sites at work, many millennials will easily find creative workarounds to circumvent such policies or simply find a job that is embracing the trends of the digital world. Many believe that embracing social media and other changes is not only necessary to attract and retain top tal- ent, it is also good for business (CIPHR, 2016). Viewing social media as a way to enhance com- pany culture, improve customer relationships, and recruit future customers and employees provides many benefits. It also provides companies with deeper insight into what their competi- tion is doing and what matters to their customers, all of which can aid in planning for the future.

Future Web Capabilities Web technologies and collaboration are ever-evolving topics, and many developments have yet to be fully realized. This section brief ly forecasts future capabilities of the web, in particular, focusing on efforts to create the semantic web and characteristics of web 3.0.

ThE sEmaNTiC WEb. Since the web opened up for public use, the number of web pages and sites has grown exponentially. Although this increase in web pages should mean that we have ever more information at our fingertips, it also means that the information is increasingly harder to find. What if the information on the web was organized in a way that users could more easily find information or relevant content? Traditionally, web pages were designed to be understood by people but not by computers, and search engines were examining pages for the existence of key terms; for example, when searching for “what eats penguins,” a search engine would return web pages that might have this information, but more likely various pages just having the words or key terms “what” and “eats” and “penguins,” as search engines were not sophisticated enough to be able to find, understand, and integrate content presented on web pages. The semantic web,

TABLE 5.2 shifting perspectives from Web 1.0 to Web 2.0

Web 1.0 Web 2.0

Me Me and you

Consume content Consume and create content

Connect ideas Connect ideas and people

Search Receive and give recommendations to friends and others

Find Share

Techies rule Users rule

Organizations Individuals

Source: Based on Sessums (2009).

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originally envisioned by Tim Berners-Lee, one of the inventors of the World Wide Web, is a set of design principles that will allow computers to better index web pages, topics, and subjects. When web pages are designed using semantic principles, computers will be able to understand the meaning of the content, and search engines will be able to give richer and more accurate answers. The major search engines encourage webmasters to integrate so-called microdata into their pages’ HTML markup to help search engines understand the meaning of content on the pages; for example, the markup of a business’ address can be enhanced by using microdata to specify the meaning of the different parts of an address. In 2012, Google has started making strides toward implementing concepts related to the semantic web in its “knowledge graph.” When searching for terms in Google, the search engine now attempts to understand what the user may mean; for example, when searching for “kings,” the search engine not only provides a list of pages containing the keyword “kings” but also displays a box containing links to search results specific to the Los Angeles Kings, the Sacramento Kings, and the NBC TV series Kings. Similarly, when searching for “Los Angeles Kings,” Google returns not only a list of web pages but also a summary of relevant information about the hockey team, culled from various web sources. Although the semantic web is largely unrealized (and may never be fully realized due to issues surrounding complexity, feasibility, or privacy concerns), Google’s efforts show that computers are getting ever closer to understanding the meaning of content on the web.

WEb 3.0. In many ways, web 2.0 has already replaced web 1.0, and the question is “What will replace web 2.0?” For some, web 2.0 is just a short transitional period before the next wave of Internet technologies, which is predicted to last until 2020. There are several ideas on what this next wave, sometimes termed web 3.0, will entail. Some, such as Forbes contributor Eric Jackson, envision the next wave of the web to be centered around mobility, almost announcing the demise of the web as we know it. Others see web 3.0 as the “contextual web,” where the immense amounts of content available to users will be filtered by contextual factors such as time, location, social activities, and so on. You may have already seen some of these emerging technologies in practice, especially regarding the context of a user’s location, and we may only know what web 3.0 really is when we see it; it may even forever remain a buzzword. Nevertheless, we can see exciting new developments on the horizon, and the coming trends will likely involve true integration of devices and connectivity to create powerful, socially aware Internet applications. Stay tuned to see what the future holds.

social media and the Enterprise Having realized the opportunities brought about by web 2.0 applications, many business organi- zations are continuously looking for ways to use social media to support their existing business processes; many organizations have built successful business models entirely based on core web 2.0 values such as social sharing or collaboration (see Chapter 4, “Enabling Business-to- Consumer Electronic Commerce,” for a discussion on social commerce). In addition, the use of social media within a company’s boundaries or between a company and its customers or stake- holders can help in sharing organizational knowledge, making businesses more innovative and productive, and helping them to effectively connect with their customers and the wider public.

You were likely familiar with many of the social media applications mentioned throughout the previous chapters, but there may have been some that you were not aware of. You are proba- bly more comfortable with or find more value using some tools over others. Similarly, organiza- tions are increasingly trying to find the right tools for their different needs. In the following sections, we will discuss how different social media applications enable or support communica- tion, cooperation, collaboration, or connection; needless to say, many of these applications can- not be neatly categorized, fitting into more than one category.

Enhancing Communication Using Social Media A prime application of social media in the enterprise is facilitating and enhancing the communi- cation within an organization as well as between an organization and its stakeholders. For orga- nizations, social media have opened up a vast array of opportunities for presenting themselves to their (potential) customers; at the same time, these applications have opened up literally thou- sands of channels for people to voice their opinions about an organization. In this section, we introduce various social media tools used for communication.

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blogs. Blogging originally started out as a way for novices to express themselves using very simple web pages. Blogging is the process of keeping an online text diary (i.e., a blog, or web log) made up of chronological entries that comment on everything from one’s everyday life to wine and food or even computer problems (Figure 5.9). Rather than trying to produce physical books to sell or use as gifts, bloggers (i.e., the people maintaining blogs) blog about their lives or voice their opinions (although feedback is often encouraged through associated threaded discussions). Many bloggers use their blogs to hone their writing skills, often producing elaborate, thoughtful pieces of writing. Others write blogs with the aim of attracting large audiences so as to monetize their efforts using online advertising or affiliate marketing programs.

However, blogs are not without controversy. Nicholas Carr, noted technology journalist (and active blogger himself), classifies blogging as the “amateurization” of journalism. Often the value of blogging is the ability to bring breaking news to the public in the fastest possible way. By doing so, some bloggers cut journalistic corners, rendering some of the posts on the blogs less than accurate, and blogs have been criticized for frequently providing the biased opinions of the writers, particularly because many of the authors’ sources cannot be or have not been verified.

Nevertheless, bloggers have massively influenced the way in which people gather and con- sume information and have become important voices that can sway public opinion. In fact, turn- ing to free information from blogs and other online sources, many readers have canceled newspaper subscriptions. In turn, diminishing readership in traditional newspapers has enticed advertisers to begin to withdraw from this traditional medium, leading to budget cuts and layoffs at reputable newspapers such as the San Francisco Chronicle, the New York Times, the Washing- ton Times, and many others. Unfortunately—and ironically—this may erode the very sources that many bloggers base their information on.

In addition to blogs created by and/or for individual readers, blogs are being used by small, medium-sized, and large organizations for connecting with their employees or customers. For example, IBM’s business-oriented social software suite IBM Connections includes blogs, help- ing people to voice ideas and obtain feedback from others. Similarly, companies such as Google maintain official company blogs (e.g., http://googleblog.blogspot.com) to inform their stake- holders about news, rumors, or current thoughts. In contrast to press releases or other official public relations statements, blogs provide an avenue for companies to present themselves in a more approachable way.

miCRobloggiNg. Microblogging, similar to blogging, enables people to voice their thoughts; however, in contrast to blogs, which often contain lengthy posts, microblogging services are designed for broadcasting relatively short “status updates,” which are distributed in (near) real time. In contrast to social networks, where users can choose who can or cannot receive their status updates, typically, anyone can follow another person’s microblog. A popular microblogging service is Twitter, which

FIGURE 5.9 Blogging is the process of creating an online text diary (i.e., a blog, or web log) made up of chronological entries. source: 2016 google inc. all rights reserved. google and the google logo are registered trademarks of google inc.

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allows users to post short (up to 140 characters of text) “tweets” that are delivered to the author’s followers or subscribers (Figure 5.10). The recipient can “retweet” (i.e., re-broadcast) interesting tweets to his or her followers. With many people broadcasting everything they find interesting and the high speed of message transmission, Twitter has become a source for breaking news. In China, where Twitter is blocked, the most popular microblogging service is Sina Weibo, which is widely used not only by individuals and companies but also by various levels of government to portray a positive image or monitor public sentiments. Many social networking sites (discussed later) also have microblogging functionality built in; for example, users can update their status on Facebook, letting their friends know about their current thoughts and allowing them to post replies.

Many organizations have used this trend and created accounts on Twitter. For example, Coca-Cola has an official Twitter account it uses to post news or interact with its (as of mid- 2016) more than 3.2 million followers; Coca-Cola follows more than 66,000 Twitter accounts and actively replies to and retweets Twitter messages. This way, Coca-Cola signals that it cares about its followers, trying to increase its customers’ brand loyalty. When posting a tweet, users can tag words or phrases with a “# ”—called a hashtag (e.g., #NBAFinals, #ThursdayThoughts, or #WearOrange)—to indicate the topic and relate the tweet to other tweets about the same topic. A word phrase or topic that is tagged at a greater rate than others is said to be trending. A topic becomes trending because of a concerted effort by users or because of an event (e.g., a new win- ner of the Super Bowl or a missing aircraft) that prompts people to tweet about the topic. Micro- blogging, however, is not limited to text content. Apps such as Vine allow users to easily share short video clips, taken with the smartphone’s camera. Likewise, Tumblr allows users to go beyond the 140-character limit and share any kind of digital content, including text, music, and videos; by combining features of blogs, microblogs, and social networking sites, Tumblr allows companies to communicate and connect with their customers. For example, in May 2014, AMC premiered a full-episode sneak preview of its new TV series Halt and Catch Fire on Tumblr.

iNsTaNT mEssagiNg. In contrast to asynchronous discussion forums, blogs, and status updates, instant messaging (or online chat) enables real-time written conversations. Using instant messaging, multiple participants can have conversations and enjoy immediate feedback from their conversation partners. Some social networking sites such as Facebook have integrated instant messaging functionality. In addition, the increase in smartphone usage has merged instant messaging with cell phone–based text messaging; cloud-based messaging services such as WhatsApp allow for group chats, free text messages or voice calls (even internationally), and even the exchange of multimedia content, using the smartphone users’ data plan or Wi-Fi connection. Other popular instant message services include Viber, Line, or WeChat (hugely popular in China). Some instant messaging apps such as Snapchat or Telegram allow users to set a time limit specifying for how long the recipient can view the message before it is automatically deleted. Many organizations have adopted web-based instant messaging for internal communications and also use live chat for sales and customer support functions. In addition to offering live chat with human customer service agents, companies increasingly use automated chatbots (discussed in Chapter 6) to initiate conversations and gather preliminary information from the customer in order to route him or her to the relevant human customer service representative.

FIGURE 5.10 Twitter allows posting short “tweets” that are delivered to the author’s followers or subscribers via mobile phone or Twitter applications. Source: Screenshot of Twitter. Copyright ©, by Twitter.

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Enhancing Cooperation with Social Media In addition to communication, companies and individuals can benefit from social media applica- tions that enable cooperation. Cooperation between individuals or organizations creates win-win situations such that one participant’s success improves the chances of success of other partici- pants. As with other social media applications, social media applications facilitating such coop- eration rely on the network effect to provide the greatest benefits for users.

mEDia shaRiNg. One example of cooperative social media applications making use of the network effect is the sharing of user-generated content such as pictures, videos, audio, or even presentations. Sharing media has become immensely popular on the web, using applications such as Flickr or Instagram (images), Vimeo or YouTube (videos), or SlideShare (presentations); using sites such as Pandora, users can even create their favorite music stream and share it with others who may have similar interests. Typically, the shared content is hosted on media- sharing sites; however, the content can also be embedded into other sites, creating a win-win situation for the content creator and the site embedding the content. For example, embedding an interesting and relevant YouTube video into a blog post helps to increase the attractiveness of the blog while at the same time increasing the viewership of the video, thus creating positive returns for both parties.

Similarly, webcasting is increasingly used for media sharing. Webcasting (or podcasting) is the distribution of digital media content, such as audio or video files for on-demand playback on digital media players. The increase in mobile devices such as smartphones and tablets has contributed to the tremendous growth of webcasts (or podcasts), as the consumption can be time shifted and place shifted; in other words, webcasts allow media content to be consumed at one’s convenience, when- ever or wherever. The term podcasting, derived from combining the terms broadcasting and iPod, is a misnomer, as podcasts can be played on a variety of devices in addition to Apple’s iPods. As with blogging, webcasting has grown substantially, with traditional media organizations now webcasting everything from shows on National Public Radio to Fox’s Family Guy to the Oprah Winfrey Show. In addition to media organizations and independent webcasters, the educational sector uses web- casts for providing students access to lectures, lab demonstrations, or sports events; this allows stu- dents to review lectures or prepare for class during their morning and evening commutes. In 2007, Apple launched iTunes U, which combines various course management tools; iTunes U is used by major U.S. universities, such as Stanford, Berkeley, and the Massachusetts Institute of Technology, with many universities offering free content ranging from lectures to faculty presentations (Figure 5.11). As webcasts can be enriched by allowing for interactive Q&A sessions or by embedding PowerPoint presentations, organizations increasingly use webcasts to provide access to shareholder meetings, online training, road shows, or other events.

To receive the most current content, users can subscribe to blogs, webcasts, videos, and news stories through Apple’s iTunes, or via RSS (Really Simple Syndication or Rich Site Sum- mary) feeds. Content publishers provide RSS feeds to notify users of updates to the content. Rather than users actively having to check multiple sources for updated content, RSS readers automatically check the feeds for updates and provide a synopsis of a document or the full text.

FIGURE 5.11 A student listens to a podcast on iTunes U. Source: Courtesy of Christoph Schneider.

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Recently, various apps, such as Periscope and Facebook, have enabled the possibility of sharing live video. Using Facebook Live, the White House broadcasts live videos from press conferences or president’s speeches, and companies use live video to broadcast everything from hot topics to inter- views or public performances. Broadcasting live videos via social media can enable various forms of direct interactions with the audience, such as by enabling the content creator to directly engage with the audience by responding to questions or comments during the broadcast. Yet, for the social media apps, monitoring content broadcast via live video is highly problematic: How can the spread of objectionable or illegal content be avoided? A case in point is the live broadcast of a double murder in Paris, France, in June 2016; the killer, a self-proclaimed follower of ISIS, used Facebook Live to broadcast himself murdering a police commander and the commander’s wife. Given the rapid pace at which such content is generated, continuously monitoring and stopping (or deleting) such broad- casts is virtually impossible for service providers.

TaggiNg. One problem with user-generated content is its variety; status updates, photos, videos, and other content are typically not easy to categorize or find. Metadata—which can be simply thought of as data about data—describe data in terms of who, where, when, why, and so on, and can be useful for categorizing content and making it easier to find. For example, metadata about a Word document include the author, the time the document was created, and when it was last saved; metadata about a digital photo include date and time, focal length, shutter speed, aperture value, and so on; metadata about a phone call include call time, duration, location of participants, phone numbers, or the phones’ unique identifiers (Figure 5.12).

Whereas certain metadata about documents or media files are captured automatically (e.g., when saving a document in a word processor or when taking a picture with a digital camera), there are various other useful pieces of information that are not automatically captured, such as keywords about a document or the names of people in a picture. Thus, manually adding tags, or metadata, to digital media or other content is an important aspect of many social media applica- tions. Tags are commonly added to pictures and videos on websites such as Flickr, a picture- and video-hosting website that allows users to upload their content. Likewise, hashtags, popularized by social media applications such as Twitter, Tumblr, and Instagram, are used to add metadata to messages posted on these services, allowing users to search for content related to a certain topic. A way to visualize user-generated tags or content on a site is through tag clouds (Figure 5.13). The size of a word in a tag cloud represents its importance or frequency, making it easy to spot the most important or frequent words or tags.

gEoTaggiNg. Another type of metadata about media such as photos, videos, or even blogs or tweets is of geospatial nature; knowing where exactly a photo was taken and in what direction the camera was pointing, or knowing the location of a person sending out a breaking news update on Twitter can be extremely valuable. Such geospatial metadata (such as latitude, longitude, or altitude) added to digital media is referred to as geotags. Once the geographical coordinates of

FIGURE 5.12 Metadata about a photo and a Word document. source: Windows 10, microsoft Corporation.

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an item are known, it can easily be visualized on a map. For example, Google Maps can display various types of geotagged content, such as photos, webcams, Twitter posts, or Wikipedia articles about places or landmarks. Thus, Google can offer a map experience containing pictures of attractions, reviews, and things to do without having to take a single picture or write a single review itself. Geotags are often automatically generated, for example, when taking images with a smartphone; yet this may lead to privacy or security concerns, for example, when sharing images online. A case in point is the arrest of John McAfee, the creator of the antivirus software, who was sought by authorities in Belize in connection with a murder. McAfee went into hiding and, in 2012, met with a team of journalists in Guatemala; one of the journalists posted a picture with him online but forgot to remove the location metadata, revealing McAfee’s hideout to the Guatemalan authorities, who arrested him for illegally entering the country. After a week in a Guatemalan prison, McAfee was deported to the United States.

soCial bookmaRkiNg. As other social media applications, social bookmarking relies on the network effect. For many web surfers, key challenges are finding information and then finding it again at a later time; hence, people often keep long lists of bookmarks to sites they find interesting or visit frequently. Although this is useful for individuals, users may miss a plethora of other, related, and potentially interesting websites. Social bookmarking helps to address this by allowing users to share interesting content and to create categorization systems (referred to as folksonomies). As more people participate in social bookmarking, the value for each user grows as the bookmarks become more complete and more relevant to each user. Widely used public social bookmarking tools include reddit and StumbleUpon. Likewise, Pinterest allows users to “pin” content they find interesting, and media websites such as CNN.com provide sharing links so as to increase the reach of their content. For organizations, social bookmarking can be extremely valuable for knowledge management and harnessing the collective intelligence of employees. Using enterprise-oriented social bookmarking tools, it is easy to map “islands” of knowledge within an organization, thus helping to easily find experts on a given topic.

soCial CaTalogiNg. Similar to social bookmarking, social cataloging is the creation of a categorization system by users. Contributors build up catalogs regarding specific topics such as academic citations, wireless networks, books and music, and so on. For example, users can create virtual bookshelves with the social cataloging application goodreads, organize their collections, write reviews, and then share this bookshelf with others on the web. Similarly, students and researchers can use free tools such as Mendeley or Zotero (Figure 5.14) to manage their citations, thus facilitating the creation of reference lists for research papers. Organizations are typically dealing with tremendous amounts of information, ranging from supplier information to frequent customer complaints, and can use social cataloging for structuring this information and making it more accessible and useful.

FIGURE 5.13 A tag cloud representing words and concepts that are key to social media. Source: Vlue/Shutterstock.

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FIGURE 5.14 Zotero helps in organizing citations and research resources. Source: Courtesy of Center for History and new media, george mason university. Copyright ©, by zotero.

v

SECURITY MATTERS Terrorism Is Winning the Social Media Battle

Terrorism is the use of violence or threat of violence in order to purport a political, religious, or ideological change. Terrorists aim to provoke irrational fear among large numbers of people in order to influence policymakers and thus advance their goals. To be successful, terrorists need to gain publicity about their cause. Historically, terrorists have learned to use media to their advantage and rely on media to spread their message and further their goals. For example, in the 1960s and 1970s, there was a rash of commercial airliners hijacked. Often, these hijackings would be broadcast live on TV, and many believed that this exposure actually increased the number of hijackings. At that time, there was very little security or passenger screen- ing at airports. To stop the hijackings, the government man- dated screening of passengers and luggage.

Over the past many decades, terrorists have continued to refine their ability to leverage the available media to reach as many people as possible. In order to garner publicity toward their cause, terrorist organizations resort to acts of violence and aggression that deliberately target civilians. While terror- ism has not been effective at taking down governments and capturing political power, it has been very successful at gain- ing increasing attention and spreading fear. Today, due to the convenience, affordability, and broad reach of social media platforms such as YouTube, Facebook, and Twitter, terrorist groups are increasingly using social media to further their goals and spread their message. new technologies have not only made it astonishingly easy to produce high-quality pro- paganda images and videos, they have also made it far easier to disseminate this propaganda. Cheap portable cameras and easy-to-use editing software allow for the rapid production of content. digital distribution on social media sites allows

content to be distributed globally or broadcast in real time at little cost or effort. With smartphones connected to the Inter- net, content can be viewed by millions around the world.

Terrorist organizations like the Islamic State, often referred to as ISIS, have created a variety of relatively well-edited videos to serve a dual purpose, inspiring one group of people to join their cause while disgusting and frightening the others. numer- ous videos of executions have been released, including those of Western aid workers, journalists, alleged spies, suspected homo- sexuals, and anyone else the terrorists believe to be their enemy. Various types of dramatic murders have been displayed, includ- ing decapitations, shootings, and even burning victims alive.

While attempts have been made by various governments and agencies to thwart the use of social media by terrorist organizations, these attempts have (mostly) not been success- ful. As the future continues to unfold, we can be sure that violent extremists will continue to evolve their use of the latest media and platforms in an attempt to further their cause.

Based on:

burke, J. (2016, February 25). how the changing media is changing terrorism. The Guardian. retrieved June 28, 2016, from https://www.theguardian .com/world/2016/feb/25/how-changing-media-changing-terrorism

gates, s. (2015). social media, recruitment, allegiance and the islamic State. Perspectives on Terrorism. retrieved June 28, 2016, from http:// www.terrorismanalysts.com/pt/index.php/pot/article/view/446/html

Koerner, b. i. (2016, april). Why iCis is winning the social media war. Wired. retrieved June 28, 2016, from https://www.wired .com/2016/03/isis-winning-social-media-war-heres-beat.

terrorism and social media. (2016, June 17). in Wikipedia, The Free Encyclopedia. retrieved June 28, 2016, from https://en.wikipedia .org/w/index.php?title=terrorism_and_social_media&oldid=725707095

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Enhancing Collaboration with Social Media Traditional office technologies, such as telephones or e-mail, are very useful to organizations; yet such technologies are not well suited to support rich, rapid, multi-person team collabora- tion. For example, the telephone is best suited for person-to-person communication; e-mail is a useful technology for teams, but it does not provide the structure needed for effective multi- person, interactive problem solving. Modern organizations need technologies that enable team members to interact through a set of media either at the same place and time or at different times and in different locations, with structure to aid in interactive problem solving and access to real-time information. The Internet, cloud computing, and the increase in the use of mobile devices have enabled various social media applications that provide many capabilities that have forever transformed the way individuals and teams can work together. These are described next.

ClouD-basED CollaboRaTioN Tools. One key trend that has greatly facilitated collaboration is the rise of cloud computing. Traditionally, sharing and collaborating on documents were cumbersome; users typically had to e-mail documents back and forth or had to worry about having the latest version of the software installed. Cloud-based collaboration tools have greatly facilitated collaboration; for example, cloud-based collaboration tools allow for easy access and easy transfer of documents or other files from one person to another; using services such as Dropbox, documents are not only stored on a user’s computer but also synced to other computers or devices via a copy of the document stored in the cloud. This way, a user can access a file from multiple devices, always having the latest version at his or her fingertips, or collaborators can work on documents without needing to e-mail documents. Similarly, tools such as Evernote, Wunderlist, or Microsoft OneNote allow for synchronizing and sharing of notes, task lists, and the like. Cloud-based productivity suites take this concept a step further by not only storing the files in the cloud but also enabling the access of office productivity tools from any computer (or even mobile device) with a web browser and Internet connectivity. While this frees the user from having to locally install productivity software, using cloud-based collaboration tools requires a live Internet connection to work on shared documents, and thus users may not be able to work when traveling or when having Internet connectivity problems. Table 5.3 outlines various benefits and risks of cloud-based collaboration tools.

Organizations and individuals can choose from different options for using cloud-based col- laboration tools. On one end of the spectrum, companies offer single-purpose tools for every- thing from creating presentations to managing projects. On the other end of the spectrum, cloud-based collaboration tools such as Google Apps or Microsoft Office 365 integrate every- thing from document sharing to videoconferencing, thereby mirroring (or even surpassing) the capabilities of traditional offline office suites (Table 5.4).

TABLE 5.3 benefits and Risks of Cloud-based Collaboration Tools

Domain Benefit Risk

Information technology Reduced costs and risks when using preexisting, easily deployed, and low-cost web-based tools (versus in-house developed tools).

Loss of control regarding data and service quality (data and tools will likely reside on the provider’s server).

Organization Tools are easy to use, facilitating widespread adoption throughout an organization.

Little or no documentation, training, or support for system complexities or problems.

Competition More efficient and effective than e-mail, FTP, or legacy collaboration tools, potentially speeding up product development cycles and enabling quick responses to competitors’ actions.

Security and compliance policies are often difficult to enforce, which may increase the possibility of expos- ing sensitive corporate data; increased threat of indus- trial espionage.

Upgrade cycles No need to purchase software upgrades. Tools and features in the collaboration environment can change without notice, potentially causing prob- lems with users and corporate IT strategy.

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CoNTENT maNagEmENT sysTEms. A content management system (CMS) allows users to publish, edit, version track, and retrieve digital content, such as documents, images, audio files, videos, or anything else that can be digitized. For example, organizations use open source content management systems such as WordPress, Joomla, or Drupal to create blogs or websites (see also upcoming discussion of open source software); Carnival Cruise Lines uses WordPress for publishing company news; the French automaker Peugeot uses Joomla for its company website; and the University of Minnesota uses Drupal. Whereas traditionally, webmasters would have the task of adding, modifying, or deleting content on a company’s website, content management systems provide easy-to-use interfaces that allow the creators of content to make necessary changes; thus, a member of the marketing team may edit a product’s description without having to ask the IS department to make the changes. Typically, such content management systems facilitate the creation and management of web content by allowing the assignment of different roles to different users; these roles are associated with different permissions, such that some users can create and edit content, others can edit but not create, and yet others can only view content contained in the system. Many open source content management systems can even be used for building e-commerce sites by incorporating functionality such as inventory management or shopping cart functionality. Yet content management systems, also known by several other names, including digital asset management systems, document management systems, and enterprise content systems, can be used for collaboration beyond the creation and management of websites. For example, Microsoft SharePoint is a document management platform that can be used to host intranet sites, extranet sites, or public websites that enable shared workspaces and integrate other collaborative applications such as document sharing, wikis (see upcoming discussion), and blogs. SharePoint also includes workf low functionality such as to-do lists, discussion boards, and messaging alerts (Figure 5.15). Because SharePoint has been designed to be easily customizable, it has been installed in a variety of businesses, which can personalize the collaborative SharePoint websites to meet their needs.

