case study MIS201( information system managment)

2MANAGEMENTINFORMATIONSYSTEMS MOVING BUSINESS FORWARD

RAINER PRINCE WATSON

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Management Information Systems Moving Business Forward

Second Edition

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R. Kelly Rainer, Jr. Brad Prince

Hugh Watson

Management Information Systems Moving Business Forward

Second Edition

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Library of Congress Cataloging-in-Publication Data

Rainer, R. Kelly (Rex Kelly) Management information systems / R. Kelly Rainer, Jr., Brad Prince, Hugh Watson.—Second edition. pages cm Includes index. ISBN 978-1-118-44359-0 (pbk.) 1. Management information systems. I. Watson, Hugh J. II. Prince, Brad, 1978- III. Title. HD30.213.R35 2013 658.4’038011—dc23 2012046981

Publisher Don Fowley Executive Editor Beth Lang Golub Content Manager Kevin Holm Production Editor Tim Lindner Executive Marketing Manager Chris Ruel Marketing Assistant Marissa Carroll Design Director Harry Nolan Product Designer Jenny Welter Editorial Operations Manager Melissa Edwards Senior Designer Maureen Eide Senior Photo Editor Lisa Gee Cover Designer Jasmine Lee Senior Content Editor Wendy Ashenberg Assistant Editor Samantha Mandel Editorial Program Assistant Katherine Willis Content Assistant Helen Seachrist Production Management Services Aptara®, Inc.

This book was set in Minion Pro 10/12 by Aptara®, Inc. and printed and bound by Quad Graphics.

This book is printed on acid free paper. �

Founded in 1807, John Wiley & Sons, Inc., has been a valued source of knowledge and understanding for more than 200 years, helping people around the world meet their needs and fulfi ll their aspirations. Our company is built on a foundation of principles that include responsibility to the communities we serve and where we live and work. In 2008, we launched a Corporate Citizenship Initiative, a global effort to address the environmental, social, economic, and ethical challenges we face in our business. Among the issues we are addressing are carbon impact, paper specifi cations and procurement, ethical conduct within our business and among our vendors, and community and charitable support. For more information, please visit our Web site: www.wiley.com/go/ citizenship.

Copyright © 2013 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923 (Web site: www.copyright.com). Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201) 748-6011, fax (201) 748-6008, or online at: www.wiley.com/go/permissions.

Evaluation copies are provided to qualifi ed academics and professionals for review purposes only, for use in their courses during the next academic year. These copies are licensed and may not be sold or transferred to a third party. Upon completion of the review period, please return the evaluation copy to Wiley. Return instructions and a free of charge return shipping label are available at: www.wiley.com/go/returnlabel. If you have chosen to adopt this textbook for use in your course, please accept this book as your complimentary desk copy. Outside of the United States, please contact your local sales representative.

ISBN-13: 978-1-118-44359-0 BRV ISBN: 978-1-118-47768-7

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Dear Student,

Why are you here? We are not asking you a philosophical question—that is a diff erent course. We are asking, “Why are you about to spend an entire term learning about informa- tion systems? Why are you—an accounting major, or a marketing or management major— being required to study this topic?” You may be asking, “What’s in IT for me?” Th e short answer is that “IT’s About Business,” and the longer answer is the goal of this book.

Information systems are making the world a very small place and are contributing to rapidly increasing global competition. As a result, organizations are constantly trying to fi nd ways to gain a competitive advantage—by achieving operational excellence, developing new products and services, developing new business models, providing superb customer service, improving decision making, and so on. It should be obvious, then, that an introduc- tory course in information systems is critically important for success in your chosen career.

Rapid advances in information systems mean that, as business students, change will be the only constant you will encounter in today’s dynamic digital business environment. We wrote this book for business students of all majors who will soon become business profes- sionals. We have three goals in mind:

1. To help you be immediately successful when you join your organization 2. To help you understand the importance of information systems for individuals,

organizations, and society as a whole 3. To enable you to become informed users of your organization’s information

systems

To accomplish these goals, we have tried to provide the essential, relevant knowledge that you need to understand to eff ectively use information systems in your careers.

Th e way we propose to do this is by keeping you actively involved in the material. Every section of the chapters has an activity that asks you to do something beyond just reading the textbook that will help you see why the content is useful for your future business career.

We hope you will enjoy this active approach and successfully complete the course with a richer understanding of what’s in IT for you.

Kelly Rainer, Brad Prince, and Hugh Watson

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Dear Instructor,

We are like you. All of us who teach the introductory course in information systems realize that it is diffi cult for students to understand the importance and relevance of the topics in the course. As a result, students oft en memorize the content just before the exam, and then forget it as soon as the exam is over. We all want to engage students at a much deeper level. We know that the best way to accomplish this objective is through hands-on active learning, leading to increased student engagement in our course content.

Accordingly, active learning and student engagement are key principles of our new book. We recognize the need to actively involve students in problem solving, creative thinking, and capitalizing on opportunities. Every section of every chapter includes extensive hands- on exercises, activities, and mini-cases. End-of-chapter material also includes exercises that require students to use soft ware application tools. Th rough these activities, we enable stu- dents to understand how to do something with the concepts they learn, such as meet busi- ness goals using information systems, confi gure products, and use spreadsheets and data- bases to facilitate problem solving.

Th e preface on the next page further outlines the goals, features, and support material provided with our new text. We hope you will enjoy teaching with this approach!

Kelly Rainer, Brad Prince, and Hugh Watson

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Preface Chapter Organization Each chapter contains the following elements:

• Chapter Outline: Lists the major concepts covered in each chapter. • Learning Objectives: Provide an overview of the key learning goals that students

should achieve aft er reading the chapter. • Chapter-Opening Case: A short case that focuses on a small or start-up company

that is using information systems to solve a business problem. Cases in introductory information systems textbooks typically involve very large organizations. In contrast, our chapter-opening cases demonstrate that small and start-up companies also have business problems that they address using information systems. Students will see that small fi rms usually have to be quite creative in building and implementing IS solu- tions, because they do not have MIS departments or large budgets. Th ese small-busi- ness cases also add an entrepreneurial fl avor to each chapter for students who are planning to start their own businesses.

• Ruby’s Club Internship Case: • At the start of each chapter is a “Ruby’s Club internship scenario” that presents a

problem at Ruby’s Club, a downtown music venue that needs help with redesigning its online presence, overhauling its technological infrastructure, etc. Th roughout the semester, the student is presented with problems as if he/she were working as an IT intern for Ruby’s Club. Each chapter-opening scenario presents a business prob- lem that the student will be able to solve aft er reading that chapter.

• Th roughout the chapter are “Ruby’s Club Questions” that help students focus on the concepts they will need to solve the Ruby’s Club business problem. At the end of each chapter is a “Ruby’s Club Internship Assignment” that puts students into the role of an IT Intern. Many assignments are in the form of a business letter that students must address to their employers to solve the problem. Ultimately, this provides students with an opportunity to apply the knowledge they have gained in a business setting, instead of just on their exams.

A supplementary chapter on business writing is available in WileyPLUS for students who need a review.

• Apply the Concept Activities: Th is book’s unique pedagogical structure is designed to keep students actively engaged with the course material. Reading material in each chapter subsection is immediately followed by an “Apply the Concept” activity. Th ese activities include links to online videos and articles and other hands-on activities that require students to immediately apply what they have learned. Via WileyPLUS, instructors can assign a section of text along with an Apply the Concept activity and gradable quiz. Each Apply the Concept has the following elements:

> Background (places the activity in the context of relevant reading material) > Activity (a hands-on activity that students carry out) > Deliverable (various tasks for students to complete as they perform the

activity) > Discussion Questions (discussion questions regarding the activity)

Quiz Questions (assignable in WileyPLUS, or available on the Book Companion Site)

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x Preface

• IT’s About Business: Short cases that demonstrate real-world applications of IT to business. Each case is accompanied by questions relating the case to concepts covered in the chapter. Icons relate these boxes to the specifi c functional areas.

• IT’s Personal: Sprinkled throughout the chapters, these short vignettes explain the relevance of MIS concepts to students’ daily lives.

• Before You Go On: End-of-section reviews prompt students to pause and test their understanding of concepts before moving on to the next section.

• Examples: Interspersed throughout the text, these highlight the use (and misuse) of information systems by real-world organizations, thereby illustrating the concepts discussed in the chapter.

• What’s in IT for Me?: A unique end-of-chapter summary that demonstrates the rel- evance of each key chapter topic to diff erent functional areas, including accounting, fi nance, marketing, production/operations management, human resources manage- ment, and management information systems. Th is cross-functional focus makes the book accessible for students from any major.

• Summary: Keyed to the Learning Objectives listed at the beginning of the chapter, the summary enables students to review major concepts covered.

• Discussion Questions and Problem-Solving Activities: Provide practice through active learning. Th ese exercises are hands-on opportunities to apply the concepts dis- cussed in the chapter.

• Collaboration Exercises: Team exercises that require students to take on diff erent functional roles and collaborative to solve business problems. Th ese exercises allow students to get fi rst-hand experience solving business problems using IS tools while also experiencing an authentic business team dynamic.

• Closing Cases: Each chapter concludes with two cases about business problems faced by actual companies and how they used IS to solve those issues. Th e cases are broken down into four parts: a description of the problem, an overview of the IS solu- tion implemented, a presentation of the results of the implementation, and an analy- sis of key takeaways from the case. Each case is followed by discussion questions, so that students can further explore the concepts presented in the case.

• Spreadsheet Activity: Every chapter includes a hands-on spreadsheet project that requires students to practice their Excel skills while using concepts learned in the chapter. Each activity includes deliverables and discussion questions, with multiple choice quiz questions also assignable in WileyPLUS for automatic grading or down- loadable through the Book Companion Site. WileyPLUS includes an Excel Lab Manual for students who need introductory coverage or review.

• Database Activity: Every chapter includes a hands-on database project that requires students to practice their Access skills while using concepts learned in the chapter. Each activity includes deliverables, quiz questions, and discussion questions. Th ese can be assigned within WileyPLUS for automatic grading. WileyPLUS includes an Access Lab Manual for students who need introductory coverage or review.

• Glossary: A study tool that highlights vocabulary within the chapters and facilitates studying.

Key Features

Student Engagement As discussed in the note addressed to instructors at the beginning of this preface, one of the chief goals of this text is to engage students at a level beyond recognition of key terms. We believe the best way to achieve this goal is through hands-on, active learning that will lead to increased student engagement with the course and its content.

Accordingly, every section of every chapter provides resources that actively involve students in problem solving, creative thinking, and capitalizing on opportunities. Every

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Preface xi

chapter includes extensive hands-on exercises, activities, and mini-cases, including exer- cises that require students to solve business problems using Excel and Access.

Cross-Functional Approach We emphasize the importance of information systems by calling attention in every chapter to how that chapter’s topic relates to each business major. Icons guide students to relevant issues for their specifi c functional area—accounting (ACC), fi nance (FIN), marketing (MKT), operations management (OM), human resources management (HRM), and man- agement information systems (MIS). Chapters conclude with a detailed summary (entitled ‘What’s in IT for Me?’) of how key concepts in the chapter relate to each functional area. Additionally, each chapter has a collaboration exercise that helps students view the same problem from the perspective of diff erent functional areas.

Diversifi ed and Unique Examples from Different Industries Extensive use of vivid examples from large corporations, small businesses, and government and not-for-profi t organizations enlivens the concepts from the chapter. Th e examples illus- trate everything from the capabilities of information systems, to their cost and justifi cation and the innovative ways that corporations are using IS in their operations. Small businesses have been included in recognition of the fact that many students will work for small-to mid-sized companies, and some will even start their own small business. In fact, some stu- dents may already be working at local businesses, and the concepts they are learning in class can be readily observed or put into practice in their part-time jobs. Each chapter constantly highlights the integral connection between business and IS. Th is connection is especially evident in the chapter-opening and closing cases, the “IT’s About Business” boxes, and the highlighted examples.

Successes and Failures Many textbooks present examples of the successful implementation of information systems, and our book is no exception. However, we go one step beyond by also providing numerous examples of IS failures, in the context of lessons that can be learned from such failures. Misuse of information systems can be very expensive.

Global Focus An understanding of global competition, partnerships, and trading is essential to success in a modern business environment. Th erefore, we provide a broad selection of international cases and examples. We discuss the role of information systems in facilitating export and import, the management of international companies, and electronic trading around the globe. Th ese global examples are highlighted with the global icon.

Innovation and Creativity In today’s rapidly changing business environment, creativity and innovation are necessary for a business to operate eff ectively and profi tably. Th roughout our book, we demonstrate how information systems facilitate these processes.

Focus on Ethics With corporate scandals appearing in the headlines almost daily, ethics and ethical ques- tions have come to the forefront of business people’s minds. In addition to devoting an entire chapter to ethics and privacy (Chapter 6), we have included examples and cases throughout the text that focus on business ethics. Th ese examples are highlighted with the ethics icon.

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xii Preface

What’s New in the Second Edition? • New chapter on social computing, focusing on how organizations use social

computing for business purposes • New “Plug IT In” on cloud computing, featuring expanded coverage of this

important topic • All new or updated chapter opening and closing cases • All new or updated “IT’s About Business” • All new or updated examples • Remodeled student activities that provide a variety of thought-provoking, gradable

homework assignments • New “IT’s Personal” vignettes that bring home to students the personal relevance

of concepts • New “Collaboration Exercises” that require students to take on diff erent functional

roles and use collaborative soft ware to solve business problems • Spreadsheet and Database Activities that have been revised to incorporate

reviewer feedback • Remodeled Learning Objectives that clearly defi ne learning goals for each section

of book content • New images and updated interior design that promote visual learning and easy

teaching use

Online Supplements www.wiley.com/college/rainer

Our book also facilitates the teaching of an Introduction to Information Systems course by providing extensive support materials for instructors and students. Visit www.wiley. com/college/rainer to access the Student and Instructor Companion Sites.

Instructor’s Manual Th e Instructor’s Manual includes a chapter overview, teaching tips and strategies, answers to all end-of-chapter questions, supplemental mini-cases with essay questions and answers, and experiential exercises that relate to particular topics. It also includes answers and solu- tions to all spreadsheet and database activities, along with a guide to teaching these exer- cises, and links to the separate Excel and Access solutions fi les.

Test Bank Th e test bank is a comprehensive resource for test questions. Each chapter contains multiple choice, true/false, short answer, and essay questions. In addition, each chapter includes “Apply Your Knowledge” questions that require more creative thought to answer. Each mul- tiple choice and true/false question is labeled to indicate its level of diffi culty: easy, medium, or hard.

Th e test bank is available for use in Respondus’ easy-to-use soft ware. Respondus® is a powerful tool for creating and managing exams that can be printed or published directly to Blackboard, WebCT, Desire2Learn, eCollege, ANGEL, and other learning systems. For more information on Respondus® and the Respondus Test Bank Network, please visit www.respondus.com.

PowerPoint Presentations Th e PowerPoint Presentations consist of a series of slides for each chapter. Th e slides are designed around each chapter’s content, incorporating key points from the chapter and

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Preface xiii

chapter illustrations as appropriate, as well as real-life examples from the Web. Th e slides also include links to relevant videos and articles to enhance classroom discussion. Th ey make extensive use of images and video clips.

Student PowerPoints Posted on the Student Companion Site, these are stripped-down versions of the Instructor slides that students can use for note-taking.

Image Library All textbook fi gures are available for download from the Web site. Th ese fi gures can easily be added to PowerPoint presentations.

Wiley Information Systems Hub Th is community Web site is free and open to all instructors who teach an Introduction to IS/MIS course, regardless of book in use. Th e Hub is topic driven and is a place to ask ques- tions, respond to ideas with comments of your own, share videos, assignments, cases, and news links with other users, and much more. We are delighted to announce David Firth of the University of Montana as the community manager for the site. Please check the Instruc- tor Companion Site for information on how to join.

Updates (http://wileyinformationsystemsupdates.com) Weekly updates, harvested from around the Internet by David Firth of the University of Montana, provide you with the latest IT news and issues. Th ese are posted every Monday morning throughout the year at http://wileyinformationsystemsupdates.com/ and feed through to the Wiley Information Systems Hub. Th ey include links to current articles and videos as well as discussion questions to assign or use in class.

BusinessExtra Select Th is feature allows instructors to package the text with lab manuals, cases, articles, and other real-world content from sources such as INSEAD, Ivey and Harvard Business School cases, Fortune, Th e Economist, and Th e Wall Street Journal. You can combine the book with the content you choose to create a fully customized textbook. For additional information, please visit www.wiley.com/college/bxs.

Practice Quizzes Th ese multiple choice conceptual questions reinforce knowledge and understanding of basic concepts. Th ey are available in Respondus, the WileyPLUS course, and the Book Companion Site.

WileyPLUS Th is online teaching and learning environment integrates the entire digital textbook with the most eff ective instructor and student resources to accommodate every learning style. With WileyPLUS:

• Students achieve concept mastery in a rich, structured environment that is available 24/7.

• Instructors personalize and manage their course more eff ectively with assessment, assignments, grade tracking, and more.

WileyPLUS can complement the textbook or replace the printed textbook altogether.

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xiv Preface

For Students Diff erent learning styles, diff erent levels of profi ciency, diff erent levels of preparation—each of your students is unique. WileyPLUS empowers each student to take advantage of his or her strengths.

• Integrated, multimedia resources—including audio and visual exhibits—provide multiple study paths to fi t each student’s learning preferences and encourage active learning. Resources include

> E-book > Minilecture by author for each chapter section > Student PowerPoints for note taking > Video interviews with managers > Lab Manual for Microsoft Offi ce 2010

• WileyPLUS also includes many opportunities for self-assessment. Students can take control of their own learning and practice until they master the material. Resources include

> Automatically graded practice questions from the Test Bank > Pre- and postlecture quizzes > Vocabulary fl ash cards and quizzes

For Instructors WileyPLUS empowers you with the tools and resources you need to make your teaching as eff ective as possible.

• You can customize your classroom presentation with a wealth of resources and function- ality. You can even add your own materials to your WileyPLUS course. Resources include

> PowerPoint presentations > Link to weekly updates > Library of additional “IT’s About Business” cases

• With WileyPLUS you can identify students who are falling behind and intervene accordingly, without having to wait for them to come to offi ce hours.

• WileyPLUS simplifi es and automates such tasks as assessing student performance, creating assignments, scoring student work, tracking grades, and more.

Acknowledgments Creating, developing, and producing a text for the introduction to information systems course is a formidable undertaking. Along the way, we were fortunate to receive continuous evaluation, criticism, and direction from many colleagues who regularly teach this course.

We would like to acknowledge the contributions made by the following individuals who participated in focus groups, telesessions, surveys, chapter walkthroughs, class tests, and reviews:

Monica Adya Marquette University Lawrence Andrew Western Illinois University, Macomb Orakwue (Bay) Arinze Drexel Laura Atkins James Madison University Nick Ball Brigham Young University Nicholas Barnes Nicholls College Susan Barzottini Manchester CC Kristi Berg Minot State University Andy Borchers Lipscomb University David Bouchard Metropolitan State University Dave Bourgeois Biola University Mari Buche Michigan Tech University

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Richard Burkhard San Jose State University Ashley Bush Florida State University Donald Carpenter Mesa State College Teuta Cata Northern Kentucky University Wendy Ceccucci Quinnipiac University Susan Chinn University of Southern ME, Portland Richard Christensen Metropolitan State University Dmitriy Chulkov Indiana University Kokomo Phillip Coleman Western Kentucky University Emilio Collar Western CT State University Daniel Connolly University of Denver Lee Cornell Minnesota State University, Mankato David Croasdell University of Nevada, Reno Reet Cronk Harding University Marcia Daley Clark, Atlanta Donald Danner San Francisco State University Roy DeJoie Purdue, West Lafayette Dawna Dewire Babson College Kevin Duff y Wright State Lauren Eder Rider University Ahmed Eshra St. John’s University Roger Finnegan Metropolitan State University Th omas Fischer Metropolitan State University Jerry Flatto University of Indianapolis Jonathan Frankel University Massachusetts, Boston Judith Gebauer University of North Carolina, Wilmington Jennifer Gerow Virginia Military Institute Matt Graham University of Maine Katie Gray University of Texas, Austin Penelope (Sue) Greenberg Widener University Naveen Gudigantala University of Portland Saurabh Gupta University of North Florida Bernard Han Western Michigan University Hyo-Joo Han Georgia Southern College John Hagle Texas State Technical College Peter Haried University of Wisconsin, LaCrosse Ranida Harris Indiana University Southeast Ranida Harris Indiana University Southeast Roslin Hauck Illinois State University Jun He University of Michigan, Dearborn Richard Herschel St. Joseph’s University Bodgan Hoanca University of Alaska Mary Carole Hollingsworth Georgia Perimeter College, Clarkston Campus Terri Holly Indian River State College Derrick Huang Florida Atlantic University Maggie Hutchison Flagler College Mark Hwang Central Michigan University Lynn Isvik Upper Iowa University, Fayette Arpan Jani University of Wisconsin, River Falls Jonathan Jelen St. John’s University Nenad Jukic Loyola University Stephen Klein Ramapo College Brian Kovar Kansas State University Subodha Kumar Texas A&M Diane Lending James Madison University Kevin Lertwachara Cal Poly San Luis Obispo Terry Letsche Wartburg College

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xvi Preface

Victor Lipe Trident Tech Chuck Litecky Southern Illinois University, Carbondale Joan Lumpkin Wright State Nicole Lytle Cal State, San Bernardino George Mangalaraj Western Illinois University Parand Mansouri-Rad University of Texas, El Paso Michael Martel Ohio University Nancy Martin Southern Illinois University, Carbondale Richard McMahon University of Houston, Downtown Tony McRae Collin College Vishal Midha University of Texas, Pan American Esmail Mohebbi University West Florida Luvai Motiwalla University Mass Online Mahdi Nasereddin Penn State, Berks Sandra K. Newton Sonoma State University Ann O’Brien University of Wisconsin, Madison Sungjune Park University of North Carolina, Charlotte Yang Park Georgia Southwestern State University Alan Peace West Virginia University Jacqueline Pike Duquesne University Tony Pittarese East Tennessee State University Jennifer Pitts Columbus State University Richard Platt University of West Florida Larisa Preiser Cal Poly, Pomona Michelle Ramim Nova Southeastern University Alison Rampersad Lynn University Ralph Reilly University of Hartford Wes Rhea Kennesaw State University Julio Rivera University of Alabama, Birmingham Th omas Roberts William Patterson University Cynthia Ruppel Nova Southeastern University Russell Sabadosa Manchester CC Tom Sandman Cal State, Sacramento Kala Seal Loyola Marymount Tod Sedbrook University of Northern Colorado Elaine Seeman East Carolina University Richard Segall Arkansas State University Lee Sellers EOU—Mt. Hood Metro Center Judy Ann Serwatka Purdue, North Central John Seydel Arkansas State University Jollean Sinclaire Arkansas State University Vivek Shah Texas State, San Marcos Mehrdad Sharbaf Loyola Marymount Suengjae Shin Mississippi State University, Meridian Todd Stabenow Hawkeye Community College Jo Lynne Stalnaker University of Wyoming Cynthia Stone Indiana University Nathan Stout University of Oklahoma Yi Sun California State University, San Marcos Winston Tellis Fairfi eld University Doug Francis Tuggle Chapman University Wendy Urban Temple University Darlene de Vida Lower Columbia College James Villars Metropolitan State University Padmal Vitharana Syracuse University Haibo Wang Texas A&M International Hong Wang NC Carolina A&T State University

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June Wei University of West Florida Melody White University of North Texas Rosemary Wild Cal Poly San Luis Obispo Tom Wilder Cal State, Chico Karen Williams University of Texas, San Antonio Marie Wright Western CT Yaquan Xu Virginia State University Bee Yew Fayetteville State University Jigish Zaveri Morgan State University Grace Zhang Augusta State University Wei Zhang University of Massachusetts, Boston Zuopeng Zhang SUNY, Plattsburgh Fan Zhao Florida Gulf Coast University Robert Zwick Yeshiva University

Special thanks to contributors Dawna Dewire, Joan Lumpkin, Kevin Lertwachara, Roy DeJoie, and Kala Seal for working on the Apply the Concept activities that appear in every chapter. Th anks also to Efrem Mallach for creating the database activities; to Dawna Dewire for writing test questions; to Aditi Mukherjee, Judy Serwatka, and Ranida Harris for working on the Instructor’s Manual; and to Terri Holly, Penelope Greenberg, and Aditi Mukherjee for writing quiz questions. We are grateful for the dedication and creativity of all these con- tributors in helping us craft this new text.

We would like to thank the Wiley team: Beth Lang Golub, Executive Editor; Samantha Mandel, Assistant Editor; Jenny Welter, Product Designer; Wendy Ashenberg, Content Edi- tor; and Chris Ruel, Executive Marketing Manager. We also thank the Content Manage- ment team, including Kevin Holm, Content Manager; Jill Spikereit and Tim Lindner, Pro- duction Editors; and Dennis Free of Aptara. And thanks to Maureen Eide, Senior Designer; and Lisa Gee, Photo Editor. We would also like to thank Samantha Mandel for managing all the many details of this new text and her skillful and thorough editing of the manuscript.

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Chapter 1 | Introduction to Information Systems 2

Chapter 2 | Organizational Strategy, Competitive Advantage, and Information Systems 42

Chapter 3 | Data and Knowledge Management 78

Chapter 4 | Telecommunications and Networking 122

Chapter 5 | Business Intelligence 168

Chapter 6 | Ethics and Privacy 202

Chapter 7 | Information Security 226

Chapter 8 | Social Computing 272

Chapter 9 | E-Business and E-Commerce 324

Chapter 10 | Wireless, Mobile Computing, and Mobile Commerce 364

Chapter 11 | Information Systems Within the Organization 408

Chapter 12 | Extending the Organization to Customers 436

Chapter 13 | Extending the Organization Along the Supply Chain 466

Chapter 14 | Acquiring Information Systems and Applications 490

Plug IT In 1 | Business Processes and Business Process Management 530

Plug IT In 2 | Hardware and Software 539

Plug IT In 3 | Cloud Computing 561

Plug IT In 4 | Intelligent Systems 586

Plug IT In 5 | Project Management 601

Plug IT In 6 | Protecting Your Information Assets 612

Photo Credits 635

Index 636

Brief Contents

xix

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Contents

Chapter 1 | Introduction to Information Systems 2

1.1 Why Should I Study Information Systems? 5

1.2 Overview of Computer-Based Information Systems 12

1.3 How Does IT Impact Organizations? 22

1.4 Why Are Information Systems Important to Society? 25

Chapter 2 | Organizational Strategy, Competitive Advantage, and Information Systems 42

2.1 Business Pressures, Organizational Responses, and IT Support 45

2.2 Competitive Advantage and Strategic Information Systems 56

2.3 Business–IT Alignment 63

Chapter 3 | Data and Knowledge Management 78

3.1 Managing Data 81

3.2 The Database Approach 85

3.3 Database Management Systems 91

3.4 Data Warehouses and Data Marts 97

3.5 Knowledge Management 105

Chapter 4 | Telecommunications and Networking 122

4.1 What Is a Computer Network? 125

4.2 Network Fundamentals 128

4.3 The Internet and the World Wide Web 134

4.4 Network Applications 140

Chapter 5 | Business Intelligence 168 5.1 Managers and Decision Making 171

5.2 What Is Business Intelligence? 176

5.3 Business Intelligence Applications for Data Analysis 180

5.4 Business Intelligence Applications for Presenting Results 183

5.5 Business Intelligence in Action: Corporate Performance Management 190

Chapter 6 | Ethics and Privacy 202 6.1 Ethical Issues 204

6.2 Privacy 209

Chapter 7 | Information Security 226 7.1 Introduction to Information Security 229

7.2 Unintentional Threats to Information Systems 231

7.3 Deliberate Threats to Information Systems 235

7.4 What Organizations Are Doing to Protect Information Resources 243

7.5 Information Security Controls 245

Chapter 8 | Social Computing 272 8.1 Web 2.0 275

8.2 Fundamentals of Social Computing in Business 283

8.3 Social Computing in Business: Shopping 286

8.4 Social Computing in Business: Marketing 293

8.5 Social Computing in Business: Customer Relationship Management 301

8.6 Social Computing in Business: Human Resource Management 303

8.7 Crowdsourcing 307

Chapter 9 | E-Business and E-Commerce 324

9.1 Overview of E-Business and E-Commerce 328

9.2 Business-to-Consumer (B2C) Electronic Commerce 335

9.3 Business-to-Business (B2B) Electronic Commerce 346

9.4 Ethical and Legal Issues in E-Business 348

Chapter 10 | Wireless, Mobile Computing, and Mobile Commerce 364

10.1 Wireless Technologies 367

10.2 Wireless Computer Networks and Internet Access 374

10.3 Mobile Computing and Mobile Commerce 383

10.4 Pervasive Computing 390

10.5 Wireless Security 395

xxi

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xxii Contents

Chapter 11 | Information Systems Within the Organization 408

11.1 Transaction Processing Systems 410

11.2 Functional Area Information Systems 412

11.3 Enterprise Resource Planning Systems 419

11.4 Reports 424

Chapter 12 | Extending the Organization to Customers 436

12.1 Defi ning Customer Relationship Management 439

12.2 Operational Customer Relationship Management Systems 443

12.3 Analytical Customer Relationship Management Systems 449

12.4 Other Types of Customer Relationship Management Systems 450

Chapter 13 | Extending the Organization Along the Supply Chain 466

13.1 Supply Chains 468

13.2 Supply Chain Management 471

13.3 Information Technology Support for Supply Chain Management 476

Chapter 14 | Acquiring Information Systems and Applications 490

14.1 Planning for and Justifying IT Applications 493

14.2 Strategies for Acquiring IT Applications 497

14.3 The Traditional Systems Development Life Cycle 503

14.4 Alternative Methods and Tools for Systems Development 511

14.5 Vendor and Software Selection 517

Plug IT In 1 | Business Processes and Business Process Management 530

PI1.1 Business Processes 530

PI1.2 Business Process Reengineering and Business Process Management 535

Plug IT In 2 | Hardware and Software 539 PI2.1 Introduction to Hardware 540

PI2.2 Introduction to Software 551

Plug IT In 3 | Cloud Computing 561 PI3.1 Introduction 562

PI3.2 What Is Cloud Computing? 563

PI3.3 Different Types of Clouds 568

PI3.4 Cloud Computing Services 569

PI3.5 Cloud Computing Benefi ts 573

PI3.6 Concerns and Risks with Cloud Computing 576

PI3.7 Web Services and Service-Oriented Architecture 579

Plug IT In 4 | Intelligent Systems 586 PI4.1 Introduction to Intelligent Systems 586

PI4.2 Expert Systems 589

PI4.3 Neural Networks 593

PI4.4 Fuzzy Logic 595

PI4.5 Genetic Algorithms 595

PI4.6 Intelligent Agents 596

Plug IT In 5 | Project Management 601 PI5.1 Project Management for Information Systems

Projects 601

PI5.2 The Project Management Process 603

PI5.3 The Project Management Body of Knowledge 605

Plug IT In 6 | Protecting Your Information Assets 612

PI6.1 How to Protect Your Assets: The Basics 612

PI6.2 Behavioral Actions to Protect Your Information Assets 613

PI6.3 Computer-Based Actions to Protect Your Information Assets 616

Photo Credits 635

Index 636

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1

CHAPTER OUTLINE

1.1 Why Should I Study Information Systems?

1.2 Overview of Computer-Based Information Systems

1.3 How Does IT Impact Organizations?

1.4 Why Are Information Systems Important to Society?

Introduction to Information Systems

LEARNING OBJECTIVES >>>

1. Identify the reasons why being an informed user of information systems is important in today’s world.

2. Describe the various types of computer-based information systems in an organization.

3. Discuss ways in which information technology can aff ect managers and nonmanagerial workers.

4. Identify positive and negative societal eff ects of the increased use of information technology.

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Warby Parker (www.warbyparker.com) is an online eyewear retailer founded in 2010. Th e idea for the company was conceived when the fi rm’s founders (MBA students at the time) wondered why glasses—uncomplicated, easily breakable, and mass produced—were typically quite expensive ($500 or more, for example). Th ey felt that they knew why. Th e optical industry is an oligopoly, meaning that a small number of companies monopolize the business and are making large margins.

Consider, for example, Luxottica (www.luxottica.com), based in Milan, Italy. It owns LensCraft ers, Pearle Vision, Sunglass Hut, and the optical shops in Target and Sears. It also owns Ray-Ban, Oakley, and Oliver Peoples. Based on license agree- ments, it manufactures eyewear for more than 20 top brands, including Chanel, Burberry, Prada, and Stella McCartney. Warby Parker’s founders realized that Luxottica had “created the illusion of choice,” while in fact they monopolized the industry.

Warby Parker uses the same materials and the same Chinese factories as Luxottica. It then sells its glasses at a lower price because it does not have to pay

licensing fees, which can amount to as much as 15 percent of the $100 wholesale cost of a pair of glasses. Warby Parker also does not have to deal with retailers, whose markups can double prices.

Warby Parker’s business model allows customers to test the company’s retro-style glasses via a mail-order, try-it-at-home program. Th e glasses (including prescription lenses) cost a mere $95, and customers may test up to fi ve frames at a time. On its Web site, Warby Parker even off ers a way to upload photos and “try on” frames virtually. Such large-scale individualized shopping experiences have attracted a devoted following among young, trendy professionals and have made the fi rm a commer- cial success.

By mid-2011, Warby Parker had sold more than 50,000 pairs of glasses. Th e company raised $1.5 million from investors in May 2011. Although Warby Parker currently only has a > > >

OPENING CASE > Warby Parker

Ruby’s Club is a small jazz club that opened in 2000 after its owners, Ruben and Lisa, graduated from college. Throughout their college years, they played together in a jazz band and earned business degrees in management and marketing, respectively. They decided to put their collective knowledge together and open their own club.

Ruby’s Club has been very successful. However, they realize that they can now be more successful by collecting, analyzing, and using the data that is available to them. To do this, they need to upgrade their infrastructure. This is the perfect time to upgrade everything because they have recently closed for renovation.

Information technology (IT) was not even taught when they were in college, so they have not used much (if any) technology in their club. While they are considering its use as they restructure, they are not sure how much and in what ways they should pursue the use of IT. To help them on this front, they have hired you as an IT intern to help answer many of their questions about technology. They have teamed up with your IT professor and designed questions to go along with the topics you will be learning about in your information systems course. This Internship is designed to accomplish two things. First, it will give them (Ruben and Lisa) the benefi t of learning technology in a class that was not offered when they were in school. Second, it will give you the benefi t of applying the textbook knowledge you learn to the real world.

As this chapter states, your generation is considered Homo conexus. This constant connectivity has to play a role in the restructuring of Ruby’s Club. It is your job to help Ruben and Lisa understand exactly how this will look. As you read through the chapters, you will be provided with some discussion questions to help you consider the impact of ISs on Ruby’s Club.

© Amanda Rohde/iStockphoto

RUBY’S CLUB

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4 1 l Introduction to Information Systems

Sources: Compiled from L. Sanders, “Ditto Lets You Try on Glasses via Webcam,” San Francisco Chronicle, April 27, 2012; D. Muse, “Th e New Startup Scene: From Silicon Strip to Silicon Mitten,” Forbes, December 19, 2011; S. Berfi eld, “A Startup’s New Prescription for Eyewear,” Bloomberg BusinessWeek, July 4–10, 2011; D. Mau, “Warby Parker vs. Eyefl y,” Fashionista, June 6, 2011; H. Elliot, “Th e New Model for Retail: Buying Glasses Online,” Forbes, January 17, 2011; N. Perlroth, “Name You Need to Know in 2011: Warby Parker,” Forbes, November 22, 2010; www. warbyparker.com, www.eyefl y.com, accessed February 18, 2012.

Questions 1. Provide two examples of how Warby Parker uses

information technology to support its business model.

2. How might Warby Parker further use information technology to counter large competitors who want to copy their business model? Be specifi c.

small, appointment-only showroom, it will soon be opening a 2,500-square-foot store in New York City.

In addition to enjoying great commercial success, Warby Parker also has a social mission. For every pair of glasses it sells, it provides subsidies to help someone in need buy a pair— although not one of Warby’s creations.

Th e company’s success is inspiring competition from more established retailers. For example, in June 2011, the discount fashion site Bluefl y (www.bluefl y.com) introduced Eyefl y (www.eyefl y.com), which sells custom, vintage-looking glasses for $99.

Another competitor is Ditto (www.ditto.com), where shoppers use a computer webcam to record a video of their faces and create a virtual, three-dimensional “you.” Th en, shoppers can virtually try on diff erent frames, look side to side, and blink. Shoppers can solicit feedback from friends on Facebook by sharing shots of their virtual selves wearing diff erent frames.

Introduction

Before you proceed, it is important to defi ne information technology and information sys- tems. Information technology (IT) relates to any computer-based tool that people use to work with information and to support the information and information-processing needs of an organization. An information system (IS) collects, processes, stores, analyzes, and disseminates information for a specifi c purpose.

IT has far-reaching eff ects on us as individuals, on organizations, and on our planet. Although this book is largely devoted to the many ways in which IT has transformed mod- ern organizations, you will also learn about the signifi cant impacts of IT on individuals and societies, the global economy, and our physical environment. In addition, IT is making our world smaller, enabling more and more people to communicate, collaborate, and compete, thereby leveling the digital playing fi eld.

When you graduate, either you will start your own business or you will go to work for an organization, whether it is public sector, private sector, for profi t, or not for profi t. Your organization will have to survive and compete in an environment that has been radically changed by information technology. Th is environment is global, massively interconnected, intensely competitive, 24/7/365, real time, rapidly changing, and information intensive. To compete successfully, your organization must use IT eff ectively.

As the Warby Parker case illustrates, small business owners do not need to be experts in technology to be successful. Th e core competency of Warby Parker’s business is not tech- nology. Rather, it is the company’s business model. However, the company is eff ectively using IT to support its business model and thus to create a successful business.

As you read this chapter and this book, keep in mind that the information technolo- gies you will learn about are important to businesses of all sizes. No matter what area of business you major in, what industry you work for, or the size of your company, you will benefi t from learning about IT. Who knows? Maybe you will have a great idea and use the tools you learn about in this class to make your dream a reality much the way Warby Parker has!

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Why Should I Study Information Systems? 5

Th e modern environment is not only intensely competitive for your organization, but for you as well. You must compete with human talent from around the world. Th erefore, you will also have to make eff ective use of IT.