Learning Management Systems Similar to content management systems used for communication and collaboration, learning management systems such as Blackboard, Sakai, and Moodle have facilitated business processes in educational settings. Typically, learning management systems enable uploading and viewing content, administering exams, and self-service functions such as registering for courses or viewing grades. Increasingly, learning management systems offer additional tools for enabling team collaboration, class discussions, and the like.

CollECTivE iNTElligENCE. One major benefit of social software is the ability to harness the “wisdom of crowds,” or collective intelligence (Surowiecki, 2004). The concept of collective intelligence is based on the notion that distributed groups of people with a divergent range of information and expertise can outperform the capabilities of individual experts. For organizations, making effective use of the collective intelligence of their employees, customers, and other stakeholders can prove extremely valuable. Based on the concept of collective intelligence, peer production is the creation of goods or services by self-organizing communities. In peer production, the creation of the goods or services is dependent on the incremental contributions of the participants such that anyone can help in producing or improving the final outcome. Prime examples of peer production are open source projects and wikis.

TABLE 5.4 Web-based Collaboration Tools

Type Names

Spreadsheets Google Drive, Zoho Sheet, Microsoft Excel Online

Word processors ThinkFree, Zoho Writer, Google Drive, Microsoft Word Online

Presentation Google Drive, Zoho Show, Microsoft PowerPoint Online, Prezi

Office suites Zoho, Google Apps, Microsoft Office Online

Project management Trac, Redmine, eGroupWare, Collabtive

Notes/task management Evernote, Wunderlist, Microsoft OneNote Online

Cloud storage/sharing Dropbox, Google Drive, Microsoft OneDrive, SugarSync, iCloud

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FIGURE 5.15 The Microsoft SharePoint content management system can assist in project collaboration. source: sharepoint 2016, Windows 10, Microsoft Corporation.

WHO’S GOING MOBILE Going SoLoMo: Yelp

If you’re looking for a good restaurant, tailor, or pest control service in town, it is difficult to know which of the many options will provide the best service. luckily, there’s Yelp. You’ve proba- bly heard of Yelp, the review and rating platform where you can find valuable information on local businesses provided by previ- ous customers. the company began in 2004 as a way for friends to exchange local service recommendations via e-mail. The ser- vice quickly evolved to include social networking services and has expanded its operations to many countries around the world. Yelp has also been a pioneer in developing mobile, loca- tion-based services. boasting 135 million monthly visitors and 95 million reviews (as of 2016), Yelp tends to come up as an exam- ple whenever people talk about the intersection of social, local, and mobile services (sometimes called SoLoMo for short).

Yelp has embraced the rising trends in mobile device usage. shortly after the iOs app store launched the mobile app craze in 2008, Yelp released its first app for the iphone. apps for other platforms followed. With apple’s release of iOs 6 in september 2012, Yelp’s rating and review content was integrated into the mapping and directions app of the iOs operating system. by november 2013, Yelp reported that 45 percent of its traffic came from mobile devices. Part of the reason for Yelp’s mobile success is the fact that a smartphone with a Yelp app installed is “location-aware,” meaning that users can use the phone’s global positioning system (gps) capabilities to find Yelp reviews of locations in the area. This is very useful if you are in an unfa- miliar area and would like to go eat somewhere with positive reviews. You can simply search for restaurants and choose from among the highest-rated restaurants within walking distance.

Yelp has leveraged its dominating mobile presence to its advantage. The company began allowing local businesses to advertise to local users, and the advertising technique has proven quite powerful. If you open the Yelp app and are search- ing for restaurants, Yelp can be pretty confident that you’re hun- gry and about to make a purchase. A cleverly placed ad offering a discount from a local pizza place may be just the thing that convinces you to buy a pizza instead of the Big Mac offered next door. Yelp is still seeing strong growth, with revenues of us$550 million in 2015, representing a year-on-year growth of 46 per- cent between 2014 and 2015. With about 35 percent of Yelp’s overall revenue coming from local advertising, Yelp has some critics, who feel that Yelp is manipulating reviews and blocking overly negative reviews in order to increase ad spending by busi- nesses. Still, while smartphone users increasingly use their devices to find information about local business, Yelp is well positioned to continue its solomo leadership.

Based on:

anonymous. (2016, February 8). Yelp announces fourth quarter and full year 2015 financial results. PR Newswire. retrieved June 28, 2016, from http://www.prnewswire.com/news-releases/yelp-announces- fourth-quarter-and-full-year-2015-financial-results-300216659.html

holloway, d. (2015, november 19). americans to spend $40 bil- lion at local businesses this holiday season. YelpBlog. Retrieved J u n e 2 8 , 2 0 1 6 , f ro m h t t p s : / / w w w. y e l p b l o g . c o m / 2 0 1 5 / 1 1 / americans-to-spend-40-billion-at-local-businesses-this-holiday-season

Yelp. (2016, June 25). in Wikipedia, The Free Encyclopedia. Retrieved June 28, 2016, from https://en.wikipedia.org/w/index.php?title=Yelp& oldid=726935600

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Open Source Software Traditionally, software—ranging from Adobe Acrobat to large ERP systems—has been developed by software companies. In contrast, open source software, such as the Firefox web browser, the Linux operating system, or the Apache OpenOffice productivity suite, is created, maintained, and updated by thousands of volunteers located all over the world (see Chapter 9, “Developing and Acquiring Information Systems”). Often, someone with an idea for a useful program develops an initial version; other developers looking for interesting projects to work on may then join the original creator and contribute to the continuing development of the software. Organizations now have access to various high-quality open source software, ranging from operating systems to databases, web servers, and e-commerce solutions; using open source software offers benefits such as security, f lexibility, and auditability (of the program’s source code). For individuals, participating in open source software projects can help to improve their skill set or boost their CVs. For organizations, participating in open source projects can be a way to influence the direction the software’s development may take and to build goodwill by giving back to the community.

Wikis Also based on the concept of collective intelligence, wikis are used for a variety of collaboration tasks. A wiki is a website allowing people to create, edit, or delete content as well as discuss about content or suggested changes with other members of the community. In contrast to a regular website, a wiki is linked to a database keeping a history of all prior versions and changes; thus, a wiki allows viewing prior versions of the pages as well as reverting any changes made to the content. The idea behind wikis is that by allowing anyone to contribute content or edit others’ contributions, the collaborative work performed by the community helps to minimize vandalism and ensure high-quality content (Figure 5.16). For example, Wikipedia articles are created by Wikipedia users, and almost any of these articles can be edited by either anonymous or registered users. By allowing easy access, Wikipedia has grown exponentially within just a few years. However, Wikipedia is not without critics. Some argue that by allowing anyone to create and edit articles, systematic biases in the content can occur. This includes the ability for users to add misinformation that is hard to verify. For example, recent news show that politicians, companies, and other entities of interest frequently edit their Wikipedia pages to portray a more positive image. Sometimes, so-called “wiki wars” arise, where contributors continuously edit or delete each others’ posts. Also, Wikipedia has been found to have a significant cultural bias on some topics, as most contributors are males from either North America or Europe, and the information is not always backed by verifiable sources. Given these issues, many universities discourage students from citing Wikipedia, and in some instances professors have been failing students for using Wikipedia as their primary (or only) source. Still, the contributors’ collective intelligence ensures that the quality of many articles matches (or surpasses) that of traditional encyclopedias, and a Wikipedia article may be a good starting point for researching about a topic; as always, it is good practice to evaluate the sources used within an article, and to consult other sources as well. Wikipedia openly acknowledges this situation and encourages users to check the facts against multiple sources.

Wikis have been used for many more things than just an online encyclopedia. The ability for users to contribute and edit content has a wide variety of applications, such as designing soft- ware, helping people find media, and even helping people play video games. In fact, many orga- nizations are using wiki technology to create internal knowledge repositories.

Wiki

View Revision History

Revert Changes

Discuss Create, Edit,

Delete

FIGURE 5.16 The ability to create, edit, or delete content, view prior versions, revert any changes, and discuss about content and suggested changes are key to the creation of high-quality content by a community.

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humaN-basED CompuTiNg (CRoWDsouRCiNg). Another way companies are using the collective intelligence of individuals is through crowdsourcing. When companies look for cheap labor, many immediately think about outsourcing work to companies in different countries, such as India, China, or Russia (see Chapter 1). However, companies have now found a way to use everyday people as a cheap labor force, a phenomenon called crowdsourcing.

Amazon.com took crowdsourcing mainstream with its micro-task marketplace called Mechanical Turk. Using this marketplace, requesters can crowdsource so-called human intelli- gence tasks (HITs), which are small, self-contained tasks that humans can solve easily but would be difficult for a computer to solve. Examples of HITs include tagging images, generating poten- tial search key words for a product, fixing product titles on e-commerce sites, and so on (Figure 5.17; see also Chapter 4 for more on consumer-to-business business models). Users can find HITs that are of interest to them, solve the tasks, and earn money that is credited to their Amazon.com account. As you can see, for companies, crowdsourcing is an innovative way to reduce costs by using the expertise of the crowds. Similar to grid computing (see Chapter 3), a person’s “idle time” is used for a certain business task, and many people are willing to provide their resources in exchange for a relatively small amount of money. In order to harness the power of the crowds, some companies have even created their own, internal, micro-task marketplaces; for example, Microsoft’s “Universal Human Relevance System” is used by Microsoft to crowd- source tasks related to improving Bing search results, conduct research, and so on. A related concept is that of open innovation. As discussed in Chapter 2, companies are increasingly attempting to create ad hoc research-and-development networks by integrating external stake- holders into their innovation processes so as to harness the power of the crowds.

Enhancing Connection with Social Media Social media applications also aid in connecting people with each other, companies with their customers or stakeholders, or people with content. Without a doubt, social networking has become the most popular type of application in this category; we explore social networking and other, lesser-known applications in the following sections.

soCial NETWoRkiNg. In addition to direct collaboration, social networking has become one of the most popular uses of the Internet over the past few years. Social networking sites create social online communities where individuals with a broad and diverse set of interests meet, communicate, and collaborate. Facebook exemplifies this trend, being the third most popular site on the web (and being surpassed only by YouTube and Google), according to Alexa.com. Facebook took the spot as the most frequented social network from Myspace.com, which originally was designed to be a social network based on musical interests but then changed to a general interest social network used primarily by teens and young adults; over time, the importance of Myspace has declined tremendously, and in May 2014, Myspace was barely ranked in the top 1,000 sites on the web. Because of the network effect, as Facebook grew, it became ever more attractive for other people to join. In March 2016, Facebook announced that it had 1.65 billion monthly active users, and it is still growing. Other social networks are built on the tremendous increase in mobile devices. For example, the location-based social network Swarm is built around the idea of people using their mobile devices to “check in” at places.

Transcribe media to text Requester: XY co. Reward: $0.10

Extract items from a shopping receipt Requester: TRE co. Reward: $0.02

Fix transcription errors Requester: ABC co. Reward: $0.05

Categorize user reviews Requester: XLS co. Reward: $0.02

Translate from English to Chinese Requester: VS, Inc. Reward: $0.03

FIGURE 5.17 Anyone can earn money on micro- task marketplaces by solving small, well-defined tasks.

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Social networks were initially primarily popular among preteens, teens, and young adults, but social networking demographics have slowly shifted, with 79 percent of American Internet users between 30 and 49 years and 64 percent of Internet users between 50 and 64 years using Facebook. In addition to general interest social networks, several social online communities are targeted at professional audiences, allowing users to meet business contacts, post career profiles, present themselves in a professional context, ask for expert advice, or be contacted regarding job opportunities. For example, LinkedIn has more than 414 million members, and Xing (popular in the German-speaking market) has almost 11 million members. Further, enterprise-oriented social software such as IBM Connections features social networking tools that allow people within organizations to connect to one another; similarly, Yammer, part of Microsoft, is designed as a private social network for communication and collaboration within organizations (Figure 5.18). Designed to mirror consumer-oriented social media apps people are used to, applications such as Yammer are but one example of increasing consumerization of IT, where technologies and applications are first designed for the consumer marketplace and then make inroads into organizational settings. Other players in the enterprise social networking market include Slack and Facebook’s business-oriented social network named Facebook at Work.

Organizations also increasingly use social networks to connect with their customers. Numerous companies have their own Facebook pages to interact with their customers, get feed- back on new products or services, or in general portray a positive brand image.

However, social networks are not without critics. In particular, one area of criticism is the way users’ newsfeeds are assembled on social networks such as Facebook, where sophisticated algorithms analyze your (and others’) behavior and try to predict which of your friends’ posts may be of interest to you; for example, the algorithms analyze which posts you like, which friends you interact with most (e.g., as indicated by your activity in response to your friends’ posts), how many comments or likes a post receives, and so on. Facebook’s use of advanced ana- lytics thus determines what type of items each user gets to see (or not). While this means that you might be more likely to see items you are actually interested in, this also results in people only being exposed to opinions of like-minded people, and some have accused Facebook of cre- ating a “filter bubble” (see Case 1 at the end of the chapter). Further, many companies are trying to use social media to attract web traffic; often, these companies post incomplete or tantalizing headlines for stories in order to encourage users to click on them. Such types of headlines are often referred to as clickbait; as a user clicks on the link, the company earns revenue through ads posted on the page containing the article (which often turns out to be less than informative or useful; see also Case 2 at the end of the chapter).

Social Search As the web has grown explosively since its early days (in the first 6 years, the growth rate was 850 percent, and after only 15 years, the number of websites was larger than 100 million; Nielsen, 2006), finding relevant information has become increasingly difficult. Early search engines such as Altavista were based on key words embedded within pages and often

FIGURE 5.18 Organizations use enterprise social networks for communication and collaboration within the organization. source: Yammer 2016, Windows 10, Microsoft Corporation.

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ETHICAL DILEMMA Anonymity, Trolling, and Cyberharassment

using pseudonyms, fictitious accounts, or proxy servers to hide one’s online tracks, it is easy to operate anonymously on the Internet; unfortunately, all too frequently, the anonymity offered by the Internet brings out the worst in people. When people are anonymous, they are more likely to enter into a state of deindividuation, a loss of self-awareness often causing antisocial behavior. deindividuation has been used to explain a lot of humanity’s darkest behaviors, including violent crowds, lynch mobs, and even genocide.

While many people just want to lead civilized discussions in online forums, you are likely to have witnessed various vicious posts, nasty discussions, or outright fights in such forums. Many are waged by anonymous combatants who exhibit intol- erance and anger toward others they view as being evil or wrong. These angry individuals are often referred to as trolls. More formally, an internet troll is a person who creates dis- cord on the Internet by starting arguments or upsetting people by posting inflammatory content on social media sites with the deliberate intent of provoking readers into an emotional response, often for the troll’s own amusement. Most of these trolls operate anonymously.

Much of the behavior of trolls can be classified as cyberha- rassment, which refers to the use of the Internet to stalk or harass an individual, group, or organization. Cyberharassment can take many forms, from false accusations, defamation, slan- der, and libel to threats, vandalism, identity theft, and doxing (researching and broadcasting personally identifiable information about an individual). Many feel that the Internet has provided a platform for trolls to join together to become cyber lynch mobs.

An example of such cyberharassment occurred during gamergate, which began as an online backlash against per- ceived breaches of journalistic integrity on video game news sites. beginning in august 2014, gamergate targeted several women in the video game industry. After a former boyfriend of one of the women wrote a lengthy disparaging blog post about her, others falsely accused her of entering a relationship with a journalist in exchange for positive game reviews and ultimately

threatened her with assault, rape, and murder. most gamergate supporters were anonymous, making it difficult to identify or prosecute the harassers. gamergate has led to calls for better methods of tackling and prosecuting online harassment. How- ever, the design of the Internet makes it difficult to dramatically change a person’s ability to be anonymous if they want to be.

Questions 1. Reflecting on your past online behavior, do you think that

the anonymity of the Internet played a role in you engag- ing in antisocial behavior?

2. given the difficulty in prosecuting online trolls and those who engage in cyberharassment, what can society do to reduce these antisocial behaviors?

Based on:

Cyberstalking. (2016, may 28). in Wikipedia, The Free Encyclopedia. retrieved July 1, 2016, from https://en.wikipedia.org/w/index.php?title =Cyberstalking&oldid=722514151

deindividuation. (2015, november 4). in Wikipedia, The Free Encyclo- pedia. retrieved July 1, 2016, from https://en.wikipedia.org/w/index .php?title=deindividuation&oldid=688980515

dewey, C. (2014, October 14). the only guide to gamergate you will ever need to read. The Washington Post. retrieved June 30, 2016, from https://www.washingtonpost.com/news/the-intersect/wp/2014/10/14/ the-only-guide-to-gamergate-you-will-ever-need-to-read

doxing. (2016, June 21). in Wikipedia, The Free Encyclopedia. retrieved July 1, 2016, from https://en.wikipedia.org/w/index.php?title =doxing&oldid=726385601

gamergate controversy. (2016, June 15). in Wikipedia, The Free Ency- clopedia. retrieved July 1, 2016, from https://en.wikipedia.org/w/ index.php?title=gamergate_controversy&oldid=725428951

internet troll. (2016, June 24). in Wikipedia, The Free Encyclope- dia. retrieved July 1, 2016, from https://en.wikipedia.org/w/index .php?title=internet_troll&oldid=726762067

martin, a. (2013, may 30). Online disinhibition and the psychology of trolling. Wired. retrieved July 1, 2016, from http://www.wired.co.uk/ article/online-aggression

tried to assemble “directories” of the web. In 1996, Sergey Brin and Larry Page, the founders of Google, came up with a new algorithm for Internet search. Called BackRub, the algorithm used the number of other pages linking to a web page as a measure of interest, so as to return more relevant results to users. Yet returning the most relevant results to each individual user’s query remains the holy grail for search engines. Given that people tend to trust recommendations from their networks of friends, search engines and social networks are trying to capitalize on the fact that content posted by friends is typically more relevant than content posted by complete strangers. Social search attempts to increase the relevance of search results by including content from social networks, blogs, or microblogging services. For example, some approaches let users annotate or tag search results, making it easier for others to find relevant information; this is especially valuable for enterprise search applications, where other users within an organization can tag internal documents, making it easier to find information as well as to find people within the organization who have certain skills or knowledge.

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viRal maRkETiNg. In the offline world, marketing one’s products or services is one of the most important aspects of successfully running a business. In an online context, marketing websites, products, and services is equally important, and business organizations use techniques such as search marketing, paid inclusion, and banner advertisements to promote their websites (see Chapter 4). Building on the foundations of social networking, advertisers are now using viral marketing to promote their websites, products, or services. Viral marketing is using the network effect to increase brand awareness. The term viral marketing was coined by Harvard business professor Jeffrey Rayport to describe how good marketing techniques can be driven by word-of-mouth or person-to- person communication, similar to how real viruses are transmitted through offline social networks. Rather than creating traditional banner ads or sending out millions of emails, businesses create advertisements in a way that entices the viewers to share the messages with their friends through e-mail or social networks so that the messages will spread like a virus. Viral marketing can take many forms, such as video clips, e-books, flash games, and even text messages.

The power of viral marketing can be a great tool, and there are several techniques that are criti- cal to creating a successful viral marketing campaign. Writer and interaction designer Thomas Baekdal (2006) has outlined some critical factors in viral marketing, including the following:

■■ Do something unexpected ■■ Make people feel something ■■ Make sequels ■■ Allow sharing and easy distribution ■■ Never restrict access to the viral content

Following these principles entices users to view content, share it with their friends, and revisit the site to look for new content. For example, Turkish Airlines’s “Kobe vs. Messi Selfie Shootout” video quickly went viral. Likewise, Volvo Trucks’s “Epic Split” video featuring Jean- Claude van Damme became one of the most successful viral videos (and triggered a large num- ber of user-generated parodies).

One of the earliest viral marketing campaigns was used during the launch of the free Hot- mail e-mail service. One of the techniques used was adding a footer to every outbound message. This footer gave a short message about Hotmail.com’s free e-mail service, and the message about the service was spread with every e-mail sent through the service. This campaign proved very effective (Hotmail spent only US$500,000 to get 12 million subscribers), and Microsoft later bought Hotmail.

With people increasingly posting pictures or videos of things they like or enjoy, such posts can go viral as well. Thus, another viral marketing strategy is to do good or innovative things that peo- ple take pictures of and share and to rely on people’s social networks to spread the message.

managing social media applications in the Enterprise As you have seen, mobile social, the cloud, and Big Data have enabled various tools that organi- zations can use for communicating with external stakeholders as well as for enhancing collabo- ration and connection of employees within the enterprise. In the following sections, we discuss factors organizations should take into account when considering the use of social media applica- tions within the organization. Then we highlight potential pitfalls brought about by these tools when used by people within and outside an organization.

Organizational Issues In previous discussions, you have learned that in many cases, technology can be an important enabler of strategic advantage if implemented and managed carefully. Similarly, with internal enterprise-ori- ented social media applications, the technology is a critical success factor, but it is not the only com- ponent, and change management can be critical for success or failure of such initiatives. Just providing the tools in the hope that employees will use them for the intended purpose is not enough; rather, management has to ensure that employees are aware of the tools, their purpose, and rules or policies surrounding the use of these tools. Given that social media applications are based on close social interaction, information sharing, and network effects, corporate culture is key to successful implementations of social media applications in the organization. Specifically, a corporate culture of knowledge sharing, trust, and honest feedback is conducive to such implementations. In addition to culture, various other caveats have to be taken into consideration (Khan, 2008) (Figure 5.19).

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EntErprisE≠WEb. While reading this chapter, you have learned about many web-based technologies you are familiar with from your daily life. Although many of those technologies are hugely successful in a consumer environment, this success does not always translate to success in a corporate environment. On the web, sites such as YouTube, Wikipedia, and Facebook have evolved over the years to become as successful as they are today, and examples such as Myspace show that success at one point in time is not guaranteed to continue. Further, what appears as seamless “magic” collaboration is sometimes based on intricate processes. For example, good articles in Wikipedia are based not only on the contributions of many editors but also on many behind-the- scenes discussions over controversial issues or over how to improve an article. In contrast, many open source software projects closely guard changes to the software’s programming code such that only a limited number of “committers” can actually implement suggested changes.

CulTuRE. As highlighted earlier, organizational culture is a critical success factor for implementing social media applications in organizations, and many proposed projects face strong cultural resistance. Social media applications, based on the premise of open communication, do not always do well within traditional top-down organizational structures based on rigid hierarchies and control. Further, social media applications base their success on user-driven self-expression (if no one were willing to update his or her status on Facebook, people would eventually stop visiting the site); on the web, people participate by choice, but people in organizations cannot be forced to participate. Hence, organizations have to understand the multiple stakeholders, personalities, and perspectives of future users and ensure that any enterprise-oriented social media initiative will appeal to the organization’s members.

oRgaNizaTioNal CoNTExT. Any implementation of social media applications should be driven by a specific usage context. Just as users choose popular social media applications such as YouTube or Wikipedia to fulfill a particular need, the work-related context should drive the choice of tools. In other words, organizations should always ask what objective is to be accomplished with the tool and only then decide which type of tool to implement. Merely setting up a wiki site and hoping that the employees will use it for the “right” purpose most likely will not lead to the intended results.

oRgaNizaTioNal hiERaRChiEs. Often, enterprise-oriented social media initiatives are driven by user departments, and small-scale pilot implementations appear to work quite well. However, organization-wide implementations typically need changes in terms of organizational culture and processes and often the flattening of organizational hierarchies. Therefore, to be successful, enterprise-oriented social media implementations need the support and active involvement of senior management so as to cope with the large magnitude of changes.

Factors Shaping the Deployment of an

Enterprise 2.0 Strategy

Technology Integration

Technological Inertia

Culture Critical Mass

Hierarchies Enterprise Web

Organizational Context

Generation Gap

Security

FIGURE 5.19 Various factors have to be taken into account when using social media applications within an organization. source: andy dean photography/ Shutterstock.

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NETWoRk EffECTs aND CRiTiCal mass. Successful social media applications such as Wikipedia base their success on network effects and the long tail (see Chapter 4) and have needed some time to achieve a critical mass. For example, although Wikipedia enjoys millions of page views per day, there is only a small number of people who choose to actively participate in the creation of content. Within organizations, achieving the critical mass needed for successful social media implementations is often difficult and takes considerable time and patience. Although for many smaller organizations collaborative social media applications can be beneficial, they will most likely not be able to harness the network effects that can be achieved with a larger user base.

gENERaTioN gap. The success of an enterprise-oriented social media initiative is also heavily dependent on the composition of the organization’s workforce. In organizations with large numbers of millennials, who have grown accustomed to highly interactive and communicative online social environments, such initiatives have a higher likelihood of success; in contrast, many baby boomers are used to rigid hierarchies and organizational structures and are less likely to fully embrace the capabilities of organizational social media applications. Further, senior organizational members may not fully grasp the potential and implications of social media applications in organizational settings.

TEChNologiCal iNERTia. One factor hindering the adoption of many new technologies is technological inertia. In many cases, people are not willing to switch to new applications unless they see real, tangible benefits. This can be especially a hindrance with social media applications, many of which incorporate a variety of other tools (such as chat or instant messaging interfaces within social networking sites).

TEChNologiCal iNTEgRaTioN. Organizations will have to ensure that any enterprise-oriented social media applications are integrated well with the organization’s existing information systems infrastructure so as to reap the greatest benefits from connecting people with one another and

WHEN THINGS GO WRONG Crowdfunding Failures

Crowdfunding refers to the practice of funding a project or venture by raising small amounts of money from a large num- ber of investors, typically via the Internet. Crowdfunding is a new and innovative way to get financing to support projects that might not otherwise be fundable using traditional meth- ods. Another advantage of crowdfunding is that it connects investors with similar interests that might otherwise not have been able to have come together. unfortunately, as with many other technological advances, crowdfunding can also be abused by unscrupulous individuals looking to take advantage of unsophisticated investors. There are several ways that crowd funded projects can fall short of expectations.

Some projects simply overpromise and under-deliver. The campaigners may simply not have the experience needed to execute the project or may have underestimated the resources and effort required. the zano drone project, for example, col- lected more than us$3.4 million on the popular crowdfunding site Kickstarter and pledged to build a miniature quadcopter drone. After months of delays, the drones were finally deliv- ered. unfortunately, however, their capabilities and perfor- mance fell far short of expectations. torquing group, the company behind the project, filed for bankruptcy, and Kick- starter launched an independent investigation.

Another case of setting high expectations and failing to deliver is the laser razor from a company called skarp. the

campaign promised to deliver a laser-powered shaving instru- ment that seemed to push the limits of what is technologically possible. the company raised more than us$4 million in pledges on Kickstarter before Kickstarter pulled the plug. Skarp was unable to demonstrate that it had even a prototype of the product. Skarp relaunched the project on Indiegogo (another crowdfunding site) and collected an additional us$442,000. as of mid-2016, the campaign was delayed and unresponsive to investor inquiries.

Other projects like the Crystal Wash 2.0 are outright scams. This pseudo-scientific approach to clothes washing using “shrinking water molecule clusters” had been previously debunked yet still managed to collect more than us$268,000 in pledges. lastly, some projects are simply pranks or jokes. a user set up a Kickstarter campaign to fund his board game– playing habit, and another asked for a million dollars to build a custom car.

The moral of the story is that crowdfunding sites are not stores. It’s important to understand that you are contributing to a promise and promises can be broken.

Based on:

Knibbs, K. (2015, december 23). the 9 most disgraceful crowdfunding failures of 2015.Gizmodo. retrieved June 30, 2016, from http:// gizmodo.com/the-9-most-disgraceful-crowdfunding-failures- of-2015-1747957776

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connecting people with information. Typically, organizations choose systems provided by outside vendors such as Yammer, which allows the organization to create its own private social network. However, organizational users will use the tools they are used to as a benchmark, and many consumer-oriented tools such as Facebook create high expectations of usability for any internal tool.

sECuRiTy. A final issue is related to security and intellectual property. For organizations, securing their information systems infrastructure is of paramount concern (see Chapter 10). Any application that allows closer collaboration by increasing data sharing will necessarily incur greater risks of security breaches. Companies thus have to balance their desire for enhancing collaboration with the need to protect intellectual property and compliance with rules and regulations such as the Sarbanes–Oxley Act.

Downsides and Dangers of using Social Media Applications Many organizations (and individuals) have learned painful lessons from public relations blun- ders and from not considering the fundamental rule: The Internet never forgets. Another funda- mental rule brought about by social media applications is to constantly monitor social media and quickly and appropriately react to emerging issues. In this section, we highlight potential pitfalls of social media and the enterprise.

oNliNE pRoDuCT REviEWs. Online as well as offline consumers increasingly consult the web before making a purchase decision. Before making a purchase on Amazon.com, many potential buyers first consult the user reviews; relatedly, people read other travelers’ reviews of hotels or restaurants on Tripadvisor.com or consult websites dedicated to providing expert reviews. Unfortunately, such reviews are not always as unbiased as they seem, and sometimes companies hire people to deliberately spread positive (or negative) word of mouth across a variety of sites. The act of posting fake product reviews is unethical, to say the least. Fakespot.com, a website analyzing user reviews on Amazon.com using text mining (see Chapter 6, “Enhancing Business Intelligence Using Big Data and Analytics”), lists various products having more than 80 percent fake reviews. In 2015, Amazon started suing companies that offer good (read: fake) reviews for a fee. Having sued more than 1,000 people who posted fake reviews, in mid-2016 Amazon.com started suing sellers who offered items for sale on Amazon.com’s sites and who purchased fake reviews. While Amazon.com is expending much effort to combat the problem, fake reviews are likely to continue to spread, undermining trust in review systems and leading customers to make suboptimal purchasing decisions.

miCRobloggiNg. Whereas microblogging can be very valuable for corporate communications, it has to be used carefully and is not without controversy. For example, in early 2014, New York City’s police department (NYPD), attempting to boost the department’s image, encouraged people to tweet images with police officers using the hashtag #myNYPD. Unfortunately, the response was not what the NYPD had hoped for. Rather than tweeting positive photos, the department’s critics soon used the hashtag for pictures depicting police brutality and racial discrimination.

For individuals, posting the wrong “tweets” can also have serious consequences, as they are more likely than not to reach the wrong readers—sooner or later. A Chicago woman was recently sued by her landlord for posting a tweet complaining about the management company’s reaction to mold in her apartment. The management company sued her for defamation, arguing that the tweet was published on a global scale. Whereas the lady had a mere 22 followers on Twitter, the landlord’s lawsuit was covered in major news outlets, online and offline, including the Chicago Tribune, the Associated Press, and the New York Times.

soCial NETWoRks. While free to host, having and maintaining a page on a social network is not free for organizations—the company should take great care to monitor what is happening on the page and take appropriate action. For example, Starbucks lets its customers upload their favorite Starbucks-related pictures to its Facebook page. However, people frequently post unrelated pictures, play pranks with the company logo, or post otherwise inappropriate content. A company then has to walk the fine line of removing inappropriate content to preserve the company’s image while not alienating its fans. Starbucks chooses to liberally allow unrelated content.

As with most social software, posting the “wrong” content can quickly get you in trouble. Companies routinely check social networking sites before making hiring decisions, and many applicants have lost a job offer they almost had secured. Similarly, your posts may make it far- ther than you think; stories abound of people getting laid off after ranting about their jobs and their bosses in Facebook status updates—unfortunately, the boss was in the employee’s contacts

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list and could immediately see the post. Further, many people never bother to adjust their accounts’ privacy settings and inadvertently shout things out for the whole world to read.

baD vibEs goiNg viRal. As with other social media, viral marketing can be a blessing or a nightmare. One of the most infamous examples happened back in 2008, when a musician on a tour witnessed from his airplane window how baggage handlers mishandled—and broke—his US$3,500 guitar. After not getting a satisfying response from the airline, the musician decided to write a song and post it on YouTube in 2009. The video quickly went viral, and the airline rushed to “make things right” for the musician. For the airline, however, the damage was done, and the video has since attracted more than 15 million views. Likewise, a Ryanair passenger’s complaint letter posted on Facebook was shared more than 68,000 times in less than 10 days. Whereas traditional phone complaints were a one-to-one conversation between the customer and a call center agent, the balance of power has shifted toward the customer, necessitating swift, effective responses by the companies. A case in point is the response of Domino’s Pizza, where two employees posted videos on YouTube displaying them playing not-so-harmless pranks and preparing sandwiches with disgusting ingredients; the videos quickly went viral and attracted more than a million viewers in just a few days. Domino’s was initially slow in responding and decided not to respond to the crisis, fearing that a reaction might draw even more interest. After 48 hours, however, Domino’s changed its strategy, opened a Twitter account to interact with concerned customers, and posted a video response by the president of Domino’s on YouTube assuring that the culprits had been found, that the entire store had been closed and sanitized, and that everything would be done to avoid hiring the “wrong” people in the future. A nationwide survey by a media research company has found the response to be fairly successful, with more than 90 percent of the respondents indicating that the response video was effective in restoring trust in the brand.

lEssoNs lEaRNED. As you probably know from your own experience and have seen from these stories, news travels fast in social media. For the companies in question, this is an enormous threat, as negative publicity can quickly reach millions of people. At the same time, the company’s reaction is equally critical, as it can reach people just as fast and thus has to be carefully crafted. Richard Levick, president of Levick Strategic Communications, has provided some tips on how to prepare for and deal with such crises:

1. Identify a crisis team including members from within your organization (e.g., public rela- tions or executive team) and from the outside (e.g., lawyers).

2. Identify your worst social media nightmare (and make sure to know the signs to look for, such as search engine key terms your opposition could use).

3. Monitor your social media environment (such as YouTube, Facebook, and Twitter) and be connected and responsive.

4. Act fast. The first 24 hours count.

As in the off line world, companies should try to avoid such crises in the first place, but being prepared for a public relations disaster is crucial in today’s fast-paced world. Many organi- zations have realized the need for social media monitoring; for example, Dell recently opened its “Social Media Listening Command Center” as a key part of its overall marketing efforts. Moni- toring social media posts mentioning Dell in about a dozen languages not only enables Dell to respond to customers’ problems before they go viral but also serves as an effective means to gather business intelligence. We will discuss more about the role of social media monitoring and business intelligence in Chapter 8.

soCiETal impaCTs of soCial mEDia. Clearly, social media have greatly changed the way we interact and will continue to do so. Over the past decade and a half (Myspace, the once widely popular social network, was launched in 2003), people’s attitudes toward sharing content as well as toward privacy have seen a tremendous shift. Likewise, social media have provided people with far wider access to information and have democratized content creation, which has tremendous effects on the way societies function. For example, whereas U.S. presidential campaigns used to be largely funded by big donors, Barack Obama’s 2008 campaign made wide use of social media and generated significant funding from small contributors. Similarly, Bernie Sanders’s 2016 presidential nomination campaign relied on a large crowd of small donors for support. In addition, the Internet and social media has lowered barriers to entry by giving candidates

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free platforms to make their voices heard by removing the costs for printing and distributing campaign material. Together, this has lowered the influence of the wealthy on politics.

Yet people also point to downsides brought about by everyone’s ability to create content and by the way this content is being spread. In particular, traditional media outlets used editorial judgment to decide what would be covered. In social media, this judgment is increasingly replaced by automated algorithms that determine what content is being shown to social media users. For example, as algorithms on social networks analyze user behavior in order to provide the most relevant content, there is the risk of algorithms filtering out content that is in conf lict with the users’ viewpoints. Whether these developments are potentially hurting democracy remains to be seen, but it is clear that social media and the accompanying societal changes will continue to have large impacts on individuals, organizations, and society as a whole.

INDUSTRY ANALYSIS Online Travel

Spring break is coming, and you’ve decided to go to Puerto Val- larta this year. Chances are that your first step will be to check the websites of expedia, priceline, travelocity, and Orbitz for flights to and hotels in your chosen destination. We all know the big four online travel agencies; in today’s digital world, they dominate the travel industry. They took the old brick-and-mortar travel industry and turned it into an online service where you can click to book flights and hotel reservations, change or cancel flights, reserve rental cars—even plan a vacation. In Internet terms, you can think of the big four as still being in Online travel 1.0. but technology marches relentlessly on, and Online travel 2.0 is in the works. evi- dence of this transition to Online travel 2.0 is reflected in expedia recently purchasing both travelocity and Orbitz. When competi- tion heats up, mergers and acquisitions often follow.

A new crop of travel sites has popped up, offering several benefits over the big online travel agencies. These travel sites are very different from typical online travel services, however. The first, and arguably the most prominent, example is Airbnb. Airbnb allows people to offer houses, condos, apartments, and rooms (private or shared) to anyone who happens to be travel- ing through the area. If you’re planning a vacation, you could book a hotel through the hotel’s website or an online travel agency. Alternatively, you could use Airbnb to rent a house or apartment from someone, often for a fraction of the cost. Property owners benefit by generating income from unused living space, and Airbnb handles the processing of all rent payments. The site also offers an extensive rating and review platform that motivates property owners to provide excellent service to attract future renters. Airbnb has been fairly success- ful so far and as of april 2016 was valued at approximately us$30 billion. if renting a house from a stranger worries you, there will always be hotels for you to use. But if you trust the ratings and experiences from “the crowd,” you can save a bundle in many popular locations to which you might travel.

Once you get to your location, however, you’ll need a way to get around. Again, you could book a rental car through a car rental company or an online travel agency. Or you could save some more cash and use a social taxi service like uber. This service provides a platform through which individuals can

request and pay for a “taxi” service from qualified drivers in 449 cities in 66 countries (as of mid-2016). using the uber mobile app, riders can request a ride at the tap of a button and then monitor the location of the reserved car in real time. upon completion of the trip, the uber app allows the driver to collect payment. uber requires that drivers submit to an insurance and background check and has typically targeted a higher-end market of users. the first uber drivers had such cars as Cadillac escalades, bmW 7 series, and mercedes-benz s550 sedans. The company has since expanded to a wider selection of cars to appeal to more riders and has recently implemented a ride-sharing system that allows riders to quickly request to “ride along” with someone to a specific destination. Similar to airbnb, uber encourages the use of a rating and review system to incentivize drivers to provide excellent service.

So next time you go on a trip, consider the benefits avail- able through these social travel platforms. You might save a few bucks and maybe even make a friend in the process.

Questions 1. do you use online travel agencies for assisting you with

travel plans? If so, which service provider do you use, and why did you make this choice? If not, why not?

2. What features would you identify as crucial to the success of social travel services such as airbnb and uber?

Based on:

airbnb. (2016, June 26). in Wikipedia, The Free Encyclopedia. Retrieved June 29, 2016, from https://en.wikipedia.org/w/index.php?title=airbnb &oldid=727088256

picker, l. & isaac, m. (2016, June 28). airbnb is said to be seeking funding valuing it at $30 billion. The New York Times. retrieved June 29, 2016, from http://www.nytimes.com/2016/06/29/business/dealbook/ airbnb-is-said-to-be-seeking-funding-valuing-it-at-30-billion.html

singh, m. & sweeney, p.t. (2016, march 18). Online travel m&a in focus in Ota market. Bloomberg. retrieved June 29, 2016, from http:// www.bloomberg.com/professional/blog/consolidation-in-online-travel

uber (company). (2016, June 29). in Wikipedia, The Free Encyclope- dia. retrieved June 29, 2016, from https://en.wikipedia.org/w/index .php?title=uber_(company)&oldid=727469300

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key points Review 1. Explain organizations’ needs for communication and

collaboration. In today’s increasingly competitive world, organizations need to communicate and collaborate effectively and efficiently within and outside organizational boundaries. For example, virtual teams, composed of team members located around the globe that are forming and disbanding as needed, have communication needs that often cannot be met by traditional communication media. Traditionally, organizations used tools such as groupware, videoconferencing, or intranets for their communication and collaboration needs.

2. Explain social media and evolving web capabilities. In contrast to traditional web 1.0 sites, web 2.0 applications allow people to collaborate and share information online, with a shift in the users’ role from passive consumer of content to creator of user-generated content. Owing to societal changes, using social media can be an important factor in being able to attract or retain employees as younger generations are joining the workforce. Future web capabilities extending web 2.0 are the semantic web and the “contextual web,” which is characterized by devices providing the information and content needed depending on the user’s specific context. To harness the opportunities brought about by these changes, organizations are increasingly using social software to connect with customers and internal or external stakeholders in order to become more innovative or productive.

3. Describe various social media applications, and explain their role in enhancing communication, collaboration, cooperation, and connection. Social software can enhance communication within organizations as well as between an organization and its stakeholders. Blogs, microblogging, and instant messaging are widely used by individuals and organizations to communicate with internal and external

stakeholders. Social media applications such as media sharing, social bookmarking, or social cataloging applications facilitate cooperation by using the network effect to provide the greatest benefit to users. Further, social media applications have enabled new forms of collaboration for organizations and individuals. These and other technologies have enabled cloud-based collaboration tools, content management systems, and wikis as well as the use of collective intelligence and crowdsourcing. Finally, social media applications aid in connecting people with each other. For individuals, social networking has become an important way to meet new friends, connect with family members, or meet new colleagues and business partners. The reach of social networks is also used by business organizations to market their products or services through viral marketing, which resembles offline word-of-mouth communication, in which advertising messages are spread like viruses through social networks.

4. Describe how companies can manage enterprise- oriented social media applications and deal with potential pitfalls associated with social media. Organizations have to take into account that success in a consumer environment does not necessarily translate into success in a corporate environment. Further, organizations have to take into account issues associated with culture, organizational context, and organizational hierarchies; in addition, lack of critical mass, the generation gap, and technological inertia can hinder the success of enterprise-oriented social media initiatives. Finally, in organizational contexts, integration with existing technologies and security are of primary concern. Further, an organization’s opponents can use social media to spread damaging content or information to people all over the world within a very short time. Organizations should therefore carefully prepare for such incidents.

key Terms “amateurization” of journalism 195 asynchronous 184 blog 195 clickbait 206 cloud-based collaboration tools 201 collaboration 184 collective intelligence 202 content management system (CMS) 202 crowdsourcing 205 desktop videoconferencing 187 discussion forum 186 electronic meeting system 186 employee portal 190 employee self-service 190 folksonomy 199 geotag 198

groupware 185 hashtag 196 instant messaging 196 Internet troll 207 mashup 192 metadata 198 microblog 195 peer production 202 podcast 197 RSS 197 semantic web 193 social bookmarking 199 social cataloging 199 social intranet 190 social media 192 social networking 205

social online communities 205 social search 207 social software 192 SoLoMo 203 synchronous 184 tag cloud 198 tag 198 trending 196 user-generated content 190 viral marketing 208 virtual meeting 184 virtual team 184 web 2.0 190 webcam 187 webcast 197 wiki 204

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MyMISLab TM

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

Review Questions 5-1. What are virtual teams, and how do they help

to improve an organization’s capabilities? 5-2. What are mashups? How do they enable social

media applications? 5-3. What capabilities will define the web of the

future? 5-4. How can social software help harness the wis-

dom of the crowd? 5-5. Why is using social media an important factor

for attracting and retaining employees? 5-6. How can social software enhance

communication? 5-7. How can social bookmarking and social cata-

loging help in an organization’s knowledge management efforts?

MyMISLab

5-8. What is a wiki? Why would an organization want to implement a wiki?

5-9. Explain what is meant by crowdsourcing and how the web is enabling this form of collaboration.

5-10. How can organizations use social networking to connect with their customers?

5-11. Why is organizational culture an important factor in enterprise-oriented social media initiatives?

5-12. Why can social media be both a blessing and a threat for organizations?

5-13. How can organizations plan for social media disasters?

MyMISLab

MyMISLab

self-study Questions 5-14. Collective intelligence is based on the notion that

distributed groups of people with a divergent range of information and expertise will be able to outperform the capabilities of ______________. A. crowds B. customers C. individual experts D. virtual teams

5-15. Microblogging is used primarily for ______________. A. creating an online text diary B. providing location information C. short status updates D. customer support functions

5-16. Tagging is adding ______________ to content such as maps, pictures, or web pages. A. metadata B. comments C. blogs D. knowledge

5-17. The process of adding metadata such as latitude and longitude to pictures, videos, or other content is called ______________. A. adding geodata B. location tagging C. geotagging D. tagging

5-18. Successful enterprise-oriented social media initiatives consider ______________. A. organizational culture B. organizational hierarchies C. technological inertia D. all of the above

5-19. ______________ is the process of creating an online diary made up of chronological entries. A. Wikiing B. Tagging C. Blogging D. None of the above

5-20. Webcasts are also known as ______________. A. podcasts B. blogcasts C. radiocasts D. weblogs

5-21. A wiki ______________. A. allows users to add content B. allows users to revert edits C. allows anyone to read content D. allows all of the above

5-22. ______________ is using the network effect to increase brand awareness. A. Brand marketing B. Shared marketing C. Social marketing D. Viral marketing

5-23. ______________ communication is when people are all meeting at the same time or in real time. A. Synchronous B. Asynchronous C. Instantaneous D. None of the above Answers are on page 218.

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problems and Exercises 5-24. Match the following terms with the appropriate

definitions: i. Microblog

ii. Asynchronous iii. Metadata iv. Social networking v. Peer production

vi. Social software vii. webcasts

viii. Folksonomy ix. Network effect x. Blog

a. Web-based applications embodying core web 2.0 values such as collaboration and social sharing, allowing people to communicate, interact, and col- laborate in various ways

b. Digital media streams that can be distributed to and played by digital media players

c. The creation of goods or services by self-organizing communities

d. The notion that the value of a network (or tool or application based on a network) is dependent on the number of other users

e. User-created categorization system f. Chronological online text diary that can focus on

anything the user desires g. Data about data h. Social networking service that allows to post rela-

tively short status updates i. Using web-based services to link friends or colleagues j. Not coordinated in time

5-25. Visit a popular social network (such as Facebook). What features entice you to visit such site repeatedly? Do you have an account in an online social network? If yes, why? If no, what is keeping you from having such account? Is there any content you definitely would or would not post on such a site?

5-26. Go to www.programmableweb.com. List some inter- esting mashups you find. What factors do you think make a good mashup website?

5-27. Go to Amazon’s Mechanical Turk website (www .mturk.com). Which of the HITs do you think could be completed using a computer, and which could not? Why?

5-28. Search the web for a social networking site that you have not heard about before. Describe the target users of this online social network. Are the features of this site different from those you are familiar with? If so, describe those features. If not, describe common features.

5-29. Visit Google Drive (drive.google.com) and Microsoft Office Online (products.office.com/office- online). Compare and contrast the features of each productivity suite. Which suite would you choose to use, and why?

5-30. Have you ever blogged? If so, what did you like or dislike about the experience? What do you see for the future in blogs?

5-31. Find an article you can contribute to on a wiki page. What do you like or dislike about this process? What would encourage you to contribute more to the wiki? Why?

5-32. Envision and describe general features of web 3.0 applications. Describe a feature you would like to see in the next version of the web.

5-33. Describe an application or service you would like to be able to use on the web that is not yet available. Describe the potential market for this application or service. Forecast how long you believe it will take before this will occur.

5-34. Search the web for public relations blunders involv- ing social media. How did the companies in question react? In your opinion, were the reactions effective? Why or why not?

5-35. Have you listened to or watched a webcast (or pod- cast)? If so, describe your experience. If not, why?

5-36. Describe the pros and cons of collaborating with col- leagues over the web. What is useful about this form of collaboration? What is difficult?

5-37. Describe an example of viral marketing that you have experienced.

application Exercises Note: The existing data files referenced in these exercises are available on the book’s website: www.pearsonhighered.com/valacich.

Spreadsheet Application: Online Versus Traditional Spreadsheets

5-38. Campus Travel is currently evaluating the possibility of using online spreadsheet software as opposed to the traditional locally installed spreadsheet application. There are a variety of issues involved in this decision. The company wants you to investigate the possibilities that are currently available while also paying special

attention to the company requirements. Campus Travel has the following requirements: (1) the ability to share spreadsheets easily, (2) the ability to secure this infor- mation, (3) the ability to save the spreadsheets into other formats (i.e., CSV files), and (4) the ability to work from anywhere in the world. Prepare the follow- ing information:

■■ On the Internet, find different options for online and traditional spreadsheets and list the available options.

■■ Using the company requirements, list the pros and cons for each spreadsheet option.

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■■ Using an online spreadsheet, summarize the find- ings and provide a recommendation to the com- pany. Present your findings with tables and/or graphs, if available.

Database Application: Tracking Website Visits

5-39. As Campus Travel expands its web presence, the importance of tracking what the competitors are doing has become very important. This includes making sure Campus Travel tracks the prices of packages and services that its closest competitor offers. To do so, a database must be created to track this information. Fol- low these steps to create the database:

■■ Create a database called “tracking.” ■■ Create a table called “company_info.” In this table,

create fields for company_name and company_URL. ■■ Create a table called “products.” In this

table, create fields for the company_name,

product_name, product_description, product_price, and date_retrieved.

■■ Create a table called “services.” In this table, create fields for company_name, service_name, service description, service_price, and date_retrieved.

■■ Once these tables are created, go to the relationship view (select “Relationships” under the “Database Tools” tab) and connect the company_info (one side) and products (many side) tables and the company_info (one side) and service (many side) tables.

■■ Make sure that when you create the relationships, the referential integrity option is selected. (This will make sure that when you delete a company, the products associated with the company are also deleted.)

■■ Test the referential integrity by adding data to the tables and make sure that when a company is deleted in the company table, the products table is updated, too.

Team Work Exercise

Net Stats: Most Popular Facebook Fan Pages

More and more organizations have discovered Facebook as a way to connect with their customers and drive word-of-mouth adver- tising. Any company can create a Facebook page containing basic information about the business, a “wall” to share content, a space for uploading photos or pictures (many organizations use this to show “behind-the-scenes” content), and so on. Further, busi- nesses can add apps (such as an app that allows customers to make a reservation at a restaurant) to further engage with their customers.

Facebook users who “like” a page automatically receive the business’s status updates in their newsfeeds. As the liking of a page is announced to others in the user’s newsfeed and his or her profile, the liking of the page can spread throughout the user’s network of friends. Further, each business’s page has a listing of all Facebook users who like the page. What busi- nesses are liked by most Facebook users? As of April 2016, the top 10 most-liked product pages were the following:

Rank Page Likes (millions)

1 Facebook for Every Phone 506.96

2 Facebook 170.72

3 Cristiano Ronaldo 110.82

4 Shakira 104.54

5 Vin Diesel 98.48

6 Coca-Cola 97.21

7 Eminem 91.97

8 FC Barcelona 91.96

9 Real Madrid CF 88.14

10 Lionel Messi (Leo Messi) 84.34

Questions and Exercises 5-40. Search the web for the most up-to-date statistics.

Try to find the number of “likes” for pages that interest you most.

5-41. As a team, interpret these numbers. What is striking/ important about these statistics?

5-42. How have the numbers changed since April 2016? Which categories seem to draw most attention in social networks? Why?

5-43. Using your spreadsheet software of choice, create a graph/figure that effectively visualizes the statistics/ changes you consider most important.

Based on:

Statista. (2016) Most popular Facebook fan pages as of April 2016, based on number of fans. Statista.com. Retrieved May 3, 2016, from http://www.statista .com/statistics/269304/international-brands-on-facebook-by-number-of-fans

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answers to the self-study Questions 5-14. C, p. 203 5-15. C, p. 195 5-16. A, p. 198 5-17. C, p. 198 5-18. D, p. 209

5-19. C, p. 195 5-20. A, p. 197 5-21. D, p. 204 5-22. D, p. 208 5-23. A, p. 185

Social media platforms like Facebook have become an integral part of how we interact with the world around us. From posting about what we had for lunch to our political views to our favorite movies, TV shows, and products, we express ourselves digitally in these online forums. With so many people posting so much information, it can be chal- lenging to keep up with everything that is going on in our circle of friends and acquain- tances. To make things easier and help us better manage the volume of posts, platforms like Facebook have introduced algorithmic prioritization of posts. These algorithms study what you are most interested in, whom you have close relationships with, even where you are located to determine which of the posts in your feed are most likely to interest you. In most cases, this is a good thing—the posts in your feed are the most relevant to your interests. A problem arises, however, when we consider the impact of social media on the shifting landscape of political thought and expression.

For many years, professional journalists have been challenged by the ease at which virtually “anyone” can publish information on social media. Historically, traditional newspaper companies controlled the physi- cal distribution of sheets of paper. Content was generated by newspaper employees, edited, and then distributed. Print newspa- pers during this period were the primary mechanism by which not just news but edito- rial and political opinions were shared across society. The system certainly wasn’t per- fect—political expression on a mass scale was concentrated in the hands of a few major publishers. Regulations were required, and social norms had to evolve to address the threats this concentration of control posed.

Yellow journalism scares in the early 1900s led to improvements in editorial standards and laws restricting consolidation in the industry.