Accordingly, this chapter begins with a discussion of why you should become knowledgeable about IT. It also distinguishes among data, information, and knowledge, and it diff erentiates computer-based information systems from application programs. Finally, it considers the impacts of information systems on organizations and on society in general.

1.1 Why Should I Study Information Systems? You are the most connected generation in history. You have grown up online. You are, quite literally, never out of touch. You use more information technologies (in the form of digital devices) for more tasks, and are bombarded with more information, than any generation in history. Th e MIT Technology Review refers to you as Homo conexus. Information technolo- gies are so deeply embedded in your life that your daily routines would be almost unrecog- nizable to a college student just 20 years ago.

Essentially, you are practicing continuous computing, where you are surrounded with a movable information network. Your network is created by constant cooperation between the digital devices you carry (for example, laptops, media players, and smart phones); the wireline and wireless networks that you access as you move about; and Web-based tools for fi nding information and communicating and collaborating with other people. Your network enables you to pull information about virtually anything from anywhere, at any time, and to push your own ideas back to the Web, from wherever you are, via a mobile device. Th ink of everything you do online, oft en with your phone: register for classes; take classes (and not just at your university); access class syllabi, information, PowerPoints, and lectures; research class papers and presentations; conduct banking; pay your bills; research, shop, and buy products from companies or other people; sell your “stuff ”; search for, and apply for, jobs; make your travel reservations (hotel, airline, rental car); have your own blog and post your own podcasts and videocasts to it; have your own page on Facebook; make and upload videos to YouTube; take, edit, and print your own digital photographs; “burn” your own custom-music CDs and DVDs; use RSS feeds to create your personal electronic newspaper; text and tweet your friends and family throughout your day; and many other activities. (Note: If any of these terms are unfamiliar to you, do not worry. You will learn about every- thing mentioned here in detail later in this book.)

The Informed User—You! So, the question is, Why should you learn about ISs and ITs? Aft er all, you can comfortably use a computer (or other elec- tronic device) to perform many activities, you have been surf- ing the Web for years, and you feel confi dent that you can man- age any IT application that your organization’s management information systems (MIS) department installs. Th e answer lies in your becoming an informed user—that is, a person knowledgeable about information systems and information technology. Th ere are several reasons why you should be an informed user.

In general, informed users tend to get more value from whatever technologies they use. You will enjoy many benefi ts from being an informed user of IT. First, you will benefi t more

from your organization’s IT applications because you will understand what is “behind” those applications (see Figure 1.1). Th at is, what you see on your com- puter screen is brought to you by your MIS depart-

ment operating “behind” your screen. Second, you will be in a Students today are connected by many devices—almost all are wireless.

Media Bakery

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6 1 l Introduction to Information Systems

position to enhance the quality of your organization’s IT applications with your input. Th ird, even as a new graduate, you will quickly be in a position to recommend—and perhaps help select—the IT applications that your organization will use. Fourth, being an informed user will enable you to keep abreast of both new information technologies and rapid develop- ments in existing technologies. In fact, as you will see in the chapter’s Closing Case 1, every company today is a technology company, making it even more important for you to be an informed user of information technologies.

Remaining “on top of things” will help you to anticipate the impacts that “new and improved” technologies will have on your organization and to make recommendations on the adoption and use of these technologies. Finally, you will understand how IT can be used to improve your organization’s performance and teamwork as well as your own productivity.

Managing the IS function within an organization is no longer the exclusive respon- sibility of the IS department. Rather, users now play key roles in every step of this pro- cess. Our overall objective in this book is for you to be able to immediately contribute to managing the IS function in your organization from your user’s perspective. In short, we want to help you become a very informed user!

In addition, if you wish to become an entrepreneur, then being an informed user will help you use IT when you start your own business. IT’s About Business 1.1 illustrates how you can build your own apps for your startup company or small business.

IT Offers Career Opportunities Because IT is vital to the operation of modern businesses, it off ers many employment opportunities. Th e demand for traditional IT staff —programmers, business analysts, sys- tems analysts, and designers—is substantial. In addition, many well-paid jobs exist in areas such as the Internet and electronic commerce (e-commerce), mobile commerce, network security, telecommunications, and multimedia design.

Th e ISs fi eld includes the people in organizations who design and build information systems, the people who use those systems, and the people responsible for managing those systems. At the top of the list is the chief information offi cer (CIO).

Th e CIO is the executive who is in charge of the IS function. In most modern organiza- tions, the CIO works with the chief executive offi cer (CEO), the chief fi nancial offi cer

Figure 1.1 IT skills open many doors because IT is so widely used. What do you think is this woman’s job? © Slaomir Fajer/iStockphoto

USERS MIS

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Why Should I Study Information Systems? 7

Businesses Create Their Own Apps

Small business owners are increasingly dependent on mobile applications (apps). According to a 2011 survey by AT&T, about 70 percent of small businesses use mobile apps for operations and almost 40 percent said it would be diffi cult to survive without them. According to a report published by the Small Business & Entrepre- neurship Council in June 2011, mobile apps can help small businesses save about 6 hours of working time per week. The study also estimated that small busi- nesses are saving over 1,095 million hours of working time a year by using mobile apps.

Small business owners who want to create mobile apps—whether to market their products and services to customers or to improve internal productivity—are fi nding many alternatives to hiring professional pro- grammers. These alternatives include Appsbar (www. appsbar.com), MyAppBuilder (http://myappbuilder.com), AppBreeder (www.appbreeder.com), AppsGeyser (www. appsgeyser.com), Mobile Roadie (www.mobileroadie. com), and AppMakr (www.appmakr.com). Let’s look at several examples of small business owners who built their own mobile apps.

• Realtor Nick Galiano wanted to create an app that would let his clients browse his fi rm’s home listings from their mobile phones. Professional software developers estimated that he would have to spend $30,000 for apps that could run on iPhones, BlackBerrys, and Android devices. Then Galiano found Appsbar, a company that builds apps at no charge. Appsbar makes money from advertising placed inside the apps it develops. Not only did Galiano save the $30,000 he would have spent hiring developers for his app, but he saw an increase in business and customer satisfaction.

• Lauren Kay’s child care business SmartSitting (www.smartsitting.com) saved about 30 hours of

work monthly when she discovered that she could create her own app. She used tools from Zoho (www.zoho.com) to automatically convert the time sheets submitted by her 215

sitters into invoices. These time savings meant monetary savings from $500 to $600 per month.

• Do-it-yourself apps can also be used to create more complex applications for businesses. Greg Taylor, who runs an investment advisory fi rm called Powerline Advisors, created an app that brings together a wide range of data from fi ve different online sources that could not be found in a single location. These include easily acces- sible sources such as Yahoo! Finance, in addition to harder-to-fi nd information such as company balance sheets and cash fl ow statements. He paid programmers about $700 to implement his app and put about 200 hours of “sweat equity” into the app. Taylor updates the data in his app every night and pays a provider called Xignite (www.xignite.com) about $100 per month for corporate fi nancial data. The app integrates the data from different sources, allowing Taylor to gain investment insights because he can more easily see relationships among the different types of fi nancial data. These insights enable him to provide his clients with better investment advice.

Sources: Compiled from K. Casey, “Appsbar Helps SMBs Build Mobile Apps,” InformationWeek, April 28, 2011; S. Gerber, “Mobile App Development: 10 Tips for Small Business Owners,” Mashable, April 7, 2011; “AT&T Survey Shows Mobile Apps Integral to Small Business Operations, Remote Workers on the Rise, Facebook Use Growing Rapidly,” www.att.com, March 15, 2001; King, R. “DIY Apps Save Small Businesses Time, Money,” Bloomberg BusinessWeek, February 6, 2012; T. Kuittinen, “U.S. Consumers Shun Games—Mobile Apps Triumphant,” Forbes, January 13, 2012; B. Tinker, “2011: The Year Mobile Figured Out IT and Vice Versa,” Forbes, January 2, 2012; www.att.com, www.zoho.com, accessed February 19, 2012.

Questions 1. Why are small businesses becoming so dependent

on mobile applications? Provide specifi c examples to support your answer.

2. Would small businesses be more dependent on mobile applications than large businesses? Why or why not? Explain your answer.

3. Identify and evaluate the advantages and disadvantages of do-it-yourself mobile apps.

ABOUT BUSINESS 1.1i B i T’S

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8 1 l Introduction to Information Systems

(CFO), and other senior executives. Th erefore, he or she active- ly participates in the organization’s strategic planning process. In today’s digital environment, the IS function has become increasingly important and strategic within organizations. As a result, although the majority of CIOs still rise from the IS department, a growing number are coming up through the ranks in the business units (e.g., marketing, fi nance, etc.). So, regardless of your college major, you could become the CIO of your organization one day. Th is is another reason to be an informed user of information systems!

Table 1.1 provides a list of IT jobs along with a description of each one. For further details about careers in IT, see www. computerworld.com/careertopics/careers and www.monster. com.

Career opportunities in IS are strong and are projected to remain strong over the next 10 years. In fact, when Money Magazine listed the “fastest growing jobs” in America in 2011, 8 of the top 20 jobs related directly to information technology.

Th ese jobs (with their ranks) are as follows:

• Soft ware developer (no. 1) • Information technology consultant (no. 7) • Database administrator (no. 8) • Information technology business analyst (no. 11) • Business systems analyst (no. 12) • Soft ware development engineer (no. 13) • Systems administrator (no. 14) • Web developer (no. 18)

Not only do IS careers off er strong job growth, but the pay is excellent as well. Th e Bureau of Labor Statistics, an agency within the U.S. Department of Labor responsible for tracking and analyzing trends relating to the labor market, notes that the median salary for “computer and information systems managers” is approximately $115,000.

Managing Information Resources Managing information systems in modern organizations is a diffi cult, complex task. Sev- eral factors contribute to this complexity. First, information systems have enormous strate- gic value to organizations. Firms rely on them so heavily that, in some cases, when these systems are not working (even for a short time), the fi rm cannot function. (Th is situation is called “being hostage to information systems.”) Second, information systems are very expensive to acquire, operate, and maintain.

A third factor contributing to the diffi culty in managing information systems is the evolution of the MIS function within the organization. When businesses fi rst began to use computers in the early 1950s, the MIS department “owned” the only computing resource in the organization: the mainframe. At that time, end users did not interact directly with the mainframe.

In contrast, in the modern organization, computers are located in all departments and almost all employees use computers in their work. Th is situation, known as end user comput- ing, has led to a partnership between the MIS department and the end users. Th e MIS depart- ment now acts as more of a consultant to end users, viewing them as customers. In fact, the main function of the MIS department is to use IT to solve end users’ business problems.

As a result of these developments, the responsibility for managing information resources is now divided between the MIS department and the end users. Th is arrange- ment raises several important questions: Which resources are managed by whom? What is the role of the MIS department, its structure, and its place within the organization? What

It’s not just students. Today’s professionals must be able to use computing technologies to do their job.

Howard Kingsnorth/Th e Image Bank/Getty Images, Inc.

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Why Should I Study Information Systems? 9

TABLE 1.1 IT Jobs

Position Job Description

Chief information offi cer Highest-ranking IS manager; is responsible for all strategic planning in the organization

IS director Manages all systems throughout the organization and day-to- day operations of the entire IS organization

Information center manager Manages IS services such as help desks, hot lines, training, and consulting

Applications development Coordinates and manages new systems development projects manager

Project manager Manages a particular new systems development project

Systems manager Manages a particular existing system

Operations manager Supervises the day-to-day operations of the data and/or computer center

Programming manager Coordinates all applications programming eff orts

Systems analyst Interfaces between users and programmers; determines information requirements and technical specifi cations for new applications

Business analyst Focuses on designing solutions for business problems; interfaces closely with users to demonstrate how IT can be used innovatively

Systems programmer Creates the computer code for developing new systems soft ware or maintaining existing systems soft ware

Applications programmer Creates the computer code for developing new applications or maintaining existing applications

Emerging technologies Forecasts technology trends and evaluates and experiments manager with new technologies

Network manager Coordinates and manages the organization’s voice and data networks

Database administrator Manages the organization’s databases and oversees the use of database-management soft ware

Auditing or computer Oversees the ethical and legal use of information systems security manager

Webmaster Manages the organization’s World Wide Web site

Web designer Creates World Wide Web sites and pages

is the appropriate relationship between the MIS department and the end users? Regardless of who is doing what, it is essential that the MIS department and the end users work in close cooperation.

Th ere is no standard set of choices for how to regulate and divide responsibility for developing and maintaining information resources between the MIS department and end users. Instead, that division depends on several factors: the size and nature of the organization, the amount and type of IT resources, the organization’s attitudes toward

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10 1 l Introduction to Information Systems

computing, the attitudes of top management toward computing, the maturity level of the technology, the amount and nature of outsourced IT work, and even the countries in which the company operates. Generally speaking, the MIS department is responsible for corporate-level and shared resources, and the end users are responsible for departmen-

tal resources. Table 1.2 identifi es both the traditional func- tions and various new, consultative functions of the MIS department.

So, where do the end users come in? Take a close look at Table 1.2. Under the traditional MIS functions, you will see two functions for which you provide vital input. Under the consultative MIS functions, you will see how the primary responsibility for each function is exercised, and how the MIS department acts as an advisor.

BEFORE YOU GO ON . . . 1. Rate yourself as an informed user.

(Be honest; this is not a test!) 2. Explain the benefi ts of being an informed

user of information systems. 3. Discuss the various career opportunities

offered in the IT fi eld.

TABLE 1.2 The Changing Role of the IS Department

Traditional Functions of the MIS Department

• Managing systems development and systems project management ° As an end user, you will have critical input into the systems development process. You will

learn about systems development in Chapter 14.

• Managing computer operations, including the computer center

• Staffi ng, training, and developing IS skills

• Providing technical services

• Infrastructure planning, development, and control ° As an end user, you will provide critical input about the IS infrastructure needs of your

department.

New (Consultative) Functions of the MIS Department

• Initiating and designing specifi c strategic information systems ° As an end user, your information needs will oft en mandate the development of new

strategic information systems. You will decide which strategic systems you need (because you know your business needs better than the MIS department), and you will provide input into developing these systems.

• Incorporating the Internet and electronic commerce into the business ° As an end user, you will be primarily responsible for eff ectively using the Internet and

electronic commerce in your business. You will work with the MIS department to accomplish this task.

• Managing system integration including the Internet, intranets, and extranets ° As an end user, your business needs will determine how you want to use the Internet,

your corporate intranets, and extranets to accomplish your goals. You will be primarily responsible for advising the MIS department on the most eff ective use of the Internet, your corporate intranets, and extranets.

• Educating the non-MIS managers about IT ° Your department will be primarily responsible for advising the MIS department on how

best to educate and train your employees about IT.

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Why Should I Study Information Systems? 11

Apply the Concept 1.1

Background Th is section pointed out that technology is used to move busi- ness forward by connecting the business to its customers, suppliers, partners,

etc. Th ose connections do not just exist to support businesses. Do you realize how con- nected you are? Computers and information systems have become a part of our every- day life at home. Most of you have a cell phone within reach and have looked at it within the past 5 minutes. No longer is a phone just a phone, it is your connection to family, friends, shopping, driving directions, entertainment (games, movies, music, etc.), and much more.

When you graduate and go to work, most businesses will require you to interface with computer information systems to post transactions or search for information. And just as there are many people working for Apple, Google, AT&T, Verizon, and others making sure your personal network and technology never fails, there are many who work specifi cally in IT to ensure that business IT is, in fact, moving business forward. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 1.1. You will be taken to YouTube to learn more about the IT people who work behind the scenes helping IT move business forward. As you watch the video, consider the following questions about all that is involved in the job of an IT manager.

• What is the schedule for an IT manager’s work? • What training does an IT manager need? • What jobs are available in the IT fi eld? • Do you know anyone who works directly with IT? • In which role from the video do you think that person works?

• Educating the MIS staff about the business ° Communication between the MIS department and the business units is a two-way street.

You will be responsible for educating the MIS staff on your business, its needs, and its goals.

• Partnering with business-unit executives ° Essentially, you will be in a partnership with the MIS department. You will be responsible

for seeing that this partnership is one “between equals” and ensuring its success.

• Managing outsourcing ° Outsourcing is driven by business needs. Th erefore, the outsourcing decision largely

resides with the business units (i.e., with you). Th e MIS department, working closely with you, will advise you on technical issues such as communications bandwidth, security, and so on.

• Proactively using business and technical knowledge to seed innovative ideas about IT ° Your business needs will oft en drive innovative ideas about how to eff ectively use

information systems to accomplish your goals. Th e best way to bring these innovative uses of IS to life is to partner closely with your MIS department. Such close partnerships have amazing synergies!

• Creating business alliances with business partners ° Th e needs of your business unit will drive these alliances, typically along your supply

chain. Again, your MIS department will act as your advisor on various issues, including hardware and soft ware compatibility, implementing extranets, communications, and security.

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12 1 l Introduction to Information Systems

1.2 Overview of Computer-Based Information Systems Organizations refer to their MIS functional area by several names, including the MIS Department, the Information Systems Department, the Information Technology Department, and the Information Services Department. Regardless of the name, how- ever, this functional area deals with the planning for—and the development, manage- ment, and use of—IT tools to help people perform all of the tasks related to information processing and management. IT relates to any computer-based tool that people use to work with information and to support the information and information-processing needs of an organization.

An IS collects, processes, stores, analyzes, and disseminates information for a specifi c purpose. It has been said that the purpose of ISs is to get the right information to the right people at the right time in the right amount and in the right format. Because ISs are intended to supply useful information, we need to diff erentiate between information and two closely related terms: data and knowledge (see Figure 1.2).

Data items refer to an elementary description of things, events, activities, and transac- tions that are recorded, classifi ed, and stored but are not organized to convey any specifi c meaning. Data items can be numbers, letters, fi gures, sounds, and images. Examples of data items are a collection of numbers (e.g., 3.11, 2.96, 3.95, 1.99, 2.08) and characters (e.g., B, A, C, A, B, D, F, C).

Information refers to data that have been organized so that they have meaning and value to the recipient. For example, a grade point average (GPA) by itself is data, but a student’s name coupled with his or her GPA is information. Th e recipient interprets the meaning and draws conclusions and implications from the information. Consider the examples of data provided in the preceding paragraph. Within the context of a university, the numbers could be GPAs, and the letters could be grades in an Introduction to MIS class.

Knowledge consists of data and/or information that have been organized and pro- cessed to convey understanding, experience, accumulated learning, and expertise as they apply to a current business problem. For example, a company recruiting at your school has found over time that students with GPAs over 3.0 have experienced the great- est success in its management program. Based on this accumulated knowledge, that com- pany may decide to interview only those students with GPAs over 3.0. Organizational

Deliverable

Write a paragraph summary for your professor that explains the major responsibilities of the diff erent positions discussed in the video. Also point out which area you would be most interested in learning more about. Submit your paragraph to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Given that Ruby’s customers are college-aged Homo conexus users of technology, do you think it will be possible for them to be successful moving into the future without a strong IT strategy?

2. If “informed users” provide more value to a company, can the same be said of “informed customers”?

Q U E S T I O N SRUBY’S CLUB

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Overview of Computer-Based Information Systems 13

Knowledge

Information

Data

Figure 1.2 Binary Code, the foundation of information and knowledge, is the key to making complex decisions.

3.16 3.16 1 John Jones 5 GPA *Job prospects 2.92 2.92 1 Sue Smith 5 GPA *Graduate school prospects 1.39 1.39 1 Kyle Owens 5 GPA *Scholarship prospects 3.95 3.95 1 Tom Elias 5 GPA

Data Information [No context] [University context] Knowledge

GPA 5 grade point average (higher is better) ERA 5 earned run average (lower is better); ERA is the number of runs per nine innings accountable to a pitcher

[Professional baseball [No context] pitcher context]

3.16 3.16 1 Ken Rice 5 ERA 2.92 2.92 1 Ed Dyas 5 ERA * Keep pitcher, trade pitcher, or send

pitcher to minor leagues 1.39 1.39 1 Hugh Carr 5 ERA *Salary/contract negotiations 3.95 3.95 1 Nick Ford 5 ERA

You see that the same data items, with no context, can mean entirely diff erent things in diff erent contexts.

knowledge, which refl ects the experience and expertise of many people, has great value to all employees.

Consider this example:

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14 1 l Introduction to Information Systems

Now that you have a clearer understanding of data, information, and knowledge, we shift our focus to computer-based information systems. As we noted, these systems process data into information and knowledge that you can use.

A computer-based information system (CBIS) is an information system that uses computer technology to perform some or all of its intended tasks. Although not all infor- mation systems are computerized, today most are. For this reason, the term information system is typically used synonymously with computer-based information system. Th e follow- ing are the basic components of computer-based information systems. Th e fi rst four are called information technology (IT) components. Figure 1.3 shows how these four com- ponents interact to form a CBIS.

• Hardware is a device such as a processor, monitor, keyboard, or printer. Together, these devices accept data and information, process them, and display them.

• Software is a program or collection of programs that enable the hardware to process data.

• A database is a collection of related fi les or tables containing data. • A network is a connecting system (wireline or wireless) that permits diff erent

computers to share resources. • Procedures are the set of instructions about how to combine hardware, soft ware,

databases, and networks in order to process information and generate the desired output.

• Users are those individuals who use the hardware and soft ware, interface with it, or utilize its output.

Figure 1.4 shows how these components are integrated to form the wide variety of information systems in an organization. Starting at the bottom of the fi gure, you see that the IT components of hardware, soft ware, networks (wireline and wireless), and databases form the information technology (IT) platform. IT personnel use these components to develop information systems, oversee security and risk, and manage data. Th ese activities cumula- tively are called information technology (IT) services. Th e IT components plus IT ser- vices comprise the organization’s information technology (IT) infrastructure. At the top of the pyramid are the various organizational information systems.

Database

NetworkSoftware

Computer-based information system

Procedures

Procedures Procedures

Procedures

Hardware

Figure 1.3 It takes technology (hardware, software, databases, and networks) with appropriate procedures to make a CBIS useful for people.

© Dzianis Kazlouski/iStockphoto; © Oleksiy Mark/iStockphoto; © Blend_Images/iStockphoto; © Alex Slobodkin/iStockphoto; © Alex Slobodkin/iStockphoto

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Overview of Computer-Based Information Systems 15

Computer-based information systems have many capabilities. Table 1.3 summarizes the most important ones.

Information systems perform these various tasks via a wide spectrum of applications. An application (app) is a computer program designed to support a specifi c task or business process. (A synonymous term is application program.) Each functional area or department within a business organization uses dozens of application programs. For instance, the human resources department sometimes uses one application for screening job applicants and another for monitoring employee turnover. Th e collection of application programs in a single department is usually referred to as a departmental information system (also known as a functional area information system). For example, the collection of application pro- grams in the human resources area is called the human resources information system (HRIS). Collections of application programs—that is, departmental information systems—are used in other functional areas as well, such as accounting, fi nance, marketing, and production/ operations. IT’s About Business 1.2 illustrates how U.S. railroads are using information systems to improve their operations.

Types of Computer-Based Information Systems Modern organizations employ many diff erent types of information systems. Figure 1.4 illus- trates the diff erent types of information systems that function within a single organization,

IT Personnel

IT Components

P ro

d u

ct io

n /O

p er

at io

n s

M an

ag em

en t

IS

H u

m an

R es

o u

rc es

IS

M ar

ke ti

n g

IS

F in

an ce

IS

A cc

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IS

IT Services Transaction Processing Systems

Enterprise Resource Planning Systems

Business Intelligence Dashboards Expert Systems

Figure 1.4 How IT components are integrated to form the wide variety of information systems within a single organization.

TABLE 1.3 Major Capabilities of Information Systems

• Perform high-speed, high-volume, numerical computations

• Provide fast, accurate communication and collaboration within and among organizations

• Store huge amounts of information in an easy-to-access yet small space

• Allow quick and inexpensive access to vast amounts of information, worldwide

• Interpret vast amounts of data quickly and effi ciently

• Automate both semiautomatic business processes and manual tasks

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16 1 l Introduction to Information Systems

The Digitization of Railroads

Once a dying industry, railroads have made a major comeback. They are now seeking to operate more trains, carry more freight and passengers, and move at faster speeds than ever before while at the same time lowering their costs. In an effort to become more effi - cient and safer as well, railroads are rapidly becoming digitized. Major railroads are installing digital commu- nications, sensors, computerized controls, and global positioning receivers on their trains and tracks.

These new types of IT can gather intelligence on location, size, and speed of trains, and then use that

information to make automated decisions about train movement. Automated decisions will improve the operating effi ciency of the railroads, thus saving mon- ey. More importantly, automated decisions may save lives.

The railroad industry is implementing three major digital systems as it moves into the second decade of the 21st century: a positive train control system, electronically controlled pneumatic brakes, and proactive monitoring and detection systems. As you will see, each of these sys- tems brings many potential benefi ts, but also comes with its own set of issues and controversies.

ABOUT BUSINESS 1.2i Th Di T’S

and Figure 1.5 shows the diff erent types of information systems that function among mul- tiple organizations. You will study transaction processing systems, management informa- tion systems, and enterprise resource planning systems in Chapter 11. You will learn about customer relationship management (CRM) systems in Chapter 12 and supply chain man- agement (SCM) systems in Chapter 13.

In the next section, you will learn about the numerous and diverse types of information systems employed by modern organizations. You will also read about the types of support these systems provide.

Business-to-business electronic commerce

(B2B)

Business-to-business electronic commerce

(B2B)

SUPPLIERS

S up

pl y

ch ai

n m

an ag

em en

t

C ustom

er relationship

m anagem

ent

Your Organization

Business-to-consumer electronic commerce

(B2C)

CUSTOMERS

Individuals

Information

Online orders

Payments

Online orders

Payments

Digital products

Digital products

Payments

Online orders

Physical products

Physical products

M at

er ial

s

Internet

Business

Figure 1.5 The different types of information systems that function among multiple organizations.

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Overview of Computer-Based Information Systems 17

Positive Train Control

Positive train control (PTC) is essentially a traffi c system for trains that utilizes on-board computers, digital communications, and global positioning systems. PTC enables central railroad control stations to see trains’ locations. It also enables them to stop trains by remote control if, for example, an engineer fails to obey a signal.

PTC systems are designed to project an electronic safety zone (or buffer) in front of, and behind, trains. The size of a train’s buffer space is determined by its length, weight, and braking capabilities. Under this sys- tem, if one train were to encroach on another train’s buffer zone, the electronic gear on the train whose buf- fer was invaded would be alerted and its brakes would automatically engage.

In addition to making it safer for trains to operate closer together, such a system would also allow the railroads to retire their light signals, thereby saving themselves a considerable amount of money. However, despite these potential costs savings, there is one distinct advantage to keeping part of the light signal system active. The light signals are connected to an electrical circuit that runs through the rails, so if a break in a rail occurs, the circuit is broken as well. This broken circuit causes the nearest signal to turn red, stopping trains in the vicinity.

The U.S. government has mandated that PTC sys- tems be installed by the end of 2015 on major rail lines used by passenger trains or by trains carrying highly toxic chemicals. At the time of this writing (mid-2012), the major railway companies are still resistant to imple- menting PTC systems. These companies say that it will cost $13 billion to install and maintain PTC systems, a cost-prohibitive amount of money.

Electronically Controlled Pneumatic Brakes

Another digital development affecting railways is a new kind of brake, known as the electronically controlled pneumatic (or ECP), brake. ECP brakes are controlled by electronic signals instead of air pressure, and there- fore engage and release immediately and uniformly. ECP brakes improve train handling, shorten braking distances, lessen wear and tear on railcars, and lower the risk of derailment.

Unfortunately, the cost and technical challenges of implementing ECP brakes are likely to slow down their adoption. For example, trains cannot be comprised of cars with two different kinds of brakes, so replacing the brakes on only some of the nation’s 1.6 million freight

cars would create a logistical nightmare for the rail- roads. Further, railroads are already able to shorten braking distances by placing additional locomotives in the middle or rear of freight trains. This solution is tem- porary, but one that the railroads favor at this time.

Proactive Monitoring and Detection Systems

The railroad industry is also working on methods of predicting, rather than reacting to, equipment prob- lems. Currently, devices such as hot-box detectors beside rail lines measure temperatures as trains go past and spot wheel bearings that have overheated. Once these problems are spotted, trains have to stop to repair the problem.

Railroad companies are also developing digital monitoring systems that can measure stress levels on wheels and other railcar components before serious problems develop. These systems operate through microphones that can pick up the sounds of axle bear- ings and software algorithms that can then interpret those sounds.

Railroads are also experimenting with putting sen- sors directly on railcars. These sensors monitor issues such as whether the dome lids on chemical tank cars are open or closed. Chemical companies want this information because lids are supposed to be closed during transit to prevent vandalism. If they received alerts when the lids were open, they could easily detect any breach of the cars. The sensors can also monitor temperatures inside railcars, a feature critical in the case of food shipments.

Sources: Compiled from T. Aspray, “Railroad Stocks Are Still on Track,” Forbes, January 6, 2012; D. Machalaba, “The Little Engine Really Could,” The Wall Street Journal, May 23, 2011; R. Lindsey, “Really? You Gotta Let It Go,” Strategic Railroading, December 7, 2010; F. Roskind, “Positive Train Control Systems Economic Analysis,” Federal Railroad Administration, July 10, 2009; K. Jones, “Engineer Texted Before Deadly Train Crash,” InformationWeek, March 3, 2009; www.nscorp.com, www.csx.com, www. up.com, accessed February 19, 2012.

Questions 1. Describe how the three systems discussed in this

case can lead to safer railroads. Provide specifi c examples.

2. What other information technologies could railroads use to improve their performance?

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18 1 l Introduction to Information Systems

Breadth of Support of Information Systems Certain information systems support parts of organizations, others support entire organizations, and still others support groups of organizations. Th is section addresses all of these systems.

Recall that each department or functional area within an organi- zation has its own collection of application programs, or information systems. Th ese functional area information systems (FAISs) are supporting pillars for the information systems located at the top of Figure 1.4: business intelligence systems and dashboards. As the name suggests, each FAIS supports a particular functional area with- in the organization. Examples are accounting IS, fi nance IS, production/ operations management (POM) IS, marketing IS, and human resources IS.

Consider these examples of IT systems in the various functional areas of an organization. In fi nance and accounting, managers use IT systems to forecast revenues and business activity, to determine the best sources and uses of funds, and to perform audits to ensure that the organization is fundamentally sound and that all fi nancial reports and documents are accurate.

In sales and marketing, managers use information technology to perform the following functions:

• Product analysis: developing new goods and services. • Site analysis: determining the best location for production and

distribution facilities. • Promotion analysis: identifying the best advertising channels. • Price analysis: setting product prices to obtain the highest total

revenues.

Marketing managers also use IT to manage their relationships with their customers. In manufacturing, managers use IT to process customer orders, develop production

schedules, control inventory levels, and monitor product quality. Th ey also use IT to design and manufacture products. Th ese processes are called computer-assisted design (CAD) and computer-assisted manufacturing (CAM).

Managers in human resources use IT to manage the recruiting process, analyze and screen job applicants, and hire new employees. Th ey also employ IT to help employees manage their careers, to administer performance tests to employees, and to monitor employee productivity. Finally, they rely on IT to manage compensation and benefi ts packages.

Two information systems support the entire organization: enterprise resource plan- ning systems and transaction processing systems. Enterprise resource planning (ERP) systems are designed to correct a lack of communication among the FAISs. As a result, Figure 1.4 shows ERP systems spanning the FAIS. ERP systems were an important innovation because the various FAISs were oft en developed as stand-alone systems and did not communicate eff ectively (if at all) with one another. ERP systems resolve this problem by tightly integrating the FAISs via a common database. In doing so, they enhance communications among the functional areas of an organization. For this reason, experts credit ERP systems with greatly increasing organizational productivity.

A transaction processing system (TPS) supports the monitoring, collection, storage, and processing of data from the organization’s basic business transactions, each of which generates data. For example, when you are checking out of Walmart, each time the cashier swipes an item across the bar code reader, that is one transaction. Defi nitions of a transac- tion diff er throughout an organization. In accounting, for example, a transaction is any- thing that changes a fi rm’s chart of accounts. Th e information system defi nition of a trans- action is broader: A transaction is anything that changes the fi rm’s database. Th e chart of accounts is only part of the fi rm’s database. Consider a scenario in which a student transfers

Data from a coupon center will be connected to marketing and sales, but possibly inventory, accounting, and much more.

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Overview of Computer-Based Information Systems 19

from one section of an Introduction to MIS course to another section. Th is move would be a transaction in the university’s information system, but not a transaction in the university’s accounting department.

Th e TPS collects data continuously, typically in real time—that is, as soon as the data are generated—and provides the input data for the corporate databases. TPSs are considered criti- cal to the success of any enterprise because they support core operations. Signifi cantly, nearly all ERP systems are also TPSs, but not all TPSs are ERP systems. In fact, modern ERP systems incorporate many functions that have previously been handled by the organization’s functional area information systems. You study both TPSs and ERP systems in detail in Chapter 11.

ERP systems and TPS function primarily within a single organization. Information systems that connect two or more organizations are referred to as interorganizational information systems (IOSs). IOSs support many interorganizational operations, of which supply chain management is the best known. An organization’s supply chain is the fl ow of materials, information, money, and services from suppliers of raw materials through facto- ries and warehouses to the end customers.

Note that the supply chain in Figure 1.5 shows physical fl ows, information fl ows, and fi nancial fl ows. Digitizable products are those that can be represented in electronic form, such as music and soft ware. Information fl ows, fi nancial fl ows, and digitizable products go through the Internet, whereas physical products are shipped. For example, when you order a computer from www.dell.com, your information goes to Dell via the Internet. When your transaction is completed (i.e., your credit card is approved and your order is processed), Dell ships your computer to you.

Electronic commerce systems are another type of interorganizational information system. An electronic commerce (e-commerce) system enables organizations to conduct transactions, called business-to-business (B2B) electronic commerce, and customers to con- duct transactions with businesses, called business-to-consumer (B2C) electronic commerce. (Note: You will learn about other types of e-commerce systems in Chapter 9). E-commerce systems are typically Internet based. Figure 1.5 illustrates B2B and B2C electronic commerce. Support for Organizational Employees. So far you have been concentrating on information systems that support specifi c functional areas and operations. Now you will learn about information systems that typically support particular employees within the organization.

Clerical workers, who support managers at all levels of the organization, include book- keepers, secretaries, electronic fi le clerks, and insurance claim processors. Lower-level man- agers handle the day-to-day operations of the organization, making routine decisions such as assigning tasks to employees and placing purchase orders. Middle managers make tactical decisions, which deal with activities such as short-term planning, organizing, and control.

Knowledge workers are professional employees, such as fi nancial and marketing analysts, engineers, lawyers, and accountants. All knowledge workers are experts in a particular subject area. Th ey create information and knowledge, which they integrate into the business. Knowledge workers act as advisors to middle managers and executives. Finally, executives make decisions that deal with situations that can signifi cantly change the manner in which business is done. Examples of executive decisions are introducing a new product line, acquiring other businesses, and relocating operations to a foreign country.

Office automation systems (OASs) typically support the clerical staff , lower and mid- dle managers, and knowledge workers. Th ese employees use OASs to develop documents (word processing and desktop publishing soft ware), schedule resources (electronic calen- dars), and communicate (e-mail, voice mail, videoconferencing, and groupware).

FAISs summarize data and prepare reports, primarily for middle managers, but some- times for lower-level managers as well. Because these reports typically concern a specifi c functional area, report generators (RPGs) are an important type of functional area IS.

Business intelligence (BI) systems provide computer-based support for complex, nonroutine decisions, primarily for middle managers and knowledge workers. (Th ey also support lower-level managers, but to a lesser extent.) Th ese systems are typically used with a data warehouse and they enable users to perform their own data analysis. You learn about BI systems in Chapter 5.

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20 1 l Introduction to Information Systems

Expert systems (ESs) attempt to duplicate the work of human experts by applying reasoning capabilities, knowledge, and expertise within a specifi c domain. Th ey have

become valuable in many application areas, primarily but not exclusively areas involving decision making. For example, nav- igation systems use rules to select routes, but we do not typi- cally think of these systems as expert systems. Signifi cantly, expert systems can operate as stand-alone systems or be embedded in other applications. We examine ESs in greater detail in “Plug IT In 4.”

Dashboards (also called digital dashboards) are a spe- cial form of IS that supports all managers of the organization. Th ey provide rapid access to timely information and direct access to structured information in the form of reports. Dash- boards that are tailored to the information needs of executives are called executive dashboards. Chapter 5 provides a thorough discussion of dashboards.

Table 1.4 provides an overview of the diff erent types of organizational information systems.

TABLE 1.4 Types of Organizational Information Systems

Type of System Function Example

Functional area IS Supports the activities within System for processing payroll specifi c functional area

Transaction processing system Processes transaction data Walmart checkout point-of- from business events sale terminal

Enterprise resource Integrates all functional areas Oracle, SAP planning system of the organization

Offi ce automation system Supports daily work activities Microsoft Offi ce of individuals and groups

Management information Produces reports summarized Report on total sales for each system from transaction data, usually customer in one functional area

Decision support system Provides access to data and “What-if ” analysis of changes analysis tools in budget

Expert system Mimics human expert in a Credit card approval analysis particular area and makes decisions

Executive dashboard Presents structured, Status of sales by product summarized information about aspects of business important to executives

Supply chain management Manages fl ows of products, Walmart Retail Link system system services, and information connecting suppliers to among organizations Walmart

Electronic commerce system Enables transactions among www.dell.com organizations and between organizations and customers

BEFORE YOU GO ON . . . 1. What is a computer-based information

system? 2. Describe the components of computer-

based information systems. 3. What is an application program? 4. Explain how information systems provide

support for knowledge workers. 5. As we move up the organization’s hierarchy

from clerical workers to executives, how does the type of support provided by information systems change?

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Overview of Computer-Based Information Systems 21

Apply the Concept 1.2

Background Th is section discussed the various functional areas that you will most likely go to work in and the diff erent systems that support them. It should be

no surprise that these are the very majors you can choose from in most colleges of business. Th ese four major functional areas are marketing/sales, fi nance/accounting, manufacturing, and human resources. Oft en, these diff erent functional areas will use the same database and networks within a company, but they will all use them to support their specifi c needs. Th is activity will help you develop a solid understanding of the role of information systems within the diff erent functional areas. Activity Review the section material that describes the major function of the following departments in most companies: marketing/sales, fi nance/accounting, manufacturing, and human resources. Th en review the basic function of the following types of information systems: transaction processing, management information, and decision support. Once you have a solid understanding of the functional areas and information systems that support them you are ready to move forward with the activity!