Fast-forward to today and digital media has drastically changed the publishing land- scape. It is no longer necessary to invest heavily in a printing and distribution system to reach a mass audience, and many tradi- tional print newspapers have disappeared. This shift has taken a great deal of power out of the hands of traditional publishers and left the market for news and content wide open. As a result, we are left with a new set of chal- lenges on how political thought and opinions are disseminated throughout society. The old regulations and social norms may no longer be adequate to mitigate the threats posed by dysfunctional distribution systems. Stepping into this wide open market for news and con- tent distribution are platform providers like Google, Apple, Facebook, and others. These platform providers have traditionally thought of themselves as technological enablers, agnostic to the political whims of the public they serve. The reality is that the content posted and consumed by the public on these new media platforms has become the de facto political discourse of our day.

Enter the algorithmic newsfeed. The algorithms are designed to show us things we will like and the things we want to read. It is possible that most of this content is benign, such as the latest gossip on celebri- ties or a new fashion trend; however, a good deal has to do with news and political issues of the day. Indeed, many people now get their news primarily from social media. In an election year, our feeds are choked with news and opinions about this candidate or that. When the algorithms start to sift

through this tidal wave of information, they do what they are designed to do—pick out things that we will like. Opposing views or dissenting opinions are suppressed—not through active censorship but simply by being less preferred by the viewer. We are then essentially living in an information bub- ble—only seeing content we like, news pre- sented from a perspective aligned with our own, and opinions that agree with our own. This filtering and silent censorship of our worldviews can have a profound effect. We may come to believe that everyone shares our views and opinions because that is what we see in our newsfeeds—a self-reinforcing collection of stories and content. We are sur- prised to encounter others with views differ- ent from our own and in some cases react angrily by removing (“unfriending”) the offending individual from our network. This can amplify divisions between groups and can ratchet up tensions in political discourse by making it far less likely that we are aware of and even understand opposing views, let alone empathize with those who hold them.

Technology is always evolving, and our society both reacts to and drives technologi- cal change. When new content distribution platforms take over the mechanisms of social discourse, many of our assumptions about the nature of politics and the nature of politi- cal debate can be undermined. How these new mechanisms and social interactions will shape up in the long run is an open question. The only certainty is that change is inevita- ble and only diligence will allow us to main- tain the free and open society we have enjoyed for so long. Conscious effort will be required to amplify the benefits and miti- gate the risks of a changing technological and social landscape.

CASE 1 Living in a Bubble: Facebook, Newsfeeds, and Journalism

Questions 5-44. Have you personally experienced the information bubble

effect? How would you know if you did? What was the topic? 5-45. How might the information bubble effect be overcome?

What technological and social changes might be needed to mitigate algorithmic self-reinforcement?

5-46. What role should platform providers play in social dis- course? Do these technology companies have an obligation to understand the impacts they are having on society? Do they have a responsibility to participate?

Based on:

Bell, E. (2016, March 7). Facebook is eating the world. Columbia Journalism Review. Retrieved June 29, 2016, from http://www.cjr.org/analysis/facebook_ and_media.php

Bradley, T. (2016, March 16). Leave me out of your Instagram algorithm bubble. Forbes. Retrieved June 29, 2016, from http://www.forbes.com/sites/ tonybradley/2016/03/16/leave-me-out-of-your-instagram-algorithm-bubble

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Saiidi, U. (2016, March 16). The social media bubble. CNBC. Retrieved June 29, 2016, from http://www.cnbc.com/2016/03/16/social-media-creates-group- think.html

Shah, R. (2015, July 2). Do privacy concerns really change with the Internet of Things? Forbes. Retrieved July 1, 2016, from http://www.forbes.com/sites/ rawnshah/2015/07/02/do-privacy-concerns-really-change-with-the-internet-of-things

Facebook uses algorithms to select what content goes in your newsfeed. These algo- rithms take a variety of things into account, such as your relationship to the poster, your interests, and even your location. However, one of the most important factors is the num- ber of likes or shares that a post has received. If a post has been liked or shared by a large number of people, it will be more likely to show up in other people’s feeds. The assumption here is that because lots of peo- ple are liking or sharing the post, it must con- tain popular or desirable content. Usually, this is a good thing—it can help you quickly get to content that your friends and family have already vetted and that you are likely to enjoy and want to see. Unfortunately, scam- mers have developed a variety of mecha- nisms to take advantage of this functionality.

Scammers take advantage of their vic- tims by getting them to view content related to their scams or to download viruses or other malware. Just like spam e-mail, it only requires a very small percentage of recipients to click on a malicious link or to run a mali- cious attachment in order for the scammer to make money. As a result, scammers have an incentive to get as many people as possible to view their content or click their links. To accomplish this on a social media platform, scammers look for ways to get lots of people to view their content by having it show up in their newsfeed. Because a post’s popularity can drive how frequently it shows up in peo- ple’s feeds, scammers look for ways to artifi- cially inflate the popularity of their posts. One mechanism is so-called “like farming.”

Like farming begins when a scammer posts an article or story that is seemingly innocuous and designed to get people to like or share it. Often, these posts appeal to the emotions or political views of the readers.

“This poor little girl with cancer lost her hair to chemotherapy—‘like’ this post to let her know she’s still beautiful!” or “This new government policy is outrageous—‘like’ this post if you’re outraged, too!” Another approach is to try to convince readers that they can win a valuable prize—such as the latest smartphone or even plain old cash—by liking the story. Any story offering to enter you in a contest or give you something for simply liking or sharing is highly suspicious and unlikely to be legitimate. Stories promis- ing that “If I get X number of likes, then something amazing will happen for me” or “I was challenged to get X number of likes” are also highly likely to be like-farming schemes.

Once the scammer has convinced enough people to like or share the story, the scammer changes out the content. The post is edited such that it no longer contains the emotional story, puzzle, or contest but instead shows marketing material for the scam or other undesirable content. In some cases, the scam- mer will sell the rights to edit the post to other scammers on a black market. A post with a high popularity rating that can be edited at will is a valuable commodity to those looking to do you harm. Either way, you and your friends are now seeing questionable and even dangerous content thanks to the farmed likes.

Other, less malicious forms of abuse take advantage of the algorithmic post selec- tion as well. Many organizations will create headlines for their stories that are incomplete or tantalizing in order to encourage users to click on them, like “You won’t believe what happens next.” These “clickbait” headlines force users to actually click on the story in order to learn a key detail or to find out the answer to a question. When the story gets clicked on, the social media platform counts that as a vote toward the popularity of the

story. The user has unwittingly bumped up the popularity of the post and made it more likely that it will be seen by members of the network. This increases the popularity rating of the post or the poster and makes it more likely that the content will be seen by more people. This type of abuse isn’t necessarily perpetrated by actual scammers, just organi- zations looking to improve their online pop- ularity ratings and the effectiveness of their advertising and marketing material. How- ever, scammers often use these techniques as well. Falling for clickbait can lead you to malware and other scam sites.

How can one avoid falling victim to like farming and clickbait? It starts with being better informed. Look at the source of a post. Is it a reputable news organization or an unknown site? User behavior is also an important factor. Avoid liking or sharing sus- picious posts and stories. If something sounds too good to be true, it probably is. Most social network platforms, including Facebook, pro- vide tools that allow users to review their activity log and see what they have liked or shared. Users can take advantage of these tools to look back at their history and identify content that has changed or that they now recognize as like-farming or clickbait mate- rial. By reporting or un-liking suspicious con- tent, this type of abuse can be mitigated. In mid-2016, Facebook announced a new algo- rithm to reduce the amount of clickbait in users’ newsfeeds. To assess the likelihood of a headline being clickbait, humans scored thousands of headlines on their likelihood of being clickbait; these scores were then used to train the new algorithm. Using this algo- rithm, Facebook is now able to automatically classify headlines based on their likelihood of being clickbait, and filter (or punish) those with high clickbait likelihood scores.

CASE 2 Like Farming and Clickbait

Questions 5-47. Have you personally encountered like farming? Have you

reviewed your activity log? Have you ever liked a post that has turned bad?

5-48. You have now seen some techniques for identifying and avoiding scams. How can the social media–using general public be better educated to avoid online scams such as like farming and clickbait?

5-49. Who is responsible for this type of malicious activity? Is it simply the fault of the scammers abusing the system? Do users and platform providers have a responsibility to reduce the risk of abuse? If so, how might this be accomplished?

Based on:

Abel, J. (2015, April 22). Like-farming Facebook scams: Look before you “like.” Consumer Affairs. Retrieved July 1, 2016, from http://www.consumeraffairs .com/news/like-farming-facebook-scams-look-before-you-like-042215.html

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Go to mymislab.com for auto-graded writing questions as well as the following assisted-graded writing questions:MyMISLab

TM

5-50. What is blogging, and why are blogs sometimes controversial? 5-51. What is viral marketing? What capabilities of the web help to spread the virus?

Binkowski, B. (2016, January 15). Death hoaxes, like-farming, and you. Snopes.com. Retrieved July 1, 2016, from http://www.snopes.com/2016/01/15/ death-hoaxes-like-farming

Constine, J. (2016, August 4). Facebook’s new anti-clickbait algorithm bur- ies bogus headlines. TechCrunch. Retrieved August 5, 2016, from https:// techcrunch.com/2016/08/04/facebook-clickbait

Komando, K. (2015, June 20). One Facebook trick to prevent embarrass- ment. Komando.com. Retrieved July 1, 2016, from http://www.komando.com/ columns/313113/one-facebook-trick-to-prevent-embarrassment

Komando, K. (2016, March 4). Don’t click ‘like’ on Facebook again until you read this. USA Today. Retrieved July 1, 2016, from http:// w w w. u s a t o d a y. c o m / s t o r y / t e c h / c o l u m n i s t / k o m a n d o / 2 0 1 6 / 0 3 / 0 4 / dont-click-like-facebook-again-until-you-read/81264440

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References Accenture. (2016). Accenture Technology Vision 2016—

People first: The primacy of people in the Digital Age. Retrieved June 28, 2016, from https://www.accenture.com/ t20160314T114937__w__/us-en/_acnmedia/Accenture/Omobono/ TechnologyVision/pdf/Technology-Trends-Technology- Vision-2016.PDF

Anonymous. (2016, June 28). Facebook.com site info. Alexa.com. Retrieved July 1, 2016, from http://www.alexa.com/siteinfo/ facebook.com

Baekdal, T. (2006, November 23). 7 tricks to viral web marketing. Baekdal.com. Retrieved July 1, 2016, from http://www.baekdal .com/analysis/viral-marketing-tricks

Carr, N. (2005). The amorality of web 2.0. Retrieved July 1, 2016, from http://www.roughtype.com/?p=110

CIPHR. (2016, January 21). 7 reasons not to ban social media in the office. CIPHR.com. Retrieved June 28, 2016, from http://www .ciphr.com/blog/social-media-in-the-office

Clearswift. (2011, September 6). Worldwide clampdown on technology as businesses overreact to high profile data breaches. Retrieved July 1, 2016, from http://www.hirecentrix .com/worldwide-clampdown-on-technology-as-businesses- overreact-to-high-profile-data-breaches

Conger, K. (2016, June 1). Amazon sues sellers for buying fake reviews. Techcrunch. Retrieved June 6, 2016, from http://techcrunch .com/2016/06/01/amazon-sues-sellers-for-buying-fake-reviews

Cook, N. (2008). Enterprise 2.0: How social software will change the future of work. Burlington, VT: Gower.

Duggan, M. (2015, August 19). The demographics of social media users. Pew Research Center. Retrieved June 6, 2016, from http://www.pewinternet.org/2015/08/19/ the-demographics-of-social-media-users

Flandez, R. (2009, April 20). Domino’s response offers lesson in crisis management. Wall Street Journal. Retrieved July 1, 2016, from http://blogs.wsj.com/independentstreet/2009/04/20/ dominos-response-offers-lessons-in-crisis-management

Flaxman, S. Goel, S., & Rao, J.M. (2016). Filter bubbles, echo chambers, and online news consumption. Public Opinion Quarterly, 80, 298–320.

Gaudin, S. (2009, October 6). Study: 54% of companies ban Facebook, Twitter at work. Computerworld. Retrieved July 1, 2016, from http://www.computerworld.com/article/2528659/ web-apps/study–54–of-companies-ban-facebook–twitter-at- work.html

Hinchcliffe, D. (2010, April 14). Enterprise 2.0 and improved business performance. ZDNet. Retrieved July 1, 2016, from http://www.zdnet .com/article/enterprise-2-0-and-improved-business-performance

Jackson, E. (2012, April 30). Here’s why Google and Facebook might completely disappear in the next 5 years. Forbes.com. Retrieved July 1, 2016, from http://www.forbes.com/sites/ ericjackson/2012/04/30/heres-why-google-and-facebook- might-completely-disappear-in-the-next-5-years

Keen, W. (2007). The cult of the amateur: How today’s Internet is killing our culture. New York: Doubleday.

Khan, S. (2008, June 24). Enterprise 2.0—Giving the hype a second thought. CIOUpdate.com. Retrieved July 1, 2016, from http://www.cioupdate.com/reports/article.php/3755056/ Enterprise-20—Giving-the-Hype-a-Second-Thought

MacManus, R. (2007, August 7). Eric Schmidt defines web 3.0. ReadWrite. Retrieved July 1, 2016, from http://readwrite .com/2007/08/07/eric_schmidt_defines_web_30

McAfee, A. (2006a, April 1). Enterprise 2.0: The dawn of emergent collaboration. MIT Sloan Management Review, 47(3), 21–28.

McAfee, A. (2006b, May 27). Enterprise 2.0, version 2.0. Andrew McAfee. Retrieved July 1, 2016, from http://andrewmcafee .org/2006/05/enterprise_20_version_20

McGrath, C. (2011, August 10). What is a social intranet? The definitive explanation. Thoughtfarmer. Retrieved June 1, 2016, from https://www.thoughtfarmer.com/blog/ what-is-social-intranet-definitive-explanation

Nielsen. (2012). State of the media: Social media report 2012. Nielsen.com. Retrieved July 1, 2016, from http://www.nielsen .com/us/en/reports/2012/state-of-the-media-the-social-media- report-2012.html

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Olmstead, K., Lampe, C., & Ellison, N.B. (2016, June 22). Social media and the workplace. Pew Internet. Retrieved July 1, 2016, from http://www.pewinternet.org/2016/06/22/ social-media-and-the-workplace

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Wagner, K. (2015, September 16). Facebook is about to take the training wheels off Facebook at Work. Recode. Retrieved June 6, 2016, from http://recode.net/2015/09/16/facebook-is-about-to- take-the-training-wheels-off-facebook-at-work

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Preview Managing in the Digital WorlD:

Intelligence Through Drones

Over the past years, commercially available drones have made great progress; they can rec-ognize obstacles, maintain stable flying posi- tions even under windy conditions, or safely return to

their starting position in case of low battery levels. In

the robotics lab at the University of Pennsylvania,

researchers are hard at work creating flying robots that

can sense each other and features of the environment,

giving the impression that they have a mind of their

own. In one demonstration, a group of eight flying

devices—called quadcopters—rise from the ground in

unison and fly around the room in a carefully orches-

trated formation. They then fly through a small win-

dow, one by one, and form up on the other side. What

is particularly impressive about the devices is that they

are autonomous, meaning that other than receiving

instructions about going from point A to point B in the

room, the devices are fully autonomous, get to decide

where to move and how fast to get there, and

are responsible for avoiding collisions. These devices are

the precursor to drones that could be used in the real

world for various purposes, ranging from package deliv-

ery to surveillance to search and rescue operations.

DARPA, the U.S. government research agency, is also

actively working on improving the capabilities of such

“micro-drones” and is developing a new class of small

UAVs that will be able to navigate inside buildings without

relying on GPS for navigation or having a remote pilot.

Enhancing Business Intelligence Using Big Data and Analytics6

Today, organizations operate in a global, highly competi-

tive, and rapidly changing environment. A key to effective

management is high-quality and timely information to

support decision making. Yet, to enhance decision-

making, this high-quality and timely information needs to

be extracted from ever-increasing amounts of structured

and unstructured data gathered from a variety of sources.

Here, we first describe the need for enhanced decision

making, followed by a description of databases and data

warehouses, two fundamental components for gaining

business intelligence. Then we describe the primary IS

components utilized by organizations to extract meaning-

ful insights from data. In Chapter 2, “Gaining Competitive

Advantage Through Information Systems,” you learned

about general types of information systems supporting

organizations’ different decision-making levels and busi-

ness functions that execute various business processes in

order to realize the strategic goals of the organization.

Here, we introduce business intelligence and advanced

analytics tools utilized at various decision-making levels of

modern organizations. Finally, we discuss how knowledge

management systems help organizations effectively cap-

ture, store, and retrieve organizational knowledge, and

how geographic information systems help analyze spa-

tially referenced data to make better business decisions.

MyMISLab TM

Over 10 million students improved their results using the Pearson MyLabs. Visit mymislab. com for simulations, tutorials, and end-of-chapter problems.

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225

After reading this chapter,

you will be able to do the

following:

After reading this chapter, you will be able to answer

the following:

1. How can databases support the operation of autono-

mous and semiautonomous drones?

2. How can the creators of drones use advanced

analytics to enable drone technology?

3. How can drones support spatial decision making?

Based on:

Amazon Prime Air. (2016, June 14). In Wikipedia, The Free Encyclope- dia. Retrieved June 29, 2016, from https://en.wikipedia.org/w/index .php?title=Amazon_Prime_Air&oldid=725315546

Amos, I. (2015, November 22). How drones are helping Scots scientists to grow better potatoes. The Scotsman. Retrieved June 28, 2016, from http://www.scotsman.com/news/environment/how-drones-are-helping- scots-scientists-to-grow-better-potatoes-1-3955007

Bradley, J. (2013, May 1). Tiny flying robots! Meet the quadrotor. CNN. Retrieved June 28, 2016, from http://edition.cnn.com/2013/05/01/tech/ innovation/flying-robots-quadrotors

Statt, N. (2016, February 12). Watch this DARPA drone speed around a warehouse at 45 mph. The Verge. Retrieved June 28, 2016, from h t t p : / / w w w. t h e v e r g e . c o m / 2 0 1 6 / 2 / 1 2 / 1 0 9 8 1 7 4 0 / d a r p a - d r o n e -autonomous-flight-fla-program

Unmanned aerial vehicle. (2016, June 28). In Wikipedia, The Free Ency- clopedia. Retrieved June 29, 2016, from https://en.wikipedia.org/w/ index.php?title=Unmanned_aerial_vehicle&oldid=727319653

These small autonomous UAVs will be able to fly through

an open window and then navigate rooms, stairways, cor-

ridors, and other obstacle-filled environments—all at

45 mph! Such UAVs will provide previously unattainable

intelligence in battle and other high-security situations.

In a more mundane context, Amazon.com is aggres-

sively working on a drone delivery system, called Ama-

zon Prime Air, that would allow a package ordered

online to be delivered within 30 minutes by a small fly-

ing drone. In Amazon.com’s ideal future, each city would

have a local warehouse and a small task force of delivery

drones, ready at a moment’s notice to deliver thousands

of small packages to Amazon.com’s happy customers.

Another implementation of drone technology is in

gathering geographic data to help farmers find plots of

soil that are most suitable for crop growth (Figure 6.1).

For example, researchers at the University of Aberdeen

are developing drones with advanced imaging capabili-

ties. These drones can be sent out to survey vineyards to

find soil that is most optimal for grape growth. This

could be especially valuable for growers given that soil

content and area humidity tends to vary from year to

year. Likewise, drones can be used by scientists to map

tree cover.

The technology described here is still under develop-

ment, but things are progressing rapidly. You are likely

to have already seen drones at sports events, and drones

have made inroads into the hobby sector, where indi-

viduals use drones to take travel pictures, hone their fly-

ing skills, or spy on their neighbors. With the capabilities

of relatively inexpensive drones developing rapidly, var-

ied applications of these technologies can benefit soci-

ety in a number of different ways.

1. Describe the need for business intelligence and advanced analytics and how databases serve as a foundation for making better business decisions.

2. Explain core concepts of business intelligence and advanced analytics.

3. Describe how organizations can enhance decision making by using knowledge management and geographic information systems.

FIGURE 6.1 Drones are providing valuable data for countless purposes. Source: Stockninja/Fotolia.

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226 Chapter 6 • enhanCing Business intelligenCe using Big Data anD analytiCs

Enhancing Organizational Decision Making In Chapter 2, you learned about the importance of strategic planning for gaining and sustaining competitive advantage. To stay ahead of the competition, organizations use information sys- tems to gather and analyze data and information from internal and external sources in order to make better business decisions. To improve organizational performance, business executives are seeking answers to questions such as “How effective is this year’s promotion as compared with last year’s?” “Which customer segments should we focus on?” “Which customers are most likely to switch to a competitor if we raise prices by X percent?” or, even more important, “Do we care if those customers switch?” Answers to such questions require analyzing data of past and current transactions to understand what happened. Business intelligence (BI), refer- ring to tools and techniques for analyzing and visualizing past data, can provide such answers. In contrast, advanced analytics refers to tools and techniques used to understand why some- thing happened, predict future outcomes, or discover hidden patterns in large data sets (some- times business analytics is used as an umbrella term for these concepts). Today, the need for business intelligence and advanced analytics goes beyond traditional “businesses”; rather, all types of organizations, ranging from political parties to hospitals, utilize business intelligence and analytics to improve their data-driven decision making (see Table 6.1). Next, we will dis- cuss the need for business intelligence and advanced analytics for making better business decisions.

Why Organizations Need Business Intelligence and Advanced Analytics Although an organization’s overall direction is decided on at the strategic level, business pro- cesses span all organizational levels and are highly interconnected. As discussed in Chapter 2, business processes refer to the activities that organizations perform in order to reach their busi- ness goals. Unfortunately, the business processes outlined within strategic plans are often not implemented as envisioned at the managerial and operational levels of the organization because the information needed to effectively monitor and control these processes is simply not avail- able. This “missing” information, in fact, often exists but resides in disconnected spreadsheets, reports, or databases.

Data-DrivEn OrganizatiOns. In today’s dynamic world, organizations must have up-to- date, accurate, and integrated information to monitor and fine-tune a broad range of business processes and to realize the goals of their strategic plans. Consequently, many organizations are trying to create meaningful insights from a variety of data sources to make better business decisions. Organizations that make decisions that can be backed up with verifiable data are referred to as data-driven organizations; such organizations are measurably more productive and profitable (McAfee & Brynjolfsson, 2012), can better respond to ongoing threats and opportunities, and can better plan for the future. Also, by letting data drive decisions, decision making can be pushed lower into the organization, freeing up senior management time for more important decisions (Redman, 2013). Thus, information systems—such as business intelligence and advanced analytics tools—that enable collecting and analyzing large amounts of data from various sources and delivering needed information to the right decision maker at the right time facilitate the transition to a data-driven organization. As with any technologies,

TABLE 6.1 sample Uses of Business intelligence and analytics in non-Business Contexts

Context Example

Political parties Model the influence of social media on election outcomes

Government Analyze performance of public benefits programs

Defense Manage maintenance and logistics during overseas deployments

Hospitals Predict patient volume and resource utilization

Nonprofit organizations Manage fundraising campaigns and target donors

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Chapter 6 • enhanCing Business intelligenCe using Big Data anD analytiCs 227

however, having the right tools is not sufficient for business success. In data-driven organizations, familiarity with data analysis and analytics tools is not only the responsibility of data analysts but is a skill required of every business user. In addition, whereas business intelligence and advanced analytics can provide valuable insights, it is human judgment and creativity that are needed to translate these insights into action and make better business decisions.

rEspOnDing tO thrEats anD OppOrtUnitiEs. External factors such as globalization, competitive pressures, consumer demands, societal changes, and governmental regulations can create opportunities as well as threats for modern organizations. For example, globalization provides opportunities to compete in new markets, but it also creates the challenge of gathering new types of data in order to effectively exploit these opportunities. Globalization can also lead to the threat of increased competition from developing countries, forcing organizations to rethink strategies or to further improve business processes. Thus, as the world becomes increasingly interconnected, market opportunities will expand, but at the same time, markets will become more competitive, forcing companies to develop new products at an ever- increasing rate. Similarly, today’s consumers have increasing access to information via social media and mobile devices and can much more easily switch to a competitor’s products or services. Further, large corporate and banking failures have brought about more stringent rules and regulations (such as the Sarbanes–Oxley Act; see Chapter 10, “Securing Information Systems”), and organizations have to comply with ever-increasing government reporting requirements. In sum, today’s business environment is characterized by factors such as unstable market conditions, fierce competition, shorter product life cycles, more stringent regulations, and wider choices for customers than ever before. Business intelligence and advanced analytics can help organizations make better decisions in this increasingly complex, fast-changing, and competitive environment by enabling them to more effectively collect and analyze both internal and external data (Figure 6.2).

With increasing pressure to reduce costs, organizations have to focus on investing in sys- tems that provide the greatest returns. Business intelligence and advanced analytics solutions can provide quick returns, as they help to quickly react to problems by providing the right infor- mation at the right time. Further, these tools help to leverage existing systems (such as enter- prise-wide information systems; see Chapter 7, “Enhancing Business Processes Using Enterprise Information Systems”) by enabling decision makers to extract and analyze data provided by those systems. Finally, focusing on customer satisfaction can provide quick returns by helping to retain the most profitable customers.

Big Data. One significant opportunity for organizations is the abundance of data available for decision making. As highlighted in Chapter 1, “Managing in the Digital World,” with

External Factors

ThreatsOpportunities

Business Analytics

FIGURE 6.2 Business analytics helps organizations swiftly respond to external threats and opportunities.

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228 Chapter 6 • enhanCing Business intelligenCe using Big Data anD analytiCs

decreasing costs for capturing and storing data, data are now not only ubiquitous but also cheap. With ever-increasing amounts of data increases the ability to detect meaningful relationships and regularities; thus, insights gained from analyzing Big Data can not only contribute to business success but can also help to address the tremendous challenges society faces. Research has demonstrated a strong linkage between effective data management and organizational performance, and organizations have long tried to collect, analyze, and use internal and external data to gain and sustain competitive advantage. The megatrends mobile and social, as well as the Internet of Things, have led to a tremendous increase in potentially useful data, gathered from mobile devices, social media, automated sensors, and other devices. Big Data is typically characterized as being of high volume, variety, and velocity (see Figure 6.3). One of the biggest opportunities is the sheer volume of data, which, for example, enables organizations to make business decisions based on more factors; yet at the same time, storing, analyzing, and managing increasing amounts of data pose tremendous challenges. The second characteristic is variety; useful data can come in the form of structured data (such as transaction data), which fit neatly into spreadsheets or databases; semistructured data, such as clickstreams and sensor data; or unstructured data, such as text, audio and video data, comments on social networks, and so on. Especially semistructured and unstructured data tend to be messy and are often incomplete, and the quality and origins of data such as user-generated content are typically unclear and at times questionable; further, analyzing unstructured data tends to be expensive in terms of effort, time, and expertise needed. Finally, Big Data is characterized based on its high velocity. On the one hand, data f low into organizations at increasingly higher rates; on the other hand, data-driven organizations have to process and use the data ever more quickly, such as when online retailer Amazon .com is providing recommendations for additional products. Thus, Big Data, ranging from geospatial data to customer sentiments, can prove invaluable for formulating and executing an organization’s strategy. Data are becoming increasingly abundant, yet many organizations find themselves unable to use these data to make sound business decisions; being able to ask the right questions and successfully utilize Big Data remains elusive for many organizations. Realizing the opportunities and challenges brought about by Big Data and its management, high-level company executives are increasingly focusing on designing an organization-wide data management strategy.

EffECtivE planning is COntinUOUs. In the past, organizations lacked the necessary data and tools to continuously plan for their future. Typically, organizations would first develop a strategic plan for some planning cycle (say, a year); then, once a strategic plan was agreed on, managers of various business units would prepare budgets for executing their portion of the plan. These budgets were often “backward looking” because they were typically based on historical data rather than being based on a clear understanding of current conditions and forecasts of future trends. Over time, managers would then execute their portions of the plan. For many organizations, this method of planning and managing was adequate given the relatively slow pace of change.

Today, however, given the need to swiftly respond to a highly competitive and rapidly changing environment, organizations must implement new ways of planning. In fact, successful

Big Data

FIGURE 6.3 Big Data is characterized by volume, variety, and velocity. Source: Alswart/Fotolia.

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Chapter 6 • enhanCing Business intelligenCe using Big Data anD analytiCs 229

organizations are utilizing a continuous planning process (Figure 6.4). In a continuous plan- ning process, organizations continuously monitor and analyze data and business processes; the results lead to ongoing adjustments to how the organization is managed, but these results are also reflected in ongoing updates to the organizational plans. It is only through timely and accu- rate insights gained from analyzing relevant data that continuous planning can be executed.

Responding to threats and opportunities and continuous planning are based on analyzing internal data (primarily from the operational level of the organization) as well as external data. In the next section, we describe how databases can be used to provide the necessary inputs to business intelligence and advanced analytics applications.

Databases: Providing Inputs into Business Intelligence and Advanced Analytics Data and knowledge are probably among the most important assets an organization has, as both are essential for executing business processes, gaining business intelligence, and performing advanced analytics. Databases, which are collections of related data organized in a way that facilitates data searches, are vital to an organization’s success.

For instance, databases are essential for maintaining customer records and supporting busi- ness processes such as sales transactions and tracking inventory but are also needed for market- ing purposes, such as identifying target customers for personalized marketing communications. Additionally, database technology fuels electronic commerce, from tracking available products

GREEN IT Big Data, Internet of Things, and Analytics Fuel Greener Facilities

two megatrends, specifically Big Data and the internet of Things (IoT), are transforming countless areas of business and society. One area that is being transformed through the use of Big Data and analytics is facilities management, an interdisci- plinary business function that coordinates space, infrastruc- ture, and people within an organization. Often associated with the administration of office blocks, arenas, schools, universi- ties, sporting complexes, convention centers, shopping com- plexes, hospitals, hotels, or manufacturing and shipping, facilities management is big business, currently representing about 5 percent of global gDp.

Within a large building or campus of buildings, there are a variety of systems and components working together to light, heat, or cool the environment. For example, Microsoft’s campus in the Puget Sound area consists of more than 100 separate buildings. In those buildings, there are more than 30,000 build- ing systems components and more than 2 million points where building systems ranging from heating, ventilation, and air-con- ditioning (HVAC) to lighting to power monitoring are con- nected to sensors—i.e., each being a separate IoT device. In a 24-hour period, those systems produce more than a billion data points. these data provide the Big Data to fuel many analytical systems for better facilities operations and management.

For example, in addition to better management of heating and cooling, motion sensors can be used to identify underutilized space or to better organize departments so that collaboration can be enhanced. With such data, a facilities manager could identify the amount of employee time being wasted moving between

different parts of a workspace and then use these insights to plan more efficient workspace layouts. likewise, if rooms are underuti- lized, they could be repurposed for a more fitting use.

ultimately, Big Data—generated through iot and other sen- sors—holds great promise for identifying cost savings, prevent- ing equipment failures, and conserving energy when managing facilities. Today, we are just beginning to understand how to optimize facilities management using such Big Data insights. Also, older buildings with old systems are only slowly being ret- rofitted with sensors to provide better business intelligence. However, in the future, when new buildings are designed and constructed, they will include a plethora of sensors, truly provid- ing smart buildings for improved facilities management.

Based on:

Facility management. (2016, May 27). In Wikipedia, The Free Encyclo- pedia. Retrieved May 27, 2016, from https://en.wikipedia.org/w/index .php?title=Facility_management&oldid=722364047

laughman, C. (2013, september). Microsoft uses Big Data to man- age buildings. Facilitiesnet. Retrieved May 27, 2016, from http://www .facilitiesnet.com/energyefficiency/article/Microsoft-uses-Big-Data- to-Manage-Buildings-Facilities-Management-energy-efficiency- Feature--14359

patel, B. (2015, May/June). technology and FM: the internet of things. Facility Executive. Retrieved May 27, 2016, from http://facilityexecutive .com/2015/05/the-internet-of-things

spence, D. (2016, april 16). What FMs need to know about Big Data. Office Space Software. Retrieved May 27, 2016, from http://www .officespacesoftware.com/blog/what-fms-need-to-know-about-big-data

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230 Chapter 6 • enhanCing Business intelligenCe using Big Data anD analytiCs

for sale to providing customer service. Databases are a foundation of the digital world. Data about all the products that are available for sale at Amazon.com are stored in databases, and data about all the courses available at your university are stored in a database. While you may expect organizations to use a variety of databases, databases are also powering many of the apps you are interacting with daily on your personal devices. For example, data (such as storage location, ratings, or comments) about all of the songs in your iTunes library, together with your playlists, are stored in a database. Databases not only store data about products, courses, songs, and playl- ists, they also store the interrelationships between various things. For example, Amazon.com has databases that keep track of its millions of customers and other databases that keep track of the billions of sales transactions linking products to specific customers. Without databases, much of what we take for granted in the digital world would be impossible.

EnaBling intEraCtivE WEBsitEs Using DataBasEs. In today’s highly dynamic digital world, any organization engaged in e-commerce makes extensive use of databases to provide dynamic and customized content on their web pages. As described in Chapter 3, “Managing the Information Systems Infrastructure,” actions such as people using an organization’s website to view product catalogs, check inventory, and place orders all ultimately read from and write to the organization’s databases. Similarly, data about products (name, description, dimensions, shipping weight, and so on) are stored in databases and dynamically inserted into a web page template, freeing the company from having to develop a separate web page for each individual product. For example, companies such as Amazon.com need only a few page templates for different product categories. Depending on what the user is looking for, these templates are then populated dynamically with the relevant product data that are pulled from a database; similarly, whenever a registered user places an order, the customer’s billing and shipping information is retrieved from a database and displayed to the customer for confirmation.

Some electronic commerce applications can receive and process millions of transactions per day. To ensure adequate system performance for customers, as well as to gain the greatest under- standing of customer behavior, organizations must manage online data effectively. For example, Amazon.com, the world’s largest bookstore, is open 24 hours a day, 365 days a year, and its servers log millions of transactions per day, with dozens of database reads and writes for every single transaction. This is but one example that shows that the key to effectively designing an online elec- tronic commerce business is the effective management of online data. Beyond websites and e-com- merce, it is important to stress that databases are at the heart of your university’s student registration system, the inventory system at the local grocery store, Apple’s iTunes store, and virtually anything

Continuous Planning Process

Manage

Analyze Plan

Monitor

Real-Time Management

Compare Actual

Performance Against Goals

Track & Monitor

Business Processes

Update & Adjust Plans

FIGURE 6.4 Effective business planning is continuous.

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else you can think of that requires recording and analyzing large amounts of data. Next we exam- ine some basic concepts, advantages of the database approach, and database management.

DataBasEs: fOUnDatiOn COnCEpts. The database approach dominates nearly all computer- based information systems used today. To understand databases, we must familiarize ourselves with some terminology. In Figure 6.5, we compare database terminology (middle column) with equivalents in a library (left column) and a business office (right column). We use database management systems (DBMSs, such as Microsoft Access, a popular DBMS for personal computers) to interact with the data in databases (see Chapter 3, “Managing the Information Systems Infrastructure and Services”). A DBMS is a software application with which you create, store, organize, and retrieve data from a single database or several databases. In the DBMS, the individual database is a collection of related attributes about entities. An entity is something you collect data about, such as people or classes (Figure 6.6). We often think of entities as tables, where each row is a record and each column is an attribute (also referred to as field). A record is a collection of related attributes about a single instance of an entity. Each record typically consists of many attributes, which are individual pieces of data. For example, a name and a Social Security number are attributes of a particular person.

Customer No.

Customer name

Customer address

nasd zx kdv wsdms nasd zx kdv wsdms

nasd zx kdv wsdms nasd zx kdv wsdms

nasd zx kdv wsdms nasd zx kdv wsdms

Library DBMS Equivalent O�ce

Card Catalog DBMS File Cabinet

Card Drawer Database File Drawer

Catalog Card Record File Folder

Card Data Attributes Report

FIGURE 6.5 Computers make the process of storing and managing data much easier.

FIGURE 6.6 This sample data table for the entity Student includes 10 records and 7 attributes. Source: Access 2016, Windows 10, Microsoft Corporation.

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DataBasEs: aDvantagEs. Before the advent of DBMS, organizations used the file processing approach to store and manipulate data electronically. As data were usually kept in long, sequential computer files that were often stored on tape, data about entities often appeared in several different places throughout the information system; further, the data were stored along with and sometimes embedded within the programming code that used the data. People had not yet envisioned the concept of separately storing data about entities in non-redundant databases, so different files frequently contained repetitive data about a customer, a supplier, or another entity. When someone’s address changed, it had to be changed in every file where it occurred, a tedious process. Similarly, if programmers changed the code, they had to change the corresponding data along with it. Further, the programmer would have had to know how the data were stored in order to make any changes. This was often no better than a pen-and-paper approach to storing data.

It is possible for a database to consist of only a single file or table. However, most data- bases managed under a DBMS consist of multiple tables or entities, often organized in sev- eral files. A DBMS can manage hundreds or even thousands of tables simultaneously by linking the tables as part of a single system. The DBMS helps us manage the tremendous volume and complexity of interrelated data so that we can be sure that the right data are accessed, changed, or deleted. For example, if a student or customer address is changed, that change is made through all the parts of the system where that data might occur. Using a data- base approach prevents unnecessary and problematic redundancies of the data, and the data are kept separate from the applications’ programming code. This means that the database does not need to be changed if a change is made to an application. Consequently, there are numerous advantages to using a database approach to managing organizational data; these are summarized in Table 6.2.

DataBasEs: typEs. Traditionally, organizations have used relational database management systems (RDBMSs) to support their business processes. An RDBMS attempts to balance efficiency of storage needs, ease of retrieval, and other factors by storing data in tables linked via relationships. However, RDBMSs are not easily scalable in response to peaks in demand, as is often the case in data-intensive applications such as e-commerce and social media, and traditional RDBMSs may simply not be able to handle massive volumes of often-unstructured

TABLE 6.2 advantages of the Database approach

Advantages Description

Minimal data redundancy A single copy of data ensures that storage requirements are minimized.

Improved data consistency Eliminating redundancy greatly reduces the possibilities of inconsistency.

Increased security A centralized system makes it easier to enforce access restrictions.

Improved data quality Centralized control, minimized redundancy, and improved data con- sistency help to enhance the quality of data.

Improved data accessibility and sharing

A centralized system makes it easier to deploy and control access for personnel within or outside organizational boundaries.

Enforcement of standards A centralized system makes it much easier to enforce standards and rules for data creation, modification, naming, and deletion.

Program–data independence It is much easier to evolve and alter software to changing business needs when data and programs are independent.

Increased productivity of application development

Data standards make it easier to build and modify applications.

Reduced program maintenance

Data changed in the central database is replicated seamlessly throughout all applications.

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Big Data. For example, fueled by the megatrends Internet of Things (IoT), mobile, and social, various types of data are now generated by countless sensors and millions of users. Further, as RDBMSs tend to be highly complex, any changes need to be carefully planned and managed, potentially reducing the agility of a business. To overcome these limitations, a new breed of database management systems, called NoSQL, is increasingly becoming popular. NoSQL databases such as Amazon.com’s SimpleDB are highly scalable, as they can be distributed across multiple machines, which works especially well in a cloud computing infrastructure. The ability to use not only a single computer but also a distributed computing environment, dividing the processing tasks among hundreds or thousands of machines and using frameworks such as Apache Hadoop (see the Technology Briefing), is key for handling and processing Big Data. Further, NoSQL databases often offer much f lexibility in the types of data they can

WHEN THINGS GO WRONG Twitter Fever—Look Before You Tweet

Over the past several years, Twitter has successfully trans- formed both the ways of information transmission and the pulse of pop culture. Serving as a source of news for growing numbers of people, Twitter also works as a gathering place for expressing compassion, sharing grief, and supporting disaster relief efforts. When the rock star Prince died in 2016, for example, countless collaborators, friends, and well-known fans shared their sadness and memories over the tragic news. For example, actor Will Smith posted, “I am stunned and heartbro- ken. i just spoke with him last night. today, Jada & i mourn with all of you the loss of a beautiful poet, a true inspiration, and one of the most magnificent artists to ever grace this earth.” The speed at which the “Twitterverse”—the collective of members who use the social media platform—reacts to important events has transformed how people learn about and react to important events throughout the world.

Indeed, Twitter users’ ability to post thoughts in small snip- pets (called tweets) allows quick and easy dissemination of content to a broad audience. A tweet cannot exceed 140 char- acters and can thus easily be read out of context; the sheer number of tweets, appearing at a rapid pace and often with little context, can easily result in endless confusion. Thanks to the network effect, Twitter has become capable of gathering momentum so quickly that it is sometimes difficult to differen- tiate between truth and fiction. And, because tweets can be sent so easily, often without a lot of thought by the sender, there are countless examples of so-called “dumb” tweets that instantly go viral. For example, Oprah Winfrey talked about her love of the Microsoft Surface tablet computer by tweeting: “gotta say love that surFaCe! have bought 12 already for Christmas gifts.” The Twitterverse was quick to identify that her adoring tweet was sent from her ipad!

In a more serious problem, Twitterbots are causing confu- sion in the Twitterverse. A Twitterbot is a program used to pro- duce automated posts or to automatically follow Twitter users. Twitterbots come in various forms. For example, many post clickbait, enticing clicks on promotional links. Others post replies or automatically “retweet” (i.e., forward) messages that include a certain word or phrase. Malicious Twitterbots follow

the accounts of famous people who typically have millions of followers. In some macabre instances, the accounts of famous people who have passed away have been hijacked by bots, seemingly sending out messages from beyond the grave. In one instance, deceased journalist David Carr’s account was hijacked by a so-called “porn bot” in 2016, changing the account’s cover picture and sending out disturbing messages to Carr’s followers. Twitter currently doesn’t offer any access to the accounts of the deceased unless account credentials were given to friends or family members by the account owner prior to their death. However, family members can request to have an account deactivated. Otherwise, it continues to exist and can potentially be hacked. Many are discussing what is the most appropriate thing to do with the online accounts of the deceased. While there is no clear answer, it demonstrates some unintended consequences that occur in the digital world.

When properly used for good, Twitter is undoubtedly a meaningful platform for reaching out to people. Sometimes, however, people seem to retweet first and ask questions later; it may be better to do “due diligence” and try to Google a topic first to ensure that it indeed is true before retweeting. Also, if you follow some famous people on Twitter, if you get a crazy message from them, it may be from a bot.

Based on:

David Carr (journalist). (2016, april 11). in Wikipedia, The Free Ency- clopedia. Retrieved May 26, 2016, from https://en.wikipedia.org/w/ index.php?title=David_Carr_(journalist)&oldid=714740240

Fee, R. (2015, August 18). 20 of the dumbest celebrity Tweets of all times, Vol. 2. Mandatory. Retrieved May 26, 2016, from http://www.mandatory .com/2015/08/18/20-of-the-dumbest-celebrity-tweets-of-all-time-vol-2

Golding, S. (2016, April 21). When doves cry: Celebrities react on Twit- ter to Prince’s untimely death. Retrieved May 26, 2016, from http:// www.vibe.com/2016/04/twitter-reacts-prince-death

Twitter. (2016, May 25). In Wikipedia, The Free Encyclopedia. Retrieved May 26, 2016, from https://en.wikipedia.org/w/index.php?title =Twitter&oldid=722022910

Twitterbot. (2016, May 25). In Wikipedia, The Free Encyclopedia. Retrieved May 25, 2016, from https://en.wikipedia.org/w/index.php ?title=Twitterbot&oldid=721939432

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handle (such as comments of various lengths made by Facebook users or audio or video data). However, implementing NoSQL databases comes at a cost, as they are still in their early stages of development; thus, some needed features may be lacking, and it may be difficult to find experienced NoSQL developers.

DataBasEs: EffECtivE ManagEMEnt. Now that we have outlined why databases are important to organizations, we can talk about how organizational databases can be managed effectively. The best database in the world is no better than the data it holds. Conversely, all the data in the world will do you no good if they are not organized in a manner in which there are few or no redundancies and in which you can retrieve, analyze, and understand them. The two key elements of an organizational database are the data and the structure of those data. The structure of the data is typically captured in a data model, that is, a map or diagram that represents entities and their relationships. Further, the structure of the data is documented to facilitate management of the database.

Each attribute in the database needs to be of a certain type. For example, an attribute may contain text, numbers, or dates. This data type helps the DBMS organize and sort the data, com- plete calculations, and allocate storage space. If tables are designed correctly, they will be easier to update, and it will be faster to extract vital information to improve an organization’s business intelligence capabilities.

Once the data model is created, the format of the data is documented in a data dictionary. The data dictionary (or metadata repository) is a document explaining several pieces of meta- data for each attribute, such as its name, the type of data expected (dates, alphanumeric, num- bers, and so on), and valid values. Data dictionaries can include information such as why the data item is needed, how often it should be updated, and on which forms and reports the data appear.

Data dictionaries often include business rules—that is, the policies by which a business runs—which help to prevent illegal or illogical entries from entering the database. For example, designers of a warehouse inventory database could capture a rule in the data dictionary to pre- vent an invalid ship date for a future order from being entered into the database. Although NoSQL databases may not be as rigid as RDMBSs or may not enforce business rules at all (leav- ing the enforcing to applications), it is wise to create data models and to consider what data will be captured, how the data will be related, and what rules should be enforced.

Master Data Management To make sound operational, tactical, and strategic business decisions, it is imperative that decisions made in different departments are based on the same underlying data, definitions, and assumptions—that is, there is a “single version of the truth.” For example, do the marketing and accounting departments have the same definitions of a customer or a sale? Does a “customer” entail anyone who may be interested in the company’s product or service (marketing view) or only those who actually made a purchase (accounting view)? Part of creating a single version of the truth is master data management. Master data are the data deemed most important in the operation of a business. Typically shared among multiple organizational units, master data include data about customers, suppliers, inventory, employees, and the like. You can think of master data as the “actors” in an organization’s transactions; for example, a customer purchases something, an employee is paid, and so on. Given the importance of an organization’s master data, master data management is a management- rather than a technology-focused issue, as different business units and different corporate levels have to come to consensus on the meaning of master data items or on how to deal with duplicates. Especially for large organizations, arriving at a single version of the truth can be a challenge, as master data often have to be integrated from multiple systems. Likewise, after mergers or acquisitions, organizations have to try to consolidate the master data from two or more companies. Once the meaning and format of the master data have been agreed on, business intelligence applications can base their analyses on the single version of the truth.

EntEring anD QUErying Data. At some point, data must be entered into the database. Traditionally, a clerk or other data entry professional would create records in the database by entering data. These data may come from telephone conversations, preprinted forms that must be filled out, historical records, or electronic files. Today, much organizational data are captured electronically, as is the case with a user’s input in a web form; whenever you place an order on the web, sign up for a newsletter, or respond to an online survey, your input is directly stored

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in a database. A form (Figure 6.7) typically has blanks where the user can enter data or make choices, each of which represents an attribute within a database record (such as the user’s first name, last name, gender, and so on). A form should be organized in an intuitive way so that the user can easily see the required items and enter the data. Forms are often used to capture data to be added, modified, or deleted from the database (e.g., for modifying your password or removing your old shipping address on Amazon.com). Further, in today’s dynamic environment, data are increasingly generated and captured automatically. For example, capturing transactional data from a point-of-sale terminal or entering sensor data from smartphones or IoT devices requires no human intervention; likewise, autonomous agents (discussed later) can collect various data that are published on the web or posted in social media.

To retrieve data from a database, we use a query. In fact, whenever a web page is dynami- cally populated with content, a query is executed to retrieve the data from a database. The most common language used to interface with RDBMSs is Structured Query Language (SQL). Figure 6.8 is an example of an SQL statement that an online bookstore would use to retrieve the information needed to populate a summary page containing all books written by the first author of this textbook, sorted by publication date. Writing SQL statements can be difficult, especially when you are dealing with complex databases with many entities or when you are writing com- plex queries with multiple integrated criteria—such as adding numbers while sorting on two different attributes. Many desktop DBMS packages provide graphical user interfaces, where the user can pick the desired data from the database to create queries quickly and easily (Figure 6.9).

aD hOC QUEriEs anD rEpOrts. Business users across an organization need the right information at the right time; thus, in order to support decision making, the results of queries are typically presented in the form of reports. A report is a compilation of data from the database that is organized and displayed to the user (either on screen or on paper). Sophisticated report generators and analysis tools such as Crystal Reports or Tableau can help users to quickly

FIGURE 6.7 A computer-based form used for entering customer information.

SELECT AUTHOR, TITLE, PUBLICATION_DATE, PRICE

FROM BOOKS

WHERE AUTHOR=“VALACICH”

ORDER BY PUBLICATION_DATE;

FIGURE 6.8 This sample SQL statement would be used to retrieve the information needed to populate a summary web page containing all books written by the first author of this textbook, sorted by publication date.

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build interactive reports and visualizations to present data in a useful format and help business users make sense of large amounts of data that are typically stored in organizational databases. Reports can take the form of scheduled reports, drill-down reports, exception reports, and key-indicator reports (Table 6.3) (as discussed in Chapter 2, key performance indicators are the metrics deemed most critical to assessing progress toward a certain goal). These reports are either produced at prespecified intervals or created whenever a prespecified event happens; often, this is combined with automated alerts if certain thresholds are reached. However, decision makers frequently have information needs that are unforeseen and may never arise again. In such instances, the users need to run ad hoc queries (i.e., queries created because of unplanned information needs that are typically not saved for later use). Ad hoc query tools provide an easy-to-use interface, allowing managers to run queries and reports themselves without having to know query languages or the structure of the underlying data. Installed on a person’s desktop, notebook computer, or mobile device, these tools can be used to run queries and reports whenever an unplanned information need arises without having to resort to calling the IS department for help in creating a complex query or a special report.

OnlinE transaCtiOn prOCEssing. The systems that are used to interact with customers and run a business in real time are called operational systems. Examples of operational systems are sales order processing and reservation systems. As fast customer response is fundamental to having a successful Internet-based business, immediate automated responses to the requests of

FIGURE 6.9 Microsoft Access provides a graphical user interface to let users select the required data. Source: Access 2016, Windows 10, Microsoft Corporation.

TABLE 6.3 Common reports and Queries

Report/Query Description

Scheduled reports Reports produced at predefined intervals—daily, weekly, or monthly—to support routine decisions

Key-indicator reports Reports that provide a summary of critical metrics on a recurring schedule

Exception reports Reports that highlight situations that are out of the normal range

Drill-down reports Reports that provide greater detail, so as to help analyze why a key indicator is not at an appropriate level or why an exception occurred

Ad hoc queries Queries answering unplanned information requests to support a nonroutine decision; typically not saved to be run again

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users are required. Online transaction processing (OLTP) systems provide this and are designed to handle multiple concurrent transactions from customers. Typically, these transactions have a fixed number of inputs, such as order items, payment data, and customer name and address, and specified outputs, such as total order price or order tracking number. Common transactions include updating customer data, processing orders, and generating sales receipts. Consequently, OLTP is a big part of interactive electronic commerce applications. Because customers can be located virtually anywhere in the world, it is critical that transactions be processed efficiently. The speed with which OLTP systems can process transactions is, therefore, an important design decision. In addition to which technology is chosen to process the transactions, how the data are organized in the database is also a major factor in determining system performance.

Although the database operations behind most transactions are relatively simple, designers often spend considerable time making adjustments to the database design in order to “tune” pro- cessing for optimal system performance. Once an organization has all these data, it must design ways to gain the greatest value from its collection; each individual OLTP system could be que- ried individually, but the real power for an organization comes from analyzing the aggregation of data from different systems using methods such as online analytical processing (discussed later).

OpEratiOnal anD infOrMatiOnal systEMs. Operational systems can generate a wealth of data that can serve as useful inputs into business intelligence and advanced analytics applications. For example, a grocery checkout system processes a specific transaction (the purchase) that can be linked to an inventory system (for reordering purposes), but it can also capture valuable data such as time of the purchase, items purchased together, form of payment, or loyalty program details. Coupled with external data (such as store location, weather data, or competitor information), these data can be analyzed for spending patterns, effectiveness of sales promotions, or customer profiling.

Systems designed to support decision making based on stable point-in-time or historical data are called informational systems. The requirements for designing and supporting operational and informational systems are quite different (Table 6.4). In a distributed online environment, performing real-time analytical processing diminishes the performance of transaction processing. For example, complex analytical queries require the locking of data resources for extended peri- ods of execution time, whereas transactional events—data insertions and simple queries from customers—are fast and can often occur simultaneously; further, the operational databases typi- cally only contain current data. Thus, a well-tuned and responsive transaction processing system may have uneven performance for customers while analytical processing occurs. As a result, many organizations replicate all transactions on a second database server so that analytical pro- cessing does not affect transaction processing performance. This replication typically occurs in batches during off-peak hours, when site traffic volumes are at a minimum. However, especially for situations where real-time analytics is needed (such as fraud detection), even a few hours’ delay is unacceptable. Therefore, modern database management systems provide real-time opera- tional analytics—allowing OLTP and analytics to be performed simultaneously—for the analysis of data coming from a single data source (such as an organization’s ERP system).