Deliverable

Rebuild and complete the chart shown below with the activities that may be completed by each system for each department. To help out, we have pre-fi lled one item in each type of system. Once you complete your chart, submit it to your professor.

Transaction Management Decision Processing Information Support

Marketing/Sales Enter sales data

Accounting/Finance

Human Resources Comply with EEOC

Manufacturing Inventory reporting

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Given that Ruby’s is a bar with a small food menu, what type of data do you think this establishment should collect from a single transaction (such as an order for food)?

2. How can Ruby’s use data from transactions over a month to help manage inventory?

3. If Ruben and Lisa have transactional data that is organized to create information regarding their customer base, why could knowledge be gained from this that would help them develop a marketing plan?

Q U E S T I O N SRUBY’S CLUB

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22 1 l Introduction to Information Systems

1.3 How Does IT Impact Organizations? Th roughout this book, you will encounter numerous examples of how IT aff ects various types of organizations. Th is section provides an overview of the impact of IT on modern organiza- tions. As you read this section, you will learn how each of these impacts will aff ect you as well.

IT Will Reduce the Number of Middle Managers IT makes managers more productive, and it increases the number of employees who can report to a single manager. In these ways, IT ultimately decreases the number of managers and experts. It is reasonable to assume, therefore, that in the coming years organizations will have fewer managerial levels and fewer staff and line managers. If this trend material- izes, then promotional opportunities will decrease, making promotions much more com- petitive. Bottom line: Pay attention in school!

IT Will Change the Manager’s Job One of the most important tasks of managers is making decisions. One of the major conse- quences of IT has been to change the manner in which managers make many of their deci- sions. In this way, IT ultimately has changed managers’ jobs.

IT oft en provides managers with near real-time information, meaning that managers have less time to make decisions, making their jobs even more stressful. Fortunately, IT also provides many tools—for example, business intelligence applications such as dashboards, search engines, and intranets—to help managers handle the volumes of information they must deal with on an ongoing basis.

We have been focusing on managers in general in this section. Now, let’s focus on you. Because of advances in IT, you will increasingly supervise employees and teams who are geographically dispersed. Employees can work from anywhere at any time, and teams can consist of employees who are literally dispersed throughout the world. Information tech- nologies such as telepresence systems (discussed in Chapter 4) can help you manage these employees even though you do not oft en see them face to face. For these employees, elec- tronic or “remote” supervision will become the norm. Remote supervision places greater emphasis on completed work and less emphasis on personal contacts and offi ce politics. You will have to reassure your employees that they are valued members of the organization, thereby diminishing any feelings they might have of being isolated and “out of the loop.”

Will IT Eliminate Jobs? One of the major concerns of every employee, part time or full time, is job security. Relent- less cost-cutting measures in modern organizations oft en lead to large-scale layoff s. Put simply, organizations are responding to today’s highly competitive environment by doing more with less. Regardless of your position, then, you consistently will have to add value to your organization and to make certain that your superiors are aware of this value.

Many companies have responded to diffi cult economic times, increased global competi- tion, demands for customization, and increased consumer sophistication by increasing their investments in IT. In fact, as computers continue to advance in terms of intelligence and capabilities, the competitive advantage of replacing people with machines is increasing rap- idly. Th is process frequently leads to layoff s. At the same time, however, IT creates entirely new categories of jobs, such as electronic medical record keeping and nanotechnology.

IT Impacts Employees at Work Many people have experienced a loss of identity because of computerization. Th ey feel like “just another number” because computers reduce or eliminate the human element that was present in noncomputerized systems.

Th e Internet threatens to exert an even more isolating infl uence than computers and television. Encouraging people to work and shop from their living rooms could produce some unfortunate psychological eff ects, such as depression and loneliness.

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How Does IT Impact Organizations? 23

IT Impacts Employees’ Health and Safety. Although computers and informa- tion systems are generally regarded as agents of “progress,” they can adversely aff ect indi- viduals’ health and safety. To illustrate this point, we consider two issues associated with IT: job stress and long-term use of the keyboard.

An increase in an employee’s workload and/or responsibilities can trigger job stress. Although computerization has benefi ted organizations by increasing productivity, it has also created an ever-expanding workload for some employees. Some workers feel overwhelmed and have become increasingly anxious about their job performance. Th ese feelings of stress and anxiety can actually diminish rather than improve workers’ productivity while jeopardizing their physical and mental health. Management can help to alleviate these problems by provid- ing training, redistributing the workload among workers, and hiring more workers.

On a more specifi c level, the long-term use of keyboards can lead to repetitive strain inju- ries such as backaches and muscle tension in the wrists and fi ngers. Carpal tunnel syndrome is a particularly painful form of repetitive strain injury that aff ects the wrists and hands.

Designers are aware of the potential problems associated with the prolonged use of computers. To address these problems, they continually attempt to design a better comput- ing environment. Th e science of designing machines and work settings that minimize injury and illness is called ergonomics. Th e goal of ergonomics is to create an environment that is safe, well lit, and comfortable. Examples of ergonomically designed products are antiglare screens that alleviate problems of fatigued or damaged eyesight and chairs that contour the human body to decrease backaches. Figure 1.6 displays some sample ergonomic products.

IT Provides Opportunities for People with Disabilities. Computers can cre- ate new employment opportunities for people with disabilities by integrating speech- and vision-recognition capabilities. For example, individuals who cannot type are able to use a voice-operated keyboard, and individuals who cannot travel can work at home.

Going further, adaptive equipment for computers permits people with disabilities to per- form tasks they would not normally be able to do. You should note that the Web and graphical user interfaces (e.g., Microsoft Windows) can still make life diffi cult for people with impaired

Figure 1.6 Ergonomic products protect computer users. (a) Wrist support. Media Bakery (b) Back support. Media Bakery (c) Eye-protection fi lter (optically coated glass). Media Bakery (d) Adjustable foot rest. Media Bakery

(a) (b)

(d)(c)

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24 1 l Introduction to Information Systems

vision. Adding audible screen tips and voice interfaces to deal with this problem essentially restores functionality to the way it was before rich, graphical interfaces became standard.

Other devices help improve the quality of life for people with disabilities in more mundane, but useful, ways. Examples are a two-way writing telephone, a robotic page turner, a hair brusher, and a hospital-bedside video trip to the zoo or the museum. Several organizations specialize in IT designed for people with disabilities.

Apply the Concept 1.3

Background Th is section points out that the whole reason businesses use Infor- mation Systems is that they add value to the daily activities. Th is should not be a

surprise to you because you most likely use computers and information systems for the very same reason! Th ink of fi ve activities that you use your computer for on a regular basis. Most likely many of these activities have to do with school and your classes. However, I would guess that you also use your computer to communicate with friends and family, to fi nd out what movies are showing in theaters this weekend, or to check fl ights for travel on your next break. Most of us would miss our computers and the information systems we have available through them to help us with these tasks. Th ey add “value” to our lives. Th e same is true for most business organizations. Th ey depend on computer information systems to complete their daily tasks and to add value to their organization. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 1.3. It will describe to you how to use a computer to your advantage. Be sure to listen for the reasons or ways that computers provide value to businesses. Consider whether you have seen any of these in your own interactions with a business as a consumer.

Deliverable

Based on the video, list fi ve benefi ts mentioned for using IS in a business. However, there are many other ways in which a business depends on information systems. Also, name fi ve other benefi ts an information system can provide. Th ink of ways you have used IS to inter- face with a business and the value you have found. Write a short summary (based on the chapter, the video, and your personal experiences) that describes the many ways that com- puters and IT add value to our lives. Submit this to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

BEFORE YOU GO ON . . . 1. Why should employees in all functional areas

become knowledgeable about IT? 2. Describe how IT might change the

manager’s job. 3. Discuss several ways in which IT impacts

employees at work.

1. Ruben and Lisa have always spent hours going through paper receipts trying to determine past sales. They need these fi gures to know purchase quantities for the products they sell. Given that some of their products have a short shelf life (perishable foods), this needs to be very accurate. In what ways could the capabilities of ISs help them accomplish this task?

2. What type of procedures would Ruben and Lisa need to ensure that the people interacting with the ISs are doing so in an appropriate manner (i.e., correctly inputting data, not using customer data, etc.)?

Q U E S T I O N SRUBY’S CLUB

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Why Are Information Systems Important to Society? 25

1.4 Why Are Information Systems Important to Society? Th is section explains in greater detail why IT is important to society as a whole. Other examples of the impacts of IT on society appear throughout the book.

IT Affects Our Quality of Life IT has signifi cant implications for our quality of life. Th e workplace can be expanded from the traditional 9-to-5 job at a central location to 24 hours a day at any location. IT can pro- vide employees with fl exibility that can signifi cantly improve the quality of leisure time, even if it does not increase the total amount of leisure time.

From the opposite perspective, however, IT can also place employees on “constant call” where they are never truly away from the offi ce, even when they are on vacation. In fact, a recent poll revealed that 80 percent of respondents took their laptop computers on their most recent vacations, and 100 percent took their cell phones. Going further, 80 percent did some work while vacationing, and almost all of them checked their e-mail.

Robot Revolution on the Way Once restricted largely to science fi ction movies, robots that can perform practical tasks are becoming more common. In fact, “cyberpooches,” nursebots, and other mechanical beings may be our companions before we know it. Around the world, quasi-autonomous devices have become increasingly common on factory fl oors, in hospital corridors, and in farm fi elds. In our homes, iRobot (www.irobot.com) produces the Roomba to vacuum our fl oors, the Scooba to wash our fl oors, the Dirt Dog to sweep our garages, the Verro to clean our pools, and the Looj to clean our gutters.

Telepresence robots are a recent development in the fi eld of robotics. IT’s About Business 1.3 illustrates how organizations use these robots.

Telepresence Robots

The Business Problem

In our modern digital world, knowledge workers can work from anywhere via a process called telecommut- ing. In fact, a new term, digital nomad, has appeared that refers to someone who uses a variety of informa- tion technologies such as smartphones, wireless Inter- net access, and Web-based applications to work remotely from a home, coffee shop, restaurant, airport, airplane, Internet café, or other location.

Digital nomads present a couple of issues for the offi ces that employ them. First, digital nomads lack a “presence” in their respective offi ces. Second, it is typically expensive and time-consuming for them to travel to their offi ces—for example, to attend meetings.

Yet another busi- ness issue occurs when a person with a highly desirable skill is needed at a distant location. Examples of individ- uals with such desir- able skills include surgeons, consul- tants with expertise in a specific industry, salespeople who are well known to high- value clients, and many others.

ABOUT BUSINESS 1.3i T l T’S

AFP/Gettv Images. Inc.

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26 1 l Introduction to Information Systems

The telepresence robot provides a solution to all of the issues listed earlier.

The IT Solution

Telepresence robots have been humorously described as a cross between a Segway and Wall-E. These robots are designed to help companies save money on travel and on expensive teleconferencing technology. The robots enable people in remote offi ces or locations to have a rich communications experience without having to use a complicated videoconferencing system.

A telepresence robot has both a video camera and a video screen embedded in its “head.” It also has wheels and can be moved around remotely by com- puter. It is designed to steer its way clear of obstacles or people.

The robots let a person maintain a consistent con- nection with co-workers, customers, or clients. The human user controls the robot, located at a remote location, and directs it to move around—for example, around a conference room during a meeting—while broadcasting what is going on to the human it repre- sents. Interestingly, the robots actually break down barriers of awkwardness that people sometimes feel in person-to-person meetings.

Organizations are using telepresence robots for a variety of applications. Consider the following examples:

• Dr. Johns was paged because a man had suf- fered a stroke and someone had to quickly decide which drug to give him. She hurried, not to the emergency room 200 miles away where the man had been admitted, but to a room in her local hospital. She sat in front of computer monitors, a keyboard, and a joystick that con- trolled her assistant in the remote emergency room: a telepresence robot.

She acknowledged the nurse and introduced herself to the patient’s grandson, explaining that she would question the patient to determine what drug to give him. The robot’s stereophonic hearing conveyed the answers and its hypersen- sitive camera allowed her to zoom her view of the room in and out, and swing the display left and right.

By speaking directly with the patient, exam- ining his face and how he controlled his hands, and looking at the cardiac monitor in the emer- gency room, Dr. Johns was able to assess the stroke with the same accuracy as if she had been physically present. She instructed the nurse to give the patient a particular drug.

• Mike Beltzner, director of Firefox at the Mozilla Corporation, is able to communicate with his programmers in California from his home in Toronto, Canada, by means of a telepresence robot. His telepresence robot swivels his camera eyes back and forth, and Mike can see the entire room. He chats comfortably with the assembled team. When the meeting ends, “Robo-Beltzner” (as his colleagues call him), mingles in the room, chatting. Mike fi nds that he is getting the same kind of interpersonal connection during the meetings that he would get if he were physically present.

• Chad Evans, a software designer for Phillips Healthcare, is located at his home in Atlanta, Georgia, and his telepresence robot works at the company’s headquarters in Santa Monica, California. While he works at his desk in Atlanta, he is visible on the monitor of his robot. His colleagues can see at a glance whether he is available for a chat. When Chad needs to go to a meeting in California or visit a colleague, he drives his robot to a desk or meeting room. If he needs to go to a different fl oor, someone has to press the elevator buttons for his robot. His robot enables Chad to be as available and transparent to his colleagues as though he were physically present in the offi ce.

• Tom Serani’s boss was frustrated that while Tom was on the road, his 20-person sales team working the phones back at company headquar- ters did not have the same “energy” as when Tom was in the offi ce. As a result, Tom now has a telepresence robot at company headquarters. When he is traveling, Tom can roll his robot up to an offi ce cubicle at headquarters, listen in on a telephone sales pitch, and offer advice. Interestingly, Tom’s boss noted that the telepres- ence robot increased the sales team’s energy level to the same level as when Tom was physically in the offi ce.

The Results

Telepresence robots allow much greater fl exibility for digital nomads. They provide a fl exible view into what is happening in their offi ces, without requiring money and time to be spent on travel. As you saw in the examples above, companies benefi t from valuable employees having a “presence” in the offi ce. Compa- nies also use telepresence robots to connect with peo- ple having specialized skills in remote locations.

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Why Are Information Systems Important to Society? 27

In the near future, telepresence robots will have artifi cial intelligence that allows them to do some things on their own. Inevitably, these robots will become “smarter” and more agile.

They will not only represent their human users, they will augment them.

Sources: Compiled from K. Terry, “Roomba Maker Sets Sights on Telemedicine,” InformationWeek, February 2, 2012; D. Bennett, “I’ll Have My Robots Talk to Your Robots,” Bloomberg BusinessWeek, February 21–27, 2011; A. Diana, “12 Advances in Medical Robotics,” InformationWeek, January 29, 2011; D. Terdiman, “The Telepresence Robots Are Coming,” CNET.com, May 18, 2010; J. Markoff, “The Boss Is Robotic, and Rolling Up Behind You,” The

New York Times, September 4, 2010; www.anybots.com, accessed July 27, 2011.

Questions 1. What are the advantages of a telepresence robot

representing you at your offi ce? Provide specifi c examples to support your answer.

2. What are the disadvantages of a telepresence robot representing you at your offi ce? Provide specifi c examples to support your answer.

In an example of precision agriculture, Carnegie Mellon University in Pittsburgh has developed self-directing tractors that harvest hundreds of acres of crops around the clock in California. Th ese “robot tractors” use global positioning systems (GPSs) combined with video image processing that identifi es rows of uncut crops.

Many robotic devices are also being developed for military purposes. For example, the Pentagon is researching self-driving vehicles and beelike swarms of small surveillance robots, each of which would contribute a diff erent view or angle of a combat zone. Th e Predator, an unmanned aerial vehicle (UAV), is being used in Iraq, Libya, Pakistan, and Afghanistan.

It probably will be a long time before we see robots making decisions by themselves, handling unfamiliar situations, and interacting with people. Nevertheless, robots are extremely helpful in various environments, particularly environments that are repetitive, harsh, or dangerous to humans.

Improvements in Health Care IT has brought about major improvements in health care delivery. Medical personnel use IT to make better and faster diagnoses and to monitor critically ill patients more accurately. IT also has streamlined the process of researching and developing new drugs. Expert systems now help doctors diagnose diseases, and machine vision is enhancing the work of radiologists. Surgeons use virtual reality to plan complex sur- geries. They also have used a surgical robot to perform long-distance surgery by controlling the robot’s movements. In addition, doctors discuss complex medical cases via videoconferencing, and new computer simulations recreate the sense of touch, allowing doctors-in-training to perform virtual procedures without risking harm to an actual patient.

Of the thousands of other applications related to health care, administrative systems are critically important. Th ese systems range from detecting insurance fraud to creating nursing schedules to fi nancial and marketing management.

Th e Internet contains vast amounts of useful medical information (see www.webmd. com, for example). In an interesting study, researchers at the Princess Alexandra Hospital in Brisbane, Australia, identifi ed 26 diffi cult diagnostic cases published in the New England Journal of Medicine. Th ey selected three to fi ve search terms from each case and then conducted a Google search. Th e researchers selected and recorded the three diagnoses that Google ranked most prominently and that appeared to fi t the symptoms and signs. Th ey then compared these results with the correct diagnoses as published in the journal. Th ey discovered that their Google searches had found the correct diagnosis in 15 of the

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28 1 l Introduction to Information Systems

Apply the Concept 1.4

Background As you have read in this chapter, IS have made a very signifi cant impact on society. In fact, most all of us now use the Internet to communicate with

friends, family, and colleagues. E-mail, Facebook, Twitter, text messages, Skype, and all other communication technologies run on and are supported by IS. We can also collaborate in ways that have never before been possible.

For example, what if you needed to plan a vacation with some friends for spring break? Although this may seem simple, you will use search tools, post links, take notes, etc. Why not give it a try? Activity If you do not have a Google account (that provides access to Gmail, Calendars, Drive, YouTube, etc.), you will need to set one up for this activity. Have your friends do the same and share your usernames (not passwords) with each other.

Now sign into Google Drive (http://drive.google.com) and create a new document. Toward the right-hand side, you will see a “share” button. Click this and add your friends’ Google email addresses in the share box. Be sure to give the rights to edit.

Coordinate with them for all of you to sign on at the same time and use the document to type, share links, notes, ideas, etc., and plan your trip! Look up hotels, activities, restau- rants, and so on.

Deliverable

Download the document as a PDF when you have your trip all planned out (and are a bit bummed that you are not actually going) to submit to your instructor. In addition, be pre- pared to discuss some of the benefi ts of using of Google Drive (or any tool that may become available that would be similar to it). What are some ways in which you could use this tool on campus, at home, or at work?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

BEFORE YOU GO ON . . . 1. What are some of the quality-of-life

improvements made possible by IT? Has IT had any negative effects on our quality of life?

2. Describe the robotic revolution, and consider its possible implications for humans.

3. Explain how IT has improved health care practices.

26 cases, a success rate of 57 percent. Th e researchers cau- tion, however, against the dangers of self-diagnosis. Th ey maintain that people should use the information gained from Google and medical Web sites such as WebMD only to participate in their health care by asking questions of their physician.

1. How might a well-designed information system impact Ruby’s employees? Specifi cally, how might it impact Ruben and Lisa? What aspects of running a club would be easier on a computer than on paper?

2. Do you think the addition of an IS would create or eliminate jobs at Ruby’s?

Q U E S T I O N SRUBY’S CLUB

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Summary 29

SUMMARY 1. Identify the reasons why being an informed user of

information systems is important in today’s world. You will benefi t more from your organization’s IT applica- tions because you will understand what is “behind” those applications.

> You will be able to provide input into your organiza- tion’s IT applications, thus improving the quality of those applications.

> You will quickly be in a position to recommend, or participate in, the selection of IT applications that your organization will use.

> You will be able to keep up with rapid developments in existing information technologies, as well as the intro- duction of new technologies.

> You will understand the potential impacts that “new and improved” technologies will have on your organi- zation and, therefore, will be qualifi ed to make recom- mendations concerning their adoption and use.

> You will play a key role in managing the information systems in your organization.

> You will be in a position to use IT if you decide to start your own business.

2. Describe the various types of computer-based informa- tion systems in an organization.

> Transaction processing systems (TPS) support the monitoring, collection, storage, and processing of data from the organization’s basic business transactions, each of which generates data.

> Functional area information systems (FAISs) support a particular functional area within the organization.

> Interorganizational information systems (IOSs) sup- port many interorganizational operations, of which supply chain management is the best known.

> Enterprise resource planning (ERP) systems correct a lack of communication among the FAISs by tightly integrating the functional area ISs via a common database.

> Electronic commerce (e-commerce) systems enable organizations to conduct transactions with other orga- nizations (called business-to-business (B2B) electronic commerce), and with customers (called business-to- consumer (B2C) electronic commerce).

> Offi ce automation systems (OASs) typically support the clerical staff , lower and middle managers, and knowledge workers, by enabling them to develop doc- uments (word processing and desktop publishing soft - ware), schedule resources (electronic calendars), and communicate (e-mail, voice mail, videoconferencing, and groupware).

> Business intelligence (BI) systems provide computer- based support for complex, nonroutine decisions, pri- marily for middle managers and knowledge workers.

> Expert systems (ESs) attempt to duplicate the work of human experts by applying reasoning capabilities, knowledge, and expertise within a specifi c domain.

What’s in for ME? In a previous section of this chapter, we discussed how IT supports each of the func- tional areas of the organization. Here we examine the MIS function.

FOR THE MIS MAJOR Th e MIS function directly supports all other functional areas in an organization. Th at is, the MIS function is responsible for providing the information that each

functional area needs in order to make decisions. Th e overall objective of MIS personnel is to help users improve performance and solve business problems using IT. To accomplish this objective, MIS personnel must understand both the information requirements and the technology associated with each functional area. Given their position, however, MIS per- sonnel must think “business needs” fi rst and “technology” second.

ffT

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30 1 l Introduction to Information Systems

3. Discuss ways in which information technology can aff ect managers and nonmanagerial workers. Potential IT impacts on managers:

> IT may reduce the number of middle managers. > IT will provide managers with real-time or near real-

time information, meaning that managers will have less time to make decisions.

> IT will increase the likelihood that managers will have to supervise geographically dispersed employees and teams.

Potential IT impacts on nonmanagerial workers: > IT may eliminate jobs. > IT may cause employees to experience a loss of identity. > IT may cause job stress and physical problems, such as

repetitive stress injury.

4. Identify positive and negative societal eff ects of the increased use of information technology. Positive societal eff ects:

> IT can provide opportunities for people with disabilities.

> IT can provide people with fl exibility in their work (e.g., work from anywhere, anytime).

> Robots can take over mundane chores. > IT can enable improvements in health care.

Negative societal eff ects: > IT can cause health problems for individuals. > IT can place employees on constant call. > IT can potentially misinform patients about their

health problems.

application (app) A computer program designed to support a specifi c task or business process.

business intelligence (BI) systems Provide computer-based support for complex, nonroutine decisions, primarily for middle managers and knowledge workers.

computer-based information system (CBIS) An informa- tion system that uses computer technology to perform some or all of its intended tasks.

dashboards (or digital dashboards) A special form of IS that supports all managers of the organization by providing rapid access to timely information and direct access to structured information in the form of reports.

data items Elementary descriptions of things, events, activities, and transactions that are recorded, classifi ed, and stored but are not organized to convey any specifi c meaning.

database A collection of related fi les or tables containing data.

electronic commerce (e-commerce) system A type of in- terorganizational information system that enables organizations to conduct transactions, called business-to-business (B2B) electronic commerce, and customers to conduct transactions with businesses, called business-to-consumer (B2C) electronic commerce.

enterprise resource planning (ERP) systems ISs that correct a lack of communication among the FAISs by tightly integrating the functional area ISs via a common database.

ergonomics Th e science of adapting machines and work environ- ments to people with the goal of creating an environment that is safe, well lit, and comfortable.

expert systems (ESs) Attempt to duplicate the work of human experts by applying reasoning capabilities, knowledge, and expertise within a specifi c domain.

functional area information systems (FAISs) ISs that sup- port a particular functional area within the organization.

hardware A device such as a processor, monitor, keyboard, or printer. Together, these devices accept data and information, process them, and display them.

information Data that have been organized so that they have meaning and value to the recipient.

information system (IS) Collects, processes, stores, analyzes, and disseminates information for a specifi c purpose.

information technology (IT) Relates to any computer-based tool that people use to work with information and support the infor- mation and information processing needs of an organization.

information technology (IT) components Hardware, soft - ware, databases, and networks.

information technology (IT) infrastructure IT components plus IT services.

information technology (IT) platform Formed by the IT com- ponents of hardware, soft ware, networks (wireline and wireless), and databases.

information technology (IT) services IT personnel use IT components to perform these IT services: develop information sys- tems, oversee security and risk, and manage data.

informed user A person knowledgeable about information sys- tems and information technology.

interorganizational information systems (IOSs) Informa- tion systems that connect two or more organizations.

knowledge Data and/or information that have been organized and processed to convey understanding, experience, accumulated learning, and expertise as they apply to a current problem or activity.

>>> C H A P T E R G L O S S A R Y

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Problem-Solving Activities 31

knowledge workers Professional employees, such as fi nancial and marketing analysts, engineers, lawyers, and accountants, who are experts in a particular subject area and create information and knowledge, which they integrate into the business.

network A connecting system (wireline or wireless) that permits diff erent computers to share resources.

office automation systems (OASs) Typically support clerical staff , lower and middle managers, and knowledge workers to develop documents, schedule resources, and communicate.

procedures Th e set of instructions about how to combine the components of information technology in order to process informa- tion and generate the desired output.

software A program or collection of programs that enable the hardware to process data.

supply chain Th e fl ow of materials, information, money, and services from suppliers of raw materials through factories and ware- houses to the end customers.

transaction processing system (TPS) Supports the monitor- ing, collection, storage, and processing of data from the organiza- tion’s basic business transactions, each of which generates data.

1. Describe a business that you would like to start. Discuss how you would use global outsourcing to accomplish your goals.

2. Your university wants to recruit high-quality high school students from your state. Provide examples of (a) the data that your recruiters would gather in this process, (b) the information that your recruiters would process from these data, and (c) the types of knowledge that your recruiters would infer from this information.

3. Can the terms data, information, and knowledge have diff erent meanings for diff erent people? Support your answer with examples.

4. Information technology makes it possible to “never be out of touch.” Discuss the pros and cons of always being available to your employers and clients (regardless of where you are or what you are doing).

5. Robots have the positive impact of being able to relieve humans from working in dangerous conditions. What are some negative impacts of robots in the workplace?

6. Is it possible to endanger yourself by accessing too much medical information on the Web? Why or why not? Support your answer.

7. Is the vast amount of medical information on the Web a good thing? Answer from the standpoint of a patient and from the standpoint of a physician.

8. Describe other potential impacts of IT on societies as a whole.

9. What are the major reasons why it is important for employees in all functional areas to become familiar with IT?

10. Refer to the study at Princess Alexandra Hospital (see “Improvements in Health Care”). How do you feel about Google searches fi nding the correct diagnosis in 57 percent of the cases? Are you impressed with these results? Why or why not? What are the implications of this study for self-diagnosis?

>>> D I S C U S S I O N Q U E S T I O N S

1. Visit some Web sites that off er employment opportunities in IT. Prominent examples are www.dice.com, www.monster. com, www.collegerecruiter.com, www.careerbuilder.com, www.jobcentral.com, www.job.com, www.career.com, www.simplyhired.com, and www.truecareers.com. Compare the IT salaries to salaries off ered to accountants, marketing personnel, fi nancial personnel, operations personnel, and human resources personnel. For other information on IT salaries, check Computerworld’s annual salary survey.

2. Enter the Web site of UPS (www.ups.com). a. Find out what information is available to customers

before they send a package. b. Find out about the “package tracking” system. c. Compute the cost of delivering a 10˝ 3 20˝ 3 15˝ box,

weighing 40 pounds, from your hometown to Long Beach, California (or to Lansing, Michigan, if you live in or near Long Beach). Compare the fastest delivery against the least cost.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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32 1 l Introduction to Information Systems

3. Surf the Internet for information about the Department of Homeland Security (DHS). Examine the available information, and comment on the role of information technologies in the department.

4. Access www.irobot.com, and investigate the company’s robots for education and research. Surf the Web for other companies that manufacture robots, and compare their products with those of iRobot.

Background

Th is chapter has shown the many ways IS have changed business. As you will learn through this course, there are many jobs that have now been created as a result of the growth of IS. Although many positions have been eliminated (such as the typist), others have been created (soft ware developers who write word processing programs).

Activity

Divide your team into the following functional areas: marketing, accounting, fi nance, human relations, logistics. Do some research as individuals to fi nd out what type of jobs are related to IT for each area. Find some soft ware companies that provide the systems (such as ADP for human resources) and learn about the IT people involved in the organization who support the various departments.

Once everyone has completed the research, meet as a team and have a conversation about the current job market. Work as a team to fi nd open positions related to the areas you have found.

Deliverable

Build a short table that has four columns as shown in the example below. Submit work to your instructor.

>>> C O L L A B O R AT I O N E X E R C I S E

CLOSING CASE 1 > Today, Every Company Is a Technology Company

Sixty years into the computer revolution, 40 years into the age of the microprocessor, and 20 years into the rise of the modern Internet, all of the technology required to transform industries through soft ware has been developed and integrated and can be delivered glob- ally. Over 2 billion people now access the Internet via broadband connections. Worldwide, over 5 billion people use cell phones. One billion of those 5 billion cell phone users have smartphones that provide them with instant access to the Internet at all times.

In addition, soft ware programming tools and Internet-based services allow companies in many industries to launch new soft ware-powered startups without investing in new infrastructure or training new employees. For example, in the year 2000 the cost of a busi- ness operating a basic Internet application was approximately $150,000 per month. Operat- ing that same application today in Amazon’s cloud (discussed in detail in Plug IT In #3) costs about $1,500 per month.

In essence, soft ware is disrupting every industry, and every organization must prepare for this disruption. Numerous companies have attempted to meet the disruption challenge; some have succeeded and some have failed.

Let’s look at examples of soft ware disruption across several industries. In many of these examples, you can fi rst see where soft ware disrupted the previous market leading compa- nies and then where a new company (or companies) used soft ware to gain a competitive advantage.

THE BUSINESS >>> PROBLEM

SOFTWARE >>> DISRUPTIONS

IS that Related IS Current Job Department Supports Positions Opening

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Closing Case 1: Today, Every Company Is a Technology Company 33

● The book industry: A dramatic example of software disruption is the fate of Borders bookstore. In 2001, Borders agreed to hand over its online business to Amazon because the bookstore felt that online book sales were nonstrategic and unimportant. Borders fi led for bankruptcy in October 2011. That same month, the www.borders.com Web site was replaced with a redirect link to the Barnes & Noble Web site (www.bn.com). In January 2012, Barnes & Noble warned analysts it would lose twice as much money in 2012 than it had previously expected. The company was considering splitting off its growing Nook e-book business from its physical bookstores.

Today, the world’s largest bookseller, Amazon, is a soft ware company. Its core capa- bility is its soft ware engine for selling virtually anything online with no retail stores nec- essary. Amazon has even reorganized its Web site to promote its Kindle digital books over physical books. Now, even the books themselves are soft ware.

● The music industry: Today’s dominant music companies are software companies: Apple’s iTunes (www.apple.com/itunes), Spotify (www.spotify.com), and Pandora (www.pandora.com). Traditional record labels today exist largely to provide those software companies with content. In mid-2012, the Recording Industry Association of America continues to fi ght battles over copyright infringement and the illegal down- load and sharing of digital music fi les.

● The video industry: Blockbuster was the industry leader until disrupted by a software company, Netfl ix (www.netfl ix.com). In mid-2012, Netfl ix has the largest subscriber base of any video service. Blockbuster declared bankruptcy in February 2011 and was acquired by Dish Networks in March 2011.

● The software industry: Incumbent software companies such as Oracle and Microsoft are increasingly threatened by software-as-a-service products (e.g., Salesforce.com) and An- droid, an open-source operating system developed by the Open Handset Alliance (www. openhandsetalliance.com) and led by Google. (We discuss operating systems in Plug IT In #2 and software-as-a-service in Plug IT In #3).

● The videogame industry: Today, the fastest growing entertainment companies are vid- eogame makers—again, software. Examples of fast growing videogame companies include:

° Zynga (www.zynga.com) makes FarmVille and delivers its games entirely online.

° Rovio (www.rovio.com), the maker of Angry Birds, made almost $100 million in revenue in 2011. The company was nearly bankrupt when it launched Angry Birds on the iPhone in late 2009.

° Minecraft (www.minecraft.net), another video game delivered only online over the Internet, was fi rst released in 2009. By February 2012, over 5 million people had downloaded it. Interestingly, the creator of Minecraft, Markus Persson, has never spent any money to market his game. Sales grew only by word of mouth.

● The photography industry: This industry was disrupted by software years ago. Today it is virtually impossible to buy a mobile phone that does not include a software-powered camera, and photos can be uploaded automatically to the Internet for permanent ar- chiving and global sharing. The previous market leader, Kodak, has been replaced by companies such as Shutterfl y (www.shutterfl y.com), Snapfi sh (www.snapfi sh.com), Flickr (www.fl ickr.com), and Instagram (www.instagram.com). Kodak declared bank- ruptcy in January 2012.

● The marketing industry: Today’s largest direct marketing companies are Facebook (www. facebook.com), Google (www.google.com), Groupon (www.groupon.com), Living Social (www.livingsocial.com), Foursquare (www.foursquare.com), and others. These companies are using software to disrupt the retail marketing industry.

● The recruiting industry: LinkedIn (www.linkedin.com) is a fast-growing recruiting com- pany. For the fi rst time, employees can maintain their own resumes on LinkedIn for recruiters to search in real time.

● The fi nancial services industry: Software has transformed the fi nancial services indus- try. Practically every fi nancial transaction is performed by software. And many of the

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34 1 l Introduction to Information Systems

leading innovators in fi nancial services are software companies. For example, Square (https://squareup.com) allows anyone to accept credit card payments with a mobile phone.

Soft ware is also disrupting industries that operate primarily in the physical world. Consider these examples: ● The automobile industry: In modern cars, software is responsible for running the en-

gines, controlling safety features, entertaining passengers, guiding drivers to their desti- nations, and connecting the car to mobile, satellite, and GPS networks. Other software functions in modern cars include Wi-Fi receivers, which turn your car into a mobile hot spot, software, which helps maximize fuel effi ciency, and ultrasonic sensors, which en- able automatic parallel parking.

Th e next step is to network all vehicles together. Th e creation of soft ware-powered driverless cars is already being undertaken at Google and major car companies.

● Today’s leading real-world retailer, Wal-Mart, uses software to power its logistics and distribution capabilities, which it has used to become dominant in its industry.

● The postal industry: FedEx, which early in its history took the view that “the informa- tion about the package is as important as the package itself,” now employs hundreds of developers who build and deploy software products for 350,000 customer sites.

● The oil and gas industry: Companies in this industry were early innovators in supercom- puting and data visualization and analysis, which are critically important to oil and gas exploration efforts.

● The agriculture industry: Agriculture is increasingly powered by software as well, includ- ing satellite analysis of soils linked to per-acre seed selection software algorithms. In addition, precision agriculture makes use of automated, driverless tractors controlled by global positioning systems and software.

● National defense: Even national defense is increasingly software based. The modern combat soldier is embedded in a web of software that provides intelligence, communi- cations, logistics, and weapons guidance. Software-powered drone aircraft launch air- strikes without putting human pilots at risk. Intelligence agencies perform large-scale data mining with software to uncover and track potential terrorist plots.

As you have seen, an increasing number of major businesses and industries are being run on soft ware and delivered as online services—from motion pictures to agriculture to national defense. Regardless of the industry, companies face constant competitive threats from established rivals and entrepreneurial technology companies that are developing dis- ruptive soft ware. Th ese threats will force companies to become more agile in the future and respond to competitive threats more quickly, effi ciently, and eff ectively.

Sources: Compiled from M. De La Merced, “Eastman Kodak Files for Bankruptcy,” Th e Wall Street Journal, January 19, 2012; J. Trachtenberg and M. Peers, “Barnes & Noble Seeks Next Chapter,” Th e Wall Street Journal, January 6, 2012; “Driverless Car: Google Awarded U.S. Patent for Technology,” BBC News, December 15, 2011; J. McKendrick, “Five Non-IT Companies Th at Are Now Indistinguishable from Soft ware Companies,” ZDNet, December 7, 2011; A. Bleicher, “Five Reasons Every Company Should Act Like a Soft ware Startup,” Forbes, November 14, 2011; B. Austen, “Th e End of Borders and the Future of Books,” Bloomberg BusinessWeek, November 10, 2011; M. Andreessen, “Why Soft ware Is Eating the World,” Th e Wall Street Journal, August 20, 2011; J. Knee, “Why Content Isn’t King,” Th e Atlantic, July/August, 2011; J. Checkler and J. Trachtenberg, “Bookseller Borders Begins a New Chapter…11,” Th e Wall Street Journal, February 17, 2011.

Questions 1. If every company is now a technology company, then what does this mean

for the company’s employees? Discuss your answer and provide specifi c examples to support your answer.

2. If every company is now a technology company, then what does this mean for every major in a college of business? Discuss your answer and provide specifi c examples to support your answer.