TABLE 6.4 Comparison of Operational and informational systems

Characteristic Operational System Informational System

Primary purpose Run the business on a current basis Support managerial decision making

Type of data Current representation of state of the business

Historical or point-in-time (snapshot)

Primary users Online customers, clerks, salesper- sons, administrators

Managers, business analysts, and customers (checking status and history)

Scope of usage Narrow and simple updates and queries

Broad and complex queries and analyses

Design goal Performance Ease of access and use

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Data WarEhOUsEs. For many complex analyses, however, data from various sources are needed. Therefore, large organizations, such as Walmart, UPS, and Alaska Airlines, have built data warehouses that integrate multiple large databases and other data sources into a single repository. Such a repository, containing both historic and (almost) current data for analysis and reporting, is suitable for direct querying, analysis, or processing. Much like a physical warehouse for products and components, a data warehouse stores and distributes data on computer-based information systems. A data warehouse is a company’s virtual storehouse of valuable data from the organization’s disparate information systems and external sources. It supports the analysis of sales, inventory, and other vital business data that have been culled from operational systems. The purpose of a data warehouse is to put key business information into the hands of more decision makers, and an organization that successfully deploys a data warehouse has committed to pulling together, integrating, and sharing critical corporate data throughout the firm. Table 6.5 lists sample industry uses of data warehouses. Data warehouses can take up hundreds of gigabytes (even terabytes) of data. They usually run on fairly powerful mainframe computers and can cost millions of dollars.

While no changes to the existing, historical data contained in the data warehouse are made, the data in a data warehouse are periodically appended with “new” data from operational systems. Consequently, a crucial process for consolidating data from operational systems with other organi- zational data (to facilitate the use of data mining techniques to gain the greatest and broadest understanding from the data) is extraction, transformation, and loading. First, the data need to be extracted from various different source systems. In the transformation stage, data are being cleansed and manipulated to fit the needs of the analysis (such as by creating new calculated fields or summary values). Data cleansing refers to the process of detecting, correcting (e.g., standard- izing the format), or removing corrupt or inaccurate data retrieved from different source systems (such as differences in the way dates or ZIP codes are stored). Finally, the transformed data are loaded into the data warehouse and are ready for being used for complex analyses (Figure 6.10).

TABLE 6.5 sample industry Uses of Data Warehousing

Uses of Data Warehousing Representative Companies

Analysis of scanner checkout data Safeway

Tracking, analysis, and tuning of sales promotions and coupons Costco, CVS Corporation

Frequent customer program management Target, United Airlines

Profitability analysis and market segmentation Walgreens, Toyota

Product promotions for focused market segments Walmart, Williams-Sonoma

Cross-segment marketing Citigroup

Risk and credit analysis HSBC

Customer profiling Morgan Stanley

Extract LoadGender: 1 Gender: Male

Gender: M

Doe, John First_Name: John Last_Name: Doe

May 25, 2010 5/25/2010

Gender: M

Transform

Database 1

Database 2

Database 3

Data Warehouse

FIGURE 6.10 Extraction, transformation, and loading are used to consolidate data from operational systems into a data warehouse.

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Data Marts. Rather than storing all enterprise data in one data warehouse, many organizations have created multiple data marts, each containing a subset of the data for a single aspect of a company’s business, such as finance, inventory, or personnel. A data mart is a data warehouse that is limited in scope. It contains selected data from the data warehouse such that each separate data mart is customized for the decision support needs of a particular end-user group. As a data mart only contains the data needed by a limited segment of users (as opposed to a company-wide data warehouse), it is typically easier to query and reduces the time needed to perform analytical queries. Data marts have been popular among small and medium-sized businesses and among departments within larger organizations, all of which were previously prohibited from developing their own data warehouses because of the high costs involved.

Data marts typically contain tens of gigabytes of data as opposed to the hundreds of gigabytes in data warehouses. Therefore, data marts can be deployed on less powerful hardware. The difference in costs between different types of data marts and data warehouses can be signifi- cant. The cost to develop a data mart is typically less than US$1 million, while the cost for a data warehouse can exceed US$10 million. However, with the advent of cloud computing, several vendors are offering data warehousing as a service, which can help to significantly lower the company’s initial investment (see Chapter 3); similarly, companies such as SAP are offering on-demand business intelligence as a service.

Business intelligence and advanced analytics Various different vendors offer a wide variety of tools for decision support; such tools are often classified as business intelligence and advanced analytics applications. Typically, business intel- ligence tools provide decision support by enabling business users to perform analyses to obtain an understanding what has happened. Advanced analytics tools, in contrast, provide decision support by enabling business users as well as business analysts and data scientist to gain a deeper understanding of why things happened and to build predictive models. Although each type of application by itself can be valuable to an organization, it is their convergence that enables

COMING ATTRACTIONS Emotion Aware Gaming

Imagine playing a video game that seems to be able to read your mind or at least know when you are confident or when you are scared. And, depending upon how you are feeling, it would adapt to either make things easier or tougher on you. affectiva, a Boston area tech company, is using a webcam to capture a person’s facial expression and uses complex algo- rithms to interpret how the person is feeling while playing a video game. With this information, game designers are able to adjust the level of play. In a recently released psychological thriller game called Nevermind, the technology makes the game harder when players are more frightened or more anx- ious. For example, the game will unexpectedly introduce a stressful challenge, such as trapping a player in a threatening environment, forcing the player to maintain calm as he or she plays the way to safety.

To build their technology, Affectiva’s researchers have stud- ied the faces of millions of people from throughout the world, asking them to watch videos and mapping how different peo- ple’s faces change while different types of videos are watched. In addition, they are researching how changes in heart rates

align with changes in facial expressions. Affectiva’s researchers have collected more than 40 billion data points for interpreting emotion from a person’s face—a true Big Data problem. While video games are designed to take players on an emotional journey, they have not been able to adapt to changes in a player’s emotional state. With its emotion-sensing technology, Affectiva hopes to design more immersive games. The applica- tion of this technology can be used far beyond video games and can be extremely useful for understanding how people are feeling when watching movies, political candidates, and advertising.

Based on:

Affectiva. (2016). Retrieved May 25, 2016, from http://www.affectiva.com

subbaraman, n. (2016, March 1). affectiva teams up with devel- opers to make video games that know your feelings. The Boston Globe. Retrieved May 25, 2016, from http://www.betaboston.com/ news/2016/03/01/affectiva-teams-up-with-developers-to-make-video- games-that-know-your-feelings

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organizations to gain and sustain competitive advantage through enhanced decision making. In the following sections, we discuss these categories as well as the various systems and technolo- gies that each encompasses.

Business Intelligence Business intelligence tools are used by business users to analyze both structured and unstruc- tured data to obtain an understanding of current and past performance, helping to guide planning processes. Given vast amounts of data, business intelligence tools help users perform analyses and interpret data. In the following sections, we describe some of these applications.

DECisiOn sUppOrt systEMs. Traditionally, organizations used decision support systems (DSSs) to analyze structured data and support their decision making. DSSs are often used by managerial-level employees to help them solve problems such as sales forecasting or resource optimization, yet DSSs can be used to support decisions at virtually all levels of the organization. A DSS is designed to be an “interactive” decision aid that uses models to manipulate data. For example, if you have some historic sales data, you can use many different types of models to create a forecast of future sales. One technique is to take an average of past sales and adjust it for seasonal changes. The formula you would use to calculate and adjust the average is the model. A more complicated forecasting model might use time-series analysis or linear regression.

Using such models, DSSs can augment human decision-making performance and prob- lem solving by enabling managers to perform “what-if” analyses to examine alternative solu- tions to a problem. A what-if analysis allows users to make hypothetical changes to the data associated with a problem (e.g., loan duration or interest rate) and observe how these changes inf luence the results. For example, a cash manager for a bank could examine what-if scenarios modelling the effects of various interest rates on cash availability. Some types of problems utilize a variety of input variables that each may have a different likelihood of occurring (e.g., there is a 25 percent likelihood that inf lation will stay the same and a 75 percent likelihood that inf lation will increase). Sensitivity analysis allows to understand how different input val- ues and their probability of occurring (e.g., rate of inf lation and its probability of occurring) will affect the results of a model. Similarly, goal-seeking analyses help in determining how input parameters need to be changed to achieve a desired end state. Finally, optimization mod- els allow finding the best balance between certain parameters within given constraints. Together, DSSs provide managers with various decision analysis tools to either analyze data or create meaningful information to support the decision making related to a variety of organi- zational problems. See Table 6.6 for a summary of the ways organizations can use DSS to support decision making in organizations. While DSSs are useful for supporting a variety of managerial decisions, they are typically limited to relatively simple analyses of structured data, typically from transaction processing systems.

TABLE 6.6 Common Dss Uses for specific Organizational areas

Area Common DSS Uses

Corporate level Corporate planning, venture analysis, mergers and acquisitions

Accounting Cost analysis, breakeven analysis, auditing, tax computation and analysis, depreciation methods, budgeting

Finance Discounted cash flow analysis, return on investment, buy or lease, capital budgeting, bond refinancing, stock portfolio management, compound interest, after-tax yield, foreign exchange values

Marketing Product demand forecast, advertising strategy analysis, pricing strategies, market share analysis, sales growth evaluation, sales performance

Human resources Employee business expenses, fringe benefit computations, payroll and deductions

Production Production scheduling, transportation analysis, product mix, inventory lev- els, quality control, plant location, material allocation, maintenance analysis, machine replacement, job assignment, material requirements planning

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OnlinE analytiCal prOCEssing. Online analytical processing (OLAP) refers to the process of quickly conducting complex, multidimensional analyses of data stored in a database that is optimized for retrieval, typically using graphical software tools. OLAP tools enable users to perform ad hoc analyses of different dimensions of data beyond simple data summaries and data aggregations of normal database queries. A typical question asked would be “What were the profits for each week in 2018 by sales region and customer type?” In contrast to relatively simple queries on two-dimensional tables, running such multidimensional queries requires a deeper understanding of the underlying data. Given the high volume of transactions within Internet-based systems and the potential business value in the data, business intelligence tools must provide extensive OLAP capabilities to business users. The chief component of an OLAP system is the OLAP server, which understands how data are organized in the database and has special functions for analyzing the data. The use of dedicated databases allows for tremendous increases in retrieval speed. In the past, multidimensional queries against large transactional databases could take hours to run; in contrast, OLAP systems pre-aggregate data so that only the subset of the data necessary for the queries is extracted, greatly improving performance. Given the decrease in cost of random access memory (RAM, see the Technology Briefing), a recent trend is in-memory computing, where the data are stored in a computer’s main memory rather than on a comparatively slow hard drive, removing the bottlenecks associated with reading and writing data. Further, using in-memory computing for both transaction and analytical processing can help provide answers to questions as they arise and enable making business decisions based on real-time data.

Measures and Dimensions Whenever a business transaction occurs, associated data can be stored and then analyzed from a variety of perspectives. To facilitate efficient processing of transactions, databases supporting online transaction processing systems treat all data in similar ways. In contrast, OLAP systems are designed for efficient retrieval of data and categorize data as measures and dimensions. Measures (or sometimes called facts) are the values or numbers the user wants to analyze, such as sales revenues or the number of orders placed. Dimensions provide a way to summarize the data, such as region, time, or product line. Thus, sales revenue (a measure) could be analyzed by product, time (year, quarter, or week), geographical region, or distributor (the dimensions). To enable the analysis of data at more or less detailed levels, the dimensions are organized as hierarchies (such as in year, quarter, month, or day). For example, when analyzing sales by geographical regions, a user can drill down from state, to county, to city, or to the individual store location or roll up from state to sales region (northwest, south, southeast, and so on), to country, or to continent.

Cubes, Slicing, and Dicing To enable such multidimensional analyses, OLAP arranges the data in so-called cubes. An OLAP cube is a data structure allowing for multiple dimensions to be added to a traditional two-dimensional table (Figure 6.11). Although the figure only shows three dimensions, data can be analyzed in more than three dimensions. Analyzing the data on subsets of the dimensions is referred to as slicing and dicing. For example, a slice may show sales by product type and region only for the second quarter of 2018. Another slice may only show sales for desktops in the western region (Figure 6.12).

So uth

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FIGURE 6.11 An OLAP cube allows for analyzing data by multiple dimensions.

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infOrMatiOn visUalizatiOn. In addition to allowing business users to perform various queries and analyses, an important aspect of business intelligence applications is information visualization. Visualization refers to the display of complex data relationships using a variety of graphical methods, enabling managers to quickly grasp the results of the analyses.

Digital Dashboards Digital dashboards are commonly used to visually present key performance indicators and other summary information used by managers and executives to make decisions. To provide the greatest benefits for decision makers, digital dashboards typically support three usage models: push reporting, exception reporting and alerts, and pull reporting. Digital dashboards not only provide the decision makers with a quick, visual overview of key performance indicators and other key operational statistics and trends (i.e., push reporting) but also alert the user of any items that require immediate attention (i.e., exception reporting and alerts); if the user wants to analyze the root causes of an exception or perform other analyses, he or she can drill down or perform self-service ad hoc queries (i.e., pull reporting).

Digital dashboards (sometimes called executive dashboards) provide top-level managers with the needed information to support business processes, such as cash and investment manage- ment, resource allocation, and contract negotiation. Typically, executives require information presented in a highly aggregated form so that they can scan information quickly for trends and anomalies (Figure 6.13).

Although data are typically provided in a highly aggregated form, the executive also has the capability to drill down and see the details if necessary. For example, suppose a digital dash- board summarizes profits by states. If the executive wants to get a deeper understanding about a particular state, a selection on the screen can provide the details behind the aggregate. By drill- ing down into the data, the executive can see that the majority of the profits were made in a par- ticular region or city or even store. Also, the information provided can be easily shared throughout the organization so that the executive can quickly send a message to the appropriate managers to discuss solutions to the problem discovered in the drill-down.

Dashboards make use of a variety of design elements to present the data in the most user- friendly way. To highlight deviations that need to be addressed or to symbolize changes over time, dashboards use maps, charts, spark lines, or graphics symbolizing traffic lights, thermom- eters, or speedometers (Figure 6.14); conditional formatting is often used to highlight exceptions and draw the user’s attention to deviations from the normal course of business.

One recent trend influencing the design of dashboards is mobile business intelligence. With the advances in mobile communication technology, today’s executives want to be in touch with their organizational performance anytime, anywhere. Further, most of today’s knowledge work- ers are increasingly mobile in terms of the device they’re using—during a workday, one may use a desktop computer, a laptop, a smartphone, or an iPad. Hence, dashboard vendors are offering solutions for multiple devices and screen sizes so that each user can get the most current infor- mation regardless of location and device used, facilitating business decisions based on real-time data (Figure 6.15).

One of the growing trends of mobile business intelligence (BI) is the use of location data that can easily be gained from GPS or Wi-Fi networks. This capability can be an important part

Desktops

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Desktops

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2018Q4 2018Q3

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So uth

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uth No

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es t

FIGURE 6.12 Slicing and dicing allows for analyzing subsets of the dimensions.

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of an innovative BI solution because location-relevant information can be delivered to the device based on its location. For example, details about particular people, such as customers, col- leagues, and staff, within a particular vicinity can be sent to the device in addition to location- specific reports. With such capabilities, the mobile device uses its data generation capabilities to enhance the intelligence of the user.

Visual Analytics As discussed in previous sections, business intelligence systems can provide business decision makers with a wide variety of analyses to support decision making. However, in the end, it is still the humans who have to interpret the output from these systems. With the growing complexity of the underlying data (such as multiple dimensions, including spatial dimensions), interpreting the outputs becomes extremely

FIGURE 6.13 A digital dashboard presents information in a highly aggregated form, enabling executives to scan information quickly for trends and anomalies. source: power Bi 2016, Windows 10, Microsoft Corporation.

Sales This Month

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FIGURE 6.14 Dashboards use various graphical elements to highlight important information.

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challenging. Visual analytics (sometimes called visual data discovery) is the combination of various analysis techniques and interactive visualization to solve complex problems. By combining human intelligence and reasoning capabilities with technology’s retrieval and analysis capabilities, visual analytics can help in decision making, as the strengths of both the human and the machine are merged. With the humans’ ability to make sense of “noisy” data, unexpected patterns or relationships in the data can be discovered, and results of complex queries can be quickly interpreted. Visual analytics is used in a variety of settings, ranging from homeland security to disaster relief. For example, making sense of tabular data about the strength of a hurricane (including information about location of clouds, etc.) is nearly impossible. Figure 6.16 shows the visualization of a hurricane as it is gaining strength. The image shows towering thunderclouds (in red), called hot towers, that were spotted just before the hurricane intensified to a Category 5 hurricane. Once the hurricane is represented visually, analysts can view changes over time to better understand its behavior. In similar ways, organizations around the world are utilizing visualization technologies to enhance business intelligence.

FIGURE 6.15 Mobile business intelligence can provide executives with relevant information regardless of location and device. source: power Bi 2016, Windows 10, Microsoft Corporation.

FIGURE 6.16 Visual analytics can help making sense of complex data relationships using a variety of graphical methods. source: nasa.

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Advanced Analytics In contrast to business intelligence tools, which primarily focus on analyzing structured or semi- structured data to examine past and current performance, advanced analytics are designed to help users gain a deeper understanding of why things happened and build predictive models to support human and automated decision making (the term data science is used to describe the advanced analytics field of study and practice). As such, advanced analytics uses both struc- tured and unstructured data to automatically gain meaningful insights by discovering patterns, trends, and relationships. Whereas business intelligence tools are primarily used by business users, advanced analytics are often used by business analysts or data scientists due to the com- plexity of the models and the underlying data. Enabled by advanced analytics are intelligent systems, which are designed to take some of these decisions out of the hands of the human deci- sion makers, thus freeing up valuable resources.

WHO’S GOING MOBILE Identifying Malaria Hotspots

A hotspot is a place of significance—whether it be a place for commerce or a place that is popular for dining and dancing. When we think about mobile technology and hotspots, we tend to think of busy places with free public access to Wi-Fi. Such Wi-Fi hotspots are often located where people gather together such as airports, train stations, libraries, convention centers, coffee shops, and hotels. Because hotspots are often surrounded by a large and dynamic number of individuals, researchers can use them to study a broad range of topics rang- ing from crowd movements to fashion and entertainment trends. To aid in this work, researchers have also created algo- rithms for estimating the number of people in a room that can- not be seen or even the number of people in a large crowd by analyzing the number of smartphone devices with their Wi-Fi antenna turned on within a given area. in the united states and in much of the developed world, there are lots of restrictions related to cell phone tracking due to numerous privacy con- cerns, but there are currently no laws restricting the tracking of devices connected to Wi-Fi. While using such techniques to estimate the number of people cannot lead to a perfect measure—as researchers have to make assumptions about the number people without devices, the number with Wi-Fi turned off, and even those with more than one device—it allows for a pretty good estimate. With a good estimate of the total num- ber of people, forecasts of various things can be made based on random sampling and knowing the population size.

In rural Africa, however, such Wi-Fi hotspots are not preva- lent, but cell towers are. In contrast to much of the developed world, many parts of the developing world allow cell phone tracking either through agreements with wireless providers or with local governments. While privacy concerns remain, researchers are using cell phone tracking data to study various health and infrastructure issues. Because many of these regions do not have complete wireless coverage, individuals intention- ally travel near cell towers in order to be able to make calls or send and receive messages. Thus, in many ways, a cell tower is a bigger version of the popular Wi-Fi hotspots we have all

become accustomed to utilizing through our daily routines. When a mobile phone is within range of a cell tower, it com- municates with the tower to let it know it is there. And, if there are messages stored in the network, they can be deliv- ered to the device. By knowing which phones are there, when, and for how long, researchers are able to identify who lives near a tower and who is traveling through the region. By studying the communication patterns, they can also gain insights on an individual’s social network of friends and family members.

Given lacking medical services in many areas of sub-Saha- ran Africa, infectious diseases are a big problem, with out- breaks often spreading within members of a social network. Thus, health researchers are studying cell phone traffic data to not only understand social networks but also gain insights related to the transmission of infectious diseases. For example, in studying the data from a single tower in Kenya, researchers found that people making calls or sending text messages from a particular tower were more likely to be carriers of malaria. As malaria is transmitted from person to person through mos- quito bites, researchers could predict who was likely to become infected by studying whom these people communicated with. They were also able to identify the source of the outbreak, a busy tea plantation that had many migrant workers. While the tracking of cell phone traffic raises many privacy concerns, using data mining and advanced analytics on these data is allowing researchers to better combat the spread of disease. Typical in the digital world, many advances come with equally troubling concerns.

Based on:

liszewski, a. (2015, June 9). Wifi networks can count people—no phones required. Gizmodo. retrieved June 28, 2016, from http://gizmodo.com/ wi-fi-networks-can-count-people-no-phones-required-1710033051

talbot, D. (2013). Big Data from cheap phones. Technology Review. retrieved June 28, 2016, from https://www.technologyreview .com/s/513721/big-data-from-cheap-phones

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Data Mining. Data mining complements OLAP in that it provides capabilities for discovering “hidden” predictive relationships in the data. Using complicated algorithms on powerful multiprocessor computers or cloud computing architectures, data mining applications can analyze massive amounts of data to identify characteristics of profitable customers, purchasing patterns, or even fraudulent credit card transactions. An algorithm refers to the step-by-step procedures used to make a calculation or perform some type of computer-based process. Typically, data mining algorithms search for patterns, trends, or rules that are hidden in the data so as to develop predictive models. Results from a data mining exercise (such as the characteristics of customers most likely to respond to a marketing campaign for a specific new product) can then be used in an ad hoc query (e.g., to identify customers sharing those characteristics so as to target them in the next campaign). It is important to note that any interesting predictive model derived from data mining should be tested against “fresh” data to determine if the model actually holds what it promises.

Sometimes, data mining is completely atheoretical, and companies search for hidden rela- tionships between data, akin to panning for gold. In other cases, business users formulate hypotheses (such as “customers with a household income of US$150,000 are twice as likely to respond to our marketing campaigns as customers with an income of US$60,000 or less”), and these hypotheses are tested against existing data. However, as with other business intelligence tools, being able to ask the right questions is the most crucial skill and should come before jump- ing into conclusions about the outcomes.

In order to increase predictive power, data mining algorithms are run against large data sets. Depending on the size of the data set (large data sets can contain many terabytes of data), data mining algorithms can take a long time to run; thus, an important preparatory step to running data mining algorithms is data reduction, which reduces the complexity of the data to be ana- lyzed. This can be achieved by rolling up a data cube to the smallest level of aggregation needed, reducing the dimensionality, or dividing continuous measures into discrete intervals.

Association Discovery One frequently used application of data mining is association discovery. Association discovery is a technique used to find associations or correlations among sets of items. For example, a supermarket chain wants to find out which items are typically purchased together in order to redesign the store’s layout and optimize the customers’ “navigational path” through the store or to launch a new promotion. Mining sales transactions over the past 5 years may reveal that 80 percent of the time, people who purchase coffee also purchase sugar (Figure 6.17). Association rules typically contain two numbers: a percentage indicating support (e.g., the combination of coffee and sugar occurs in 20 percent of all transactions analyzed) and a confidence level indicating the reliability (e.g., 80 percent of all transactions that contain coffee also contain sugar). These numbers help managers decide if the association rule is meaningful and if any changes (e.g., to store layout or pricing) based on the findings are worthwhile. Similar to association discovery, sequence discovery is used to discover associations over time. For example, it may be discovered that 55 percent of all customers who purchase a new high-definition TV set also purchase a Blu-ray disc player within the next 2 months.

Co�ee S Sugar [Support 20%, Confidence 80%]

?

FIGURE 6.17 Association rules symbolize associations among sets of items.

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Clustering and Classification Another useful application of data mining is clustering and classification. Clustering is the process of grouping related records together on the basis of having similar values for attributes, thus finding structure in the data. For example, a manufacturer of consumer electronics may find clusters around model preferences, age groups, and income levels. These results can then be used for targeting certain groups of customers in marketing campaigns. In contrast, classification is used when the groups (“classes”) are known beforehand, and records are segmented into these classes. For example, a bank may have found that there are different classes of customers who differ in their likelihood of defaulting on a loan. As such, all customers can be classified into different (known) risk categories in order to

ETHICAL DILEMMA Orwellian Internet of Things

In 1949, English author George Orwell wrote the novel “1984,” which described a futuristic tyrannical society with omnipresent government surveillance by an entity known as “Big Brother.” Big Brother was not a helpful and nurturing sib- ling but an entity that seeks power for its own sake and not for the good of others. Since his writing, Orwellian is an adjective reflecting actions that could be destructive to the welfare of a free and open society. Privacy advocates are concerned that many types of gadgets and home automation devices, falling under the Internet of Things (IoT) megatrend, when paired with advanced analytics capabilities, have the potential to have Orwellian impacts on society.

There are a wide range of IoT devices that are designed to scoop up massive amounts of data to aid humans and other sys- tems in our modern society. But as more and more data are col- lected and analyzed, many privacy advocates fear we are losing more and more of our anonymity and individual freedom. For example, when considering IoT devices, privacy advocates are concerned with a variety of questions. What data are IoT devices collecting? Who has access to these data? How can these data be used? And, as news reports demonstrate, IoT data can be used in unexpected, interesting, and legally significant ways.

Imagine all of the things that could be equipped with a sen- sor and have data collected about their use. For example, things like your toaster, refrigerator, thermostat, lighting, and even the front door lock on your apartment. All of those seem kind of cool, right? What about your toilet? That doesn’t sound too cool. If you have any concerns about a government reading your e-mail, how would you feel about a database collecting information on every time your toilet flushes? Imagine what a medical research group could do with such data. In sum, the data collected for every thing could end up in the hands of law enforcement, the government, marketing companies, and even malicious hackers. And this is not science fiction.

in 2016, the u.s. government admitted it was using iot devices for spying and snooping on possible terrorists and crim- inals. the u.s. director of national intelligence, James Clapper, made it clear that IoT sensors and devices are providing ample opportunities for intelligence agencies to spy on targets. “In the future, intelligence services might use the [Internet of Things] for identification, surveillance, monitoring, location tracking,

and targeting for recruitment, or to gain access to networks or user credentials,” Clapper told a Senate panel as part of his annual “assessment of threats” against the united states.

In combination with advanced analytics, the IoT will allow companies to provide unprecedented services to customers. Reminders, automatic ordering, activity tracking, and a pleth- ora of other conveniences will become a normal part of our lives. However, with all of these conveniences, we will also be providing an abundance of data about our daily lives that can at a minimum be a privacy invasion or be misused by malicious hackers or even our own government. While such Orwellian concerns were not possible in 1984, in today’s digital world, Big Brother has arrived.

Questions 1. If you use a fitness tracker or some other IoT device, should

the company be able to sell your data? Would it be accept- able to share the data with some but not others? Explain.