THE RESULTS >>>

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Closing Case 2: The Arab Spring 35

CLOSING CASE 2 > The Arab Spring

Th e Arab Spring is a wave of demonstrations and protests occurring in the Arab world. Demonstrators have been demanding greater political freedom and an end to autocracy. By mid-2012, there have been revolutions in Tunisia and Egypt, a civil war in Libya, civil upris- ings in Bahrain, Syria, and Yemen, major protests in Algeria, Iraq, Jordan, Kuwait, Morocco, and Oman, and minor protests in Lebanon, Mauritania, Saudi Arabia, and Sudan. Protest- ers have made use of mobile communications, the Internet, and social media to organize, communicate, and raise awareness in the face of state repression and Internet censorship. In this case, we will look at three examples: Tunisia, Egypt, and Syria. Tunisia. In January 2011, the modern Arab world’s fi rst successful popular uprising, called the Jasmine Revolution (named for the national fl ower), erupted in Tunisia when Mohammed Bouazizi set himself on fi re. When he died 18 days later, his story went viral, providing millions of angry young Tunisians with a martyr. Vast numbers of protestors took to the streets, sparking the Jasmine Revolution. Egypt. In January 2011, another popular uprising broke out in Egypt. In 2010, Khaled Saied, a young man from Alexandria, was beaten to death by the police. Protesters rallied around a Facebook page entitled “We Are All Khaled Saied.” Mr. Saied’s death became the focal point for Egyptians who had not previously been involved in the protest movement. Beginning on January 25, 2011, millions of protesters from a variety of backgrounds and religions demanded the overthrow of Egyptian President Hosni Mubarak, who had held offi ce since 1981. Syria. An uprising began in Syria on January 26, 2011, when Hasan Ali Akleh set himself on fi re, protesting against the Syrian government. Since that date, the protests have become more widespread and violent. According to the United Nations, by mid-2012 some 8,000 people had been killed and the confl ict was ongoing.

Tunisia. Th e Jasmine Revolution did not need any prominent leaders to rally the protest- ers or organize the demonstrations. Instead, the revolution was fueled by a steady stream of anonymous text messages and Twitter and Facebook updates. Documents posted on WikiLeaks (see Chapter 6), in which U.S. diplomats had cataloged the corruption at the highest levels of the Tunisian government, deepened the popular rage. Mobile phone videos posted online documented the government’s brutal response, including images of police beating and shooting protestors, resulting in at least a hundred deaths. Th e protesters used the one weapon they understood much better than the government: the Internet. Young Tunisians—educated, multilingual, and knowledgeable about the Internet and social media—devised strategies to evade the government’s crude fi rewalls. Protestors spent sev- eral hours each day on Facebook and other social networks. By rendering the state televi- sion and radio stations irrelevant, they were able to undermine the regime’s propaganda for the fi rst time in many years. Egypt. In an eff ort to silence demonstrators, President Mubarak “turned off the Inter- net.” At 12:34 am on January 28, Egypt’s four primary Internet providers—Link Egypt, Vodafone/Raya, Telecom Egypt, and Etisalat Misr—all went “dark.” Th at is, the four provid- ers stopped transmitting all Internet traffi c into and out of Egypt. Th e blackout appeared to be designed to disrupt the organization of the country’s protest movement.

“When countries block, we evolve,” wrote one activist from the group We Rebuild in a Twitter message on January 28. We Rebuild and other activist groups scrambled to keep the country connected to the outside world, turning to landline telephones, fax machines, and even ham radios to keep information fl owing in and out of Egypt.

Th e activists were successful. On February 2, Egypt’s embattled leaders realized that the communications blockage was largely ineff ective and indeed counterproductive. Th e shut- down proved to be more a source of fresh anger than an impediment to the protest move- ment. Protesters had no trouble gathering larger and larger crowds, culminating with an

<<< THE PROBLEM

<<< THE ROLE OF INFORMATION TECHNOLOGY

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36 1 l Introduction to Information Systems

estimated 250,000 people who assembled in central Cairo on January 29 to demand an end to Mubarak’s rule. Syria. Th e Internet is playing a major role in the organization and coverage of the protests in Syria. Th e largest Facebook page in support of the Syrian uprising, called “Th e Syrian Revolution 2011,” has more than 380,000 followers. Th e page reports on news related to the uprising.

Because the international news media were banned in Syria, the main source of infor- mation to the outside world has been private videos, usually taken with mobile phone cam- eras and uploaded to YouTube and Flickr. Such videos are diffi cult to verify independently. To add credibility to the videos, protestors oft en explicitly mention the date and location of the scene and show current newspaper issues.

Activists are organizing protests via Twitter and Facebook and are using Skype and Twitter to communicate because the regime oft en blocks cell phone transmissions.

For example, Syrian activists are using an iPhone app called “Souria Wa Bas” to dis- seminate news and information about the confl ict. Th e app, which works on both the iPhone and iPad, includes recent news about opposition groups and their activities, as well as videos, maps, and photos.

Tunisia. On January 14, 2011, President Ben Ali was forced into exile. Egypt. On February 11, 2011, following weeks of determined popular protest and pres- sures, President Mubarak resigned from offi ce. On June 24, 2012, Egypt’s election commis- sion announced that Muslim Brotherhood candidate Mohammed Morsi had won Egypt’s presidential election. However, as of mid-2012, the Supreme Council of the Armed Forces remains in power. Syria. Th e confl ict continues in mid-2012. Some countries have cut ties with the Assad regime including the Gulf States, Libya, Tunisia, Britain, Spain, Turkey, the United States, and Belgium. In addition, the Arab League, Turkey, and most Western powers have imposed severe sanctions on Syria, including bans on trade and transportation, isolating the Assad regime.

Sources: Compiled from J. Peterson, “Th e Facebook Revolutions: One Year On,” Th e Daily Caller, December 18, 2011; J. Harris, “Th e Year of the Networked Revolution,” Th e Guardian, December 13, 2011; A. Hauslohner, “Th e Revolution’s Second Act,” Time, December 5, 2011; J. Titlow, “How Syrian Protesters Are Using the iPhone to Fuel an Uprising,” ReadWriteWeb, November 18, 2011; A. Flamand and H. Macleod, “Syria’s Protesters Turn to Face- book to Expose ‘Citizen Spies,’” Th e Guardian, October 8, 2011; R. Ratnesar, “Not Just the Facebook Revolution,” Bloomberg BusinessWeek, June 6–12, 2011; R. Mackey, “Social Media Accounts of Protests in Syria,” Th e New York Times, April 23, 2011; N. Blanford, “On Facebook and Twitter, Spreading Revolution in Syria,” Th e Christian Sci- ence Monitor, April 8, 2011; J. Solomon and C. Levinson, “West to Isolate Gadhafi ,” Wall Street Journal, February 26–27, 2011; “Th e Faces of Egypt’s ‘Revolution 2.0,’” CNN.com, February 21, 2011; “Aft er Egypt, People Power Hits Like a Tsunami,” CNN.com, February 15, 2011; “Egyptian President Steps Down Amidst Groundbreaking Digital Revolution,” CNN.com, February 11, 2011; C. Levinson, M. Coker, and J. Solomon, “How Cairo, U.S. Were Blindsided by Revolution,” Wall Street Journal, February 2, 2011; P. McNamara, “Egypt Lift s Blockade on Internet Service,” Network World, February 2, 2011; V. Blue, “#Egypt Blocked in China: Is Internet Access a Human Right?” ZDNet.com, January 31, 2011; V. Walt, “Tunisia’s Nervous Neighbors Watch the Jasmine Revolution,” Time, January 31, 2011; N. Gohring and R. McMillan, “Without Internet, Egyptians Find New Ways to Get On- line,” Computerworld, January 28, 2011; J. Robertson, “Th e Day Part of the Internet Died: Egypt Goes Dark,” USA Today, January 28, 2011; “Tunisia’s Revolution Should Be Wake-Up Call to Middle East Autocrats,” Washington Post, January 15, 2011.

Questions 1. Describe how information technology enabled the Jasmine and Egyptian

revolutions. 2. Describe eff orts by the Tunisian and Egyptian governments to quell the

revolutions. In particular, describe the eff orts that were directed at informa- tion technology.

3. Discuss how information technology contributed to higher oil prices and higher prices you pay for gasoline.

THE RESULTS >>>

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Spreadsheet Activity 37

SPREADSHEET ACTIVITY Objective: A spreadsheet is a software tool that

allows large amounts of data to be stored, organized, analyzed, and presented in graphical form. A spreadsheet is extremely useful because of its ability to make simple work of a mundane task (such as calculating the average inventory turnover time for 1000 products). Although it is not diffi cult to calculate averages, the sheer volume of the work makes it very time-consuming. A spreadsheet allows you to create your own “formula” and then apply that formula to all 1000 products at the same time, reducing the amount of work necessary dramatically. Given these possibilities, you need to take some time to consider the possible applications of a spreadsheet. It is the endless application of the spreadsheet that makes it so powerful. This activity will show you that this tool can be used for a variety of situations and purposes.

Chapter Connection: Data, information, and knowledge are the main focus of this chapter. Spreadsheets are just one of many tools (albeit the most widespread and easily accessible) that can be used to manage data, information, and knowledge.

Activity: As the text introduces the concepts of data, information, and knowledge, this activity will introduce you to the vast possibilities of using spreadsheets to help manage and control data. Unmanaged data will never provide information or knowledge, and so it is imperative to understand not only how to use a spreadsheet but the possibilities of when to use it. Consider the following three examples, and then develop your own ideas about how spreadsheets can be used.

• Individual: Money is something everyone has to deal with. A spreadsheet is a great tool to help track and manage personal fi nances. Someone with a spreadsheet budget can quickly see where his or her money is being spent and make plans for where it will go in the future. With a little creativity and experience, one can quickly create a personal spreadsheet that will help track fi nances without purchasing a boxed program.

• Organizations: It is still the simple things that make a big difference. Companies continue to seek better ways to manage inventory, and often these systems incorporate a spreadsheet. Many supply chain management tools will export data into spreadsheets for analysis. Once in a spreadsheet, charts and graphs can be used to easily display how inventory is being handled.

• Society: Every 10 years, the U.S. government performs a census. Much of this information is available to the public. A good deal of interesting information can be gained by placing these data in a spreadsheet. Charts and graphs can be used to analyze population changes, employment rates, demographic information, and trends over time. Spreadsheets can be used to tell a story with this information. Having read these descriptions, describe to your professor how you might use a spreadsheet to help manage the required maintenance on your vehicle. Think about things like gas mileage, oil changes, expenses, etc. What “math formulas” would you use that a spreadsheet could help with? If it will help, search the Web for “vehicle maintenance spreadsheets” to see what other people do with it!

Ruben and Lisa are seriously considering integrating technology into their club. However, they still need a little convincing because of their lack of experience with computers. Right now, they only have one old computer and it is still running Windows XP. Just last year, they fi nally decided to have cable Internet installed so they could place product orders quicker. Neither of them is on Facebook or Twitter.

For now, they need to know what types of ISs are available and what they can do with them. With the

information in this chapter regarding the different types and uses of ISs, write them a business letter detailing how the use of ISs may help them manage their club on a day-to-day basis. Be sure to include information about the generation they serve and employ (Homo conexus) and how they are already connected to and familiar with computers and networks. Finally, submit your letter to your instructor.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

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Deliverable: You will provide a written description that demonstrates the ways a spreadsheet can be used to help keep up with routine maintenance on a vehicle.

Discussion Questions:

1. For data to be turned into information, they often need to be cleaned, organized, calculated, and ultimately presented in some graphical format. Spreadsheets are excellent at all of these. Discuss three tools that help spreadsheets accomplish all of these goals.

2. Students have generated their own ideas for using spreadsheets. Be prepared to discuss your ideas with the class at large. Hopefully, you did not all come up with the same possibilities as other

students, and this will help broaden their horizons even more.

Suggested Solution: There is no suggested solution. There is no end to the possible applications of spreadsheet tools. This is the major point of this exercise. It does not teach you anything in particular (although you may learn something); it simply opens your eyes to see that this tool will apply to you sometime. We hope it will make these concepts more real to you as you work through the following exercises.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

38 1 l Introduction to Information Systems

DATABASE ACT IV ITY: INTRODUCTION TO THE DATABASE PROJECT Objective How to open and use an existing Access 2010 database, even if you have never done it before.

CHAPTER CONNECTION All aspects of modern information systems depend on shared databases. Being able to work with them is essential to any manager or knowledge worker of the 21st century. In this chapter, you saw how every department in a modern organization uses information systems. You saw how different departments use them differently: HR staff to recruit, marketing managers to select marketing channels, manufacturing coordinators to develop production schedules. Much of this information is not just for one part of the organization. Order information from sales, for example, goes to manufacturing (if you sell something, it must be produced), purchasing (materials come from suppliers), and accounting (payments, adjustments to inventory values). Linking an organization through a shared database is a major benefi t of today’s systems. These uses depend on data. You will read more about that later in this course.

However, it is never too early to start thinking about ISs in terms of the data they use. Computers can only work with the data they have. Having the right data is vital to any IS.

PREREQUISITES None.

Activity 1. Download the Ch 01 NeTrouble database from

http://www.wiley.com/go/rainer/database and double-click to open it.

2. Familiarize yourself with the parts of the Access window you see. The main ones are shown in Figure 1A.1. (It is from a different database, but the window has the same parts.)

Figure 1A.1 Microsoft Access: Screen shot 1.

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The ribbon, A, provides tools to manipulate your data-base. The tools depend on the object you are working with and are organized into groups accessed via tabs (B). The tabs vary with object type, but there will always be a Home tab at the left and a Create tab next to it. The arrangement of the icons on the ribbon depends on how much space Access has to spread them out. Vary the width of your window to see how the icons rearrange as it becomes narrower. (On most displays, it starts out wide enough for a full array, so making it wider will not change anything.) The sections stay the same, but some tools may lose their labels or disappear under an arrow indicating a pull- down menu when space is tight. The File tab, letter C, controls the database as a fi le. You open, close, and save your work here. In Offi ce 2007, this was done via the Offi ce button. Prior releases used a File menu. The navigation pane, D, lists the objects in the current database. You can choose which types of objects it lists via the pull-down menu that opens when you click the down arrow to the right of “All Tables.” Each object type has its own icon. In the screen shot, the spreadsheets represent tables; the green booklets, reports.

Usage Hint: If you see just “Navigation Pane” vertically at the left of the window, click on that text or the » above to expand it. The « at the top of the navigation pane in the screen shot shrinks the pane. That leaves more space for other items. The main part of the window, E, houses all open objects. The screen shot shows a data table. Each object has a tab with its name at the top. Clicking a tab brings that object to the front. You probably do not see any open tables in your database yet. The navigation area, F, lets you move through individual records in a database. Here, it shows “1 of 19,” corresponding to the highlighted fi rst record of 19 in the table. Most Access objects can be manipulated in several views. A table, for example, has one view (Datasheet view) for reading and editing data, another (Design view) for designing the table itself. You can switch views by clicking the icon at the left of the ribbon (G), by pulling down the menu there, or via the icons at the lower right of the window (also G). The Access window has two Close boxes (H). The one at the top right of the object area closes the object in front (here, the table TicketTbl). If other objects are open, one of them will now be in front. The Close box at the top right of the window closes the application and exits Access. (It prompts you to save unsaved work fi rst.)

3. Open UserTbl (short for “User Table”). How many records are in it?

Usage Hint: Access can be set to open objects with a single or double click in the navigation pane. If you are using a personal copy, you can set this preference via Options under the File ribbon tab. Click Current Database, then Navigation Options. 4. Sort this table by date of birth: Click in the UserDOB

column to select it, then click the top (A to Z) sorting icon in the Sort & Filter section under the ribbon. Who is the oldest user? How old is he or she?

5. Look at the UserDept (User Department) column of the User table. It does not have department names. Instead, it has numbers. Adam is from Department 1, and so on.

6. Open DeptTbl (Department Table). What is the name of Department 1?

7. Open UserRpt (User Report). Adam is listed under that department. Access used his department number to connect his name in the user table with the department name in the department table. This is how relational databases link different types of data. How many users in the Marketing department submitted network trouble tickets? After you fi nd the answer, close the report. Be sure to click the X at the top right of the object area, below the ribbon—not the one at the top right of the entire Access window. Clicking the X at the top right of the entire Access window will exit the Access application.

8. Open UserFrm (User Form). You will see information about the fi rst user, Adam. In the navigation area at the bottom of the window, F in the fi gure, click on the far right icon to insert a new record. Enter reasonable data. For the user’s department, pick any department from the list to the right of the legend “Select department.” What department did you pick? Note the User ID number of your new user. Click the New Record icon again to save your work.

Database Activity 39

Usage Hint: Access saves new data in the database as soon as you exit a record. Changes to the design of the database, however, are saved only when you tell it to. 9. Now open TicketTbl. Click in the “New” row

of the table. Do not enter anything in the fi rst column; it will be fi lled automatically with the

Figure 1A.2 Microsoft Access: Screen shot 2.

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next number. In the next column, TicketUser, enter the number of the user you just created. In the next two, TicketDevice and TicketTech, fi ll in any numbers that are already used in the existing rows of the table. In the next two, enter any dates you want. (If you click on the calendar icon that appears when you select either of those fi elds, you can use a built-in calendar to select dates.) In the last column, enter any data you want.

10. Open UserRpt again. How many users are in that department now?

Usage Hint: Reports are not automatically updated when data they are based on change. You have to close and reopen them.

Usage Hint: The reason you created a ticket for your new user is that this report shows only users who have submitted trouble tickets. It could have been designed to show all users, whether or not they submitted tickets, but it was not. 11. Open UserQry (User Query) to fi nd all users born

after a certain date. Key in 6/6/1986 (June 6, 1986) and click OK. How many users were born after that date?

Deliverable Submit answers to the eight questions posed in the above activity:

In step 3: 1 question In step 4: 2 questions In step 6: 1 question In step 7: 1 question In step 8: 2 questions In step 11: 1 question

(Steps not listed have no questions.)

Quiz Questions 1. True or false: Access puts all the information about

something of interest (such as an employee) into a single table.

2. Which of the following information items about a user is not given in UserTbl? (a) The user’s name. (b) The user’s date of birth. (c) The user’s e-mail address. (d) The user’s blood type.

3. If you want to fi nd out a user’s age from UserTbl, which of the following is correct? (a) There is insuffi cient information here to

determine it.

(b) It can be found by subtracting the date of birth from today’s date, dividing the difference in days by 365, and deleting any fractional remainder.

(c) It can be found by subtracting the date of hire from today’s date, dividing the difference in days by 365, and deleting any fractional remainder.

(d) It can be found by asking the user or a member of his/her family.

4. The report you looked at in step 7 had all of the following elements, except: (a) An overall header at the top, to identify it. (b) Number of trouble tickets submitted by each

department, below the list of that department’s employees.

(c) Number of trouble tickets submitted by each department, above the list of that department’s employees.

(d) Detail rows with information about each user.

Discussion Questions

1. In step 9 of this activity, you entered a birth date cutoff for the query. User input like this, that determines what data a query returns, is called a parameter. Now, suppose you want to book a round trip on an air travel reservation system. List three parameters you must enter into such a system before it can tell you about available fl ights.

2. The report you used in steps 7 and 8 of this activity included a summary fi eld after each department. It was a simple summary, just a count of users in that department. Suppose this report also contained numeric data, such as user salaries. What other types of department summaries could you have? Are there any summaries, other than the employee count, that you could possibly create from this table as it exists here? (Be creative. Do not worry about whether or not it would make sense to create them. Just ask: Would it be possible?)

3. A university cafeteria checkout system reads the bar code on each item, looks it up in a table, and fi nds the product description and price. Using this information, it keeps track of the running total. At the end it calculates the total due and compares it to the student’s account balance. If the balance is insuffi cient, it calls a supervisor. Otherwise, it subtracts the cost of the meal from the balance

40 1 l Introduction to Information Systems

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and prints an itemized receipt showing the remaining balance. (a) What tables does this database need? (One

was mentioned in the description.) (b) Using paper and pencil or any other tools

your instructor specifi es, draw the tables as in TicketTbl in the Figure 1A.1. Show columns for all the data in them. Show a few sample rows. Also draw a sample itemized receipt as it might be printed for a student. For each different kind of data item on the receipt, say where it comes from: in the database or as the result of some other calculation.

4. The technician table (TechTbl) lists all the technicians, with their names and other information such as their pay grade (job title). Describe in words how you could fi nd, using the tables in this database, the names of all the users whose problems a given technician worked with. Use the process you have described to fi nd all the users Nancy helped.

Database Activity 41

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2

CHAPTER OUTLINE

2.1 Business Pressures, Organizational Responses, and IT Support

2.2 Competitive Advantage and Strategic Information Systems

2.3 Business–IT Alignment

Organizational Strategy, Competitive Advantage, and Information Systems

LEARNING OBJECTIVES >>>

1. Identify eff ective IT responses to diff erent kinds of business pressures. 2. Describe the strategies that organizations typically adopt to counter Porter’s fi ve

competitive forces. 3. Describe the characteristics of eff ective business—IT alignment.

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On a Washington, DC, morning, Alison Cohen rides her bicycle to work. She makes the 2-mile trip in 10 minutes—a trip that would otherwise have required a 20-minute subway ride, a 40-minute walk, or a $7 cab ride. Cohen is president of Alta Bicycle Share (www.altabicycleshare.com), the company behind Washington’s bicycle-sharing program. Formed in 2010, Alta combines three companies: (1) Alta Planning & Design in Portland, Oregon, designs bike lanes and parks; (2) Montreal’s Public Bike System Company owns the credit card processing technology; and (3) Alta itself bids for government contracts and runs operations in three cities in the United States in mid-2012: Washington, DC, area, Boston, and Chicago.

Bicycle sharing is a growing trend among municipalities looking to make their transit systems greener and less congested. Cities buy the bikes and install docking stations where users can rent them with a credit card. Alta maintains the bikes and collects payment, earning either part of the revenue or a fl at annual management fee. A day pass costs $5 and an annual pass $75.

In May 2011, Cohen started a bicycle-sharing service in Melbourne, Australia. By July 2011, a staff of 15 full- and part-time employees managed a fl eet of 600 bicycles. Also in May 2011, Cohen signed a contract with the Department of Transportation of Washington, DC, and Arlington County, Virginia. Th e two government entities then built 118 solar-powered docking stations with electronic docking mechanisms that could hold a total of 1,100 bikes.

In June 2011, Cohen expanded the program to Boston, which launched a 600-bike system, sponsored in part by athletic-shoe maker New Balance. Cohen has since submitted proposals for New York City and Vancouver, British Columbia.

In mid-2011, Alta was reportedly earning $3 million in annual revenue and turning a profi t. Alta does face competition from B-Cycle (www.bcycle.com), which operates 1,500 bicycles in 11 cities, including Chicago and Denver. > > >

OPENING CASE > Sharing Bicycles

Ruben and Lisa have a vision that their club will provide a relaxed community atmosphere, with good drinks and good music. However, they operate in a very competitive business environment and feel market pressure to be everything to everyone, even though that is not what they want to be. They feel pressure from their customers to be more technologically advanced, even though they do not see any competitive advantage from it. They also feel a tremendous responsibility (legal and societal pressure) to manage underage consumption of alcohol. However, they are not sure how to respond to these pressures while maintaining their desired atmosphere.

Over the years, they have learned that they not only compete with other clubs and local restaurants, but with the threat of substitute products or services includes theaters, athletic events, parties, and anything else college students choose to do for entertainment. To gain and maintain a solid customer base, they feel they really want a community feel to their club. Like the old Cheers TV show, a place “where everybody knows your name.” To achieve this, they are not quite sure what mix of music, drinks, information, networks, data, advertisements, controls, policies, and procedures would position them where they want to be in the market- place. Ruben and Lisa need a solid strategy to help accomplish their vision.

© Julian Rovagnati/iStockphoto

RUBY’S CLUB

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44 2 l Organizational Strategy, Competitive Advantage, and Information Systems

P. DeMaio, “Th e Bike-Sharing Phenomenon,” Carbusters, February 2009; www.altabicycleshare.com, www.bcycle.com, accessed February 21, 2012.

Questions 1. Describe the problems involved with setting up a

bicycle-sharing program in a new city. 2. Describe how information technology can help

address these problems.

Th e rent-a-bike phenomenon is also being adopted by the Beijing municipal government. To ease the city’s notorious traffi c jams, the Beijing China Municipal Commission of Development and

Reform is setting up 500 rental kiosks around the city to off er residents the choice of over 20,000 rental bikes.

Sources: Compiled from G. Hesselberg, “B-Cyclists Log Th ousands of Trips in Madison,” Wisconsin State Journal, February 3, 2012; “More Rental Bikes, Subway Lines to Ease Beijing Traffi c Congestion,” English.xinhuanet. cn, January 6, 2012; H. Coster, “New Commute,” Forbes, June 27, 2011;

Introduction

Information systems are critically important in helping organizations respond to business pressures and in supporting organizations’ global strategy. As you study this chapter, you will see that any information system can be strategic, meaning that it can provide a com- petitive advantage—if it is used properly.

Th is chapter also demonstrates the incredible complexity of the information systems employed by a large international company.

Competitive advantage is an advantage over competitors in some measure such as cost, quality, or speed; it leads to control of a market and to larger-than-average profi ts. Strategy and competitive advantage come in many forms. For example, Alison Cohen used electronic bicycle docking stations and credit card processing machines to automate her bicycle-sharing business. Th ese information technologies have lowered her operating costs and contributed to the success of her startup operation.

Although there are many examples of companies that use technology in more expen- sive ways, Alta Bicycle demonstrates that an entrepreneurial spirit and a solid understand- ing of what IT can do for you can provide competitive advantages. As you study this chap- ter, think of the small businesses in your area that are doing interesting things with IT.

Th is chapter is important for you for several reasons. First, the business pressures addressed here will aff ect your organization, but they also will aff ect you. As a result, you must understand how information systems can help you, and eventually your organization, respond to these pressures.

In addition, acquiring competitive advantage is essential for your organization’s sur- vival. Many organizations achieve competitive advantage through the eff orts of their employees. Th erefore, becoming knowledgeable about strategy and how information sys- tems aff ects strategy and competitive position will help you throughout your career.

Th is chapter encourages you to become familiar with your organization’s strategy, mis- sion, and goals and to understand its business problems and how it makes (or loses) money. It will help you understand how IT contributes to organizational strategy. Further, it is likely that you will be a member of business–IT committees that decide (among many other things) whether to adopt new technologies and how to use existing technologies more eff ectively. Aft er studying this chapter, you will be able to make immediate contributions in these committees when you join your organizations.

In this chapter, you will see how information systems enable organizations to respond to business pressures. Next, you will learn how information systems help organizations gain competitive advantages in the marketplace. Th e chapter with a discussion of business–IT alignment—in other words, how the IT function in an organization supports its strategy.

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Business Pressures, Organizational Responses, and IT Support 45

2.1 Business Pressures, Organizational Responses, and IT Support Modern organizations compete in a challenging environment. To remain competitive, they must react rapidly to problems and opportunities that arise from extremely dynamic condi- tions. In this section you examine some of the major pressures confronting modern organi- zations and the strategies that organizations employ to respond to these pressures.

Business Pressures Th e business environment is the combination of social, legal, economic, physical, and political factors in which businesses conduct their operations. Signifi cant changes in any of these factors are likely to create business pressures on organizations. Organizations typi- cally respond to these pressures with activities supported by IT. Figure 2.1 illustrates the relationships among business pressures, organizational performance and responses, and IT support. You will learn about three major types of business pressures: market, technology, and societal pressures.

Market Pressures. Market pressures are generated by the global economy, intense competition, the changing nature of the workforce, and powerful customers. Let’s look more closely at each of these factors.

Figure 2.1 Business pressures, organizational performance and responses, and IT support.

Business process restructuring and

management (BPM)

Information overload

Technological innovations and obsolescence

Powerful customers

Social responsibility

Compliance with government

regulations and deregulations

Changing workforce

Need for real-time

operations

Global economy and strong competition

Terrorist attacks and homeland security

Ethical issues

Continuous improvement efforts (just-in-time, total quality management),

KM,ERP

IT

Business alliances

Better data management

Electronic commerce Strategic

systems

Intelligent data

management

Technology

Econom ic

(m arket)

Customer focus and service (CRM),

self-service

On-demand made-to-

order mass

customization

Busin ess environment (Pressures)

S oc

ie ta

l/p ol

iti ca

l/l eg

al

Org aniz

ational performance responses

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46 2 l Organizational Strategy, Competitive Advantage, and Information Systems

GLOBALIZATION. Globalization is the integration and interdependence of economic, social, cultural, and ecological facets of life, made possible by rapid advances in IT. In his book Th e World Is Flat, Pulitzer Prize–winning author Th omas Friedman argues that tech- nology is leveling the global competitive playing fi eld, thereby making it “fl at.”

Friedman identifi es three eras of globalization. Th e fi rst era, Globalization 1.0, lasted from 1492 to 1800. During this era, the force behind globalization was how much muscle, horsepower, or wind power a country could deploy.

Th e second era, Globalization 2.0, lasted from 1800 to 2000. In this era, the force behind globalization was the emergence of multinational companies—that is, companies that had their headquarters in one country but operated in several countries. In the fi rst half of this era, globalization was driven by falling transportation costs, generated by the development of the steam engine and the railroads. In the second half, the driving force was falling tele- communications costs resulting from the telegraph, telephones, computers, satellites, fi ber- optic cable, and the Internet and World Wide Web. Th e modern global economy began to evolve during this era.

Around the year 2000, the world entered Globalization 3.0. In this era globalization has been driven by the convergence of ten forces that Friedman calls “fl atteners.” Table 2.1 identifi es these forces.

According to Friedman, each era has been characterized by a distinctive focus. Th e focus of Globalization 1.0 was on countries, the focus of Globalization 2.0 was on compa- nies, and the focus of Globalization 3.0 is on groups and individuals.

As you look at Table 2.1, note that nine of Friedman’s ten fl atteners directly relate to IT (all except the fall of the Berlin Wall). Th ese fl atteners enable individuals to connect, com- pute, communicate, collaborate, and compete everywhere and anywhere, anytime and all the time; to access limitless amounts of information, services, and entertainment; to exchange knowledge; and to produce and sell goods and services. People and organizations can now operate without regard to geography, time, distance, or even language barriers. Th e bottom line? Globalization is markedly increasing competition.

Th ese observations make our discussion all the more important for you. Simply put, you and the organizations you join will be competing with people and organizations from all over a fl at world.

Let’s consider some examples of globalization. Regional agreements such as the North American Free Trade Agreement (NAFTA), which includes the United States, Canada, and Mexico, have contributed to increased world trade and increased competition. Further, the rise of India and China as economic powerhouses has increased global competition.

One important pressure that businesses in a global market must contend with is the cost of labor, which varies widely among countries. In general, labor costs are higher in developed countries like the United States and Japan than in developing countries such as China and El Salvador. Also, developed countries usually off er greater benefi ts, such as healthcare, to employees, driving the cost of doing business even higher. Th erefore, many labor-intensive industries have moved their operations to countries with low labor costs. IT has made such moves much easier to implement.

However, manufacturing overseas is no longer the bargain it once was, and manu- facturing in the United States is no longer as expensive. For example, manufacturing wages in China doubled between 2002 and 2008, and the value of China’s currency has steadily risen.

THE CHANGING NATURE OF THE WORKFORCE. Th e workforce, particularly in developed countries, is becoming more diversifi ed. Increasing numbers of women, single parents, minorities, and persons with disabilities are now employed in all types of positions. IT is easing the integration of these employees into the traditional workforce. IT is also enabling people to work from home, which can be a major benefi t for parents with young children and for people confronted with mobility and/or transportation issues.

POWERFUL CUSTOMERS. Consumer sophistication and expectations increase as custom- ers become more knowledgeable about the products and services they acquire. Customers

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Business Pressures, Organizational Responses, and IT Support 47

can use the Internet to fi nd detailed information about products and services, to compare prices, and to purchase items at electronic auctions.

Organizations recognize the importance of customers and have increased their eff orts to acquire and retain them. Modern fi rms strive to learn as much as possible about their customers to better anticipate and address their needs. Th is process, called customer intimacy, is an important component of customer relationship management (CRM), an organizationwide eff ort toward maximizing the customer experience. You will learn about CRM in Chapter 12.

Technology Pressures. Th e second category of business pressures consists of those pressures related to technology. Two major technology-related pressures are technological innovation and information overload.

TABLE 2.1 Friedman’s Ten Flatteners

• Fall of the Berlin Wall on November 9, 1989 ° Shift ed the world toward free-market economies and away from centrally planned

economies ° Led to the emergence of the European Union and early thinking about the world as a single,

global market

• Netscape goes public on August 9, 1995 ° Popularized the Internet and the World Wide Web

• Development of work-fl ow soft ware ° Enabled computer applications to work with one another without human intervention ° Enabled faster, closer collaboration and coordination among employees, regardless of their

location

• Uploading ° Empowered all Internet users to create content and put it on the Web ° Led the transition from a passive approach to content to an active, participatory,

collaborative approach

• Outsourcing ° Contracting with an outside company to perform a specifi c function that your company was

doing itself and then integrating that work back into your operation (e.g., moving customer call centers to India)

• Off shoring ° Relocating an entire operation, or certain tasks, to another country (e.g., moving an entire

manufacturing operation to China)

• Supply chaining ° Technological revolution that led to the creation of networks comprised of companies, their

suppliers, and their customers, all of which could collaborate and share information for increased effi ciency

• Insourcing ° Delegating operations or jobs within a business to another company that specializes in

those operations (e.g., Dell hires FedEx to “take over” Dell’s logistics process)

• Informing ° Th e ability to search for information, best illustrated by search engines

• Th e Steroids ° Technologies that amplify the other fl atteners ° Enable all forms of computing and collaboration to be digital, mobile, and personal

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48 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Schneider National Simulates Business Operations

Schneider National (www.schneider.com), a $3.7 billion trucking company, is one of the United States’s largest freight haulers. The company, headquartered in Green Bay, Wisconsin, employs 13,000 drivers, and operates 10,000 trucks and 33,000 trailers.

With diesel fuel priced around $4 per gallon, Schneider has a strong incentive to send its drivers by the most effi cient routes. Designing optimal routes is an incredibly complex problem for a multitude of reasons.

For instance, Schneider drivers can be on the road for between 4 days and 3 weeks at a time, and they need to be back to their homes by a certain

date. Government regulations also require that drivers take a certain number of breaks. To further complicate matters, the customers

that Schneider serves are only open to receive deliv- eries during certain hours. So, the company needs to avoid situations where, for example, a driver who lives in Alabama ends his journey in Minnesota. If Schneider does not have any freight for this hypo- thetical driver to carry on his way home, he would have to drive himself home in an empty truck. This is an expensive waste of truck capacity.

In the past, Schneider has tried to solve the route scheduling problem via pilot projects. The company would select a group of 20 to 200 drivers, have them drive new routes, and test the results. These pilot proj- ects were very expensive and the results were often ambiguous. Often the results gained from a sample of 20 drivers would not “scale up” to the entire company. Further, when Schneider needed to run another exper- iment to verify its results, its analysts had to run a new pilot project, thereby incurring more costs.

Therefore, Schneider decided to invest in a com- panywide “tactical planning simulator” that would use software algorithms to mimic the decision making

of human dispatch- ers across the com- pany. Schneider needed a model that could examine in detail the ran- dom variables that affect the effi ciency of their thousands of drivers over long periods.

The simulator works by pretend- ing it is assigning freight and gather- ing orders based on scenarios it is given by Schneider analysts. An exam- ple of a given scenario might be adding more drivers in Chicago, having a large customer change the location of its distribution center, or adding an hour in mandated break time for drivers. The simulation produces simulations for the three coming weeks in order to approximate the value of having trucks and drivers in certain locations at certain times. The simu- lator then runs backward in time for those 3 weeks, checking its results. The simulator does this continu- ally, until it reaches an optimal solution to the scenario. For each 3-week run, the software makes hundreds of thousands of decisions.

Schneider estimates that the simulator has saved the company tens of millions of dollars. For instance, at one point a customer wanted to restrict the number of hours in which Schneider could drop off goods. Schneider ran the problem on its simulator and demon- strated to the customer that limiting the number of hours would cost $600,000 more per year. The customer decided not to limit its hours.

ABOUT BUSINESS 2.1i S h i T’S

TECHNOLOGICAL INNOVATION AND OBSOLESCENCE. New and improved technologies rapidly create or support substitutes for products, alternative service options, and superb quality, as you see in IT’s About Business 2.1. As a result, today’s state-of-the-art products may be obsolete tomorrow. For example, how fast are new versions of your smartphone being released? How quickly are electronic versions of books, magazines, and newspapers

Jetta Productions/Getty Images, Inc.

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replacing traditional hard-copy versions? Th ese changes force businesses to keep up with consumer demands.

Consider the Apple iPad (www.apple.com/ipad). Apple released the fi rst iPad in April 2010 and sold 3 million of the devices in 80 days. Rather than taking time to enjoy its suc- cess, Apple made its iPad2 available for sale on March 11, 2011, only 11 months later. Apple then released the iPad3 in March 2012. INFORMATION OVERLOAD. Th e amount of information available on the Internet doubles approximately every year, and much of it is free. Th e Internet and other telecommunica- tions networks are bringing a fl ood of information to managers. To make decisions eff ec- tively and effi ciently, managers must be able to access, navigate, and utilize these vast stores of data, information, and knowledge. Information technologies, such as search engines (discussed in Chapter 4) and data mining (discussed in Chapter 5), provide valuable sup- port in these eff orts. Societal/Political/Legal Pressures. Th e third category of business pressures includes social responsibility, government regulation/deregulation, spending for social pro- grams, spending to protect against terrorism, and ethics. Th is section will explain how all of these elements aff ect modern businesses. SOCIAL RESPONSIBILITY. Social issues that aff ect businesses and individuals range from the state of the physical environment, to company and individual philanthropy, to education. Some corporations and individuals are willing to spend time and/or money to address various social problems. Th ese eff orts are known as organizational social responsibility or individual social responsibility.

One critical social problem is the state of the physical envi- ronment. A growing IT initiative, called green IT, is addressing some of the most pressing environmental concerns. IT is instrumental in organizational eff orts to “go green” in at least four areas.

• Facilities design and management. Organizations are creating more sustainable work environments. Many organizations are pursuing Leadership in Energy and Environmental Design (LEED) certifi cation from the U.S. Green Building Council, a nonprofi t group that promotes the construction of environmentally friendly buildings. One impact of this development is that IT professionals are expected to help create green facilities. Consequently, IT personnel have to consider how their computing

Business Pressures, Organizational Responses, and IT Support 49

In-store comparison shopping is just one way customers are becoming more powerful.

Another way that the simulator helps Schneider save money is by helping them retain their employees. Drivers frequently burn out and leave the company, but Schneider uses the simulator to determine how many jobs to offer and where to hire drivers.

Sources: Compiled from W. Powell, Approximate Dynamic Programming, second edition, John Wiley & Sons, September 27, 2011; H. Coster, “Calculus for Truckers,” Forbes, September 12, 2011; “Powell Lab Algorithms Help Schneider National Save Millions,” Princeton School of Engineering and Applied Science, August 26, 2011; “Schneider Streamlines Shipping with Award- Winning Simulator,” Material Handling & Logistics, August 23, 2010; H. Simao et al., “Approximate Dynamic Programming Captures Fleet Operations for Schneider National, Interfaces, July 21, 2010; www.schneider.com, accessed February 21, 2012.

Questions 1. What are potential disadvantages of using the

simulator? Provide specifi c examples to support your answer.

2. Provide examples of how the simulator helps Schneider gain competitive advantage in the trucking industry.

3. Look ahead in this chapter to the discussion of fi ve strategies for competitive advantage. Which strategy (or strategies) does the simulator help Schneider address? Provide examples to support your answer.

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50 2 l Organizational Strategy, Competitive Advantage, and Information Systems

decisions infl uences sustainable design and, in turn, how the building’s design infl uences the IT infrastructure. Green design infl uences the type of IT devices used and the locations where IT clusters personal computers, people, and servers. IT must become familiar with the metering and monitoring systems used in green buildings and the requirements of buildings’ computerized infrastructure.

• Carbon management. As companies try to reduce their carbon footprints, they are turning to IT executives to develop the systems needed to monitor carbon throughout the organization and its supply chain, which can be global in scope. Th erefore, IT employees need to become knowledgeable about embedded carbon and how to measure it in the company’s products and processes. Consider, for example, application development. IT managers will have to ask whether an application will

require new hardware to test and run, or how much additional server space (and thus energy) it will require—and how these issues translate into carbon output.

• International and U.S. state environmental laws. IT executives must deal with state laws and international regulations that impact everything from the IT products they buy, to how they dispose of them, to their company’s carbon footprint. IT managers must understand environmental compliance issues so they can ask their vendors the right questions regarding specifi c state, national, and international environmental standards before buying, deploying, and disposing of equipment.

• Energy management. IT executives must understand their entire organization’s energy needs for several reasons. First, energy management systems are becoming increasingly sophisticated. To employ these systems eff ectively and make intelligent consumption decisions, IT personnel must understand the system’s complex monitors and sensors. Second, utilities are off ering incentives to commercial customers who take certain energy conservation steps, such as enabling computer power management across their networks and designing energy-effi cient data centers. Finally, utilities are off ering variable rate incentives depending on when companies use electricity and how much they use. Th ese issues require IT systems that can regulate electricity use.

Continuing our discussion of social responsibility, social problems all over the world may be addressed through corporate and individual philanthropy. In some cases, ques- tions arise as to what percentage of contributions actually goes to the intended causes and recipients and what percentage goes to the charity’s overhead. Another problem that con- cerns contributors is that they oft en exert little infl uence over the selection of projects their contributions will support. Th e Internet can help address these concerns and facilitate generosity and connection. Consider the following examples:

• PatientsLikeMe (www.patientslikeme.com), or any of the thousands of message boards dedicated to infertility, cancer, and various other ailments. People use these sites and message boards to obtain information about life-and-death decisions based on volunteered information, while also receiving much-needed emotional support from strangers.

• Gift Flow (www.giftfl ow.org): Gift Flow is a virtual community where you can obtain things you need for free and fi nd people who need the “stuff ” you have to give away. Gift Flow connects community organizations, businesses, governments, and neighbors in a network of reciprocity.

• OurGoods (www.ourgoods.org): OurGoods enables creative people to help one another produce independent projects. More work is accomplished in networks of shared respect and shared resources than in competitive isolation.

© Maria R.T. Deseo/PhotoEdit.

Although this may be familiar, multitasking will become more complicated when your job depends on it.

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Business Pressures, Organizational Responses, and IT Support 51

• Sparked (www.sparked.com): Sparked is an online “microvolunteering” Web site where large and small organizations list opportunities for people looking to volunteer.

• Th redup (www.thredup.com): Th redup is a Web site where parents trade children’s clothing and toys.

• Collaborative Consumption (www.collaborativeconsumption.com): Th is Web site is an online hub for discussions about the growing business of sharing, resale, reuse, and barter (with many links to Web sites engaged in these practices).

• Kiva (www.kiva.org): Kiva is a nonprofi t enterprise that provides a link between lenders in developed countries and entrepreneurs in developing countries. Users pledge interest- free loans rather than tax-deductible donations. Kiva directs 100 percent of the loans to borrowers.

• DonorsChoose (www.donorschoose.org): DonorsChoose is an education-oriented Web site that functions entirely within the United States. Users make donations rather than loans. Th e Web site addresses the huge problem of underfunded public schools.

Still another social problem that aff ects modern business is the digital divide. Th e digital divide refers to the wide gap between those who have access to information and communications technology and those who do not. Th is gap exists both within and among countries. IT’s About Business 2.2 provides an example of how modern information tech- nologies are enabling the Surui people of the Amazon region in Brazil to bridge the digital divide.

The Surui Tribe of the Amazon

Chief Almir of the Surui tribe of the Brazilian Amazon is using Google to help his tribe main- tain its traditional way of life. In 1969, the Surui had their fi rst contact with outsiders, who

brought with them disease, violence, and death. Then, loggers arrived and laid waste to the Surui’s homeland.

Chief Almir took a leadership role in his tribe at 17 and became the tribe’s fi rst member to attend college. In 2006, he fl ed briefl y to the United States when log- gers put a bounty on his head. He stumbled upon Google Earth in an Internet café in 2007.

Chief Almir decided that his tribe’s survival depend- ed on outreach. His partnership with Google has enabled the tribe to create an online “cultural map” of the Surui with stories from the tribe’s elders that are uploaded onto YouTube, as well as a geographical map of their territory created with GPS-equipped smartphones from Google. In 2009, Google employees taught the Surui to use cell phones to record illegal logging on their land.

Tribal members can now take photos and videos that are geo-tagged and immediately upload the images to Google Earth. Law enforcement offi - cials can no longer claim ignorance of the problem when evidence of the deforestation is publicly available online. Satellite pictures show that the Surui use of tech- nology is highly effective as the Surui territory is the only remaining intact piece of rainforest in the area.

Chief Almir views his partnership with Google not only as a way to sustain his traditions and his land, but also as an opportunity to teach others about the Surui. Furthermore, the tribe has mounted an ambitious reforestation plan to combat the aggressive logging that is destroying the Surui’s 600,000 acres of land.

ABOUT BUSINESS 2.2i Th S T’S

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52 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Many government and international organizations are trying to close the digital divide. As technologies develop and become less expensive, the speed at which the gap can be closed will accelerate.

A well-known project is the One Laptop per Child (OLPC) project (http://one. laptop.org). OLPC is a nonprofi t association dedicated to research to develop a very inex- pensive laptop—a technology that aims to revolutionize how the world can educate its children.

Th e fi rst generation of inexpensive laptops appeared in 2007 with a price of $188, which was too high. Th e second generation of the laptop was scrapped because the price remained too high. Th e next generation of inexpensive laptops will be a touchscreen tablet computer for schoolchildren in the developing world that uses less power than a light bulb and is unbreakable, waterproof, and one-half the thickness of an iPhone. Th is computer will be a single sheet of plastic and have a projected price of $75. COMPLIANCE WITH GOVERNMENT REGULATIONS. Another major source of business pressures is government regulations regarding health, safety, environmental protection, and equal opportunity. Businesses tend to view government regulations as expensive constraints on their activities. In general, government deregulation intensifi es competition.

In the wake of 9/11 and numerous corporate scandals, the U.S. government passed many new laws, including the Sarbanes-Oxley Act, the USA PATRIOT Act, the Gramm- Leach-Bliley Act, and the Health Insurance Portability and Accountability Act (HIPAA). Organizations must be in compliance with the regulations contained in these statutes. Th e process of becoming and remaining compliant is expensive and time consuming. In almost all cases, organizations rely on IT support to provide the necessary controls and informa- tion for compliance. PROTECTION AGAINST TERRORIST ATTACKS. Since September 11, 2001, organizations have been under increased pressure to protect themselves against terrorist attacks. In addi- tion, employees who are in the military reserves have been called up for active duty, creating personnel problems. IT can help protect businesses by providing security systems and pos- sibly identifying patterns of behavior associated with terrorist activities, including cyberat- tacks (discussed in Chapter 7). See Chapter Closing Case 1 for a look at a soft ware tool developed to combat terrorism.

An example of protection against terrorism is the Department of Homeland Security’s US-VISIT program. US-VISIT is a network of biometric-screening systems, such as fi nger- print and ocular (eye) scanners, that ties into government databases and watch lists to check the identities of millions of people entering the United States. Th e system is now opera- tional in more than 300 locations, including major international ports of entry by air, sea, and land.

Smartphones have enabled the tribe to document cleared areas in the forest and form planting plans. The Surui plan to plant 100 million saplings in the next decade. They hope to raise millions of dollars through a United Nations program that gives carbon credits, which can be traded for cash, to countries and tribes that maintain their forests. The money would fund new homes, a hospital, and a school. The Surui have created a word for Google in their language: ragogmakann, meaning “the messenger.”

Sources: Compiled from “The Most Creative People in Business 2011,” FastCompany, June, 2011; S. Zwick, “Brazil’s Surui Establish First Indigenous Carbon Fund,” Ecosystem Marketplace, December 3, 2010; R. Butler, “Brazilian Tribe Owns Carbon Rights to Amazon

Rainforest Land,” Mongabay.com, December 9, 2009; R. Butler, “Big REDD,” Washington Monthly, September 7, 2009; R. Butler, “Amazon Conservation Team Puts Indians on Google Earth to Save the Amazon,” Mongabay.com, November 14, 2006.

Questions 1. Describe the benefi ts that all of us gain from the

Surui’s use of IT.

2. Provide specifi c examples of how the Surui could make further use of IT to improve their lives.

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Business Pressures, Organizational Responses, and IT Support 53

ETHICAL ISSUES. Ethics relates to general standards of right and wrong. Information eth- ics relates specifi cally to standards of right and wrong in information-processing practices. Ethical issues are very important because, if handled poorly, they can damage an organiza- tion’s image and destroy its employees’ morale. Th e use of IT raises many ethical issues, ranging from monitoring e-mail to invading the privacy of millions of customers whose data are stored in private and public databases. (Chapter 6 covers ethical issues in detail.)

Clearly, then, the pressures on organizations are increasing and organizations must be prepared to take responsive actions if they are to succeed. You will learn about these orga- nizational responses in the next section.

Organizational Responses Organizations are responding to the various pressures just discussed by implementing IT such as strategic systems, customer focus, make-to-order and mass customization, and e-business. Th is section explores each of these responses. Strategic Systems. Strategic systems provide organizations with advantages that enable them to increase their market share and/or profi ts, to better negotiate with sup- pliers, and to prevent competitors from entering their markets. As an example, the IT department at Procter & Gamble (P&G; www.pg.com) developed a virtualized environ- ment that the company uses for product design work, product placement research, and consumer feedback studies. P&G utilizes virtual reality models to test design ideas for the next breakthroughs in products such as diapers and cosmetics. Within these “cyber- worlds,” P&G can rapidly test product performance as well as consumer responses to various kinds of ingredient and packaging choices. Consider how the organizations in IT’s About Business 2.3 rely on strategic information systems to carry out their missions more eff ectively. Pay particular attention to how a strategic information system in one group of organizations can actually harm another group of organizations (see Small Th eaters May Go Dark).

Two Strategic Information Systems

Sustainability for Hilton Worldwide

Hilton Worldwide is the fi rst major multibrand hospitality company to make sustainability measurement a brand

standard. Company management decided to require all of its 3,750 properties to implement LightStay, Hilton’s sustainability measurement

system, by December 2011. The LightStay system analyzes performance across

200 operational practices, such as housekeeping, paper-product usage, food waste, chemical storage, air quality, and transportation. LightStay also provides a “meeting impact calculator” that calculates the sus- tainability impact of any meeting or conference held at any Hilton property. Finally, LightStay also allows Hilton

hotels to track sustainability projects, share best prac- tices, and communicate with one another through a dashboard.

Since the introduction of LightStay, Hilton has con- tinuously improved its sustainability and economic performance and has saved more than $74 million in utility costs as a result of the following reductions:

• 6.6% reduction in energy use

• 7.8% reduction in carbon output

• 19% reduction in waste output

• 3.8% reduction in water use

Small Theaters May Go Dark

A strategic information system in one industry may not benefi t another industry. In fact, some strategic

ABOUT BUSINESS 2.3i T St T’S

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54 2 l Organizational Strategy, Competitive Advantage, and Information Systems

information systems may have the effect of damaging businesses that cannot keep up.

For the past decade, Hollywood’s largest studios have been working on a new production standard for digital motion pictures that could save them $1 billion annually in printmaking fees and shipping costs. Mov- ies in this new format are shipped on hard drives that can hold hundreds of gigabytes of data and are con- nected to extremely high-defi nition projectors. To unlock a movie, a distributor sends the theater a code that controls where, when, and how long the theater can play the particular movie.

Unfortunately, many small theater owners cannot afford the expensive new projectors and other equip- ment that major studios want them to buy. The cost for each theater to play movies in this format is $65,000 to $70,000. Small theater owners note that they would be spending this additional money without incurring any additional revenue. That is, they feel that they cannot pass the cost along to their customers in the form of increased ticket prices.

To induce theaters to purchase the new equip- ment, celluloid prints (actual hard-copy fi lm) of new movies from major studios will no longer be available in the United States by the end of 2013, according to John Fithian, president of the National Association of Theater Owners.

The largest motion picture chains—Regal Enter- tainment, AMC Entertainment, and Cinemark Theaters, which account for about half of the $10.2 billion annual revenue pulled in by the U.S. box offi ce—expect to complete the conversion by early 2013. However, Fithian predicts that the United States will lose several thousand screens in small theaters.

Sources: Compiled from N. Leiber, “For Small Theaters, the Digital Future Is Dark,” Bloomberg BusinessWeek, February 20–26, 2012; “Hilton Worldwide Quantifi es Product Sustainability for Global Procurement Operations,” IBM Customer Success Case Study, January 30, 2012; J. Bruner, “River of Information,” Forbes, November 7, 2011; G. Hasek, “Hilton LightStay Program Cuts Hotel Energy Use by 6.6%, Saves $74M,” Greenbiz.com, October 25, 2011; M. Mills, “Entertainment’s Tech Boom: The Internet Has Been Assimilated,” Forbes, May 10, 2011; www.ibm.com, www. hiltonworldwide.com, accessed February 22, 2012.

Questions 1. How does the LightStay system contribute to

Hilton’s sustainability efforts?

2. Is “going digital” in motion picture production a strategic information system for the motion picture industry? Why or why not? Provide examples to support your answer.

3. Is “going digital” in the motion picture industry a strategic information system for the National Association for Theater Owners? Why or why not? Provide examples to support your answer.

4. Given your answers to Questions 3 and 4 above, what should the motion picture industry do?

5. Can you think of another example where a strategic information system in one company (or industry) can harm another company (or industry)?

Customer Focus. Organizational attempts to provide superb customer service can make the diff erence between attracting and keeping customers and losing them to com- petitors. Numerous IT tools and business processes have been designed to keep customers happy. Consider Amazon, for example. When you visit Amazon’s Web site anytime aft er your fi rst visit, the site welcomes you back by name and presents you with information on books that you might like, based on your previous purchases. In another example, Dell guides you through the process of buying a computer by providing information and choices that help you make an informed buying decision. Make-to-Order and Mass Customization. Make-to-order is a strategy of producing customized (made to individual specifi cations) products and services. Th e business problem is how to manufacture customized goods effi ciently and at a reason- ably low cost. Part of the solution is to change manufacturing processes from mass pro- duction to mass customization. In mass production, a company produces a large quan- tity of identical items. In mass customization, it also produces a large quantity of items, but it customizes them to fi t the needs and preferences of individual customers. Mass

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Business Pressures, Organizational Responses, and IT Support 55

EXAMPLE Well-fi tting jeans are notoriously diffi cult to fi nd. To address this problem, Bodymetrics has partnered with PrimeSense to develop a three-dimensional body-mapping product. The product uses PrimeSense 3D sensors to scan the shapes and curves that make each body unique. The scanner produces a digital replica of each user’s size and shape. Customers can try on clothes virtually at a store or in their homes. This scan is then used to provide three services: made-to-measure jeans, body-shape jeans, and online virtual try-on. With made-to-measure jeans, the scan is used to create a pattern for the jeans, which are hand tailored to the exact lines and contours of the customer’s body. The jeans are ready in 3 to 6 weeks, at which time the customer has a fi nal fi tting with a Bodymetrics tailor. Based on its experience with made-to-measure jeans, Bodymetrics has identifi ed three body shapes: straight, semi-curvy, and curvy. Body-shape jeans are specifi cally designed to fi t these different body shapes. After customers are scanned, a Bodymetrics jeans expert helps them determine their body shapes. Customers can then instantly purchase jeans matching their body shapes off the rack in the store. The online virtual try-on allows customers who have been scanned to try on jeans virtually on their own bodies without physically trying on jeans in a dressing room. The service creates an avatar (a three-dimensional graphical representation), which has an amazing resemblance to the customer. Then, the customer can pick various styles of jeans and “virtually see” what the jeans look like on her or his avatar.

Sources: Compiled from S. Laird, “Clothes Shopping With Bodymetrics Lets You Try It On for Virtual Size,” Mashable, January 9, 2012; “The First Time I Had a Bodymetrics Scan,” http:// howfayeseesit.wordpress.com, March 23, 2011; L. Talbot, “Bodymetrics: What’s Your Jean Shape?” http://lisatalbot.blogspot.com, February 2, 2011; Asmita, “Custom-Fit Jeans with Bodymetrics,” www.styleguru.com, January 18, 2007 (Note: StyleGuru is a promotional blog.); R. Young, “Turning Tailoring Over to a Computer,” International Herald Tribune, January 15, 2007; www.bodymetrics.com, www.primesense.com, accessed February 21, 2012.

E-Business and E-Commerce. Doing business electronically is an essential strategy for companies that are competing in today’s business environment. Electronic commerce (EC or e-commerce) describes the process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet. E-business is a somewhat broader concept. In addition to the buying and sell- ing of goods and services, e-business also refers to servicing customers, collaborating with business partners, and perform- ing electronic transactions within an organization. (Chapter 9 focuses extensively on this topic. In addition, e-commerce applications appear throughout the book.)

You now have a general overview of the pressures that aff ect companies in today’s business environment and the responses that organizations choose to manage these pres- sures. To plan for the most eff ective responses, companies for- mulate strategies. In the new digital economy, these strategies rely heavily on IT, especially strategic information systems. Th ese topics are examined in the next section.

BEFORE YOU GO ON . . . 1. What are the characteristics of the modern

business environment? 2. Discuss some of the pressures that

characterize the modern global business environment.

3. Identify some of the organizational responses to these pressures. Are any of these responses specifi c to a particular pressure? If so, which ones?

customization is simply an attempt to perform make-to-order on a large scale. Body- metrics (www.bodymetrics.com) is an excellent example of mass customization with men’s and women’s jeans.

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56 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Apply the Concept 2.1

Background Th is chapter has described many theories and pointed out that infor- mation overload is a very real problem today. Th e amount of data we can now collect is

amazing. Did you know that even your Facebook posts and tweets are data? In fact, the Library of Congress archives Twitter posts aft er they are 6 months old! What about organizational data? Soon mobile commerce will allow companies to store GPS location, demographic data, and purchase data to create customer profi les that will provide tons of digital data. Businesses will be able to use this in ways that we cannot even imagine today. Companies like IBM, Oracle, SAP, and SAS are leading the way into this world by designing soft ware to help manage this data. Activity Go to YouTube and search for “IBM Why Data Matters.” Look through the list for the following three videos. You may also go to http://www.wiley.com/go/rainer/ applytheconcept and click on the links provided for Apply the Concept 2.1.

• Why Data Matters: Context Reveals Answers • Why Data Matters: Age of Analytics • Why Data Matters: Extracting Insights, Making Better Decisions

Deliverable

As a consumer, how do you feel about your own privacy given that businesses collect mas- sive amounts of data on your spending habits? How much is too much? At what point would you like to disconnect? Could you? Do you think that people at large have become too dependent on data? Could businesses go back to operating with less knowledge?

Imagine that you were asked to provide a report about this issue to your congressman/ congresswoman explaining the direction we are going and whether it is a good thing or not. Write this up in a short report and submit it to your professor.

Go back to http://www.wiley.com/go/rainer/applytheconcept and click on the U.S. Congress link if you want to actually send your letter!

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1Porter, M. E. (1985). Competitive Advantage. New York: Free Press.

2.2 Competitive Advantage and Strategic Information Systems A competitive strategy is a statement that identifi es a business’s approach to compete, its goals, and the plans and policies that will be required to carry out those goals.1 A strategy, in general, can apply to a desired outcome, such as gaining market share. A competitive

1. How could IT help Ruby’s comply with legal requirements and social responsibilities surrounding the sales of alcohol?

2. Drinks and music never become obsolete, right? How could Ruby’s lack of IT create the environment that makes them appear obsolete?

3. The sheer number of possibilities are creating “overload” for Ruben and Lisa before they ever even adopt any specifi c IT. How can technology be used to help them make a decision about the IT they choose to adopt?

Q U E S T I O N SRUBY’S CLUB

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Competitive Advantage and Strategic Information Systems 57

2Ibid.

strategy focuses on achieving a desired outcome when competitors want to prevent you from reaching your goal. Th erefore, when you create a competitive strategy, you must plan your own moves, but you must also anticipate and counter your competitors’ moves.

Th rough its competitive strategy, an organization seeks a competitive advantage in an industry. Th at is, it seeks to outperform its competitors in a critical measure such as cost, quality, and time-to-market. Competitive advantage helps a company function profi tably with a market and generate larger-than-average profi ts.

Competitive advantage is increasingly important in today’s business environment, as you will note throughout the book. In general, the core business of companies has remained the same. Th at is, information technologies simply off er tools that can enhance an organiza- tion’s success through its traditional sources of competitive advantage, such as low cost, excellent customer service, and superior supply chain management. Strategic information systems (SISs) provide a competitive advantage by helping an organization to implement its strategic goals and to improve its performance and productivity. Any information system that helps an organization gain a competitive advantage or reduce a competitive disadvan- tage qualifi es as a SIS.

Porter’s Competitive Forces Model Th e best-known framework for analyzing competitiveness is Michael Porter’s competitive forces model.2 Companies use Porter’s model to develop strategies to increase their competitive edge. Porter’s model also demonstrates how IT can make a company more competitive.

Porter’s model identifi es fi ve major forces that can endanger or enhance a company’s position in a given industry. Figure 2.2 highlights these forces. Although the Web has changed the nature of competition, it has not changed Porter’s fi ve fundamental forces. In fact, what makes these forces so valuable as analytical tools is that they have not changed for centuries. Every competitive organization, no matter how large or small, or what business it is in, is driven by these forces. Th is observation applies even to organi- zations that you might not consider competitive, such as local governments. Although local governments are not-for-profi t enterprises, they compete for businesses to locate in their districts, for funding from higher levels of government, for employees, and for many other things.

Rivalry

Threat of new entrants

Threat of substitute products

or services

Supplier power (bargaining power

of suppliers)

Buyer power (bargaining power

of buyers)

Your organization

Competing organizations

Figure 2.2 Porter’s competitive forces model.

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58 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Signifi cantly, Porter concludes that the overall impact of the Web is to increase compe- tition, which generally diminishes a fi rm’s profi tability.3 Let’s examine Porter’s fi ve forces and the ways that the Web infl uences them.

1. Th e threat of entry of new competitors. Th e threat that new competitors will enter your market is high when entry is easy and low when there are signifi cant barriers to entry. An entry barrier is a product or service feature that customers have learned to expect from organizations in a certain industry. A competing organization must off er this feature in order to survive in the marketplace. Th ere are many types of entry barriers. Consider, for example, legal requirements such as admission to the bar to practice law or a license to serve liquor, where only a certain number of licenses are available.

Suppose you want to open a gasoline station. To compete in that industry, you would have to off er pay-at-the-pump service to your customers. Pay-at-the-pump is an IT-based barrier to entering this market because you must off er it for free. Th e fi rst gas station that off ered this service gained fi rst-move advantage and established barriers to entry. Th is advantage did not last, however, because competitors quickly off ered the same service and thus overcame the entry barrier.

For most fi rms, the Web increases the threat that new competitors will enter the market because it sharply reduces traditional barriers to entry, such as the need for a sales force or a physical storefront. Today, competitors frequently need only to set up a Web site. Th is threat of increased competition is particularly acute in industries that perform an interme- diation role, which is a link between buyers and sellers (for example, stock brokers and travel agents), as well as in industries where the primary product or service is digital (for example, the music industry). In addition, the geographical reach of the Web enables dis- tant competitors to compete more directly with an existing fi rm.

In some cases the Web increases barriers to entry. Th is scenario occurs primarily when customers have come to expect a nontrivial capability from their suppliers. For example, the fi rst company to off er Web-based package tracking gained a competitive advantage from that service. Competitors were forced to follow.

2. Th e bargaining power of suppliers. Supplier power is high when buyers have few choices from whom to buy and low when buyers have many choices. Th erefore, organiza- tions would rather have more potential suppliers so they will be in a stronger position to negotiate price, quality, and delivery terms.

Th e Internet’s impact on suppliers is mixed. On the one hand, it enables buyers to fi nd alternative suppliers and to compare prices more easily, thereby reducing the supplier’s bar- gaining power. On the other hand, as companies use the Internet to integrate their supply chains, participating suppliers prosper by locking in customers.

3. Th e bargaining power of customers (buyers). Buyer power is high when buyers have many choices from whom to buy and low when buyers have few choices. For example, in the past, there were few locations where students could purchase textbooks (typically, one or two campus bookstores). In this situation, students had low buyer power. Today, the Web provides students with access to a multitude of potential suppliers as well as detailed information about textbooks. As a result, student buyer power has increased dramatically.

In contrast, loyalty programs reduce buyer power. As their name suggests, loyalty pro- grams reward customers based on the amount of business they conduct with a particular organization (e.g., airlines, hotels, and rental car companies). IT enables companies to track the activities and accounts of millions of customers, thereby reducing buyer power. Th at is, customers who receive “perks” from loyalty programs are less likely to do business with competitors. (Loyalty programs are associated with customer relationship management, which you will study in Chapter 12.)

4. Th e threat of substitute products or services. If there are many alternatives to an organization’s products or services, then the threat of substitutes is high. If there are few alternatives, then the threat is low. Today, new technologies create substitute products very rapidly. For example, customers today can purchase wireless telephones instead of

3Porter, M. E. (2001, March). “Strategy and the Internet,” Harvard Business Review, pp. 62–78.

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Competitive Advantage and Strategic Information Systems 59

landline telephones, Internet music services instead of traditional CDs, and ethanol instead of gasoline in cars.

Information-based industries experience the greatest threat from substitutes. Any industry in which digitized information can replace material goods (e.g., music, books, and soft ware) must view the Internet as a threat because the Internet can convey this informa- tion effi ciently and at low cost and high quality.

Even when there are many substitutes for their products, however, companies can create a competitive advantage by increasing switching costs. Switching costs are the costs, in money and time, of a decision to buy elsewhere. For example, contracts with smart phone providers typically include a substantial penalty for switching to another provider until the term of the contract expires (quite oft en, two years). Th is switching cost is monetary.

As another example, when you buy products from Amazon, the company develops a profi le of your shopping habits and recommends products targeted to your preferences. If you switch to another online vendor, it will take time for that company to develop a profi le of your wants and needs. In this case, the switching cost involves time rather than money.

5. Th e rivalry among existing fi rms in the industry. Th e threat from rivalry is high when there is intense competition among many fi rms in an industry. Th e threat is low when the competition is among fewer fi rms and is not as intense.

In the past, proprietary information systems—systems that belong exclusively to a sin- gle organization—have provided strategic advantage to fi rms in highly competitive indus- tries. Today, however, the visibility of Internet applications on the Web makes proprietary systems more diffi cult to keep secret. In simple terms, when a businessperson sees a com- petitor’s new system online, he or she will rapidly match its features in order to remain competitive. Th e result is fewer diff erences among competitors, which leads to more intense competition in an industry.

To understand this concept, consider the highly competitive grocery industry, where Walmart, Kroger, Safeway, and other companies compete essentially on price. Some of these companies have IT-enabled loyalty programs in which customers receive discounts and the store gains valuable business intelligence on customers’ buying preferences. Stores use this business intelligence in their marketing and promotional campaigns. (You will learn about business intelligence in Chapter 5.)

Grocery stores are also experimenting with wireless technologies such as radio- frequency identifi cation (RFID, discussed in Chapter 10) to speed the checkout process, track customers through the store, and notify customers of discounts as they pass by certain products. Grocery companies also use IT to tightly integrate their supply chains for maxi- mum effi ciency and thus reduce prices for shoppers.

Competition also is being aff ected by the extremely low variable cost of digital prod- ucts. Th at is, once a digital product has been developed, the cost of producing additional “units” approaches zero. Consider the music industry as an example. When artists record music, their songs are captured in digital format. Producing physical products, such as CDs or DVDs, with the songs on them for sale in music stores involves costs. Th e costs in a physical distribution channel are much higher than the costs involved in delivering the songs over the Internet in digital form.

In fact, in the future companies might give away some products for free. For example, some analysts predict that commissions for online stock trading will approach zero because investors can access the necessary information via the Internet to make their own decisions regarding buying and selling stocks. At that point, consumers will no longer need brokers to give them information that they can obtain themselves, virtually for free.

Porter’s Value Chain Model Organizations use the Porter competitive forces model to design general strategies. To iden- tify specifi c activities in which they can use competitive strategies for greatest impact, they use Porter’s value chain model (1985). Th e value chain model also identifi es points where an organization can use IT to achieve competitive advantage (see Figure 2.3).

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60 2 l Organizational Strategy, Competitive Advantage, and Information Systems

According to Porter’s value chain model, the activities conducted in any organization can be divided into two categories: primary activities and support activities. Primary activ- ities relate to the production and distribution of the fi rm’s products and services. Th ese activities create value for which customers are willing to pay. Next, you are going to learn about the value chain of a manufacturing company. Keep in mind that other types of fi rms, such as transportation, health care, education, and retail, have diff erent value chains. Th e key point is that every organization has a value chain: a sequence of activities through which the organization’s inputs, whatever they are, are transformed into more valuable outputs, whatever they are.

In a manufacturing company, for example, primary activities involve purchasing mate- rials, processing the materials into products, and delivering the products to customers. Companies typically perform fi ve primary activities:

Inbound logistics (inputs) Operations (manufacturing and testing) Outbound logistics (storage and distribution) Marketing and sales Services

Primary activities usually take place in a sequence from 1 to 5. As work progresses in the sequence, value is added to the product in each activity. Specifi cally, the following steps occur:

1. Th e incoming materials are processed (in receiving, storage, and so on) in activities called inbound logistics.

2. Th e materials are used in operations, where value is added by turning raw materials into products.

Figure 2.3 Porter’s value chain model.

Administration and management

Human resource management

Procurement

Inbound logistics

Quality control; receiving; raw materials control; supply schedules

Manufacturing; packaging; production control; quality control; maintenance

Finishing goods; order handling; dispatch; delivery; invoicing

Customer management; order taking; promotion; sales analysis; market research

Warranty; maintenance; education and training; upgrades

Automated warehousing systems

Computer-controlled machining systems; computer-aided flexible manufacturing

Automated shipment scheduling systems; online point of sale and order processing

Computerized ordering systems; targeted marketing

Customer relationship management systems

Outbound logistics Marketing and sales Customer serviceOperations

Product and technology development

Legal, accounting, finance management

Personnel, recruiting, training, career development

Supplier management, funding, subcontracting, specification

Product and process design, production engineering, research and development

Electronic scheduling and message systems; collaborative workflow intranet

Workforce planning systems; employee benefits intranet

E-commerce Web portal for suppliers

Computer-aided design systems; product development extranet with partners

S U

P P

O R

T A

C T

IV IT

IE S

P R

IM A

R Y

A C

T IV

IT IE

S F

IR M

A D

D S

V A

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Competitive Advantage and Strategic Information Systems 61

3. Th ese products are prepared for delivery (packaging, storing, and shipping) in the out- bound logistics activities.

4. Marketing and sales sell the products to customers, increasing product value by creat- ing demand for the company’s products.

5. Finally, the company performs aft er-sales service, such as warranty service or upgrade notifi cation, for the customer, adding further value.

Th e primary activities are buttressed by support activities. Unlike primary activities, support activities do not add value directly to the fi rm’s products or services. Rather, as their name suggests, they contribute to the fi rm’s competitive advantage by supporting the primary activities. Support activities consist of the following:

1. Th e fi rm’s infrastructure (accounting, fi nance, management) 2. Human resources management 3. Product and technology development (R & D) 4. Procurement

Each support activity can be applied to any or all of the primary activities. In addition, the support activities can also support one another.

A fi rm’s value chain is part of a larger stream of activities, which Porter calls a value system. A value system, or an industry value chain, includes the suppliers that provide the inputs necessary to the fi rm along with their value chains. Aft er the fi rm creates products, these products pass through the value chains of distributors (which also have their own value chains), all the way to the customers. All parts of these chains are included in the value system. To achieve and sustain a competitive advantage, and to support that advan- tage with information technologies, a fi rm must understand every component of this value system.

Strategies for Competitive Advantage Organizations continually try to develop strategies to counter the fi ve competitive forces identifi ed by Porter. You will learn about fi ve of those strategies here. Before we go into specifi cs, however, it is important to note that an organization’s choice of strategy involves trade-off s. For example, a fi rm that concentrates only on cost leadership might not have the resources available for research and development, leaving the fi rm unable to innovate. As another example, a company that invests in customer happiness (customer-orientation strategy) will experience increased costs.

Companies must select a strategy and then stay with it, because a confused strategy cannot succeed. Th is selection, in turn, decides how a company will utilize its information systems. A new information system that can improve customer service but will increase costs slightly will be welcomed at a high-end retailer such as Nordstrom but not at a discount store like Walmart. You learn about the most commonly used strategies in the following paragraphs. Figure 2.4 provides an overview of these strategies.

1. Cost leadership strategy. Produce products and/or services at the lowest cost in the industry. An example is Walmart’s automatic inventory replenishment system, which enables Walmart to reduce inventory storage requirements. As a result, Walmart stores use fl oor space only to sell products, and not to store them, thereby reducing inventory costs.

2. Diff erentiation strategy. Off er products, services, or product features that are dif- ferent from those of your competitor. Southwest Airlines, for example, has diff erentiated itself as a low-cost, short-haul, express airline. Th is has proved to be a winning strategy for competing in the highly competitive airline industry. Also, Dell has diff erentiated itself in the personal computer market through its mass-customization strategy.

3. Innovation strategy. Introduce new products and services, add new features to existing products and services, or develop new ways to produce them. A classic example is the introduction of automated teller machines (ATMs) by Citibank. Th e convenience and cost-cutting features of this innovation gave Citibank a huge advantage over its competitors.

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62 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Like many innovative products, the ATM changed the nature of competition in the banking industry. Today an ATM is a competitive necessity for any bank.

4. Operational eff ectiveness strategy. Improve the man- ner in which internal business processes are executed so that a fi rm performs these activities better than its rivals. Such improvements increase quality, productivity, and employee and customer satisfaction while decreasing time to market.

5. Customer-orientation strategy. Concentrate on mak- ing customers happy. Web-based systems are particularly eff ective in this area because they can provide a personalized, one-to-one relationship with each customer.

Figure 2.4 Strategies for Competitive Advantage.

Operational Effectiveness

I can do the same thing more efficiently

than you can.

Customer Oriented

I treat my customers better than you do.

Innovation

I’m doing something new and you can’t

catch up.

Cost Leader

I can sell at a lower cost than you can.

Differentiation

I am better because I am different.

BEFORE YOU GO ON . . . 1. What are strategic information systems? 2. According to Porter, what are the fi ve

forces that could endanger a fi rm’s position in its industry or marketplaces?

3. Describe Porter’s value chain model. Differentiate Porter’s competitive forces model and his value chain model.

4. What strategies can companies use to gain competitive advantage?

Apply the Concept 2.2

Background Th is section has exposed you to Porter’s fi ve forces model. Th is demonstrates the ways that diff erent things infl uence an organization. Th e threat

of entry of new competitors, bargaining power of suppliers, bargaining power of custom- ers, threat of substitute products or services, and rivalry among existing fi rms in the industry all have an impact on the outcome of the organization and its ultimate success. Based on this strategic model, there are fi ve strategies presented for competitive advan- tage: cost leadership, diff erentiation, innovation, operational eff ectiveness, and customer orientation.

Walmart is a worldwide company that focuses on a cost-leadership strategy. Go back and review the ways Walmart uses the fi ve forces (or controls them) so that they maintain their position as a worldwide cost leader. Although it may be somewhat easy to apply this to a large global company like Walmart, it is very diffi cult to think about these concepts as they would apply to small businesses. However, they are just as important to understand. Activity Visit your favorite restaurant and ask to speak to the manager. In just a few ques- tions, see if the manager has a grasp of the fi ve forces model. Do not ask anything about

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Business–IT Alignment 63

Porter, but ask about rivals, substitutes, bargaining power of customers, supplier power, etc. A good manager should be familiar with these concepts whether he or she uses the term Porter’s fi ve forces or not. Finally, ask what strategy the manager uses and see if you can classify it as a cost leadership, diff erentiation, innovation, operational eff ectiveness, and customer orientation strategy.

Deliverable

Aft er your meal is over, write a summary for your instructor that answers the following questions: Does the manager understand all of the forces that impact the business? Are there some forces that the manager needs a better understanding of? Do you see any addi- tional forces at play here? What did you determine the manager’s strategy to be?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

2.3 Business–IT Alignment Th e “holy grail” of organizations is business–IT alignment, or strategic alignment. Business– IT alignment (which we will call “alignment”) is the tight integration of the IT function with the strategy, mission, and goals of the organization. Th at is, the IT function directly supports the business objectives of the organization. Th ere are six characteristics of excellent alignment:

• Organizations view IT as an engine of innovation that continually transforms the business, oft en creating new revenue streams.

• Organizations view their internal and external customers and their customer service function as supremely important.

• Organizations rotate business and IT professionals across departments and job functions.

• Organizations provide overarching goals that are completely clear to each IT and business employee.

• Organizations ensure that IT employees understand how the company makes (or loses) money.

• Organizations create a vibrant and inclusive company culture.