2. Typically, the company providing an IoT device owns its customers’ data. What laws or rules are needed to balance the needs of the company and the privacy of customers?

Based on:

Krieger, M. (2016, February 10). top u.s. official admits—government will use “Internet of Things” to spy on the public. Liberty Blitz Krieg. Retrieved May 27, 2016, from http://libertyblitzkrieg.com/2016/02/10/ top-u-s-official-admits-government-will-use-internet-of-things-to-spy- on-the-public

sullivan, C.C. (2016, January 20). FtC chairwoman raises concerns over the Internet of Things. FindLaw. Retrieved May 27, 2016, from http://blogs.findlaw.com/technologist/2016/01/ftc-chairwoman-raises- concerns-over-the-internet-of-things.html

swanson, B. (2015, February 25). the FCC’s Orwellian internet pol- icy. ComputerWorld. Retrieved May 27, 2016, from http://www .computerworld.com/article/2888366/the-fcc-s-orwellian-internet- policy.html

Timm, T. (2016, February 9). The government just admitted it will use smart home devices for spying. The Guardian. Retrieved May 27, 2016, from http://www.theguardian.com/commentisfree/2016/feb/09/ internet-of-things-smart-devices-spying-surveillance-us-government

ts, M. (2014, July 2). the internet of things is watching. Security Intel- ligence. Retrieved May 27, 2016, from https://securityintelligence.com/ internet-of-things-all-well-or-orwell

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ensure that the bank does not exceed a desired level of risk within its loan portfolio. Typically, classification would use a decision tree to classify the records.

UnstrUCtUrED Data analysis. Although the methods just described can help decision makers get a better view of their organization’s performance or their customers’ behavior, they only provide a partial picture. By focusing purely on structured data (such as transactions, credit lines, and so on), a wealth of unstructured data (such as customer sentiments voiced in online forums, letters, or service-related call center records) is left untapped; in fact, researchers estimate that 80 percent of all enterprise data consist of unstructured or semistructured data (Andriole, 2015), and with the tremendous increase of user-generated content on the web, this figure is likely to increase further. Therefore, making important business decisions purely based on structured data can be dangerous, as the massive amounts of unstructured data could either strengthen or contradict findings derived from analyzing only structured data. Hence, organizations are trying not only to reach a single version of the truth but also to get the whole truth by analyzing unstructured data using text mining, web content mining, or web usage mining.

Text Mining and Web Content Mining Text mining refers to the use of analytical techniques for extracting information from textual documents. For organizations, the analysis of textual documents can provide extremely valuable insights into business performance, competitors’ activities, or regulatory compliance. Such textual documents can include internal data such as letters or e-mails from customers, customer calls, internal communications, or external data such as blog posts, wikis, Twitter messages, and Facebook posts as well as competitor’s web pages, marketing materials, patent filings, and so on. Text mining systems use text processing, statistical analyses, machine learning, and other techniques to analyze a document’s linguistic structures to extract data such as places, companies, concepts, or dates. Most systems can easily extract a wide range of content and can be customized to meet an organization’s needs by adding specific key words related to competitors, product names, persons of interest, and the like. Obviously, when analyzing and using user-generated content, companies have to be aware of issues related to ethics and privacy but also security.

Web content mining refers to extracting textual information from web documents. To extract information from the overall Internet (or from some subset of websites), a document col- lection spider, or web crawler (discussed later), would gather web pages and documents that match some prespecified criteria and place their content in a massive document warehouse. Once collected, the text mining system would apply a variety of analytical techniques to produce reports that can be used to gain additional insights beyond what is typically gained when only mining structured data (Figure 6.18). The next challenge for organizations will be extracting useful information from audio or video streams on the web (so-called multimedia mining).

Analyzing textual documents can help organizations in various ways:

■■ The marketing department can use sentiment analysis to learn about customers’ thoughts, feelings, and emotions by analyzing not only customer e-mails or letters but also blogs, wikis, or discussion forums.

■■ The operations department can learn about product performance by analyzing service records, customer calls, or online product reviews and improve the product’s features or performance based on insights gained.

■■ Strategic decision makers can gather competitive intelligence by analyzing press releases, news articles, or customer-generated web content about competitors’ products.

■■ The sales department can learn about major accounts by analyzing news coverage. ■■ The human resources department can monitor employee satisfaction or compliance with

company policies by analyzing internal communications (this is especially important in order to comply with regulations such as the Sarbanes–Oxley Act; see Chapter 10).

■■ News reporters or intelligence agencies can find out what topics are trending when trying to understand public sentiments in unstable countries.

■■ Investigators can identify possible instances of noncompliance and fraud by analyzing e-mail communication within a company in a regulated industry.

Many major companies, including Capital One, Marriott International, United Airlines, and Walmart, use text mining solutions to assess customer sentiments and increase customer satis- faction. Similarly, raveable.com provides hotel ratings by aggregating information from sources

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such as Tripadvisor, Expedia, and Travelocity as well as individual travel blogs; in addition to aggregating numerical ratings given for aspects such as cleanliness, value, or location, raveable .com uses text mining to analyze review comments based on key words such as earplugs, noise, or clean and the associated sentiments so as to categorize the reviews and classify them as posi- tive or negative. We will further discuss social media monitoring and sentiment analysis and their role in customer relationship management in Chapter 8, “Strengthening Business-to- Business Relationships via Supply Chain and Customer Relationship Management.”

Web Usage Mining Web usage mining—also referred to as web analytics—is used by organizations such as Amazon.com to determine patterns in customers’ usage data, such as how users navigate through the site or how much time they spend on different pages. By analyzing users’ clickstream data (i.e., a recording of a user’s path through a website), a business such as Amazon.com can assess its pages’ stickiness (i.e., the ability to attract and keep visitors) and how customers navigate through different item categories, ultimately helping Amazon.com to optimize the structure of its website. In addition, organizations can monitor users’ mouse cursor movements to infer which areas of a web page get most attention by the visitors.

As with other business analytics systems, results from these analyses can be provided on digital dashboards, paper reports, web portals, e-mail alerts (using monitoring or data mining agents), and mobile devices as well as used by a variety of other information systems (Figure 6.19).

MaChinE lEarning. Whereas “conventional” computers are very adept at processing large amounts of data by rapidly executing a program’s instructions, they cannot easily adapt to different circumstances or deal with noisy data. If a conventional computer is presented with a novel problem that it is not programmed to solve, it cannot deal with this situation. Machine learning is a branch of artificial intelligence that allows systems to learn by identifying meaningful patterns when processing massive amounts of structured or unstructured data. Machine learning has enabled great advances in various fields; intelligent systems (discussed below) such as Google’s self-driving cars but also speech recognition, natural language processing, computer vision, web searching, image recognition, or predictive typing

Internet

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FIGURE 6.18 Text mining the Internet.

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(e.g., using smartphone keyboards such as SwiftKey or Swype) are based on advances in machine learning algorithms. Recently, Netf lix started applying machine learning algorithms to improve movie recommendations. One frequently used approach to machine learning is the use of artificial neural networks; neural networks, composed of a network of processing elements (i.e., artificial “neurons”) that work in parallel to complete a task, attempt to approximate the functioning of the human brain and can learn by example. Typically, a neural network is trained by having it categorize a large database of past information (e.g., a database of handwritten digits) for common patterns so as to infer rules (e.g., what features differentiate the digit 1 from a 7). These rules can then be applied to new data and conclusions drawn. For example, many financial institutions use neural network systems to analyze loan applications. These systems compare a person’s loan application data with the neural network containing the intelligence of the success and failure of countless prior loans, ultimately recommending loan acceptance (or rejection) (Figure 6.20). Newer neural-network based approaches— called deep learning—are getting ever closer to mimicking the human brain and enable great advances in areas such as voice or speech recognition; in 2016, banks started using voice recognition to identify online banking customers. In recent years, machine learning algorithms have made great progress, especially in applications where inputs and tasks are imprecise, such as classifying images. In particular, using Bayesian statistics or fuzzy logic allows using approximations or subjective values in order to handle situations where information about a problem is incomplete or imprecise. For example, a loan officer, when assessing a customer’s loan application, may generally categorize some of the customer’s financial information, such as income and debt level, as high, moderate, or low rather than using precise amounts. In addition to numerous business applications, fuzzy logic is used to better control antilock braking systems and household appliances as well as when making medical diagnoses or filtering offensive language in chat rooms.

prEDiCtivE MODEling. Traditional business intelligence applications are designed to focus on past and current performance, thus helping decision makers to get a detailed picture about the current state of a business. Advanced analytics augments business intelligence by using combinations of statistical analysis, data mining, and machine learning for predictive modeling to build explanatory models, which help understand the data, identify trends, or predict business outcomes; whereas business intelligence is good for knowing what is, advanced analytics helps in understanding why something is a certain way and foreseeing what will be. As such, predictive modeling tools extend traditional DSS and other BI tools by supporting forecasting, simulation, and optimization based on large volumes of structured, semistructured, and sometimes unstructured data. For example, predictive modeling can help

Inventory Data

Warehouse

Sales Data

Warehouse

Other Data

Sources

Business Intelligence and Advanced

Analytics Systems

Paper Reports

Digital Dashboards and Other Systems

E-mail Alerts

Mobile Users and Systems

FIGURE 6.19 Business intelligence can be delivered to users in a variety of ways.

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in developing predictive patterns based on not only historic purchase data (structured data) but also customer sentiments voiced in social media or call center records (unstructured data). Likewise, Uber is attempting to improve its pricing mechanism using predictive modeling. Under Uber’s current “surge pricing” mechanism, fares increase if there is increased demand (such as after concerts or during bad weather), which, in theory, should bring more drivers into an area where this increase in demand takes place. However, customers are often frustrated by being charged higher prices. Thus, Uber tries to build predictive models that are better able to forecast increased demand in certain areas at certain times, decreasing the effect of surges. However, predictive modeling is heavily dependent on statistical models and their underlying assumptions; likewise, as with all advanced analytics, analyzing unstructured data still remains relatively costly.

intElligEnt systEMs. Artificial intelligence (AI) is the science of enabling information technologies—software, hardware, networks, and so on—to simulate human intelligence, such as reasoning and learning, as well as gaining sensing capabilities, such as seeing, hearing, or feeling. AI has had a strong connection to science fiction writers, who have written stories about AI-enabled technologies aiding humans (e.g., Mr. Data in Star Trek: The Next Generation), attempting world domination (e.g., The Matrix), or enabling humans to exist on an alien planet (e.g., Avatar). The current reality of AI is that it is lagging far behind the imagination of most science fiction writers; nevertheless, great strides have been made.

Based on complex machine learning algorithms, intelligent systems—composed of sen- sors, software, and computers embedded in machines and devices—emulate and enhance

Age Income Debt Level Financial History Job Status Length of Employment Home Ownership Assets Investments Marital Status Spouse Income Dependents Health . . .

Process

Neural Network System

Input Output

Recommendation

Approve Loan

Reject Loan

Investments Debt Level

Home Ownership

Spouse Income

Financial History

Length of Employment

Age

Income

Assets

Job Status

Marital Status

FIGURE 6.20 Neural networks approximate the functioning of the brain by creating common patterns in data and then comparing new data to learned patterns to make a recommendation.

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human capabilities. Intelligent systems are having a tremendous impact in a variety of areas, including banking and financial management, medicine, engineering, and the military. Big Data has been both a challenge and an opportunity for artificial intelligence. On the one hand, vast amounts of different forms of data make machine algorithms increasingly complex; on the other hand, Big Data provides a treasure trove of potential insights and applications of intelli- gent systems. For many applications, intelligent systems assist in or perform real-time decision making, often using vast amounts of data. For example, many see vast promises in the use of AI for trading, removing the inf luence of traders’ emotions, which often lead to suboptimal trad- ing decisions. Likewise, advanced driver assistance systems (such as adaptive cruise control or lane-keeping systems offered in various new car models) or driverless cars of the future rely on intelligent systems to make real-time decisions based on up to 1GB of data per second, coming from various sensors, cameras, or radar. Over the past few years, the cost of sensors has been in free fall; for example, accelerometer sensors (built into many smartphones to measure motion) now cost only around US$0.50. The combination of machine learning and decreasing prices of sensors is fueling the development of sensor-driven computing. Sensors providing data about everything from motion to voltage to pressure or even chemistry can provide a tremendous amount of useful data, which can then be used to improve performance, a device’s life span, and so on. Artificial intelligence also fuels the rapid advances in drone technology and robotics that we see today, such as drones that can monitor product placement and stock levels in Walmart’s warehouses or robots built to replace human pickers in Amazon’s warehouses. Fur- ther, the combination of AI and sensors has enabled the creation of collaborative robots, which can work alongside human workers (and react if there is possible danger) instead of having to be placed in segregated areas.

However, advances in artificial intelligence have fueled many ethical debates, such as how to ensure that AI (and robots) only learns in the way humans intend. For example, using unsupervised learning, a robot (or other intelligent system) can improve its own learning by making changes to learning rules and monitoring the results; as a consequence, such intelli- gent systems must be programmed to stop the system without the system learning how to cir- cumvent this.

Intelligent Agent Systems An intelligent agent, or simply an agent (also called a bot— short for “software robot”), is a program that works in the background to provide some service when a specific event occurs. There are several types of agents for use in a broad range of contexts, including the following:

■■ User Agents. Agents that automatically perform a task for a user, such as automatically sending a report at the first of the month, assembling customized news, or filling out a web form with routine information.

■■ Buyer Agents (Shopping Bots). Agents that search to find the best price for a particular product you wish to purchase.

■■ Monitoring and Sensing Agents. Agents that keep track of key data, such as data pro- vided by various sensors, meters, cameras, and the like, notifying the user when conditions change.

■■ Data Mining Agents. Agents that continuously analyze large data warehouses to detect changes deemed important by a user, sending a notification when such changes occur.

■■ Web Crawlers. Agents that continuously browse the web for specific information (e.g., used by search engines)—also known as web spiders.

■■ Chatbots. Agents that simulate human conversations, such as in online help systems. ■■ Destructive Agents. Malicious agents designed by spammers and other Internet attackers

to farm e-mail addresses off websites or deposit spyware on machines.

One example of an intelligent agent is Apple’s Siri personal assistant, built into its iPhones. Similarly, Cortana is a personal assistant built into various Microsoft platforms. Over time, Cor- tana learns about a user’s habits and performs certain actions based on certain triggers such as time of the day, location, incoming or outgoing phone calls, searches, and so on. For example, in the morning, the user automatically receives an alert about the weather in his or her current loca- tion; when passing by a subway station, public transport information is presented; when on a trip, the time to travel back home is automatically calculated (taking into consideration factors such as traffic situation); and so on (Figure 6.21).

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SECURITY MATTERS Hacktivists Versus Fembots: The Ashley Madison Case

On July 15, 2015, the impact team, a group of hacktivists, broke into the systems of the extramarital dating website Ashley Madison, which it accused of deceptive business prac- tices, such as requiring users to pay for having their account (and the associated data) deleted. Having gained access to sev- eral gigabytes of data, including login names, identifying infor- mation, and even expressed sexual desires of the site’s users, the hacktivists demanded the site to shut down, threatening to publish user data. To reinforce the demand, the Impact Team released a small amount of its data several days later, after the site was not shut down as requested by the hackers. later in August 2015, the hackers posted data about 32 million users, resulting in a chain reaction of events in the lives of many of those named in the posted data. Some denied involvement, some committed suicide, and many others began a long ordeal of explaining to loved ones how their names, credit card data, and other personal data became part of the released data.

later analysis of the hacked data revealed that a large pro- portion of the female accounts were chatbots—so-called fem- bots, (more or less) intelligent agents designed to start a chat with unsuspecting men, enticing them to purchase credits to contact the make-believe female members. As most people, Ashley Madison’s users probably had not read Ashley Madison’s terms and conditions before agreeing to them: In the terms and conditions, Ashley Madison stated that conversations may not be authentic, may be exaggerated, or may even be fictitious.

Whether or not running a dating portal for extramarital affairs in the pursuit of earning money is ethical is debatable. Whether asking users to pay for deleting account data or using chatbots to lure unsuspecting customers would be considered deceptive business practices is debatable. likewise, whether or not the Impact Team’s actions in response to Ashley Madison using deceptive business practices were warranted is debatable. What is clear is that Ashley Madison did not sufficiently protect user data, allowing the hacktivists to gain access to the data, resulting in an avalanche of negative consequences for many.

Based on:

Ashley Madison data breach. (2016, May 19). In Wikipedia, The Free Encyclopedia. Retrieved May 28, 2016, from https://en.wikipedia.org/w/ index.php?title=Ashley_Madison_data_breach&oldid=721001290

Calpito, D. (2015, september 16). ashley Madison’s terms of service says so: users are cheating on their spouses with fembots. Tech- Times. retrieved June 17, 2016, from http://www.techtimes.com/ articles/85172/20150916/ashley-madison-s-terms-of-service-says-so- users-are-cheating-on-their-spouses-with-fembots.htm

Dreyfuss, e. (2015, august 19). how to check if you or a loved one were exposed in the Ashley Madison hack. Wired. retrieved June 15, 2016, from https://www.wired.com/2015/08/ check-loved-one-exposed-ashley-madison-hack

M c H u g h , M . ( 2 0 1 5 , S e p t e m b e r 4 . ) . T h e d a n g e r s o f l o o k - ing at Ashley Madison hack infographics. W ired. Retrieved J u n e 1 5 , 2 0 1 6 , f r o m h t t p : / / w w w. w i r e d . c o m / 2 0 1 5 / 0 9 / dangers-looking-ashley-madison-hack-infographics

FIGURE 6.21 Cortana, an intelligent agent built into various Microsoft platforms, presents pertinent information based on factors such as the user’s habits, location, and time of day. Source: Cortana, Windows 10, Microsoft Corporation.

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In sum, there are ongoing developments to make information systems smarter so that orga- nizational decision makers gain business intelligence. Although intelligent systems have yet to realize the imagination of science fiction writers, they have taken great strides in helping organi- zations enhance decision making.

Knowledge Management and geographic information systems As you have seen, there are various tools organizations can use to enhance their decision mak- ing. In addition to analyses and predictions using various types of structured and unstructured data, organizations draw on other sources of data and knowledge. In particular, organizations use knowledge management systems to manage organizational knowledge assets and use geographic information systems to manage and analyze spatially referenced data to provide spatial decision support. These are discussed next.

Knowledge Management Systems There is no universal agreement on what exactly is meant by the term knowledge management. In general, however, knowledge management refers to the processes an organization uses to gain the greatest value from its knowledge assets. In Chapter 1, we contrasted data, informa- tion, and knowledge. Recall that data are raw, unformatted symbols such as characters or num- bers. Information is data that have been formatted, organized, or processed in some way so that the result is useful to people. We need knowledge to understand relationships between different pieces of information. Consequently, what constitutes knowledge assets are all the underlying skills, routines, practices, principles, formulas, methods, heuristics, and intuitions. All data- bases, manuals, reference works, textbooks, diagrams, displays, computer files, proposals, plans, and any other artifacts in which both facts and procedures are recorded and stored are considered knowledge assets. From an organizational point of view, properly used knowledge assets enable an organization to improve its efficiency, effectiveness, and, of course, profitabil- ity. Additionally, as many companies are beginning to lose a large number of baby boomers to retirement, companies are using knowledge management systems to capture these crucial knowledge assets. Clearly, effectively managing knowledge assets will enhance business intelligence.

Knowledge assets can be categorized as being either explicit or tacit. Explicit knowledge assets reflect knowledge that can be documented, archived, and codified, often with the help of information systems. Explicit knowledge assets ref lect much of what is typically stored in a DBMS. In contrast, tacit knowledge assets reflect the processes and procedures that are located in a person’s mind on how to effectively perform a particular task (Figure 6.22). Identifying key

Explicit Knowledge Assets Tacit Knowledge AssetsFIGURE 6.22 Explicit knowledge assets can easily be documented, archived, and codified, whereas tacit knowledge assets are located in a person’s mind.

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tacit knowledge assets and managing these assets so that they are accurate and available to peo- ple throughout the organization remains a significant challenge.

Tacit knowledge assets often reflect an organization’s best practices—procedures and pro- cesses that are widely accepted as being among the most effective and/or efficient. Identifying how to recognize, generate, store, share, and manage this tacit knowledge is the primary objective for deploying a knowledge management system. Consequently, a knowledge management system is typically not a single technology but rather a collection of technology-based tools that include communication technologies—such as e-mail, groupware, instant messaging, and the like—as well as information storage and retrieval systems, such as wikis or DBMSs, to enable the genera- tion, storage, sharing, and management of tacit and explicit knowledge assets (Malhotra, 2005).

Benefits and Challenges of Knowledge Management Systems Many potential benefits can come from organizations’ effectively capturing and utilizing their tacit knowledge assets (Levinson, 2010) (Table 6.7). Although there are many potential benefits for organizations that effectively deploy knowledge management systems, to do so requires that several substantial challenges be overcome.

First, effective deployment requires employees to agree to share their personal tacit knowledge assets and to take extra steps to utilize the system for identifying best practices. Therefore, organizations must create a culture that values and rewards widespread participation.

Second, experience has shown that a successful deployment must first identify what knowl- edge is needed, why it is needed, and who is likely to have this knowledge. Once an organization understands “why, what, and who,” identifying the best technologies for facilitating knowledge exchange is a much easier task.

Third, the successful deployment of a knowledge management system must be linked to a specific business objective (e.g., increase innovativeness); and fourth, the knowledge manage- ment system must be easy to use, not only for entering but also for retrieving knowledge. Simi- larly, the system cannot overload users with too much information or with information that is obsolete. Just as physical assets can erode over time, knowledge can also become stale and irrel- evant. Therefore, an ongoing process of updating, amending, and removing obsolete or irrele- vant knowledge must occur, or the system will fall into disarray and will not be used.

How Organizations Utilize Knowledge Management Systems The people using a knowledge management system will be working in different departments within the organization, performing different functions, and will likely be located in different locations around the building, the city, or even the world. Each person—or group of people—can be thought of as a separate island that is set apart from others by geography, job focus, expertise, age, and gender. Often, a person on one island is trying to solve a problem that has already been solved by another person located on some other island. Finding this “other” person is often a significant challenge. The goal of a successful knowledge management system is to facilitate the exchange of needed knowledge between these separate islands. To find and connect such separate islands, organizations use social network analysis, a technique that maps people’s contacts to discover connections or missing links (sometimes called structural holes) within the organization (Figure 6.23); thus, social network analysis can be used to attempt to find groups of people who work together, to find people who don’t collaborate but should, or to find experts in particular subject areas. In addition to social network analysis, organizations use social bookmarking and social cataloging to capture and structure employees’ knowledge and harness

TABLE 6.7 Benefits and Challenges of Knowledge Management systems

Benefits Challenges

Enhanced innovation and creativity

Improved customer service, shorter product development, and streamlined operations

Enhanced employee retention

Improved organizational performance

Getting employee buy-in

Focusing too much on technology

Forgetting the goal

Dealing with knowledge overload and obsolescence

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their collective intelligence (see Chapter 5, “Enhancing Organizational Communication and Collaboration Using Social Media”).

Once organizations have collected their knowledge into a repository, they must find an easy way to share it with employees (often using an intranet), customers, suppliers (often using an extranet), or the general public (often using the Internet). These knowledge portals can be customized to meet the unique needs of their intended users. For example, the U.S. Food and Drug Administration (FDA) uses a web-based knowledge portal for keeping the public (e.g., citizens, researchers, and industry) informed on the most up-to-date information related to food (e.g., information on mad cow disease or product recalls) and drugs (e.g., the status of a drug trial) (Figure 6.24).

Campbell_D Parboteeah_V

Jenkins_J

Lowry_PValacich_J

Hardin_A

Schneider_C

Chakraborty_S

Fuller_M Scott_KFIGURE 6.23 Social network analysis can help to analyze collaboration patterns.

FIGURE 6.24 Countless organizations are using web-based knowledge portals to provide information to employees, customers, and partners. source: united states Food and Drug administration.

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In addition to the FDA, countless other organizations, such as Ford Motor Company, Eli Lilly, Walmart, and Dell Computers, are also using knowledge management systems. We are learning from these deployments that all organizations, whether for-profit or nonprofit, struggle to get the right information to the right person at the right time. Through the use of a comprehen- sive strategy for managing knowledge assets, organizations are much more likely to gain a com- petitive advantage and a positive return on their IS investments.

Geographic Information Systems One type of information system used to enhance decision making is called a geographic information system (GIS). A GIS is a system for creating, storing, analyzing, and managing geographically referenced data. In other words, GISs augment and extend other business ana- lytics tools by adding a spatial dimension to data; a GIS captures various characteristics about geographic locations, allowing these characteristics to be coupled with other data to support querying, analysis, and decision making (sometimes referred to as location analytics). For example, a GIS could link the square footage of commercial real estate to its exact location in terms of latitude and longitude. These data could be paired with population density, average incomes of people living within an area, travel accessibility (e.g., interstate highways and major thoroughfares), proximity to services (e.g., fire, police, restaurants, pub- lic transportation stops), or virtually any other characteristic. A business such as a restaurant chain could use this information to identify optimal locations for the placement of new out- lets. On a personal level, you probably frequently interact with GISs. For example, when you’re accessing Google Maps to search for a restaurant in your town, you can view geo- graphic data (such as the map or the satellite image) as well as attribute data about restau- rants, including name, address, opening hours, and customer reviews. With the increase in mobile devices, geospatial data is increasingly becoming part of many applications and often serves as the foundation for many business models. For example, companies such as the car- hailing app Uber could not provide services without being able to match the locations of rid- ers and drivers.

Businesses typically face many decisions with a spatial dimension: Where are my cus- tomers located? Where is the best location to open a new store? Which areas should be included in the next mailing? How far are my customers willing to drive? One application of GISs is their use as spatial decision support system, helping to create models used to answer questions such as where a company such as Levi Strauss should add authorized resellers or how, where, and what kinds of fertilizers farmers should apply, enabling precision farming (see Table 6.8 for various industry uses of GISs). Depending on the problem to be solved, spa- tial decision support systems can use factors such as climate, water, transportation, resource management, agriculture, and so on, to build models that help forecast potential outcomes of land use decisions.