Unfortunately, many organizations fail to achieve this type of close alignment. In fact, according to a McKinsey & Company survey on IT strategy and spending, only 16 percent of the IT and business executives who participated agreed that their organization had

1. In a college town, how strong is the threat of substitute entertainment?

2. Ruben and Lisa’s vision for Ruby’s is to create a relaxing, community atmosphere. Which strategy do you think best suits their desire? Cost Leader, Differentiator, Innovator, Operational Effectiveness, or Customer Orientation?

3. Which is more powerful for Ruby’s? The bargaining power of suppliers or the bargaining power of customers?

Q U E S T I O N SRUBY’S CLUB

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64 2 l Organizational Strategy, Competitive Advantage, and Information Systems

adequate alignment between IT and the business.4 Given the importance of alignment, why do so many organizations fail to implement this policy? Th e major reasons are these:

• Business managers and IT managers have diff erent objectives.

• Th e business and IT departments are ignorant of each other’s expertise.

• Communication is lacking.

Put simply, business executives know little about IT, and IT executives understand the technology but do not understand the real needs of the business.

4McKinsey & Company, “IT’s Unmet Potential: McKinsey Global Survey Results,” McKinsey Quarterly, www.mckinseyquarterly.com/ITs_unmet_potential_McKinsey_Global_Survey_ Result_2277, accessed August 8, 2011.

BEFORE YOU GO ON . . . 1. What is alignment? 2. Give examples of alignment regarding

student systems at your university. (Hint: What are the “business” goals of your university with regard to student registration, fee payment, grade posting, etc.?)

Apply the Concept 2.3

Background As this section has illustrated, corporate strategy and IT strategy must be tightly aligned. For example, if a manager determines that better inven-

tory management is needed, he or she does not necessarily need to go looking for a new point-of-sale system. Th e manager needs to look for an inventory management system. If you operate in a manufacturing industry, you do not need to implement an electronic health records (EHR) system. Although those are simple examples when you are making these decisions, it becomes imperative that you are very familiar with corporate strategy and available technology to make sure they match up.

Visit http://www.wiley.com/go/rainer/applytheconcept and consider the many options Garmin off ers for GPS devices. Th ere are product options that are designed for pilots, automobiles, motorcycles, hikers, anglers (fi shermen), and more. If this is all the same technology (GPS), then why can’t the company just build one device and sell it to everyone? It is simply because the way the company needs the product to work and the information that the customer needs from it is diff erent depending on what the customer plans to do with it. Although this may be a simple answer, it brings out an important point. Business applications of technology are much the same. Implemented IT must align with business need or it will only be “pretty” technology with no real purpose. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 2.3. It will take you to SAP’s Web site (you may also go directly to http://www.sap.com). SAP is a global enterprise resource planning (ERP) software provider. Have a look at the various industries and solutions that the company offers. Specifically, choose three industries to review. Look for similarities and differences.

Deliverable

Write a small summary for your instructor detailing how this single company provides so many solutions based on its single platform. Be sure to bring IT alignment into your thoughts for your summary.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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What’s in IT for Me? 65

1. It seems like Ruby’s is in a good position to create Strategic IT alignment since the club can build its IT from the ground up to support its strategy. Do you think it is better to build from scratch, or is it better to have an existing system that you are just updating?

2. How do you think IT alignment could play a role in creating the desired atmosphere for Ruby’s Club?

Q U E S T I O N SRUBY’S CLUB

What’s in for ME? FOR ALL MAJORS All of the functional areas of any organization are literally composed of a variety of business processes. Regardless of your major, you will be involved in a variety

of business processes from your fi rst day on the job. Some of these processes you will per- form by yourself, some will involve only your group or department, and others will involve several (or all) of the organization’s functional areas. It is important for you to be able to visualize processes, understand the inputs and out- puts of each process, and identify the “customer” of each process. Th ese capabilities will enable you to make the organization’s business processes more effi cient and eff ective. Th is task generally involves incorporating IT in the process. It is also important for you to appre- ciate how each process fi ts into your organization’s strategy. All functional areas in any organization must work together in an integrated fashion in order for the fi rm to respond adequately to business pressures. Th ese responses typi- cally require each functional area to utilize a variety of information systems. In today’s competitive global marketplace, the timeliness and accuracy of these responses is even more critical. Closely following this discussion, all functional areas must work together for the orga- nization to gain competitive advantage in its marketplace. Again, the functional areas use a variety of strategic information systems to achieve this goal. You have seen why companies must be concerned with strategic advantage. However, this chapter is particularly important for you for several reasons. First, the business pres- sures you have learned about aff ect your organization, but they also aff ect you as an indi- vidual. Th us, it is critical that you understand how information systems can help you, and eventually your organizations, respond to these pressures. In addition, achieving competitive advantage is essential for your organization’s sur- vival. In many cases, you, your team, and all your colleagues will be responsible for creating a competitive advantage. Th erefore, having general knowledge about strategy and about how information systems impact the organization’s strategy and competitive position will help you in your career. You also need a basic knowledge of your organization’s strategy, mission, and goals, as well as its business problems and how it makes (or loses) money. You now know how to analyze your organization’s strategy and value chain, as well as the strategies and value chains of your competitors. You also have acquired a general knowledge of how IT contributes to organizational strategy. This knowledge will help you to do your job better, to be promoted more quickly, and to contribute significantly to the success of your organization.

ffT

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66 2 l Organizational Strategy, Competitive Advantage, and Information Systems

SUMMARY 1. Identify eff ective IT responses to diff erent kinds of busi-

ness pressures. > Market pressures: An example of a market pressure is

powerful customers. Customer relationship manage- ment systems are an eff ective IT response that helps companies achieve customer intimacy.

> Technology pressures: An example of a technology pres- sure is information overload. Search engines and busi- ness intelligence applications enable managers to access, navigate, and utilize vast amounts of information.

> Societal/political/legal pressures: An example of a societal/political/legal pressure is social responsibility, such as the state of the physical environment. Green IT is one response that is intended to improve the environment.

2. Describe the strategies that organizations typically adopt to counter Porter’s fi ve competitive forces. Porter’s fi ve competitive forces are

Th e threat of entry of new competitors Th e bargaining power of suppliers Th e bargaining power of customers (buyers) Th e threat of substitute products or services Th e rivalry among existing fi rms in the industry

Th ere are fi ve strategies that organizations typically use to combat Porter’s fi ve competitive forces and achieve a com- petitive advantage.

> Cost leadership strategy: Produce products and/or ser- vices at the lowest cost in the industry.

> Diff erentiation strategy: Off er diff erent products, ser- vices, or product features.

> Innovation strategy: Introduce new products and services, put new features in existing products and services, or develop new ways to produce them.

> Operational eff ectiveness strategy: Improve the manner in which internal business processes are executed so that a fi rm performs similar activities better than its rivals.

> Customer-orientation strategy: Concentrate on making customers happy.

Keep in mind that organizations may use more than one strategy to combat each competitive force. For example, to raise barriers to entry for a competitor, an organization might adopt all fi ve of these strategies to make it more dif- fi cult for a potential competitor to enter a market.

3. Describe the characteristics of eff ective business-IT alignment. Alignment is the tight integration of the IT function with the strategy, mission, and goals of the organization. Th ere are six characteristics of eff ective alignment:

> Organizations view IT as an engine of innovation that continually transforms the business.

> Organizations view customers and customer service as supremely important.

> Organizations rotate business and IT professionals across departments and job functions.

> Organizations provide clear, overarching goals for all employees.

> Organizations ensure that IT employees understand how the company makes (or loses) money.

> Organizations create a vibrant and inclusive company culture.

business environment Th e combination of social, legal, eco- nomic, physical, and political factors in which businesses conduct their operations.

business–IT alignment Th e tight integration of the IT function with the strategy, mission, and goals of the organization.

business processes Related activities that produce a product or a service of value to the organization, its business partners, and/or its customers.

competitive advantage An advantage over competitors in some measure such as cost, quality, or speed; leads to control of a market and to larger-than-average profi ts.

competitive forces model A business framework devised by Michael Porter that analyzes competitiveness by recognizing fi ve major forces that could endanger a company’s position.

digital divide Th e gap between those who have access to informa- tion and communications technology and those who do not.

e-business Buying and selling of goods and services as well as servicing customers, collaborating with business partners, and per- forming electronic transactions within an organization.

electronic commerce (EC or e-commerce) Th e process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

>>> C H A P T E R G L O S S A R Y

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Problem-Solving Activities 67

entry barrier Product or service feature that customers expect from organizations in a certain industry; an organization trying to enter this market must provide this product or service at a minimum to be able to compete.

globalization Th e integration and interdependence of economic, social, cultural, and ecological facets of life, enabled by rapid advances in information technology.

individual social responsibility See organizational social responsibility.

make-to-order Th e strategy of producing customized products and services.

mass customization A production process in which items are produced in large quantities but are customized to fi t the desires of each customer.

organizational social responsibility (also called individual social responsibility) Eff orts by organizations to solve various social problems.

primary activities Business activities related to the production and distribution of the fi rm’s products and services, thus creating value.

strategic information systems (SISs) Systems that help an or- ganization gain a competitive advantage by supporting its strategic goals and/or increasing performance and productivity.

support activities Business activities that do not add value di- rectly to a fi rm’s product or service under consideration but support the primary activities that do add value.

value chain model Model that shows the primary activities that sequentially add value to the profi t margin; also shows the support activities.

value system Includes the producers, suppliers, distributors, and buyers, all with their value chains.

1. Explain why IT is both a business pressure and an enabler of response activities that counter business pressures.

2. What does a fl at world mean to you in your choice of a major? In your choice of a career? Will you have to be a lifelong learner? Why or why not?

3. What might the impact of a fl at world be on your standard of living?

4. Is IT a strategic weapon or a survival tool? Discuss.

5. Why might it be diffi cult to justify a strategic information system?

6. Describe the fi ve forces in Porter’s competitive forces model and explain how the Internet has aff ected each one.

7. Describe Porter’s value chain model. What is the relation- ship between the competitive forces model and the value chain model?

8. Discuss the idea that an information system by itself can rarely provide a sustainable competitive advantage.

>>> D I S C U S S I O N Q U E S T I O N S

1. Surf the Internet for information about the Department of Homeland Security. Examine the available informa- tion, and comment on the role of information technolo- gies in the department.

2. Experience customization by designing your own shoes at www.nike.com, your car at www.jaguar.com, your CD at www.easternrecording.com, your business card at www. iprint.com, and your diamond ring at www.bluenile.com. Summarize your experiences.

3. Access www.go4customer.com. What does this company do and where is it located? Who are its customers? Which of Friedman’s fl atteners does this company fi t? Provide examples of how a U.S. company would use its services.

4. Enter Walmart China (www.wal-martchina.com/english/ index.htm). How does Walmart China diff er from your

local Walmart (consider products, prices, services, etc.)? Describe these diff erences.

5. Apply Porter’s value chain model to Costco (www.costco. com). What is Costco’s competitive strategy? Who are Costco’s major competitors? Describe Costco’s business model. Describe the tasks that Costco must accomplish for each primary value chain activity. How would Costco’s information systems contribute to Costco’s competitive strategy, given the nature of its business?

6. Apply Porter’s value chain model to Dell (www.dell.com). What is Dell’s competitive strategy? Who are Dell’s major competitors? Describe Dell’s business model. Describe the tasks that Dell must accomplish for each primary value chain activity. How would Dell’s information systems contribute to Costco’s competitive strategy, given the nature of its business?

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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68 2 l Organizational Strategy, Competitive Advantage, and Information Systems

7. Th e market for optical copiers is shrinking rapidly. It is expected that by 2010 as much as 90 percent of all duplicated documents will be done on computer printers. Can a company such as Xerox Corporation survive?

a. Read about the problems and solutions of Xerox from 2000 to 2010 at www.fortune.com, www.fi ndarticles. com, and www.google.com.

b. Identify all the business pressures on Xerox. c. Find some of Xerox’s response strategies (see www.

xerox.com, www.yahoo.com, and www.google.com). d. Identify the role of IT as a contributor to the business

technology pressures (e.g., obsolescence). e. Identify the role of IT as a facilitator of Xerox’s critical

response activities.

Background

Imagine that you work for a company based in Atlanta, Georgia. Recent signifi cant growth on the West Coast has made it necessary to open an offi ce there. Because of the time lost in traveling across the country, it has been decided that Web meetings would suffi ce for 95% of the meetings that would take place. You and a few colleagues from other departments are given the job of determining which platform would be the best to support your company’s upcoming web meetings. Th ere are many companies (Adobe Connect, Webex, Fuze Meeting, etc.) that off er Web-casting type technologies, but each vary in some ways. Obviously, they off er diff erent price packages, but is the one with the lowest cost the best option?

Activity

Work with a team of classmates who are majoring in other areas to determine which online tool will serve the purposes your company has requested. Based on your experiences, what tools will be needed for meetings that each area may

have? Are the meeting requirements from Accounting diff erent from HR? What about Finance and Operations? To accomplish your task, create a new Google document (this will require a Gmail account) and share it with your team members. Be sure that everyone is online at the same time and working together to determine which webcasting solution is the best to meet the needs of your company. Be creative in your document with the use of tables or colors or something to help your reader see how the solution you have chosen fi ts the criteria requested by your company.

Deliverable

You will now need to submit your work. At the bottom of your report that shows which webcasting solution you have chosen, write a short paragraph explaining how you think this particular online meeting program will support your company. Export the Google Document you created to a pdf and submit this however your professor has required. Be sure to include all the names of group members and the role that each played (which department they represented).

>>> C O L L A B O R AT I O N E X E R C I S E

CLOSING CASE 1 > A Tool to Combat Terrorism and Fight Crime

In the months leading up to the terrorist attacks of September 11, 2001 the U.S. govern- ment had all the necessary clues to stop al Qaeda perpetrators. Th e perpetrators were from countries known to harbor terrorists, they entered the United States on temporary visas, they had trained to fl y civilian airliners, and they purchased one-way airplane tickets on September 11.

Unfortunately for the workers in the World Trade Center, those clues were located in diff erent databases across many government agencies. An organization like the CIA or FBI has thousands of diff erent databases, each with its own data: fi nancial records, DNA samples, voice and other sound samples, video clips, maps, fl oor plans, human intelli- gence reports from all over the world, and many other types of data. Integrating all that data into a coherent whole is extremely diffi cult. At that time, there was no tool available that enabled government analysts to integrate diff erent types of data located in so many diff erent places.

THE PROBLEM >>>

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Closing Case 1: A Tool to Combat Terrorism and Fight Crime 69

Th e origins of Palantir go back to PayPal. Because PayPal was so successful, it attracted criminals who used it to enable money laundering and fraud. By 2000, it was in fi nancial trouble because the antifraud soft ware tools of the time could not keep up with the crimi- nal activity. Each time PayPal analysts caught onto one ploy, the perpetrators changed tactics.

To deal with these issues, PayPal’s analysts built soft ware that could view each transac- tion as a part of a pattern, rather than as just an entry in a database. Th is process enabled analysts to spot networks of suspicious accounts and discover patterns missed by the com- puters. PayPal was then able to freeze suspicious payments before they were processed. Th e soft ware saved the company hundreds of millions of dollars.

Aft er Ebay acquired PayPal in 2002, PayPal engineers decided to turn PayPal’s fraud detection tool into a data analysis system that integrated pattern recognition, artifi cial intel- ligence soft ware, and human skills. Palantir (www.palantir.com) was named for the “Seeing Stones” in the Lord of the Rings and was initially developed as a soft ware tool employed by the U.S. intelligence community in the war on terrorism. Palantir technology essentially solves intelligence problems that allowed September 11 to take place. Th at is, Palantir helps law enforcement agencies spot patterns in the huge amounts of data they must analyze every day. Palantir soft ware combs through all available databases, identifi es related pieces of information, and integrates everything together in one place.

Palantir has a customer list that includes the U.S. Department of Defense, the CIA, the FBI, the Army, the Marines, the Air Force, the police departments of New York and Los Angeles, and an increasing number of fi nancial institutions with an interest in detecting bank fraud. Most of Palantir’s government work remains classifi ed, but information on some cases has leaked out. In April 2010, security researchers in Canada used Palantir soft ware to crack a spy operation called the Shadow Network that had, among other things, broken into the Indian Defense Ministry and infi ltrated the Dalai Lama’s e-mail account. Palantir has also been used to unravel child abuse and abduction cases, to fi nd suspects for the murder of a U.S. Immigration and Customs Enforcement special agent, and to uncover bombing net- works in Syria, Afghanistan, and Pakistan.

In Afghanistan, the U.S. Special Operations Forces use Palantir to plan assaults. Th ey type a village’s name into the system and a map of the village appears, detailing the locations of all reported shooting skirmishes and improvised explosive device (IED) incidents. Using the timeline function, the soldiers can see where the most recent attacks occurred and plot their mission in the village accordingly.

Another good example of Palantir’s usefulness comes from the U.S. Marines. Th ey used to spend years gathering fi ngerprint and DNA evidence from IEDs and trying to match that data against a database of similar information collected from villagers. Usually, by the time they obtained any results, the bombers had disappeared. In contrast, fi eld operatives can now upload fi ngerprint/DNA evidence from villagers into Palantir and instantly fi nd matches from past attacks.

Wall Street banks are also making good use of Palantir. Th ey are using Palantir technol- ogy to search their transaction databases for criminal fraud, trading insights, and even new ways to price mortgages. One of the world’s largest banks uses Palantir soft ware to break up a popular scam called BustOut. BustOut involves criminals who steal or purchase access to thousands of people’s online identities, and then break into their bank and credit card accounts. Aft er breaking in, the criminals spend weeks biding their time. Once someone on their radar purchases a plane ticket or leaves on holiday, they siphon money out of the accounts as fast as they can while the victim is in transit. Th e criminals hide their trails by anonymizing their computing activity and disabling alert systems in the bank and credit card accounts. When the bank identifi es a small number of compromised accounts, it uses Palantir to uncover the network of thousands of other accounts that have not yet been tapped.

Using Palantir technology, the FBI can now instantly compile thorough dossiers on U.S. citizens. For example, they can integrate surveillance videos with credit card transac- tions, cell phone records, e-mails, air itineraries, and Web search information. Privacy advocates worry that Palantir will make the FBI and other government agencies even more

<<< THE IT SOLUTION

<<< THE RESULTS

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70 2 l Organizational Strategy, Competitive Advantage, and Information Systems

intrusive consumers of personal data. Another event that caused concern for privacy advo- cates occurred when a Palantir engineer, exposed by the hacker collective Anonymous for participating in a plot to break into the personal computers of WikiLeaks supporters, was quietly rehired by Palantir aft er being placed on leave.

Palantir likes to emphasize that the company has developed very sophisticated privacy protection technology. Its soft ware creates audit trails that detail who is privy to certain pieces of information and what they have done with the information. Palantir also has a permission system that ensures that agency workers using their soft ware can access only the data allowed by their clearance level. Sources: Compiled from A. Vance and B. Stone, “Palantir, the War on Terror’s Secret Weapon,” Bloomberg Busi- nessWeek, November 22, 2011; “Husky Names Palantir as Soft ware and Consulting Partner,” Oil & Gas Financial Journal, November 4, 2011; P. Gobry, “Secretive Spy Tech Company Palantir Technologies Raises Another $50 Million,” Business Insider, May 11, 2011; D. Primack, “Analyze Th is: Palantir Worth More than $2 Billion,” CNN Money, May 6, 2011; A. Greenberg, “Palantir Apologizes for WikiLeaks Attack Proposal, Cuts Ties with HB- Gary,” Forbes, February 11, 2011; D. Storm, “Bank of America Using Th ree Intelligence Firms to Attack WikiLeaks,” Computerworld, February 9, 2011; S. Gorman, “How Team of Geeks Cracked the Spy Trade,” Wall Street Journal, September 4, 2009; www.palantir.com, accessed February 16, 2012.

Questions 1. Palantir states that it has privacy protection technology. Is this technology

suffi cient to protect against the misuse of Palantir technology? Why or why not? Provide specifi c examples to support your answer.

2. Describe possible applications of Palantir in the health care industry.

CLOSING CASE 2 > The Information Technology Behind the World’s Largest Airline

In 2011, United Airlines and Continental Airlines merged to form the world’s largest air- line. When buying Continental, United promised investors $1.2 billion in new revenue and cost savings.

Unfortunately, merging airlines is extremely diffi cult, largely because of the enormous number of processes that can be diff erent between two airlines. Th ree major challenges that arose aft er the United/Continental merger were (1) integrating both airlines’ fl ight informa- tion systems, (2) integrating both airlines’ passenger information systems, and (3) reconcil- ing both airlines’ speedup-slowdown algorithms (an algorithm is a mathematical formula).

Flight Information Systems. Integrating United and Continental’s fl ight informa- tion systems was a major strategic challenge. One worry was that data would become cor- rupted during the integration of two systems, resulting in the loss of vital fl ight information such as destinations, arrival times, fl ight numbers, or plane locations.

In August 2010, the integration team decided that United’s existing fl ight information system, Unimatic, would be better able to handle the size of the merged airline’s fl eet than Continental’s system. With that decision, a second team, composed of computer techni- cians and operations center managers, created an exhaustive list of tests and contingency plans to ensure that the data could be combined without causing a catastrophe. Th e airline’s emergency operations center was fully staff ed for the data cutover.

For the fi nal test in late October 2011, the team had an empty Continental 737 fl y from Houston to El Paso and back, just to test that the operations center could success- fully track the fl ight. Th e team asked the pilots to pretend to have a mechanical problem and return to the gate. Th at event successfully appeared on the system. Th en the team asked the pilots to change the fl ight number and reroute the plane to Austin to see if that

THE BUSINESS >>> PROBLEM

THE IT >>> SOLUTIONS

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Closing Case 2: The Information Technology Behind the World’s Largest Airline 71

event appeared in the system. It did. Encouraged by the dress rehearsal, the team set a date for the data integration.

On November 2, 2010, just aft er midnight when there would be relatively few fl ights in the air, technicians took Unimatic offl ine. Th ey began inserting Continental’s data into Uni- matic. For the next hour, as the technicians updated and tested the soft ware, the operations center tracked the airline’s fl ights manually. Th at manual process would become impossible when air traffi c rose to daytime levels, and the airline had plans for a mass cancellation the next morning if the system did not operate as planned.

At 1:23 AM, Unimatic went back online. Th ere were a few small glitches—planes that had crossed the international dateline during the outage had an extra 24 hours added to their arrival time—but otherwise everything had worked. The Passenger Information Systems. At the time of the merger, the passenger information system was divided between both airlines’ databases. Th e integration team had to integrate not only the two databases, but also both airlines’ Web sites and loyalty programs. Th e team decided to adopt Continental’s passenger services system, called Shares.

Shares had several advantages over United’s old passenger information system, Apollo. Shares was more fl exible and easier to customize (for instance, it was capable of asking trav- elers whether they would like to purchase an upgrade or extra legroom). On the fl ipside, Shares was less intuitive to use than Apollo, and United veterans struggled to learn it. All the dry runs proceeded smoothly, and just aft er New Year’s Day in 2011, United agents handled all of the Continental fl ights at Los Angeles International Airport without a problem. Speedup-Slowdown Algorithms. One critical issue for airlines is communicating to pilots when they should speed up, slow down, and take a diff erent route. Both airlines used a diff erent algorithm to determine when a plane should go faster to make up for a late departureand when (to the eternal disappointment of its passengers) it should not go faster. Flying faster burns more fuel, and fuel is expensive. But, being late is also expensive. Cus- tomers who miss connections have to be rebooked and sometimes put up in hotels, fl ight crews have to be paid for the extra time, and ground crews sit idle when planes are late.

Th e speedup-slowdown algorithm analyzes all these factors (and more) and decides when the cost of being late outweighs the cost of speed. United and Continental’s algo- rithms were diff erent and did not always agree. Th e integration team spent many hours developing a new algorithm that combined the best features of each airline’s original algorithm.

Solving these three integration problems (and there were many other problems) was vital in order for the merger to clear its biggest regulatory hurdle: getting a single operating certifi - cate from the Federal Aviation Administration. By the time the certifi cate was awarded on November 30, 2011, more than 500 employees had spent 2 years working on the integra- tion. Along the way, they reduced the 440 instructions manuals that governed everything taking place before, during, and aft er a fl ight down to 260. Sources: Compiled from D. Bennett, “Marriage at 30,000 Feet,” Forbes, February 6–12, 2012; G. Karp, “United Continental Merger Still to be Sealed,” Star Tribune, December 28, 2011; H. Martin, “Working Out 2,000 Details of a Merger,” Los Angeles Times, December 3, 2011; B. Mutzabaugh, “Merger Milestone: United, Continental Now Single Airline to FAA,” USA Today, November 30, 2011; “United, Continental Merge Frequent Flyer Programs,” Washington Post, October 16, 2011; S. Carey and J. Nicas, “United Feeling Merger Pains,” Wall Street Journal, September 27, 2011; I. Schneider, “Merged United-Continental Has Windows 7 to Consider,” InformationWeek, May 4, 2010; www.united.com, accessed February 13, 2012.

Questions 1. Provide two specifi c examples of why it was so important for United and

Continental to integrate their information systems to ensure the success of the merger.

2. Provide two specifi c examples of diffi culties the companies experienced in integrating their information systems.

<<< THE RESULTS

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72 2 l Organizational Strategy, Competitive Advantage, and Information Systems

Ruben and Lisa seriously need to understand their market. To help them, search the Web in your local area for bars, clubs, theaters, restaurants, and athletic events, and then do an analysis of the types of entertainment Ruby’s Club will compete against. Rate each as to whether their strategy is cost leadership, differentiation, innovation, operational effectiveness, or customer orientation. Make notes about how they communicate with their customers. Do they use Facebook? Twitter? Email? Traditional mail? Flyers on campus? How do they advertise themselves to their customers?

Finally, provide Ruben and Lisa (submit to your instructor) a competitive grid similar to the table below that is based on the information presented in this chapter. Use the competition in your local area as the basis for your discussion and provide suggestions on how to accomplish their vision (relaxing community atmosphere) by some combination of the strategies outlined in this chapter. Be sure to discuss IT alignment in your submission.

I N T E R N S H I P A S S I G N M E N T

Competition Operational Customer Name Cost Leader Innovation Differentiation Effectiveness Orientation

Local Business 1 Th is club is diff erent because it focuses on beer and country music. Local Business 2 Th is club is just cheap. Cheap cover, cheap drinks, etc.

Objective: Strategic information systems are designed to help create some type of competitive advantage. This activity teaches you that something as simple as sorting and fi ltering within a spreadsheet can be a form of a strategic information system in that it will help make strategic decisions.

Chapter Connection: Porter’s fi ve forces are demonstrated in this activity. The two most focused on are the bargaining power of customers and industry rivalry. These will be evaluated in the activity by working with multiple pages within one workbook. Each page will provide a different comparison that will provide new/different information.

Activity: There are many factors that play a role in determining the fi nal cost of a product. There are even more decisions that play into which options

are chosen for a given product. Often, strategic information systems are used to help create competitive advantage. The recreational vehicle (RV) industry is no exception. Companies try to fi t as many options into a camper as they can without dramatically increasing the weight, sacrifi cing the durability of the unit, or driving manufacturing costs so high that the price is uncompetitive. Industry innovations quickly become standard, customer desires change as gas prices go up and down, and businesses are left to sort everything out. Visit http://www.wiley.com/go/rainer/spreadsheet and fi nd the links provided for Chapter 2. The fi rst link will be a video about sorting and fi ltering within spreadsheets. It will explain the process and how something this simple can be used to help make strategic decisions. Then click on the second link to download the fi le

SPREADSHEET ACTIVITY

RUBY’S CLUB

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Database Activity 73

for this activity “MIS–Chapter 2.xlsx.” It includes a customer survey regarding RV options and customer preferences as well as a list of competitive offerings and prices. Then sort and fi lter the information based on criteria given to you by your professor. By sorting and fi ltering, you are creating information from your data (the raw facts). You will then use this information to make strategic business decisions to help your RV company create a competitive advantage within the marketplace.

Deliverable: The fi nal product will be a spreadsheet fi ltered to show rank of the organization among different criteria relative to their competition. Once you have fi ltered and ranked the data, you will make suggestions as to the best course of action that will provide the strongest possible competitive advantage for the company. This recommendation will come in the form of a business letter.

Discussion Questions:

1. Too often, information systems are viewed as complicated computer programs that are diffi cult to understand. However, spreadsheets can provide much of the needed functionality. At what point is it cost-effective to purchase a more legitimate program than to use simple tools found within a spreadsheet?

2. Given the fact that information systems are there to support decisions, why do you think many opt for more expensive systems than the relatively easy- to-use spreadsheet?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

DATABASE ACT IV ITY: CREATING TABLES Objective In this activity, you will learn how to create Access tables from an existing design. The construction of any database begins with creating its data tables. If you cannot create tables, you cannot create a database. Even if you use a database that someone else has created, knowing where the tables come from will help you understand what you can do with it and why it sometimes behaves in ways that you might otherwise not expect. The database has to be designed fi rst, of course. You will do that in the Chapter 3 activity if your instructor assigns it. Here we have done the design for you, so you can “get your hands dirty” early in the course.

CHAPTER CONNECTION Competitive advantage and strategic information systems depend on high-quality data. The tables in a database determine what can be done with it. Understanding how its tables determine what a database can do will help you fi gure out what strategic systems your company can develop or how its databases must change to support the systems it needs.

PREREQUISITES None.

Activity

1. In this activity, which you will fi nd online at http:// www.wiley.com/go/rainer/database, you will create a database of university departments and courses from scratch. You will create database tables, tell Access how they are related to each other, and enter data into them. You will use similar tables in future Access activities. The following database diagram (a type of diagram called an entity-relationship diagram, as you will learn in Chapter 3) describes part of the data for a university. Specifi cally, this part of the database will store data about four entities: departments, courses, students, and grades.

Dept. Course Grade Student

The lines in the diagram tell us that: • Each department can have several courses,

but might not have any. • Each course belongs to exactly one

department. • Each course can have several students,

but might not have any. (This would be a temporary situation when registration starts.)

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74 2 l Organizational Strategy, Competitive Advantage, and Information Systems

• Each student in the course receives one grade.

• Each student can take several courses, but might not be registered for any (yet).

• Each course gives that student one grade. This information is contained in four tables. You will create the two on the left of the ERD, the Department and Course tables. The fi rst, the department table, will contain the same data that we see here on a spreadsheet:

an alphabetical list. Here, it is a matter of personal preference unless your instructor specifi es otherwise. This project will put the letters that identify the object type at the end of its name. 5. Access has already created the fi rst fi eld of your

table, a unique identifi er called “ID.” It was not on the spreadsheet, but a true database needs it. The AutoNumber data type will assign a different number to every department, ensuring you will be able to tell them apart even if two have the same name. (This is why schools give students unique ID numbers.) In a database, such a unique identifi er is called a primary key. Access indicates primary keys by key icons to the left of their names in Design view. Change the name of this fi eld from ID to DeptID, to avoid later confusion with primary keys of other tables.

6. Enter the name of the next column, DeptName, below DeptID. If you tab to the next fi eld, you will see that Access automatically sets its data type to Text. Because department names are text strings, leave that alone. You can describe it in the third column if you want. (Your instructor may have requirements for this.)

Usage Hint: Both these names begin with “Dept.” This helps us tell department names from student or instructor names outside the context of their tables. 7. The next row, which will become the next

column of the table in Datasheet view, gives the three-letter prefi x that applies to that department’s courses. Call it DeptPrefi x. It is of data type Text too. In the Description column, enter “Three upper-case letters.” This will help people who use the database know what to enter there.

8. The fourth column of the database table will say how many square feet of offi ce space the department uses. So, in the fourth row, enter the name DeptSpace. This time, click the down arrow at the right of its Data Type fi eld to drop down a menu of data types. Select Number.

Usage Hint: You can also key in the word “Number.” As soon as you enter “n” Access will complete the word because no other data types start with that letter. 9. The fi fth data column will say when the

department was created. (This is needed because university tradition calls for departments to march into graduation ceremonies in order of creation, oldest fi rst.) Call this fi eld DeptCreated. Change its data type to Date/Time. In the Field Properties pane in the lower part of the window, click the blank area

2. To create the department table, start by launching Access. Click “Blank database” at the upper left of the “Available Templates” section of its opening window. At the lower right, name this database Activity2.accdb (or as your instructor specifi es). Then click Create.

3. You will see the Datasheet view of the new table, with no data. You could start by entering column names and data in this view. If you do this, Access will make assumptions about your data. Its assumptions are usually correct, but they are wrong often enough to cause problems that are easier to avoid now than fi x later. There are also things you cannot do in this view. So, switch to Design view by clicking the “drafting tools” icon at the top left corner.

Usage Hint: Most Access objects can be manipulated in three, four, or more views. The icon shows the view that Access designers thought you are most likely to want next. If you want a different view, you can click the triangle under the drafting tools icon to drop down a menu of icons or click on one of the icons at the bottom right corner of the window, which shows all available views. 4. Before changing views, Access requires you to

name your new table. Name it DeptTbl and click “OK.” The ending “Tbl” identifi es it as a table, distinguishing it from other things called “Dept” (such as, for example, a department list) that you might create later.

Usage Hint: Some people put the letters that identify the object type at the start of its name: TblDept, for example. That groups objects of each type in

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Database Activity 75

to the right of the word “Format.” In the menu of date/time formats that drops down, select Medium Date. At this point your table defi nition should look like this:

10. Now, click on the Datasheet icon at the top left of the window to return to Datasheet view and enter data. Access will prompt you to save the table. Answer “Yes.” (Answering “No” would leave the table in Design view.)

Usage Hint: If you are defi ning a large data table, do not wait until it is all done to save your work. Click the File ribbon tab and choose Save, or click the diskette icon at the top left of the window, every few minutes. 11. In Datasheet view, click in the fi rst row under

DeptName to begin entering data for the fi rst department. Enter the name “English,” the prefi x “ENG,” an area of 2500 square feet, and a creation date of September 2, 1894. Access automatically gave the fi rst department a DeptID of 1. Your table should now look like this:

puts two decimal places after the integer part of the number. We do not want decimal places here, so click the Decrease Decimals icon (shows two zeroes with an arrow pointing to one zero) twice to get rid of them. Usage Hint: A third option is to return to Design view, select DeptSpace, click in the Format row of the

Field Properties panel, click the down arrow at the far right of that row to pull down the menu of formats, and select Standard format. Then return to Datasheet view. That is overkill for comma formatting, but you need to

do it if the option you want is not in the ribbon. 13. Continue to add the remainder of the data shown

in the above spreadsheet. If your instructor gives you different or additional requirements, follow them.

14. Now create the Course table, as shown in the following spreadsheet. Start by clicking the Create tab above the ribbon. In that ribbon click the leftmost icon, Table. Then continue as before, naming this table CourseTbl. Include a primary key, even though it is not shown in the spreadsheet. Be sure to give the CourseDept fi eld data type Number, to match the AutoNumber data type of the primary key in DeptTbl. Select data types for the other

fi elds based on your understanding of their content. (A real database, rather than showing the instructor’s name here, would have a link to a faculty table.)

15. The key characteristic of a database, which differentiates it from a fi le with information about one real-world entity, is that the tables in it are associated with each other. Look at the Course table. It does not show directly that the fi rst course is taught by the English department. It doescontain, however, the department key “1.” That key identifi es a row in the Department table.

12. When you see this, you realize that the area should be formatted with a comma after the thousands digit. Select the DeptSpace column, or any data in it. Make the Fields ribbon tab active and select Standard format from the Format pull- down menu in the Formatting section.

Usage Hint: Another way to do this is to click the Apply Comma Number Format icon (looks like a comma) in the Formatting section. That format also

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76 2 l Organizational Strategy, Competitive Advantage, and Information Systems

That row gives us the prefi x ENG to create the complete identifi er “ENG 307,” the full name of the department (“English”) if we need it, and anything else we want to know about the department. Creating a column with department codes in the Courses table makes it possible for Access to connect the two tables. But what if we enter, say, 55, into a CourseDept fi eld when we mean 5? Access will gladly accept the data, but later it will not be able to fi nd a department to match it. That is because it does not know, yet, that these two fi elds are meant to match. Now we have to tell it to make that connection. To do that, fi rst close the tables, saving them if prompted. Then, click the Database Tools tab on the ribbon. On that ribbon click “Relationships,” left of center. In the Show Tables dialogue box, shift-click the unselected table to select both of them, click Add, and close the box.

16. To tell Access about the connection, drag CourseDept in the Course table onto DeptID in the Department table. You will see a dialogue box with a check-box to “Enforce Referential Integrity.” This means that Access will check that every CourseDept in the Course table matches an existing DeptID in the Department table: it will not let you assign a course to Department 55 unless Department 55 exists. Check this box and click Create. If you carried out the previous steps correctly, you will see a line between these two data fi elds. It will have a “1” by DeptTbl and a ` (infi nity) symbol by CourseTbl. This means the two are in a many-to-one relationship: a department can have many courses, but each course is in only one department. It should look like this: If this did not happen, the most common reasons are:

• You got a line between the two, but there are no symbols at its ends. You did not check “Enforce Referential Integrity.” Double-click the line to edit it (or right-click

and select Edit Relationship), check the box, and OK the change.

• “The database engine could not lock table ‘[name]’ because it is already in use by another person or process.” A table is still open. Cancel the request, bring the open table to the front by clicking its tab, close it (saving if asked), and repeat.

• “Microsoft Offi ce Access can’t create this relationship and enforce referential integrity.” At least one CourseDept does not match a DeptID. Check that CourseDept is of data type Number and all values in that column are correct. If you used data from this activity, check your tables against the data here. If you used other data, such as your instructor’s, check the tables against that data. If you used your own, confi rm that all CourseDept values match DeptID values. Then repeat the process.

Deliverable Your database fi le with the above two tables, their data, and the relationship. Usage Hint: Access 2010 can give database fi les the fi le name extension .mdb (works with any recent Access release) or .accdb (works with Access 2007 and later). While it is open, Access 2010 creates a temporary fi le having the same name but extension .laccdb. This lock fi le prevents other programs from changing a database while it is in use. It goes away when you close the database. If you submit a database while it is open, it is easy to submit the lock fi le by mistake. The easiest way to avoid that error is to close the database fi rst. If you send it while it is open, be sure you send the right fi le. A lock fi le will be of no use to your instructor.

Quiz Questions 1. True or false: If a fi eld has data type AutoNumber,

it will never have the same value in two rows of the table.

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Database Activity 77

2. Which of the following is not a valid Access data type?

(a) Text (b) Date/Time (c) Color (d) Number 3. True or false: You must use the Description fi eld in

a table’s Design view to describe what each fi eld of the table is for.

4. True or false: To enter data into a table, you use Datasheet view.

Discussion Questions

1. A primary key, such as DeptID in this activity, identifi es a single row of a database table uniquely.

It must meet two conditions: every row of the table has to have one, and they must all be different. Would the three-letter prefi x that a department uses for its courses be a suitable primary key? Why or why not?

2. Use Access online help and/or the search engine of your choice to learn the difference between Text and Memo data types. Explain, to a nontechnical reader, when to use each.

3. Suppose the English department changes its name to English Literature and its course prefi x to ENL. The Department table is updated to refl ect these changes. What changes must be made to the Course table in order to update all the course listings?

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3

CHAPTER OUTLINE

3.1 Managing Data 3.2 The Database Approach 3.3 Database Management

Systems 3.4 Data Warehouses and Data

Marts 3.5 Knowledge Management

Data and Knowledge Management

LEARNING OBJECTIVES >>>

1. Discuss ways that common challenges in managing data can be addressed using data governance.

2. Explain how to interpret relationships depicted in an entity-relationship diagram.

3. Discuss the advantages and disadvantages of relational databases. 4. Explain the elements necessary to successfully implement and maintain data

warehouses. 5. Describe the benefi ts and challenges of implementing knowledge management

systems in organizations.

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Databases come in all shapes and sizes. As you will see in this chapter, a database consists of attributes, entities, tables, and relationships. Th e purpose of a database can diff er greatly depending on the nature of the business.

Take, for example, Dennis Rollins, owner of a small car lot in Bowdon, Georgia. Dennis needed an eff ective way to manage the data surrounding his car lot. A solid online presence can be diffi cult to achieve for small used car dealers because there are so many makes and models of cars to sell and so many online outlets through which to advertise. In order to manage his data himself, Dennis would need at least one database to help manage inventory and at least one other database to allow his customers to view product information. In addition, Dennis would need to hire a full-time employee to manage Internet sales. Adding two databases and a full-time employee was far beyond Dennis’ capacity, so he needed an easier solution.

Th at easier solution came in the form of Dealer Car Search (http://dealercarsearch.com). Dealer Car Search specializes in

creating car dealer Web sites. Th e company off ers products for small businesses, dealers, and dealer chains. However, the database maintained by Dealer Car Search is what truly makes the company so successful. It is the key to its customers’ experi- ences because it provides the data entry capabilities, analysis capabilities, reporting, and search features needed by all parties.

Now, when Dennis has a new vehicle to sell, he can enter his data just once onto his customer page on Dealer Car Search. With the data entered once (no data redundancy), it automati- cally appears on his Web site (http://rollinsautomotive.com) and other car sites (such as http://autotrader.com). Dealer Car Search also supplies Dennis with an inventory management system that provides a view of his inventory with reports to help him determine his pricing. If Dennis changes a price or updates any other information, the change automatically appears on all other sites. > > >

OPENING CASE > Rollins Automotive

© Tom England/iStockphoto

Data collection has always been important to Ruben and Lisa. However, their form of data collection was to keep up with paper receipts from cover charges, drinks, food, etc. They mainly did this to create fi nancial statements. However, they also know that their data collection is incomplete because many people pay with cash and no itemized receipt is printed. Therefore, often the best they can do is a general statement of costs and sales. They have no way to measure and track individual sales, customers, products, and the like.

In fact, they have never been able to track sales to customers, weeknight, band (type of music playing), and so on. Even more important, they do not know very much about their customers. Why do they come? What do they like? What do they wish was better? What are the most popular drink items? How do people rate their overall experience? Which drink and food items are most popular and at what time of the night? How can they best reach their customer base? Facebook? Twitter? E-mail?

The only way to answer these questions is to have data that can be analyzed to create information. The only way to capture the data in an organized format is to use a database. And the only way to have a structured database is to start by laying out the outline of that database. This process is called “normalization and entity relationship modeling.”

RUBY’S CLUB

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80 3 l Data and Knowledge Management

Questions 1. Why is Dealer Car Search’s database largely respon-

sible for its success? 2. Why didn’t Dennis Rollins just build his own database

using Access? Support your answer.

Th e result? Th e database (provided by Dealer Car Search) off ers Dennis a one-stop solution. It provides inventory management, Internet advertising, mobile apps, performance reporting, lead management, and much more.

Th erefore, for Dealer Car Search, Rollins Automotive, and Rollin’s customers, this application of a database provides a seamless experience that is benefi cial for all parties involved.

Sources: Compiled from http://dealercarsearch.com, http://rollinsautomotive.com, accessed February 29, 2012.

Introduction

“Big Data” represents a very real problem that every business faces. Th is problem becomes even more pronounced when you consider the vast increases in the amount of data that organizations capture and store. Th e opening case describes the numerous problems caused by Big Data, the solutions that organizations are employing to manage these data, several good results, and a few poor results. Th e important idea to realize here is that Big Data will continue to get “bigger,” and organizations will have to fi nd ever-more creative solutions to manage it.

Between 2006 and 2010, the amount of digital information created, captured, and rep- licated each year added about 18 million times as much information as currently exists in all the books ever written. Images captured by billions of devices around the world, from digital cameras and camera phones to medical scanners and security cameras, comprise the largest component of this digital information.

We are accumulating data and information at a frenzied pace from such diverse sources as company documents, e-mails, Web pages, credit card swipes, phone messages, stock trades, memos, address books, and radiology scans. New sources of data and information include blogs, podcasts, videocasts (think of YouTube), digital video surveillance, and radio frequency identifi cation (RFID) tags and other wireless sensors (discussed in Chapter 10). We are awash in data that we have to make sense of and manage. To deal with the growth and the diverse nature of digital data, organizations must employ sophisticated techniques for information management.

Information technologies and systems support organizations in managing—that is, acquiring, organizing, storing, accessing, analyzing, and interpreting—data. As you noted in Chapter 1, when these data are managed properly, they become information and then knowledge. Information and knowledge are valuable organizational resources that can pro- vide a competitive advantage. Th is chapter will examine the processes whereby data are transformed fi rst into information and then into knowledge.

Few business professionals are comfortable making or justifying business decisions that are not based on solid information. Th is is especially true today, when modern infor- mation systems make access to that information quick and easy. For example, we have technology that formats data in a way that managers and analysts can easily understand. Consequently, these professionals can access these data themselves and analyze them according to their needs, using a variety of tools. Th e result is useful information. Execu- tives can then apply their experience to use this information to address a business problem, thereby producing knowledge. Knowledge management, enabled by information technology, captures and stores knowledge in forms that all organizational employees can access and apply, thereby creating the fl exible, powerful “learning organization.”

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Managing Data 81

Clearly, data and knowledge management are vital to modern organizations. But, why should you learn about them? Th e reason is that you will have an important role in the development of database applications. Th e structure and content of your organization’s database, a group of logically related fi les that stores data and the associations among them, depends on how users (you) look at your business activities. For example, when database developers in the fi rm’s MIS group build a database, they use a tool called entity- relationship (ER) modeling. Th is tool creates a model of how users view a business activity. When you understand how to create and interpret an ER model, then you can evaluate whether the developers have captured your business activity correctly.

Keep in mind that decisions about data last longer, and have a broader impact, than decisions about hardware or soft ware. If decisions concerning hardware are wrong, then the equipment can be replaced relatively easily. If soft ware decisions turn out to be incorrect, they can be modifi ed, though not always painlessly or inexpensively. Database decisions, in contrast, are much harder to undo. Database design constrains what the organization can do with its data for a long time. Remember that business users will be stuck with a bad database design, and not the database programmers, who will quickly move on to their next projects. Th is is why it is so important to get database designs right the fi rst time—and you will be playing a key role in these designs.

Regarding relational databases, when you know how data are stored in tables, then you know what types of data you have available for analysis and decision making. Of course, your familiarity with data warehouses will serve the same purpose. Also, understanding relational databases will help you work with database developers in defi ning a new database or suggesting improvements to an existing one. It is one thing for you to say to a database developer, “I wish I could get this information from the database.” It is quite another thing to say, “If you could add this column of data to Table A and this other column of data to Table B, then I could get this information from the database.” Database developers enjoy responding to specifi c, knowledgeable requests from users!

In addition, you might want to create a small, personal database using a soft ware product such as Microsoft Access. In that case, you will want to know at least the basics of the product.

Aft er the data are stored in your organization’s databases, they must be accessible to users in a form that helps users make decisions. Organizations accomplish this objective by developing data warehouses. You should become familiar with data warehouses because they are invaluable decision-making tools.

You will also make extensive use of your organization’s knowledge base to perform your job. For example, when you are assigned a new project, you will likely research your fi rm’s knowledge base to identify factors that contributed to the success of previous, similar projects.

You begin this chapter by examining the multiple problems involved in managing data and the database approach that organizations use to solve those problems. You will then see how database management systems enable organizations to access and use the data stored in the databases. Next, you study data warehouses and data marts and how you use them for decision making. You fi nish the chapter by taking a look at knowledge management.

3.1 Managing Data IT applications require data. Data should be of high quality, meaning that they should be accurate, complete, timely, consistent, accessible, relevant, and concise. Unfortunately, however, the process of acquiring, keeping, and managing data is becoming increasingly diffi cult.

The Diffi culties of Managing Data Because data are processed in several stages and oft en in several places, they are frequently subject to problems and diffi culties. Managing data in organizations is diffi cult for many reasons.

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82 3 l Data and Knowledge Management

A Data Storage Startup Saves Small Businesses Big Money

Scale Computing (www.scalecomputing.com) targets small companies with its line of data storage devices. The company’s strategy is to trim their clients’ costs by giving them the capacity they need at a cost they can afford.

HP (www.hp.com), Dell (www.dell.com), and EMC (www.emc.com) prefer to sell storage in large amounts suitable for huge corporations. Although the giant stor- age manufacturers do make small storage units as well, Scale Computing can deliver equal storage performance by substituting expensive hardware with software.

Typical storage units have physical control- lers (a type of computer) that divide data up among different hard drives. Scale Computing

eliminates the controllers by using software to divide the data. Scale’s devices also use slower, cheaper hard drives that work together to retrieve data as quickly as a similar number of faster, more expensive hard drives. For example, a hospital that might pay up to $60,000 for 12 terabytes of storage from one of the big storage vendors, would only need to pay Scale $33,000 for the same amount of storage.

In the past, small businesses had to estimate how much storage capacity they would need in the future. If they guessed too high, they overpaid for storage. If they guessed too low, they had to buy additional storage devices. Each additional storage device bought in this way adds complexity to small information technology departments.

With Scale’s equipment, small companies can sim- ply buy extra nodes that work together. Scale says that

any extra terabytes of storage typically cost half of what the competition charges. For example, the GEO Foundation (www.geofoundation.org),

a network of fi ve charter schools in Indiana and Colo- rado, saved $15,000 immediately by using Scale’s equip- ment rather than that of a major storage vendor, and will save another $21,000 when the organization adds more storage in 2012.

Scale Computing’s next move is to further cut its clients’ hardware costs. A software update will turn Scale’s physical storage units into servers, eliminating the need for that physical equipment. Scale says that its software will decrease the cost of a typical 12-terabyte datacenter by more than half, to approximately $50,000.

Scale has 600 customers around the world. The company has yet to turn a profi t, but has raised $31 million in venture capital.

Sources: Compiled from J. Colao, “Thanks for the Memory,” Forbes, February 27, 2012; D. Hill, “Scale Computing: New Twists to Scale-Out Storage for the Mid-Market,” Network Computing, January 27, 2012; B., Nelson, J. Colao, and M. Mallet, “American’s Most Promising Companies 2011,” Forbes, November 30, 2011; www.scalecomputing.com, accessed February 11, 2012.

Questions 1. What are some of the advantages that Scale

Computing offers small companies?

2. If you are a large company with extensive storage needs, would you consider Scale Computing? Why or why not?

ABOUT BUSINESS 3.1i A D t T’S

First, the amount of data increases exponentially with time. Much historical data must be kept for a long time, and new data are added rapidly. For example, to support millions of customers, large retailers such as Walmart have to manage many terabytes of data. IT’s About Business 3.1 illustrates how Scale Computing helps small businesses manage their data storage needs.

© Steve Cole/iStockphoto

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Managing Data 83

In addition, data are also scattered throughout organizations and are collected by many individuals using various methods and devices. Th ese data are frequently stored in numer- ous servers and locations and in diff erent computing systems, databases, formats, and human and computer languages.

Another problem is that data come from multiple sources: internal sources (for example, corporate databases and company documents), personal sources (for example, personal thoughts, opinions, and experiences), and external sources (for example, commer- cial databases, government reports, and corporate Web sites). Data also come from the Web, in the form of clickstream data. Clickstream data are those data that visitors and customers produce when they visit a Web site and click on hyperlinks (described in Chapter 4). Clickstream data provide a trail of the users’ activities in the Web site, including user behavior and browsing patterns.

Adding to these problems is the fact that new sources of data, such as blogs, podcasts, videocasts, and RFID tags and other wireless sensors, are constantly being developed. As you saw in the chapter-opening case, data degrades over time. For example, customers move to new addresses or change their names, companies go out of business or are bought, new products are developed, employees are hired or fi red, and companies expand into new countries.

Data are also subject to data rot. Data rot refers primarily to problems with the media on which the data are stored. Over time, temperature, humidity, and exposure to light can cause physical problems with storage media and thus make it diffi cult to access the data. Th e second aspect of data rot is that fi nding the machines needed to access the data can be dif- fi cult. For example, it is almost impossible today to fi nd 8-track players. Th is means that a library of 8-track tapes has become relatively worthless, unless you have a functioning 8-track player or you convert the tapes to a modern medium such as CD.

Data security, quality, and integrity are critical, yet they are easily jeopardized. In addi- tion, legal requirements relating to data diff er among countries as well as industries, and they change frequently.

Another problem arises from the fact that, over time, organizations have developed information systems for specifi c business processes, such as transaction processing, supply chain management, customer relationship management, and other processes. Information systems that specifi cally support these processes impose unique requirements on data, which results in repetition and confl icts across an organization. For example, the marketing function might maintain information on customers, sales territories, and markets that duplicates data within the billing or customer service functions. Th is situation produces inconsistent data in the enterprise. Inconsistent data prevent a company from developing a unifi ed view of core business information—data concerning customers, products, fi nances, and so on—across the organization and its information systems.

Two other factors complicate data management. First, federal regulations (for example, Sarbanes-Oxley) have made it a top priority for companies to better account for how infor- mation is being managed with their organizations. Sarbanes-Oxley requires that (1) public companies evaluate and disclose the eff ectiveness of their internal fi nancial controls and (2) independent auditors for these companies agree to this disclosure. Th e law also holds CEOs and CFOs personally responsible for such disclosure. If their companies lack satisfac- tory data management policies and fraud or a security breach occurs, the company offi cers could be held personally responsible and face prosecution.

Second, companies are drowning in data, much of which is unstructured. As you have seen, the amount of data is increasing exponentially. To be profi table, companies must develop a strategy for managing these data eff ectively.

Because of these numerous problems, data are diffi cult to manage. As a result, organi- zations are turning to data governance.

Data Governance Data governance is an approach to managing information across an entire organization. It involves a formal set of business processes and policies that are designed to ensure that data are handled in a certain, well-defi ned fashion. Th at is, the organization follows

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84 3 l Data and Knowledge Management

unambiguous rules for creating, collecting, handling, and protecting its information. Th e objective is to make information available, transparent, and useful for the people autho- rized to access it, from the moment it enters an organization, until it is outdated and deleted.

One strategy for implementing data governance is master data management. Master data management is a process that spans all organizational business processes and appli- cations. It provides companies with the ability to store, maintain, exchange, and synchro- nize a consistent, accurate, and timely “single version of the truth” for the company’s core master data.

Master data are a set of core data, such as customer, product, employee, vendor, geo- graphic location, and so on, that span the enterprise information systems. It is important to distinguish between master data and transaction data. Transaction data, which are gener- ated and captured by operational systems, describe the activities, or transactions, of the business. In contrast, master data are applied to multiple transactions and are used to cate- gorize, aggregate, and evaluate the transaction data.

Let’s look at an example of a transaction: You (Mary Jones) purchase one Samsung 42-inch plasma television, part number 1234, from Bill Roberts at Best Buy, for $2,000, on April 20, 2011. In this example, the master data are “product sold,” “vendor,” “salesperson,” “store,” “part number,” “purchase price,” and “date.” When specifi c values are applied to the master data, then a transaction is represented. Th erefore, transaction data would be, respec- tively, “42-inch plasma television,” “Samsung,” “Bill Roberts,” “Circuit City,” “1234,” “$2,000,” and “April 20, 2011.”

An example of master data management is the city of Dallas, Texas, which imple- mented a plan for digitizing public and private records, such as paper documents, images, drawings, and video and audio content, that are maintained by the city. Th e master data- base can be accessed by any of the 38 government departments that have appropriate access. Th e city is integrating its fi nancial and billing processes with its customer relation- ship management program. (You will learn about customer relationship management in Chapter 12.)

How will Dallas utilize this system? Imagine that the city experiences a water-main break. Before it implemented the system, repair crews had to search City Hall for records that were filed haphazardly. Once the workers found the hard-copy blueprints, they would take them to the site and, after going over them manually, would decide on a plan of action. In contrast, the new system delivers the blueprints wirelessly to the

laptops of crews in the field, who can magnify or highlight areas of concern to generate a quick response. This process reduces the time it takes to respond to an emergency by several hours.

Along with data governance, organizations use the data- base approach to effi ciently and eff ectively manage their data. You turn your attention to the database approach in the next section.

BEFORE YOU GO ON . . . 1. What are some of the diffi culties involved in

managing data? 2. Defi ne data governance, master data, and

transactional data.

Apply the Concept 3.1

Background Th e amount of data we create today is absolutely mind boggling. EMC is a global company that focuses on helping organizations manage their data.

Recently, the company sponsored a study to determine exactly how big the “digital uni- verse” is and what its projected growth looks like. Th ere are some amazing fi ndings in this study that point to a dramatic growth in data and in increase in virtual data centers. In the future (as it is now) it will be possible to run your information systems in data centers that do not even operate on your own premises. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link for Apply the Concept 3.1. It will take you to a YouTube video titled “IDC Study:

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The Database Approach 85

Digital Universe: Sponsored by EMC.” Watch this 5-minute video and consider the trends. Specifi cally, consider the diff erence in IT growth and IT professionals to work in the area and the amount of data that is not secure or only minimally secure. Now imagine that your parents own their own business. It is successful, but struggling under pressure to upgrade IT services for their employees and customers. What could you say that would help them look ahead to the future rather than staying in the past?

Deliverable

Write an e-mail to your parents to explain to them what is likely to happen over the next 10 years. What do you think they should do to plan for the next 10 years? What qualities should they look for in new employees? What training should they submit current employ- ees to? What should the purpose of data governance be in their 10-year plan?

Submit your e-mail to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

3.2 The Database Approach From the time of the fi rst computer applications in business (mid-1950s) until the early 1970s, organizations managed their data in a fi le management environment. Th is environ- ment evolved because organizations typically began automating one application at a time. Th ese systems grew independently from one another, without overall planning. Each appli- cation required its own data, which were organized in a data fi le.

A data fi le is a collection of logically related records. Th erefore, in a fi le management environment, each application has a specifi c data fi le related to it, containing all the data records needed by the application. Over time, organizations developed numerous applica- tions, each with an associated, application-specifi c data fi le.

For example, you can relate to a situation where most of your information is in your university’s central database, but a club to which you belong has its own fi les, the athletics department has separate fi les for student athletes, and your instructors may maintain grade data on their personal computers. It is easy for your name to be misspelled in one of these databases or fi les but not in others. If you move, your address might be updated correctly in one database or fi le but not in others.

Using databases eliminates many problems that arose from previous methods of stor- ing and accessing data, such as fi le management systems. Databases are arranged so that one set of soft ware programs—the database management system—provides all users with access to all the data. (You will study database management systems later in this chapter.) Th is system minimizes the following problems:

• Data redundancy: Th e same data are stored in many places. • Data isolation: Applications cannot access data associated with other applications. • Data inconsistency: Various copies of the data do not agree.

1. How many sources of information can you think of for Ruby’s Club?

2. Even though Ruby’s Club is not subject to Sarbanes-Oxley legal documentation requirements, can you think of any reasons why it would be a good idea for the club to operate up to these standards?

Q U E S T I O N SRUBY’S CLUB

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86 3 l Data and Knowledge Management

In addition, database systems maximize the following issues:

• Data security: Because data are “put in one place” in databases, there is a potential for losing a lot of data at once. Th erefore, databases have extremely high security measures in place to deter mistakes and attacks. (You will learn about information security in Chapter 7.)

• Data integrity: Data meet certain constraints, such as no alphabetic characters in a Social Security number fi eld.

• Data independence: Applications and data are independent of one another (that is, applications and data are not linked to each other, meaning that all applications are able to access the same data).

Figure 3.1 illustrates a university database. Note that university applications from the registrar’s offi ce, the accounting department, and the athletics department access data through the database management system.

A database can contain vast amounts of data. To make these data more understandable and useful, they are arranged in a hierarchy. In the next section, you will become familiar with the data hierarchy. You will then see how databases are designed.

The Data Hierarchy Data are organized in a hierarchy that begins with bits and proceeds all the way to data- bases (see Figure 3.2). A bit (binary digit) represents the smallest unit of data a computer can process. Th e term binary means that a bit can consist only of a 0 or a 1. A group of eight bits, called a byte, represents a single character. A byte can be a letter, a number, or a sym- bol. A logical grouping of characters into a word, a small group of words, or an identifi ca- tion number is called a field. For example, a student’s name in a university’s computer fi les would appear in the “name” fi eld, and her or his Social Security number would appear in the “Social Security number” fi eld. Fields can also contain data other than text and num- bers. A fi eld can contain an image, or any other type of multimedia. Examples are a motor vehicle department’s licensing database containing a person’s photograph and a fi eld con- taining a voice sample to authorize access to a secure facility; and in the Apple iTunes Store, a song is a fi eld in a record, with other fi elds giving the song’s title, its price, and the album of which it is part.

A logical grouping of related fi elds, such as the student’s name, the courses taken, the date, and the grade, comprises a record. A logical grouping of related records is called a file or a table. For example, the records from a particular course, consisting of course number,

Registrar's office

Student tuition data Student fee data Student payment data

Accounting department

Athletics department

Athletic team data Student-athlete data

Database management

system

Student registration

Student tuition

Student fees

Student payments

Student athletes

Athletic teams

Course listings

Course enrollment

Course listings data Course enrollment data Student registration data

Figure 3.1 A database management system (DBMS) provides access to all data in the database.

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The Database Approach 87

professor, and students’ grades, would constitute a data fi le for that course. A logical grouping of related fi les would constitute a database. Using the same example, the student course fi le could be grouped with fi les on students’ personal histories and fi nancial backgrounds to create a student database.

Now that you have seen how data are arranged in a database, you will learn about how today’s organizations design their databases. You will focus on entity-relationship (ER) modeling and normalization procedures.

Designing the Database To be valuable, a database must be organized so that users can retrieve, analyze, and under- stand the data they need. A key to designing an eff ective database is the data model. A data model is a diagram that represents entities in the database and their relationships. An entity is a person, place, thing, or event—such as a customer, an employee, or a product—about which information is maintained. Entities can typically be identifi ed in the user’s work envi- ronment. A record generally describes an entity. An instance of an entity is a specifi c, unique representation of the entity. For example, an instance of the entity STUDENT would be a particular student.

Each characteristic or quality of a particular entity is called an attribute. For example, if our entities were a customer, an employee, and a product, entity attributes would include customer name, employee number, and product color.

Every record in a fi le must contain at least one fi eld that uniquely identifi es that record so that it can be retrieved, updated, and sorted. Th is identifi er fi eld is called the primary key. For example, a student record in a U.S. university would use a unique student number as its primary key. (Note: In the past, your Social Security number served as the primary key for your student record. However, for security reasons, this practice has been discontinued.) In some cases, locating a particular record requires the use of secondary keys. A secondary key is another fi eld that has some identifying information but typically does not identify the fi le with complete accuracy. For example, the student’s major might be a secondary key if a user wanted to fi nd all students in a particular major fi eld of study. It should not be the primary key, however, because many students can have the same major. Entity-Relationship Modeling. Designers plan and create the database through the process of entity-relationship modeling, using an entity-relationship (ER) diagram. Th ere are many approaches to ER diagramming. You will see one particular approach here, but there are others. Th e good news is that if you are familiar with one version of ER dia- gramming, then you will be able to easily adapt to any other type of ER diagramming.

File

Record

Field

ByteByte

Bit Bit

Field

Student

John Jones MIS

Name: John Jones

M (1001101)

J (1001010)

O 1

Major: MIS

Faculty

Kelly Rainer Professor

Name: Kelly Rainer

P (1010000)

K (1001011)

O 1

Position: Professor

University Database

Figure 3.2 Hierarchy of data for a computer-based fi le.

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88 3 l Data and Knowledge Management

ER diagrams consist of entities, attributes, and relationships. Entities are pictured in boxes, and relationships are shown in diamonds. Th e attributes for each entity are listed, and the primary key is underlined.

Relationships illustrate an association between two entities. A relationship has a name that is a verb. Cardinality and modality are the indicators of the business rules in a relation- ship. Cardinality refers to the maximum number of times an instance of one entity can be associated with an instance in the related entity. Modality refers to the minimum number of times an instance of one entity can be associated with an instances in the related entity. Cardinality can be 1 or Many, and its symbol is placed on the outside of the relationship line, closest to the entity. Modality can be 1 or 0, and its symbol is placed on the inside of the relationship line, next to the cardinality symbol. Figure 3.3 shows the cardinality and modality symbols. Figure 3.4 shows an ER diagram.

As defi ned earlier, an entity is something that can be identifi ed in the users’ work envi- ronment. For example, consider student registration at a university. Students register for courses and register their cars for parking permits. In this example, STUDENT, PARKING PERMIT, CLASS, and PROFESSOR are entities, as shown in Figure 3.4.

Entities of a given type are grouped in entity classes. In our example, STUDENT, PARKING PERMIT, CLASS, and PROFESSOR are entity classes. An instance of an entity class is the representation of a particular entity. Th erefore, a particular STUDENT (James Smythe, 145-89-7123) is an instance of the STUDENT entity class; a particular parking permit (91778) is an instance of the PARKING PERMIT entity class; a particular class (76890) is an instance of the CLASS entity class; and a particular professor (Margaret Wilson, 115-65-7632) is an instance of the PROFESSOR entity class.

Entity instances have identifiers, which are attributes that are unique to that entity instance. For example, STUDENT instances can be identifi ed with Student Identifi cation Number; PARKING PERMIT instances can be identifi ed with Permit Number; CLASS instances can be identifi ed with Class Number; and PROFESSOR instances can be identi- fi ed with Professor Identifi cation Number. Th ese identifi ers (or primary keys) are under- lined on ER diagrams, as in Part (b) of Figure 3.4.

Entities have attributes, or properties, that describe the entity’s characteristics. In our example, examples of attributes for STUDENT are Student Name and Student Address. Examples of attributes for PARKING PERMIT are Student Identifi cation Number and Car Type. Examples of attributes for CLASS are Class Name, Class Time, and Class Place. Examples of attributes for PROFESSOR are Professor Name and Professor Department. (Note that each course at this university has one professor—no team teaching.)

Why is Student Identifi cation Number an attribute of both the STUDENT and PARK- ING PERMIT entity classes? Th at is, why do we need the PARKING PERMIT entity class? If you consider all interlinked university systems, the PARKING PERMIT entity class is needed for other applications, such as fee payments, parking tickets, and external links to the state Department of Motor Vehicles.

Mandatory Single Optional Single

Mandatory Many Optional Many

entity

Modality Cardinality

entity

Modality Cardinality

entity

Modality Cardinality

entity

Modality Cardinality

Figure 3.3 Relationships between entities refl ecting business rules.

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The Database Approach 89

Entities are associated with one another in relationships, which can include many enti- ties. (Remember that relationships are noted by diamonds on ER diagrams.) Th e number of entities in a relationship is the degree of the relationship. Relationships between two items are called binary relationships. Th ere are three types of binary relationships: one-to-one, one-to-many, and many-to-many.

In a one-to-one (1:1) relationship, a single-entity instance of one type is related to a single-entity instance of another type. Figure 3.4a shows STUDENT–PARKING PERMIT as a 1:1 relationship. Th e relationship means that a student can have a parking permit, but does not need to have to have one. (Clearly, if a student does not have a car, then he or she will not need a parking permit.) Note that the relationship line on the PARKING PERMIT side shows zero or one—that is, a cardinality of 1 and a modality of 0. On the STUDENT side of the relationship, only one parking permit can be assigned to one student. Note that

Can have

Relationships

Keyfield

Professor

Entities

Key

A student can have many classes.

(a) ER diagram

(b) Entities, Attributes, and Identifiers

A class can have many students.

A professor can have many classes.

A class can have only 1 professor.

A student can have only 1 parking permit.

A parking permit can have only 1 student.

1

M

1

1:1

M:M

1:M

Can have

Can have

M

M

1

Class

Student Parking Permit

Student Identification Number

STUDENT

Student Name Student Address

Permit Number

PARKING PERMIT

Student Identification Number Car Type

Class Number

CLASS

Class Name Class Time Class Place

Professor Identification Number

PROFESSOR

Professor Name Professor Department

Figure 3.4 Entity-relationship diagram model.

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90 3 l Data and Knowledge Management

the relationship line on the STUDENT side shows one and only one—that is, a cardinality of 1 and a modality of 1.

Th e second type of relationship, one-to-many (1:M), is represented by the CLASS– PROFESSOR relationship in Figure 3.4(a). Th is relationship means that a professor can have one or more courses, but each course can have only one professor. Note that the rela- tionship line on the PROFESSOR side shows one and only one—that is, a cardinality of 1 and a modality of 1. Th e relationship line on the CLASS side shows one or many—that is, a cardinality of Many and a modality of 1.

Th e third type of relationship, many-to-many (M:M), is represented by the STUDENT– CLASS relationship in Figure 3.4(a). Th is M:M relationship means that a student can have one or more courses, and a course can have one or more students. Note that the relationship line on the STUDENT side shows one or more—that is, a cardinality of Many and a modal- ity of 1. Further, the relationship line of the CLASS side shows one or more—that is, a car- dinality of Many and a modality of 1.

ER modeling is valuable because it allows database designers to talk with users throughout the organization to ensure that all entities and the relationships among

them are represented. This process underscores the impor- tance of taking all users into account when designing organizational databases. Notice that all entities and rela- tionships in our example are labeled in terms that users can understand. Now that you understand how a database is designed, you can turn your attention to database manage- ment systems.

BEFORE YOU GO ON . . . 1. What is a data model? 2. What is a primary key? A secondary key? 3. What is an entity? An attribute?

Apply the Concept 3.2

Background Th is section has exposed you to the complicated job of designing a database. Th is is one of those concepts that just cannot really be grasped until you

work through a problem. Even though very few people go on to become database admin- istrators, it is still good to have some understanding of how a database is built and administered. Th is activity will present you with a scenario and then you will apply the concepts you have just learned about. Activity Imagine yourself working as a coordinator of a company with several ongoing projects. As part of your job, you are supposed to keep track of its commercial projects, employees, and the employees’ participation in each project. Usually, a project will have multiple team members, but some projects have not been assigned to any team member. For each project, the company must keep track of the project’s title, description, location, estimated budget, and due date.

Each employee can be assigned to one or more projects. Some employees can also be on leave and will not be working on any particular assignment. Project leaders usually need to know the following information about their team members: name, address, phone num- ber, Social Security number, highest degree attained, and his/her expertise (for example, IS, accounting, marketing, and fi nance).

You have been asked by your manager to conceptually design a database that can help the company keep track of the information described in this scenario. To begin, you need to identify entity classes and their attributes and determine (or create) primary key attribute(s) for each entity class. In addition, you will need to identify foreign key attribute(s) and establish relationships among the entity classes you have identifi ed.

Deliverable

Develop your conceptual design and present your instructor with your entity classes and their attributes. Also be sure to identify the primary key attribute(s). Present a drawing similar to the one in the text if your instructor requires it.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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Database Management Systems 91

3.3 Database Management Systems A database management system (DBMS) is a set of programs that provide users with tools to add, delete, access, modify, and analyze data stored in one location. An organization can access the data by using query and reporting tools that are part of the DBMS or by using application programs specifi cally written to access the data. DBMSs also provide the mech- anisms for maintaining the integrity of stored data, managing security and user access, and recovering information if the system fails. Because databases and DBMSs are essential to all areas of business, they must be carefully managed.

Th ere are a number of diff erent database architectures, but we focus on the relational database model because it is popular and easy to use. Other database models (for example, the hierarchical and network models) are the responsibility of the MIS function and are not used by organizational employees. Popular examples of relational databases are Microsoft Access and Oracle.

The Relational Database Model Most business data—especially accounting and fi nancial data—traditionally were orga- nized into simple tables consisting of columns and rows. Tables allow people to compare information quickly by row or column. In addition, items are easy to retrieve by fi nding the point of intersection of a particular row and column.

Th e relational database model is based on the concept of two-dimensional tables. A relational database generally is not one big table—usually called a fl at fi le—that contains all of the records and attributes. Such a design would entail far too much data redundancy. Instead, a relational database is usually designed with a number of related tables. Each of these tables contains records (listed in rows) and attributes (listed in columns).

Th ese related tables can be joined when they contain common columns. Th e unique- ness of the primary key tells the DBMS which records are joined with others in related tables. Th is feature allows users great fl exibility in the variety of queries they can make. Despite these features, however, this model has some disadvantages. Because large-scale databases can be composed of many interrelated tables, the overall design can be complex and therefore have slow search and access times.

Consider the relational database example about students shown in Figure 3.5. Th e table contains data about the entity called students. Attributes of the entity are student name, undergraduate major, grade point average, and graduation date. Th e rows are the records on Sally Adams, John Jones, Jane Lee, Kevin Durham, Juan Rodriguez, Stella Zubnicki, and Ben Jones. Of course, your university keeps much more data on you than our example shows. In fact, your university’s student database probably keeps hundreds of attributes on each student. Query Languages. Requesting information from a database is the most commonly performed operation. Structured query language (SQL) is the most popular query lan- guage used to request information. SQL allows people to perform complicated searches by using relatively simple statements or key words. Typical key words are SELECT (to specify a desired attribute), FROM (to specify the table to be used), and WHERE (to specify condi- tions to apply in the query).

1. If the bartender, cover charge clerk, and chef all kept separate spreadsheets to keep up with customers, purchases, and payments, what type of data problems do you see they could have?

2. How could a networked database help to alleviate some of the problems in the fi rst question?

Q U E S T I O N SRUBY’S CLUB

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92 3 l Data and Knowledge Management

To understand how SQL works, imagine that a university wants to know the names of students who will graduate cum laude (but not magna or summa cum laude) in May 2012. Th e university IS staff would query the student relational database with an SQL statement such as SELECT Student Name, FROM Student Database, WHERE Grade Point Average . 3.40 and Grade Point Average , 3.60. Th e SQL query would return: John Jones and Juan Rodriguez.

Another way to fi nd information in a database is to use query by example (QBE). In QBE, the user fi lls out a grid or template (also known as a form) to construct a sample or description of the data desired. Users can construct a query quickly and easily by using drag-and-drop features in a DBMS such as Microsoft Access. Conducting queries in this manner is simpler than keying in SQL commands. Data Dictionary. When a relational model is created, the data dictionary defi nes the format necessary to enter the data into the database. Th e data dictionary provides information on each attribute, such as its name, whether it is a key or part of a key, the type of data expected (alphanumeric, numeric, dates, and so on), and valid values. Data dictionaries can also pro- vide information on how oft en the attribute should be updated; why it is needed in the database; and which business functions, applications, forms, and reports use the attribute.

Data dictionaries provide many advantages to the organization. Because they provide names and standard defi nitions for all attributes, they reduce the chances that the same attribute will be used in diff erent applications but with a diff erent name. In addition, data dictionaries give organizations an inventory of their data resources, making it possible to manage that resource more eff ectively. Normalization. To use a relational database management system eff ectively, the data must be analyzed to eliminate redundant data elements. Normalization is a method for analyzing and reducing a relational database to its most streamlined form for minimum redundancy, maximum data integrity, and best processing performance. When data are normalized, attributes in the table depend only on the primary key.

As an example of normalization, consider an automotive repair garage. Th is business takes orders from customers who want to have their cars repaired. In this example, ORDER, PART, SUPPLIER, and CUSTOMER are entities. Th ere can be many PARTS in an ORDER, but each PART can come from only one SUPPLIER. In a nonnormalized relation called ORDER (see Figure 3.6), each ORDER would have to repeat the name, description, and price of each PART needed to complete the ORDER, as well as the name and address of each SUPPLIER. Th is relation contains repeating groups and describes multiple entities.

Figure 3.5 Example of a student database.

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Database Management Systems 93

For example, consider the table in Figure 3.6 and notice the very fi rst column (labeled Order). Th is column contains multiple entries for each order—four rows for Order 11, six rows for Order 12, and so on. Th ese multiple rows for an order are called repeating groups. Th e table in Figure 3.6 also contains multiple entities: ORDER, PART, SUPPLIER, and CUSTOMER. When you normalize the data, you want to eliminate repeating groups and have normalized tables, each containing only one entity.

You might think that four entities would mean four normalized tables. (Th e ORDER, SUPPLIER, and CUSTOMER tables are shown in Figure 3.7(a), and the PART table is shown in Figure 3.7(b).) But, to fully normalize the data in this example, you must create an extra table, called ORDERED-PARTS. Th is table (see Figure 3.7(b)) contains the par- ticular parts, and how many of each part are in a particular order.

Th e normalization process, illustrated in Figure 3.8, breaks down the relation, ORDER, into smaller relations: ORDER, SUPPLIER, and CUSTOMER (Figure 3.7(a)) and ORDERED PARTS and PART (Figure 3.7(b)). Each of these relations describes a single entity. Th is process is conceptually simpler, and it eliminates repeating groups. For example, consider an order at the automobile repair shop. Th e normalized relations can produce the order in the following manner (see Figure 3.8).

• Th e ORDER relation provides the Order Number (the primary key), Order Date, Delivery Date, Order Total, and Customer Number.