In organizational settings, analysts can use GISs to combine geographic, demographic, and other data for locating target customers, finding optimal site locations, or determining the right product mix at different locations; additionally, GISs can be used to perform a variety of analy- ses, such as market share analysis and competitor analysis. Cities, counties, and states also use GISs for aiding in infrastructure design and zoning issues (e.g., where should the new elemen- tary school be located?). For the various geospatial aspects you can map with GISs, refer to Table 6.9. How does a GIS help in visually analyzing geospatial and related data? Typically, a GIS provides a user with a blank map of an area. The user can then add data stored in different layers, each resembling a transparency containing different information about the area; for example, one layer may contain all roads, another layer may contain ZIP code boundaries, and yet other layers may contain floodplains, average household sizes, locations of coffee shops, or other information of interest (in Google Earth, you can view various layers, such as roads, traffic patterns, weather, earthquakes, golf courses, and so on; see Figure 6.25). Adding or removing those layers helps to view the relevant information needed to answer questions that have a spa- tial dimension.

One question that organizations often face is where the customers come from. In order to answer this question, organizations typically use data from survey respondents (or the cashier asks for customers’ ZIP codes); these data are then geocoded (i.e., transformed into coordinates) to create a layer containing customer data that can then be added to a map. Comparing custom- ers’ locations with the location of one’s business can help in deciding whether the store has the

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TABLE 6.8 various industry Uses of giss

Industry Sample Uses

Agriculture Analyze crop yield by location, soil erosion, or differences in fertilizer needs (precision farming)

Banking Identify lucrative areas for marketing campaigns

Disaster response Analyze historical events, set up evacuation plans, and identify areas most likely to be affected by disasters

Environment and conservation Analyze wildlife behaviors or influences of climate change

Insurance Risk analysis (e.g., earthquake insurance)

Government Urban planning, zoning, and census planning

Law enforcement Analyze high-crime areas

Marine biology Track movements of fish swarms

Media Create maps to visualize locations of events and analyze circulation

Mining and drilling Locate potential areas for extraction of natural resources

Real estate Create maps to visualize locations of properties

Retail Analyze sales, inventory, customers, and so on, by location; identify new retail locations; and visualize and present business data

Transportation and logistics Route planning

Source: Based on ESRI, http://www.esri.com/what-is-gis/who-uses-gis.

TABLE 6.9 various Ways of representing geospatial Data

Mapping Example

Features and patterns (i.e., distribution of features)

Earthquake epicenters (features) and areas where the hazard may be highest (patterns)

Quantities The number of young families with a high income in a census district

Densities Number of high-income families per square mile in a census district

What’s inside Does a luxury real estate development fall within a 15-minute driving radius of a store?

What’s nearby How many Starbucks stores are within 5 miles of my new coffee shop?

Change How have store sales changed after a large ad campaign?

Source: Based on ESRI, http://www.esri.com/what-is-gis/overview.

optimal location or whether opening a new store would be warranted. Relatedly, trade area anal- ysis helps to assess where customers are coming from by combining location information with, for example, drive time information to determine if certain areas are underserved or if two stores’ trade areas overlap. Another way to visualize geospatial data is by using thematic maps. The- matic maps color-code data that are aggregated for specific geographic regions. For example, a thematic map could display the median household income in different blocks, or it could display average household sizes, helping a business to identify areas with the most promising target population; similarly, an insurance company could use GISs to determine where certain crimes

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(such as car theft) most frequently occur. Another use of GIS is analyzing paths shoppers take in a retail store, allowing retailers to assess whether the placement of products or promotional dis- plays is effective.

GIS benefit greatly from advances in machine learning, especially for recognizing and clas- sifying geographical features, such as land or soil. In particularly, many situations (such as in agriculture, resource extraction, or nature conservation) require the analysis of aerial imagery (acquired using satellites or drones). Typically, such classification tasks are inherently imprecise and do not lend themselves easily to binary classifications. Machine learning algorithms, how- ever, enable such analyses, offering much potential for applications ranging from agriculture to disaster recovery.

Further, the Internet of Things and mobile technologies have enabled far more mean- ingful analyses than ever. For example, Google Maps performs real-time analyses of loca- tion data from literally hundreds of millions of mobile phone users (such as Android users who have location services enabled or iPhone users running Google Maps) to estimate the number of cars and traffic conditions on any given road; such analyses enable Google to provide information about traffic conditions and suggest alternative routes in case there are traffic jams on a given route. In addition, Google has used these data to build a tremendous repository of historical traffic data, allowing Google to predict how traffic conditions are likely to be once a user reaches a certain area. Likewise, the data collected by countless IoT devices can be augmented with geospatial data, allowing users to harness the benefits of IoT technologies in mobile settings, where precise information about a sensor’s location is needed.

In addition to helping in analysis, GISs are also increasingly used by governments and organizations to effectively communicate with stakeholders. For example, many retail chains such as Best Buy and Walmart incorporate map-based store locators into their web- sites. When users search for a store by city, state, or ZIP code, the website returns a map showing the store’s location (geographic data) along with attribute data such as distance, street address, phone number, and opening hours. Similarly, organizations use output from GISs to communicate to their stockholders about expansion plans, retail store density, and the like.

Clearly, GISs, like all the systems described here, are providing organizations with business intelligence to better compete in the digital world.

FIGURE 6.25 Google Earth uses layers to display information related to a specific geographical area. Source: 2016 Google Inc. All rights reserved. google and the google logo are registered trademarks of Google Inc.

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INDUSTRY ANALYSIS Healthcare

Do you remember the times when your doctor wrote a pre- scription and the handwriting was worse than your professor’s, making you wonder how the pharmacist could ever decipher it and dispense the correct drugs? If you recently went to a doc- tor, you may have noticed that information systems have had a huge impact on the healthcare field; indeed, health informatics (or healthcare IS) has become a key focus of healthcare provid- ers, insurance companies, and governments. now, many doc- tors carry laptops or tablets, allowing them to digitally store any diagnosis, facilitating the sharing of information between the physician, nurses, and even your medical insurance pro- vider. In addition to providing access to electronic patient records, the laptop or tablet provides your physician access to medical and drug information, as offered by the Physician’s Desk Reference website (www.pdr.net), where your physician can obtain the latest information about drugs and clinical guidelines or check interactions between different drugs.

Information systems have also tremendously changed the diagnosis and monitoring of patients. For example, modern electroencephalogram (EEG) and electrocardiogram (EKG) devices heavily depend on computer technology, and, as the name implies, computed tomography (used to produce images of internal organs) could not be performed without computer technology. Even diagnostic tests such as X-rays now use digi- tal technology, allowing the doctor to digitally enhance the image for improved diagnosis or to electronically transmit the image to a remote specialist. Following the diagnosis of a serious condition, technology can even help in the operating room. For example, many modern clinics use surgical robots and endoscopes for delicate procedures such as neurosurgery or gastrointestinal surgery. Taken a step further, such systems can be used for what is referred to as telemedicine, including remote diagnosis and remote surgery. Whereas traditionally a patient had to travel thousands of miles to visit a special- ized surgeon, many surgeries can now be performed remotely, reducing the strain on the patient and potentially saving pre- cious time. Further, telemedicine applications can be used for remote locations, battlefields, or even prisons, reducing costs for transporting patients and improving care.

Just as physicians, insurance companies, and healthcare providers are turning to information systems to improve busi- ness processes and better serve patients’ needs, consumers are increasingly using the Internet for health information. For example, WebMD is one of the most popular websites providing health-related information, priding itself on hav- ing high-quality, timely, and unbiased information. In addi- tion to objective information, people use social media to obtain information beyond what’s published by the experts. Specifically, people seeking physician and hospital rankings or recommendations frequent blogs, health-related discus- sion forums, or review sites such as rateMDs (ratemds.com)

or angie’s list (angieslist.com). Further, major search engines such as Microsoft’s Bing are constantly refining their search algorithms to provide the most relevant information to health-related queries. Another important trend is the use of personal sensors, devices, and services to keep track of a variety of things about your health and well-being. For exam- ple, there are numerous products to help you quantify vari- ous aspects of your life, from Wi-Fi–connected body scales and fitness trackers to mood monitoring, blood testing, sleep monitoring, and even Dna sequencing. the internet of Things is playing a huge role in fueling various aspects of the quantified self, a movement to incorporate data acquisition on various aspects of a person’s daily life in order to chart self-improvement and other objectives. These and other data sources throughout the digital world are creating massive amounts of data that can be used by researchers to better understand various health-related issues. likewise, doctors and hospitals are increasingly using IoT-enabled healthcare devices, and healthcare providers are using data analytics for everything from researching drug interactions to monitoring healthcare costs, quality of service, and effectiveness of treat- ments. needless to say, Big Data and analytics are transform- ing the healthcare industry.

Regardless of whether you’re visiting your doctor about a condition or for a routine checkup or if you need more infor- mation about what your doctor is telling you, various informa- tion systems are likely to play a major role.

Questions 1. Discuss the benefits and drawbacks of online medical

records. 2. Computer-aided diagnosis can replace years of experience,

providing opportunities for young, inexperienced physi- cians. Contrast the benefits and drawbacks for the patients and the physicians.

3. Will there be a place for physicians without computer skills in the future? Why or why not?

Based on:

Anonymous. (n.d.). What is telemedicine? American Telemedi- cine Association. retrieved June 29, 2016, from http://www .americantelemed.org/about-telemedicine/what-is-telemedicine

Massey, p. M. (2016). Where do u.s. adults who do not use the inter- net get health information? Examining digital health information dis- parities from 2008 to 2013. Journal of Health Communication, 21(1), 118–24.

Quantified self. (2016, June 28). in Wikipedia, The Free Encyclope- dia. retrieved June 29, 2016, from https://en.wikipedia.org/w/index .php?title=Quantified_Self&oldid=727407441

telemedicine. (2016, June 22). in Wikipedia, The Free Encyclopedia. retrieved June 29, 2016, from https://en.wikipedia.org/w/index.php?ti tle=Telemedicine&oldid=726471226

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Key points review 1. Describe the need for business intelligence and

advanced analytics and how databases serve as a foundation for making better business decisions. Businesses need to quickly respond to external threats and opportunities arising from unstable market conditions, fierce competition, short product life cycles, government regulation, or fickle customers; business intelligence and advanced analytics tools can help organizations gain meaningful insights from ever- increasing amounts of structured and unstructured data. Organizations use databases to capture and manage the data that can later be used as input to business intelligence applications. A database is a collection of related data organized in a way that facilitates data searches and contains entities, attributes, records, and tables. A DBMS is a software application with which you create, store, organize, and retrieve data from a single database or several databases. The data within a database must be adequately organized so that it is possible to store and retrieve data effectively. To support more effective business processes, businesses use online transaction processing. Data from operational systems serve as an input to informational systems. Master data management helps organizations to arrive at a “single version of the truth” to gather business intelligence; data warehouses and data marts support the integration and analysis of large data sets.

2. Explain core concepts of business intelligence and advanced analytics. Business intelligence tools enable business users to analyze past and current data to obtain an understanding what has happened. Traditionally, decision support systems were used to support human

and automated decision making. OLAP tools offer the ability to perform complex multidimensional queries. Visualization refers to the display of complex data relationships using a variety of graphical methods. Results of complex analyses as well as key performance indicators are displayed on digital dashboards, which are often used to provide decision makers with the right information in an easy-to-understand way. Visual analytics combines the human visual system and analysis techniques to aid in the analysis of complex relationships and make sense of “noisy” data. Advanced analytics tools, in contrast, are used by business users as well as business analysts and data scientists to gain a deeper understanding of why things happened and to build predictive models. Advanced analytics models are often used to discover “hidden” relationships in data. Data mining is used for association discovery and clustering and classification. Unstructured data analysis is used to extract information from textual documents. Intelligent systems, based on machine learning and artificial neural networks, work to emulate and enhance human capabilities.

3. Describe how organizations can enhance decision making by using knowledge management and geographic information systems. Knowledge management systems are a collection of technology- based tools that enable the generation, storage, sharing, and management of tacit and explicit knowledge assets. GISs aid in storing, analyzing, and managing geographically referenced data and provide spatial decision support for a variety of applications.

Key terms ad hoc query 236 advanced analytics 226 algorithm 246 artificial intelligence (AI) 251 association discovery 246 attribute 231 bot 252 business analytics 226 business intelligence (BI) 226 business rules 234 buyer agent 252 chatbot 252 classification 247 clickstream data 249 clustering 247 competitive intelligence 248 continuous planning process 229 data cleansing 238

data dictionary 234 data-driven organization 226 data mart 239 data mining 246 data mining agent 252 data model 234 data reduction 246 data science 245 data type 234 data warehouse 238 decision support system (DSS) 240 destructive agent 252 digital dashboard 242 dimension 241 drill down 241 drill-down report 236 entity 231 exception report 236

explicit knowledge asset 254 extraction, transformation,

and loading 238 fact 241 form 235 fuzzy logic 250 geographic information

system (GIS) 257 in-memory computing 241 informational system 237 intelligent agent 252 intelligent system 251 key-indicator report 236 knowledge assets 254 knowledge management 254 knowledge management system 255 knowledge portal 256 layer 257

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location analytics 257 machine learning 249 master data 234 master data management 234 measure 241 model 240 monitoring and sensing agent 252 neural network 250 NoSQL 233 OLAP cube 241 OLAP server 241 online analytical processing

(OLAP) 241 online transaction processing

(OLTP) 237 operational system 236

predictive modeling 250 query 235 record 231 relational database management system

(RDBMS) 232 report 235 report generator 235 roll up 241 scheduled report 236 semistructured data 228 sentiment analysis 248 sequence discovery 246 shopping bot 252 slicing and dicing 241 social network analysis 255 stickiness 249

structured data 228 Structured Query Language

(SQL) 235 table 231 tacit knowledge asset 254 text mining 248 unstructured data 228 user agent 252 visual analytics 244 visual data discovery 244 visualization 242 web content mining 248 web crawler 252 web spider 252 web usage mining 249 what-if analysis 240

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

review Questions 6-1. How can a continuous planning process help

businesses respond to external threats and opportunities?

6-2. Describe the differences between entities, tables, rows, and attributes in a database.

6-3. What is the importance of master data management?

6-4. What are the advantages of a DBMS? 6-5. Explain the differences between OLAP and

OLTP. 6-6. How can visual analytics be used to improve

decision making? 6-7. Describe how OLAP enables a user to

conduct multidimensional queries. 6-8. Explain the difference between clustering and

classification.

MyMISLab

MyMISLab

6-9. What is the relationship between measures and dimensions?

6-10. Describe and give examples of two types of web mining.

6-11. What is a website’s stickiness, and why is it important?

6-12. Explain the purpose of a model within a DSS. 6-13. Describe four types of intelligent agents. How

can they be used to benefit organizations? 6-14. What is a knowledge management system,

and what types of technologies make up a comprehensive system?

6-15. What is the purpose of using layers in GIS applications?

MyMISLab

self-study Questions 6-16. In an RDBMS, an entity is represented as a(n)

______________. A. attribute B. table C. row D. association

6-17. A(n) ______________ report provides a summary of critical metrics on a recurring schedule. A. scheduled B. exception C. key indicator D. drill-down

6-18. In order to swiftly respond to a highly competitive and rapidly changing environment, organizations utilize a ______________. A. continuous planning process B. structured decision-making process C. structured decision support process D. continuous decision-making process

6-19. To determine the likelihood of new customers to default on a loan, a manager in a bank would typically use ______________. A. association discovery B. sequence discovery C. classification D. clustering

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6-24. What is true about knowledge management? A. As baby boomers retire at an increasing rate,

knowledge management is helping organizations capture their knowledge.

B. A knowledge management system is not a single technology but a collection of technology-based tools.

C. Finding the right technology to manage knowledge assets is much easier than identifying what knowl- edge is needed, why it is needed, and who has this knowledge.

D. All of the above are true. 6-25. Which of the following is an example of attribute data

commonly used in GIS applications? A. structured data B. longitude C. trade area D. annual sales Answers are on page 265.

6-20. Web usage mining entails analyzing ______________. A. clickstream data B. page content C. associations among sets of items D. unstructured data

6-21. Market share analysis is typically used by the ______________ function of an organization. A. marketing B. accounting C. production D. management science

6-22. Big Data is characterized by all of the following except ______________. A. verifiability B. velocity C. variety D. volume

6-23. ______________ agents keep track of key information such as inventory levels, notifying the users when con- ditions change. A. User B. Buyer C. Monitoring and sensing D. Data mining

problems and Exercises 6-26. Match the following terms with the appropriate

definitions: i. Social network analysis

ii. Measures iii. Master data iv. Web content mining v. Continuous planning process

vi. Data mining vii. Business intelligence

viii. Digital dashboard ix. Geographic information system x. DSS

a. An information system designed to store and analyze spatially referenced data

b. Tools and techniques for analyzing and visualizing both structured and unstructured data to obtain an understanding of current and past performance

c. A technique that attempts to find groups of people who work together, to find people who don’t col- laborate but should, or to find experts in particular subject areas

d. A set of methods used to find hidden predictive re- lationships in a data set

e. A strategic business planning process involving continuous monitoring and adjusting of business processes to enable rapid reaction to changing busi- ness conditions

f. The values or numbers a user wants to analyze g. A special-purpose information system designed to

support organizational decision making

h. Extracting textual information from web documents i. A user interface visually representing summary

information about a business’s health, often from multiple sources

j. The data that are deemed most important in the operation of a business

6-27. Interview a top-level executive within an organization with which you are familiar and find out the organi- zation’s most important external threats. Can busi- ness intelligence or advanced analytics tools help to respond to these threats? If so, how; if not, why not?

6-28. Visit www.amazon.com and search for a product of interest to you. What attributes are likely stored in Amazon.com’s database?

6-29. Using a search engine, enter the key word “data ware- housing.” Who are the large vendors in this industry? What type of solutions do they offer to their clients? Do you see any common trends in data warehousing?

6-30. Visit CNN Money (http://money.cnn.com/calculator/ retirement/retirement-need) on the web to plan your retirement using a DSS. What did you learn? To what extent is the DSS useful in planning your retirement? If you browse through CNN Money, what other inter- esting stuff do you find?

6-31. Interview a top-level executive within an organization with which you are familiar and determine the extent to which the organization utilizes tools for information visualization or digital dashboards. Does this indi- vidual utilize these tools in any way? Why or why not? Which executives do utilize such tools?

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6-32. Think about the junk mail you receive every day in your postal mail. Which mailings do you believe to be a result of data mining? How have the companies cho- sen you for their targeted mailings?

6-33. Think about the junk mail in your e-mail program’s spam folder. What types of advanced analytics meth- ods does your e-mail program’s spam filter use to identify spam e-mails?

6-34. Describe your experiences with GIS. What tasks or problems have you used GIS for? For which personal decisions would a GIS be especially relevant? Provide specific examples.

6-35. Go out onto the web and compare three shopping bots (e.g., www.mysimon.com, www.shopzilla.com, www .shopping.com, or www.pricegrabber.com) for a prod- uct you are interested in. Did the different agents find the same information, or were there any differences? Did you prefer one over the others? If so, why?

6-36. Have you seen or used ad hoc, exception, key-indica- tor, and/or drill-down reports? What is the purpose of each report? Who produces and who uses the reports? Do any of these reports look or sound familiar from your work experience?

6-37. Interview an IS manager within an organization. What types of information and knowledge discovery tools does the organization use? Was there an increase or decrease in the past few years? What predictions does this manager have regarding the future of these sys- tems? Do you agree? Prepare a 10-minute presentation to the class on your findings.

6-38. For your university, identify several examples of vari- ous knowledge assets, classify these as tacit or explicit, and rate them on their value to the university on a 10-point scale (1 = low value to 10 = high value).

6-39. Examine your university’s website to identify exam- ples where a knowledge management system could be used or is being used to help provide improved ser- vices to students.

6-40. How do you prefer your desired information to be pre- sented? Do you use any type of visualization tools? If so, which ones?

6-41. Visit Google maps (http://maps.google.com) and try out the different layers provided. What other informa- tion would you like to see? Are there any publicly available mashups that offer this information as layers on top of Google Maps?

application Exercises Note: The existing data files referenced in these exercises are available on the book’s website: www.pearsonhighered.com/valacich.

Spreadsheet Application: Travel Loan Facility

6-42. A new aspect of the business has been added to Campus Travel. Students can apply for a loan to help pay for their travels. However, loans for travel are available only to students who are traveling outside the country for at least 2 weeks. Because the costs for this type of interna- tional travel differ depending on how you travel, where you stay, and what you do at the destination, different loan packages are available. For a month in Europe, you have decided to take out a loan. You have already taken a look at several offers but are unsure whether you can afford it. Set up a spreadsheet to calculate the payments per month for the following situations:

■■ 2 weeks in Eastern Europe; price: US$2,000; interest rate: 5.5%; Time: 1 year

■■ 2 weeks in Western Europe; price: US$3,000; interest rate: 6.0%; time: 1 year

■■ 3 weeks in Eastern Europe; price: US$3,000; interest rate: 6.5%; time: 2 years

■■ 3 weeks in Western Europe; price: US$3,500; interest rate: 5.5%; time: 2 years

■■ 4 weeks in Eastern Europe; price: US$4,000; interest rate: 6.0%; time: 2 years

■■ 4 weeks in Western Europe; price: US$5,000; interest rate: 6.5%; time: 2 years

Once you have calculated the payments, calculate the total amount to be paid for each option as well as the total interest you would pay over the course of the loan. Make sure to use formulas for all calculations and submit a professionally formatted page displaying the results and a page displaying the formulas. (Hint: In Microsoft Excel, use the “PMT” function in the category “Financial” to calculate the payments. Use Ctrl+` [grave accent] to switch between formula and data views; calculate the number of payments before using the formula.)

Database Application: Tracking Regional Office Performance at Campus Travel

6-43. The general manager wants to know which offices were most profitable during the previous year and asks you to prepare several reports. In the file FY2012.mdb, you find information about the offices, sales agents, and destinations. Use the report wizard to generate the following reports:

■■ List of all sales agents grouped by office (including total number of agents per office)

■■ List of all sales agents for each destination (grouped by destination, including total number of agents)

■■ Destinations sold by each sales agent (including total number of destinations)

Hint: You will need to generate the necessary queries before creating the reports.

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team Work Exercise Net Stats: The Demise of Broadcast TV

Recent studies of the broadcast TV industry indicate that it is in trouble. More and more people are choosing not to watch TV in the conventional “appointment” way. According to Nielsen, in 2015, 226 million people in the United States watched TV/ video content via their TV set, either live or via a DVR, com- pared with 191 million who watched content on a smartphone, 162 million who watched content using a PC connected to the Internet, 106 million who watched on a tablet, and another 158 million who watched DVR (i.e., time-shifted) content. And, of course, many consume content using a combination of formats and methods. Nevertheless, while traditional radio and broadcast TV continue to reach the most users, their market share is eroding to Internet- and mobile-delivered content. These changes tend to be especially strong in young people, with broadcast TV consumption dropping steadily in favor of digital delivery on smartphones, tablets, and PCs.

Questions and Exercises 6-44. Search the web for the most up-to-date statistics.

Try to find the statistics for other demographics and countries as well.

6-45. As a team, interpret these numbers. What is striking/ important about these statistics? What may be the reason for differences between countries?

6-46. How have the numbers changed since 2016? 6-47. Using your spreadsheet software of choice, create a

graph/figure that effectively visualizes the statistics/ changes you consider most important.

Based on:

Anonymous. (2016, June 27). The total audience report: Q1 2016. Nielsen. Retrieved June 28, 2016, from http://www.nielsen.com/us/en/insights/ reports/2016/the-total-audience-report-q1-2016.html

answers to the self-study Questions 6-16. B, p. 231 6-17. C, p. 236 6-18. A, p. 229 6-19. C, p. 247 6-20. A, p. 249 6-21. A, p. 240 6-22. A, p. 228 6-23. C, p. 249 6-24. D, p. 254 6-25. D, p. 257

In the 1950s, shortly after the end of World War II, President Harry S. Truman oversaw the organization of a secret security and intelligence organization, tasked with gather- ing and analyzing intelligence data in defense of the interests and operations of the United States and its government. The orga- nization—named the National Security Agency (NSA)—has since grown to become one of the largest intelligence organizations in the world, with an estimated workforce of about 40,000 employees and annual budget of nearly US$11 billion (these are estimates because this type of information about the NSA is classified). The NSA has been involved in gathering intelligence on a wide range of issues and individuals, from the Vietnam War to Martin Luther King Jr. to the post-9/11 War on Terror. By design, many of the NSA’s successes are classified and not known to the general public, but the agency has been credited with providing key intelligence in support of major military and investigatory operations over the past several decades.

In its relentless pursuit of intelligence to defend U.S. national interests, the NSA has embraced technology and the vast amounts of digital data available across the globe. In late 2013, a series of disclosures of classified internal NSA documents revealed the extent of the NSA’s spying activities. Most of these disclosures were provided by a former NSA contractor named Edward Snowden. These documents revealed that the NSA regularly intercepts the telephone and Internet com- munications of more than a billion people worldwide. The NSA tracks the locations of hundreds of millions of cell phones per day. The organization reportedly has access to at least some communications made via ser- vices provided by AOL, Google, Microsoft, Facebook, and Yahoo! and collects hundreds of millions of contacts lists from personal e-mail and instant messaging accounts every year. The NSA also collects and stores cell phone call records from major cell phone providers. These surveillance activities have not been limited to countries considered to be enemies of the United States—they

include longtime friendly countries such as France, Germany, and Spain. Perhaps most unsettling for U.S. citizens is the fact that NSA surveillance has also been targeted at U.S. citizens within U.S. borders, which appears to many as a clear violation of the Foreign Intelligence Surveillance Act of 1978—a law designed to limit the practice of mass surveillance in the United States.

Given that many of the NSA’s activities are classified, it is hard to know how effec- tive these massive surveillance practices have been in defending U.S. national interests and U.S. citizens. To some extent, many citizens likely expect the government to engage in spying and other intelligence-gathering prac- tices to protect the public against terrorism, crime, or other dangers. To this end, the NSA reportedly provides foreign intelligence to the Central Intelligence Agency (CIA) regarding terrorist activities and domestic intelligence to the Drug Enforcement Admin- istration (DEA) and Federal Bureau of Inves- tigation (FBI) regarding drug and other criminal activities. But just how much

CASE 1 NSA: National Surveillance Agency?

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intelligence gathering the NSA should engage in, and from whom, is a matter that has come under strong debate. Judging by the public outcry in response to the revelations from Edward Snowden’s leaked documents, many people, both within and outside of the United States, believe that the NSA has gone too far. It was disclosed in the Snowden doc- uments that the NSA monitored who was reading specific related topics such as “car bomb” or “jihad.” In 2016, researchers reported that people significantly reduced, by nearly 30 percent, their viewing of such information compared with before the NSA’s surveillance program was revealed.

In some sense, the NSA surveillance activities are little more than advanced busi- ness intelligence initiatives. In the modern world, we leave digital footprints in nearly