• Th e primary key of the ORDER relation (Order Number) provides a link to the ORDERED PARTS relation (the link numbered 1 in Figure 3.8).

• Th e ORDERED PARTS relation supplies the Number of Parts information to ORDER.

• Th e primary key of the ORDERED PARTS relation is a composite key that consists of Order Number and Part Number. Th erefore, the Part Number component of the primary key provides a link to the PART relation (the link numbered 2 in Figure 3.8).

• Th e PART relation supplies the Part Description, Unit Price, and Supplier Number to ORDER.

• Th e Supplier Number in the PART relation provides a link to the SUPPLIER relation (the link numbered 3 in Figure 3.8).

Figure 3.6 Nonnormalized relation.

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94 3 l Data and Knowledge Management

• Th e SUPPLIER relation provides the Supplier Name and Supplier Address to ORDER. • Th e Customer Number in ORDER provides a link to the CUSTOMER relation (the

link numbered 4 in Figure 3.8). • Th e CUSTOMER relation supplies the Customer Name and Customer Address to

ORDER.

(a)

(b)

Figure 3.7 Smaller relationships broken down from the nonnormal relations. (a) Order, Supplier, Customer. (b) Ordered Parts, Part.

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Database Management Systems 95

Databases in Action It is safe to say that almost all organizations have one or more databases. Further, there are numerous interesting database applications. Th is chapter’s Closing Case 2 describes how databases can provide the foundation for many functions in an organization.

Organizations implement databases to effi ciently and eff ectively manage their data. However, because databases typically process data in real time (or near real time), it is not practical to allow users access to the databases. Aft er all, the data will change while the user is looking at it! As a result, data warehouses have been developed that allow users to access data for decision making. You will learn about data warehouses in the next section.

Figure 3.8 How normalized relations produce the order.

BEFORE YOU GO ON . . . 1. What are the advantages and disadvantages

of relational databases? 2. What are the benefi ts of data dictionaries? 3. Describe how structured query language

works.

Apply the Concept 3.3

Background Th is section has shown some of the issues with traditional fi ling systems. Redundancy is one of them and is a huge problem in data management

because anytime there is redundancy there is a possibility to introduce error. If you have one customer listed two ways in your database, how do you know it is not two separate people? What would it do to your data analysis to have incorrect data? Activity As was stated in Apply the Concept 3.2, there are times when the best way to learn something is to do it. Consider the following tables and scenarios and see if you can fi nd the problems based on what you have learned in this section about normalization and problems within databases.

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96 3 l Data and Knowledge Management

Customer ID First Name Last Name Income Phones

1 John Smith $20,000 756-1111, 756-9111, 756-8400

2 Jane Summers $35,000 756-1000, 756-4567

3 Joe Saunders $30,000 756-6111

4 Jen Smithson $45,000 756-0094, 756-0924

Scenario 2. An offi ce supply store creates a relational database to keep track of its sales transactions. Th e following is one of the tables included in the relational database the store employees have created.

Customer First Last Customer Order Order Item Unit ID Name Name Phone Number Date Description Quantity Price Shipped

1 Kara Liu 756-1111 1 01/02/10 Staplers 2 $18.99 Y

1 Kara Liu 756-1111 1 01/02/10 Pens 20 $5.79 N

2 Kevin Lawrence 756-1000 2 01/03/10 Staplers 5 $18.99 N

3 Kimberly Long 756-6111 3 01/05/10 Pens 35 $5.79 Y

Deliverable

For Scenario 1, describe what potential problems might arise if the store continues to store its customer information in this table. Be sure to use the terminology presented in this sec- tion with your answer. What changes would you make to improve the design of this table?

For Scenario 2, describe any potential problems that may arise if the store continues to store its sales information in this table. Again, look through the terms presented in this section for your answer. What changes would you recommend to this business owner in regard to this database design?

Submit your answers to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

Scenario 1. A retail store decides to create a relational database to help keep track of its customers. Th e following is one of the tables included in this database.

1. Given the type of information Ruben and Lisa want to fi nd in their data, what advantages would they fi nd in a relational database over multiple fl at fi les (spreadsheets)?

2. What safety precautions could Ruben and Lisa implement for customers with a relational database? For example, a bartender may recognize that he has sold fi ve shots to a particular customer and refuse to serve that person more out of concern for his or her health. If that customer had purchased these from different bartenders, could this have occurred?

3. What are the implications of a serve/no serve decision (due to overindulgence) from the customer viewpoint and Ruby’s Club?

Q U E S T I O N SRUBY’S CLUB

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Data Warehouses and Data Marts 97

3.4 Data Warehouses and Data Marts Today, the most successful companies are those that can respond quickly and fl exibly to market changes and opportunities. A key to this response is the eff ective and effi cient use of data and information by analysts and managers. Th e problem is providing users with access to corporate data so that they can analyze it to make better decisions. Let’s look at an exam- ple. If the manager of a local bookstore wanted to know the profi t margin on used books at her store, she could fi nd out from her database, using SQL or QBE. However, if she needed to know the trend in the profi t margins on used books over the last 10 years, she would have a very diffi cult query to construct in SQL or QBE.

Th is example illustrates several reasons why organizations are building data warehouses and/or data marts. First, the bookstore’s databases have the necessary information to answer the manager’s query, but this information is not organized in a way that makes it easy for her to fi nd what she needs. Second, the organization’s databases are designed to process millions of transactions per day. Th erefore, complicated queries might take a long time to answer and might degrade the performance of the databases. Th ird, transactional databases are designed to be updated. Th is update process requires extra processing. Data warehouses and data marts are read-only, and the extra processing is eliminated because data already in the data warehouse are not updated. Fourth, transactional databases are designed to access a single record at a time. Data warehouses are designed to access large groups of related records.

As a result of these problems, companies are using a variety of tools with data ware- houses and data marts to make it easier and faster for users to access, analyze, and query data. You will learn about these tools in Chapter 5: Business Intelligence.

Describing Data Warehouses and Data Marts In general, data warehouses and data marts support business intelligence (BI) applications. As you will see in Chapter 5, business intelligence is a broad category of applications, tech- nologies, and processes for gathering, storing, accessing, and analyzing data to help busi- ness users make better decisions. A data warehouse is a repository of historical data that are organized by subject to support decision makers in the organization.

Because data warehouses are so expensive, they are used primarily by large companies. A data mart is a low-cost, scaled-down version of a data warehouse that is designed for the end-user needs in a strategic business unit (SBU) or a department. Data marts can be implemented more quickly than data warehouses, oft en in less than 90 days. Further, they support local rather than central control by conferring power on the using group. Typically, groups that need a single or a few BI applications require only a data mart, rather than a data warehouse.

Th e basic characteristics of data warehouses and data marts include the following:

• Organized by business dimension or subject. Data are organized by subject (for example, by customer, vendor, product, price level, and region). Th is arrangement is diff erent from transactional systems where data are organized by business process, such as order entry, inventory control, or accounts receivable.

• Use online analytical processing. Typically, organizational databases are oriented toward handling transactions. Th at is, databases use online transaction processing (OLTP), where business transactions are processed online as soon as they occur. Th e objectives are speed and effi ciency, which are critical to a successful Internet-based business operation. Data warehouses and data marts, which are not designed to support OLTP but to support decision makers, use online analytical processing. Online analytical processing (OLAP) involves the analysis of accumulated data by end users.

• Integrated. Data are collected from multiple systems and are integrated around subjects. For example, customer data may be extracted from internal (and external) systems and integrated around a customer identifi er so that a comprehensive view of the customer is created.

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• Time variant. Data warehouses and data marts maintain historical data (i.e., it includes time as a variable). Unlike transactional systems, where only recent data (such as for the last day, week, or month) are maintained, a warehouse or mart may store years of data. Historical data are needed to detect deviations, trends, and long-term relationships.

• Nonvolatile. Data warehouses and data marts are nonvolatile—no one can change or update the data. Nonvolatility means that the warehouse or mart refl ects history, which is critical for trend analysis. Warehouses and marts are updated, but through IT-controlled load processes rather than by users.

• Multidimensional. Typically the data warehouse or mart uses a multidimensional data structure. Recall that relational databases store data in two-dimensional tables. In contrast, data warehouses and marts store data in more than two dimensions. For this reason, the data are said to be stored in a multidimensional structure. A common representation for this multidimensional structure is the data cube.

Th e data in data warehouses and marts are organized by business dimensions, which are the edges of the data cube and are subjects such as product, geographic area, and time period. If you look ahead briefl y to Figure 3.11 for an example of a data cube, you see that the product dimension is comprised of nuts, screws, bolts, and washers; the geographic area dimension is comprised of east, west, and central; and the time period dimension is com- prised of 2008, 2009, and 2010. Users can view and analyze data from the perspective of these business dimensions. Th is analysis is intuitive because the dimensions are in business terms, easily understood by users.

A Generic Data Warehouse Environment Th e environment for data warehouses and marts includes the following:

• Source systems that provide data to the warehouse or mart • Data integration technology and processes that are needed to prepare the data for use • Diff erent architectures for storing data in an organization’s data warehouse or data

marts • Diff erent tools and applications for the variety of users (you will learn about these

tools and applications in Chapter 5) • Metadata, data quality, and governance processes that are in place to ensure that the

warehouse or mart meets its purposes

Figure 3.9 shows a generic data warehouse/data mart environment. Let’s drill down into the component parts. Source Systems. Th ere is typically some “organizational pain” (i.e., business need) that motivates the development of BI capabilities in a fi rm. Working backward, this pain leads to information requirements, BI applications, and source system data requirements. Th e data requirements can require only a single source system, as in the case of a data mart, or hundreds of source systems, as in the case of an enterprisewide data warehouse.

A variety of source systems can be used. Possibilities include operational/transactional systems, enterprise resource planning (ERP) systems, Web site data, third-party data (e.g., customer demographic data), and more. Th e trend is to include more types of data (e.g., sensing data from RFID tags). Th ese source systems oft en use diff erent soft ware pack- ages (e.g., IBM, Oracle) and store data in diff erent formats (e.g., relational, hierarchical).

A common source for the data in data warehouses is the company’s operational data- bases, which can be relational databases. To diff erentiate between relational databases and multidimensional data warehouses and marts, suppose your company has four products— nuts, screws, bolts, and washers—that have been sold in three territories—East, West, and Central—for the previous three years—2008, 2009, and 2010. In a relational database, these sales data would look like Figures 3.10(a), (b), and (c). In a multidimensional database, these data would be represented by a three-dimensional matrix (or data cube), as shown in Figure 3.10. You would say that this matrix represents sales dimensioned by products and

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regions and year. Notice that in Figure 3.10(a) you can see only sales for 2008. Th erefore, sales for 2009 and 2010 are presented in Figures 3.10(b) and 3.10(c), respectively. Figures 3.12(a), (b), and (c) show the equivalence between these relational and multidimen- sional databases.

Many source systems have been in use for years and contain “bad data” (e.g., missing or incorrect data) and are poorly documented. As a result, data profi ling soft ware should be used at the beginning of a data warehousing project to better understand the data. For example, data profi ling soft ware can provide statistics on missing data, identify possible primary and foreign keys, and reveal how derived values (e.g., column 3 5 column 1 1 column 2) are calculated. Subject area database specialists (e.g., marketing, human resourc- es) can also help in understanding and accessing the data in source systems.

Other source systems issues must be addressed. Oft en there are multiple systems that contain some of the same data and the best system must be selected as the source.

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Organizations must also decide how granular (i.e., detailed) the data should be. For exam- ple, are daily sales fi gures needed or are data at the individual transaction level needed? Th e conventional wisdom is that it is best to store data at a highly granular level because the data are likely to be requested at some point. Data Integration. It is necessary to extract data from source systems, transform it, and load it into a data mart or warehouse. Th is is oft en called ETL, but the term data integration is increasingly used because of the growing number of ways that source system data can be handled. For example, in some cases, data are extracted, loaded into a mart or warehouse, and then transformed (i.e., ELT rather than ETL).

Data extraction can be performed by handwritten code (e.g., SQL queries) or by com- mercial data integration soft ware. Most companies ultimately use commercial soft ware. It makes it relatively easy to specify the tables and attributes in the source systems that are to be used, map and schedule the movement of the data to the target (e.g., a data mart or ware- house), make the required transformations, and ultimately load the data.

Th e data are transformed to make them more useful. For example, data from diff erent systems may be integrated around a common key, such as a customer identifi cation num- ber. Th is is the approach taken with customer data in order to have a 360-degree view of all interactions with customers (discussed in Chapter 12). For example, think of a bank. Cus- tomers may go to a branch, bank online, use an ATM, have a car loan, and more. Th e sys- tems for these touchpoints (the numerous ways that organizations interact with customers, such as e-mail, the Web, direct contact, the telephone, etc.) are typically separate. To analyze and fully understand how customers are using the bank, it is necessary to integrate the data from the various source systems in a data mart or warehouse.

Other kinds of transformations are also made. For example, format changes to the data may be required, such as using male and female to denote gender, as opposed to 0 and 1 or M and F. Aggregations may be performed, say on sales fi gures, so that queries can use the summaries rather than recalculating them each time. Data cleansing soft ware may be used to “clean up” the data, such as eliminating duplicate records (e.g., for the same customer).

Data are loaded into the warehouse or mart during a “load window.” Th is window (i.e., the period for loading new data) is getting smaller as companies seek to have ever-fresher data in their warehouses. Many companies have moved to real-time data warehousing where data are moved (using data integration processes) from source systems to the data warehouse or mart almost immediately. For example, within 15 minutes of a purchase at Walmart, the details of the sale are in a warehouse and available for analysis.

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Storing the Data. A variety of possible architectures can store decision support data. Th e most common architecture is one central enterprise data warehouse, without data marts. Most organizations use this approach, as the data in the warehouse is accessed by all users and is the single version of the truth.

Another architecture is independent data marts. With this architecture, data are stored for a single or a few applications, such as in marketing or fi nance. Limited thought is given

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to how the data might be used for other applications and throughout the organization. Th is is a very application-centric approach to storing data.

Th is approach is not very good. Although it may meet a specifi c organizational need, it does not take an enterprisewide approach to data management. What happens is that inde- pendent data marts are created throughout the organization by various organizational units. Not only are the marts expensive to build and maintain, but they oft en contain incon- sistent data. For example, they may have inconsistent data defi nitions (such as, What is a customer? Is one a potential or current customer?) or use diff erent source systems (which may have diff erent data for what should be the same, such as for a customer address). Although independent data marts are an organizational reality, larger companies have increasingly moved to data warehouses.

Still another data warehouse architecture is the hub and spoke. With this architecture, data are stored in a central data warehouse with dependent data marts that source their data from the central repository. Because the dependent data marts get their data from the cen- tral repository, the data in the dependent data marts still comprise the single version of the truth for decision support purposes.

Th e dependent data marts store the data in a format appropriate for how the data will be used and for providing faster response times to queries and applications. As you have learned, users can view and analyze data from the perspective of business dimensions and measures. Th is analysis is intuitive because the dimensions are in business terms, easily understood by users. Metadata. It is important to maintain data about the data (i.e., metadata) in the data warehouse. Both the IT personnel who operate and manage the data warehouse and the users who access the warehouse’s data need metadata. IT personnel need information about data sources; database, table, and column names; refresh schedules; and data usage mea- sures. Users’ needs include data defi nitions; the report/query tools that are available; report distribution information; and help desk contact information. Data Quality. Th e quality of the data in the warehouse must meet users’ needs. If it does not, the data will not be trusted and ultimately will not be used. Most organizations fi nd that the quality of the data in source systems is poor and must be improved before it can be used in the data warehouse. Some of the data can be improved with data-cleansing soft ware, but the better, long-term solution is to improve the quality at the source system level. Th is requires that the business owners of the data take responsibility for making the changes necessary to improve the quality of the data.

To illustrate a need to improve data quality, a large hotel chain wanted to conduct tar- geted marketing promotions using zip code data collected during the check-in process. When the zip code data were profi led, many of the zip codes were found to be 99999. Obvi- ously, the clerks were not asking customers for their zip codes but needed to enter some- thing to complete the registration process. A short-term solution was to conduct the mar- keting campaign using city and state data. Th e long-term solution was to get the clerks to enter the actual zip codes. Th e latter required the hotel managers to take the responsibility for getting their clerks to enter better data. Governance. To ensure that BI is meeting organizational needs, it is necessary to have governance to plan and control BI activities. Th is requires that people, committees, and processes be in place. Companies that are eff ective in BI governance oft en have a senior-level committee made up of vice-presidents and directors who ensure that the business and BI strat- egies are in alignment; prioritize projects; and allocate resources. Th en there is a middle management–level committee that oversees the various projects in the BI portfolio and sees that the projects are being completed eff ectively and effi ciently. Lower-level operational commit- tees perform tasks such as creating data defi nitions and identifying and solving data problems. All these committees require the collaboration and contributions of business and IT personnel. Users. Once the data are in a data mart or warehouse, access is possible. Th is access begins the process of receiving business value from BI; everything else constitutes creating BI infrastructure.

Potential BI users are many, including IT developers; frontline workers; analysts; infor- mation workers; managers and executives; and suppliers, customers, and regulators. Some

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of these users are information producers in that they primarily create information for others. IT developers and analysts typically are in this category. On the other hand, some users are information consumers, including managers and executives, because they consume infor- mation created by others.

Companies have reported hundreds of successful data-warehousing applications. For example, you can read client success stories and case studies at the Web sites of vendors such as NCR Corp. (www.ncr.com) and Oracle (www.oracle.com). For a more detailed discussion, visit the Data Warehouse Institute (http://tdwi.org). Th e benefi ts of data ware- housing include the following:

• End users can access needed data quickly and easily via Web browsers because these data are located in one place.

• End users can conduct extensive analysis with data in ways that may not have been possible before.

• End users can obtain a consolidated view of organizational data.

Th ese benefi ts can improve business knowledge, provide competitive advantage, enhance customer service and satisfaction, facilitate decision making, and streamline busi- ness processes. IT’s About Business 3.2 demonstrates the benefi ts of data warehousing to the state of Michigan.

A Data Warehouse Provides Value for the State of Michigan

In a tight economic climate, state governments are looking closely at methods to save money. For instance, the state of Michigan tried to increase savings by con- solidating 40 data centers into 3 and consolidating state data into a data warehouse. The data warehouse contained data from the Department of Community Health, the state police, the department of corrections, the department of natural resources, the court adminis- tration offi ce, and many other state agencies.

The Michigan state data warehouse serves 10,000 users from 21 different state agencies. For the fi rst

time in Michigan state history, users of the data warehouse can analyze data across Mich- igan state agencies. Previously, state data had

resided in silos for each separate state agency. Analy- sis of the data in the data warehouse has provided the following interesting results:

• By accessing motor vehicle records and hunting and fi shing licenses, the state located parents who were behind (or had never paid) child support.

• The Michigan Department of Treasury increased the number of tax returns they review from 6,000 in the old paper- based system to 452,000 in 2011.

• The Michigan Department of Treasury can now use data to look at ways of revising the state tax code to make Michigan more attractive to business.

• The state can use birth records in the data warehouse to identify children born to Medicaid parents and enroll them in the same managed care plan as their parents.

• For patients with diabetes, the data warehouse tracks their treatment plans and treatment received, and can deliver a year’s health history to a new physician if a patient moves.

• The data warehouse helps the Department of Health and Human Services determine the best

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Despite their many benefi ts, data warehouses do have problems. First, they can be very expensive to build and to maintain. Second, incorporating data from obsolete main- frame systems can be diffi cult and expensive. Finally, people in one department might be reluctant to share data with other departments.

placement for foster children. If the department receives an emergency call to relocate a child, it can search its data on foster families, which is tied to geographical mapping data, and fi nd an appropriate home within the same neighbor- hood or school district to minimize the child’s disruption.

• The data warehouse revealed that the state’s lead poisoning prevention program was far less effective than previously thought by the Michigan Department of Health and Human Services. In response, department personnel then began going door to door in the most affected regions to warn residents of the danger, test residents who had not already been tested, and arrange for corrective measures.

What is the bottom line? Let’s only consider Med- icaid in Michigan. Michigan’s Medicaid program has a $14 billion budget, with almost 2 million clients. The

data warehouse is saving the Michigan Medicaid system $1 million each business day, as measured by Michigan’s Department of

Community Health. The state achieved these savings by billing Medicaid patients’ existing insurance plans

when they had them, using death records to recover payments made to clients who died, and reducing fraud.

Other states can follow Michigan’s lead and develop their own data warehouses. In that way, they too will be able to gain added effi ciency and effectiveness in state government.

Sources: Compiled from T. Groenfeldt, “Big Data Saves Michigan $1 Million Each Business Day,” Forbes, January 11, 2012; T. Groenfeldt, “Michigan Saves $1 Million Per Business Day with Data Warehouse,” WTN News, October 5, 2011; “State of Michigan Serves as National Model for Better Healthcare,” Ingenix.com, accessed February 25, 2012; “State of Michigan Data,” www. michigan.gov, accessed February 28, 2012.

Questions 1. Why is it so important for organizations to

integrate data that is currently stored in silos? Provide examples from the state of Michigan’s experience to support your answer.

2. What are some potential disadvantages of consolidating Michigan’s data into one data warehouse?

BEFORE YOU GO ON . . . 1. Differentiate between data warehouses and

data marts. 2. Describe the characteristics of a data

warehouse. 3. What are three possible architectures for

data warehouses and data marts in an organization?

Apply the Concept 3.4

Background Section 3.4 has shown you how that databases, data warehouses, and data marts are used to help organizations keep up with how fast the market

changes. Another diffi culty is that technology itself is changing so fast that it is hard to keep up with what is possible. Many organizations are at a point where they know they need to upgrade systems, but the possible technology options are so many they do not know which one will carry them the farthest into the future. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 3.4. It will take you to a YouTube video titled “UNC Data Warehouse” by user “ibmhealthcare.” Th is video will show an example of how University of North Carolina (UNC) brought multiple systems together in one data warehouse and

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improved project proposals and usability of the system. As you watch the video, think about the data now available that was not accessible before the university’s data warehouse was built. Also, consider the diff erent systems that support your university or college compared to the (somewhat) synchronized system at UNC.

Deliverable

List some of the challenges in implementing data warehouses at the UNC Health System. Also list the benefi ts the UNC Health System gained from its data warehouse. Now list the multiple systems you imagine your school has and what advantages they could receive from a single centralized system rather than multiple systems.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

3.5 Knowledge Management As noted throughout this text, data and information are critically important organizational assets. Knowledge is a vital asset as well. Successful managers have always used intellectual assets and recognized their value. But these eff orts were not systematic, and they did not ensure that knowledge was shared and dispersed in a way that benefi ted the overall organi- zation. Moreover, industry analysts estimate that most of a company’s knowledge assets are not housed in relational databases. Instead, they are dispersed in e-mail, word processing documents, spreadsheets, and presentations on individual computers. Th is arrangement makes it extremely diffi cult for companies to access and integrate this knowledge. Th e result frequently is less-eff ective decision making.

Concepts and Defi nitions Knowledge management (KM) is a process that helps organizations manipulate impor- tant knowledge that is part of the organization’s memory, usually in an unstructured format. For an organization to be successful, knowledge, as a form of capital, must exist in a format that can be exchanged among persons. In addition, it must be able to grow. Knowledge. In the information technology context, knowledge is distinct from data and information. As you learned in Chapter 1, data are a collection of facts, measurements, and statistics; information is organized or processed data that are timely and accurate. Knowl- edge is information that is contextual, relevant, and useful. Simply put, knowledge is informa- tion in action. Intellectual capital (or intellectual assets) is another term for knowledge.

To illustrate with an example, a bulletin listing all the courses off ered by your univer- sity during one semester would be considered data. When you register, you process the data from the bulletin to create your schedule for the semester. Your schedule would be consid- ered information. Awareness of your work schedule, your major, your desired social sched- ule, and characteristics of diff erent faculty members could be construed as knowledge, because it can aff ect the way you build your schedule. You see that this awareness is contex- tual and relevant (to developing an optimal schedule of classes) as well as useful (it can lead to changes in your schedule). Th e implication is that knowledge has strong experiential and refl ective elements that distinguish it from information in a given context. Unlike informa- tion, knowledge can be exercised to solve a problem.

Numerous theories and models classify diff erent types of knowledge. Here you will focus on the distinction between explicit knowledge and tacit knowledge. Explicit and Tacit Knowledge. Explicit knowledge deals with more objective, rational, and technical knowledge. In an organization, explicit knowledge consists of the policies, procedural guides, reports, products, strategies, goals, core competencies, and IT infrastructure of the enterprise. In other words, explicit knowledge is the knowledge that has been codifi ed (documented) in a form that can be distributed to others or transformed into a process or a strategy. A description of how to process a job application that is docu- mented in a fi rm’s human resources policy manual is an example of explicit knowledge.

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In contrast, tacit knowledge is the cumulative store of subjective or experiential learning. In an organization, tacit knowledge consists of an organization’s experiences, insights, expertise, know-how, trade secrets, skill sets, understanding, and learning. It also includes the organizational culture, which refl ects the past and present experiences of the organization’s people and processes, as well as the organization’s prevailing values. Tacit knowledge is generally imprecise and costly to transfer. It is also highly personal. Finally, because it is unstructured, it is diffi cult to formalize or codify, in contrast to explicit knowl- edge. A salesperson who has worked with particular customers over time and has come to know their needs quite well would possess extensive tacit knowledge. Th is knowledge is typically not recorded. In fact, it might be diffi cult for the salesperson to put into writing.

Knowledge Management Systems Th e goal of knowledge management is to help an organization make the most eff ective use of the knowledge it has. Historically, management information systems have focused on capturing, storing, managing, and reporting explicit knowledge. Organizations now realize they need to integrate explicit and tacit knowledge in formal information systems. Knowledge management systems (KMSs) refer to the use of modern information technologies—the Internet, intranets, extranets, databases—to systematize, enhance, and expedite intrafi rm and interfi rm knowledge management. KMSs are intended to help an organization cope with turnover, rapid change, and downsizing by making the expertise of the organization’s human capital widely accessible. IT’s About Business 3.3 describes a new type of knowledge management at Quora.

A Web Site for Gathering Subjective Knowledge

Two decades after the invention of the World Wide Web, vast areas of knowledge and experience are still not online, let alone searchable. “Ninety percent of the information people have is still in their heads and not on the Web,” says one of Quora’s cofounders. Quora’s other cofounder calls it “experiential knowledge.” Wiki- pedia (www.wikipedia.org) has amazing breadth and scope, but there is only so much that any encyclopedia, limited to verifi able facts about discrete nouns, can cap- ture within the entire database of human knowledge. On the other end of the “knowledge” spectrum, Web sites such as Facebook and Twitter allow people to describe their lives and to make personal observations. However, it is very diffi cult on such networks to separate informed opinions from speculation.

Quora (www.quora.com), a question-and-answer (Q&A) Web site, straddles the space between the two approaches—the objective (Wikipedia) and the subjec- tive (social networks). Other Q&A sites include Yahoo!

Answers (http://answers.yahoo.com) and WikiAnswers (http://wiki.answers.com). Yahoo! Answers is the leading Q&A site, with 204 million unique visitors worldwide in November 2011. But few searches can be satisfi ed with Yahoo! Answers, where the questions are often silly and the replies are often confl icting or fl at-out inaccurate. Many replies tend to be guesswork offered by people with little or no knowledge of the subject at hand.

On Quora’s Web site, you can get started with the page—framed as a question—about getting started on Quora. Or you can begin by sifting through random questions that are displayed in the center of the screen. On the top of the Quora homepage is a large search bar. Using key words, you can fi nd questions that others have already posed or choose topics to follow so that the Web site can begin serving up queries more suited to your interests. You can also start following people. That way, the questions that people you are following ask, the answers they get, and the questions they follow will show up in your feed. You can also vote “up” answers that you think are helpful, and vote “down” those that are not. All of your activity shows up in your feed.

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Knowledge Management 107

Quora offers several advantages over other Q&A sites, including the following:

• Real names are mandatory, so there is a heavy social cost to acting the fool. Real names increase the quality of answers and reduce bad behavior and fl aming. Quora does allow anony- mous posts, however, which helps when asking about a personal health issue, for example, or responding about your own experience as a fellow sufferer.

• Many Web sites provide only one viewpoint at a time on a particular issue, meaning that the user has to search for referencing articles or scan through many comments to fi nd a counterpoint. Quora allows both point and counterpoint to coexist at an equal level in a discussion.

• Quora encourages answers that are thorough and in-depth. In Quora’s community, the most valued responses refl ect honest intelligence and wisdom.

• Users can vote an answer up or down, the better to push quality to the top and frivolous or poorly conceived answers to the bottom (if not off the page entirely). Users can also deem an answer “not helpful”—a signal to the Quora team or one of the site’s hundred-plus volunteers that perhaps they should consider deleting it.

• Unlike on Facebook, everything users write can be trimmed, corrected, or otherwise edited by one of the rigorous volunteers. Volunteers often send answers back to their authors marked up with suggested edits. Questions, too, can get extensively reworded.

Quora’s goal is to capture as much subjective knowledge as possible. By creating an environment for members to post questions, answer questions, and rate the quality of others’ answers, Quora is building a searchable repository of information while it also builds a community. Quora hopes to attract so many users that its subjective, experiential, inherent knowledge will construct a comprehensive picture of the world.

Despite these admirable goals, one major com- plaint about Quora has emerged. Veteran members have noted a declining quality associated with the rapid growth in Quora membership. Both founders

acknowledge that the average quality of answers on Quora has declined signifi cantly. The site was fl ooded with so many new members at the start of 2011—a 500 percent increase in just one month—that at one point in mid-January 2011, half of Quora’s users had been on the site for two weeks or less. Quora’s “old hands” felt that the newcomers posed unintelligent questions. Even worse, the newcomers pushed up other users’ answers even when those answers were tangential and not helpful.

Another problem with Quora is the large gaps in its knowledge areas, which is only to be expected as the Web site is relatively young, having emerged in 2009. One example of a knowledge gap is that Quora has brilliant entries for high-tech startups but almost no entries for Hollywood.

Despite these shortcomings, in mid-2012 approxi- mately 300,000 people were visiting Quora’s Web site each month. Quora has not yet earned any revenue. But, if Quora can fulfi ll its vision of getting experts to engage in conversation and thus generate searchable and authoritative answers to many thousands of ques- tions, then it may someday grab more page views than Wikipedia by fi lling in gaps that no encyclopedia could ever address.

Sources: Compiled from N. Robertson, “Five Reasons Why Quora Matters to Marketers,” Marketingprofs.com, June 14, 2011; G. Rivlin, “Does Quora Really Have All the Answers?” Wired, April 26, 2011; M. Lowman, “The Mystery Behind Quora,” BostInnovation, February 1, 2011; S. Goodson, “Why Is Quora Exploding?” Forbes, January 11, 2011; M. Ingram, “Can Quora Survive Its Growing Popularity?” GigaOm, January 9, 2011; C. Arthur and J. Kiss, “Quora: The Hottest Question-and-Answer Website You’ve Probably Never Heard Of,” The Guardian, January 5, 2011; M. Siegler, “Quora Signups Exploded in Late December,” TechCrunch, January 5, 2011; Q. Hardy, “What Does Quora Know?” Forbes, November 18, 2010; www.quora.com, accessed February 26, 2012.

Questions 1. Compare and contrast Quora to knowledge

management systems in individual organizations. Could a Quora-type knowledge management system be used inside an organization? Why or why not? Support your answer.

2. Provide examples of how Quora can fi ll in the gaps in its searchable knowledge base.

Organizations can realize many benefi ts with KMSs. Most importantly, they make best practices, the most eff ective and effi cient ways of doing things, readily available to a wide range of employees. Enhanced access to best-practice knowledge improves overall organi- zational performance. For example, account managers can now make available their tacit

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108 3 l Data and Knowledge Management

knowledge about how best to handle large accounts. Th e organization can then use this knowledge to train new account managers. Other benefi ts include improved customer service, more effi cient product development, and improved employee morale and retention.

At the same time, however, implementing eff ective KMSs presents some challenges. First, employees must be willing to share their personal tacit knowledge. To encourage this behavior, organizations must create a knowledge management culture that rewards employees who add their expertise to the knowledge base. Second, the knowledge base must be continually maintained and updated. New knowledge must be added, and old, outdated knowledge must be deleted. Finally, companies must be willing to invest in the resources needed to carry out these operations.

The KMS Cycle A functioning KMS follows a cycle that consists of six steps (see Figure 3.13). Th e reason the system is cyclical is that knowledge is dynamically refi ned over time. Th e knowledge in an eff ective KMS is never fi nalized because the environment changes over time and knowl- edge must be updated to refl ect these changes. Th e cycle works as follows:

1. Create knowledge. Knowledge is created as people determine new ways of doing things or develop know-how. Sometimes external knowledge is brought in.

2. Capture knowledge. New knowledge must be identifi ed as valuable and be represented in a reasonable way.

3. Refi ne knowledge. New knowledge must be placed in context so that it is actionable. Th is is where tacit qualities (human insights) must be captured along with explicit facts.

Capture

Refine

Manage

Disseminate

Store

Create

Knowledge

Figure 3.13 The knowledge management system cycle.

BEFORE YOU GO ON . . . 1. What is knowledge management? 2. What is the difference between tacit

knowledge and explicit knowledge? 3. Describe the knowledge management

system cycle.

4. Store knowledge. Useful knowledge must then be stored in a reasonable format in a knowledge repository so that others in the organization can access it.

5. Manage knowledge. Like a library, the knowledge must be kept current. It must be reviewed regularly to verify that it is relevant and accurate.

6. Disseminate knowledge. Knowledge must be made available in a useful format to anyone in the organization who needs it, anywhere and anytime.

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What’s in IT for Me? 109

Apply the Concept 3.5

Background As you have already learned in this text, data are captured, stored, analyzed, and shared to create knowledge within organizations. Th is knowledge is

exposed in meetings when colleagues are interpreting the information they received from the latest report, when presentations are given, through e-mail among co-workers, etc. Th e problem many organizations face is that there are massive amounts of knowledge created and shared, but it is not stored in a centralized, searchable format. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the links provided for Apply the Concept 3.5. Th ey will take you to two YouTube videos. First is “Discover What You Know” by user “porterken” and second is “Lee Bryant—Knowledge Management” by user “usnowfi lm.” Each of these illustrate the importance of capturing knowledge within an organization so that it may be shared with the right person at the right time to help support making the right decision.

Deliverable

Write a short paragraph or two to discuss the challenges faced by companies when they attempt to implement a knowledge management system. How many of these are technical and how many are social? Also, discuss the ways that companies can use Web 2.0 technolo- gies to help capture and share knowledge. Submit this to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

What’s in for ME? FOR THE ACCOUNTING MAJOR Th e accounting function is intimately concerned with keeping track of the trans- actions and internal controls of an organization. Modern databases enable

accountants to perform these functions more eff ectively. Databases help accountants man- age the fl ood of data in today’s organizations so that they can keep their fi rms in compliance with the standards imposed by Sarbanes-Oxley. Accountants also play a role in cost justifying the creation of a knowledge base and then auditing its cost-eff ectiveness. In addition, if you work for a large CPA company that provides management services or sells knowledge, you will most likely use some of your company’s best practices that are stored in a knowledge base.

1. Explicit and tacit knowledge are two very different animals. Explicit knowledge is defi ned as knowledge that is easily captured. Tacit knowledge is more diffi cult to manage. Think of the bartender who works for Ruben and Lisa. What are some examples of explicit and tacit knowledge he/she may acquire over time?

2. Can you think of any ways to capture the tacit knowledge from a bartender and pass it on to another new employee?

Q U E S T I O N SRUBY’S CLUB

ffT

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110 3 l Data and Knowledge Management

FOR THE FINANCE MAJOR Financial managers make extensive use of computerized databases that are exter- nal to the organization, such as CompuStat or Dow Jones, to obtain fi nancial data

on organizations in their industry. Th ey can use these data to determine if their organiza- tion meets industry benchmarks in return on investment, cash management, and other fi nancial ratios. Financial managers, who produce the organization’s fi nancial status reports, are also closely involved with Sarbanes-Oxley. Databases help these managers comply with the law’s standards.

FOR THE MARKETING MAJOR Databases help marketing managers access data from the organization’s market- ing transactions, such as customer purchases, to plan targeted marketing cam-

paigns and to evaluate the success of previous campaigns. Knowledge about customers can make the diff erence between success and failure. In many databases and knowledge bases, the vast majority of information and knowledge concerns customers, products, sales, and marketing. Marketing managers regularly use an organization’s knowledge base, and they oft en participate in its creation.

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR Production/operations personnel access organizational data to determine opti- mum inventory levels for parts in a production process. Past production data

enable production/operations management (POM) personnel to determine the optimum confi guration for assembly lines. Firms also collect quality data that inform them not only about the quality of fi nished products but also about quality issues with incoming raw materials, production irregularities, shipping and logistics, and aft er-sale use and mainte- nance of the product. Knowledge management is extremely important for running complex operations. Th e accumulated knowledge regarding scheduling, logistics, maintenance, and other functions is very valuable. Innovative ideas are necessary for improving operations and can be supported by knowledge management.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR Organizations keep extensive data on employees, including gender, age, race, cur- rent and past job descriptions, and performance evaluations. HR personnel access

these data to provide reports to government agencies regarding compliance with federal equal opportunity guidelines. HR managers also use these data to evaluate hiring practices, evaluate salary structures, and manage any discrimination grievances or lawsuits brought against the fi rm. Databases help HR managers provide assistance to all employees as companies turn over more and more decisions about health care and retirement planning to the employees themselves. Th e employees can use the databases for help in selecting the optimal mix among these critical choices. HR managers also need to use a knowledge base frequently to fi nd out how past cases were handled. Consistency in how employees are treated not only is important, but it also protects the company against legal actions. In addition, training for building, maintaining, and using the knowledge system sometimes is the responsibility of the HR department. Finally, the HR department might be responsible for compensating employees who contrib- ute their knowledge to the knowledge base.

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Summary 111

FOR THE MIS MAJOR Th e MIS function manages the organization’s data as well as the databases. MIS database administrators standardize data names by using the data dictionary. Th is

process ensures that all users understand which data are in the database. Database person- nel also help users access needed data and generate reports with query tools.

SUMMARY 1. Discuss ways that common challenges in managing data

can be addressed using data governance. Th e following are three common challenges in managing data:

> Data are scattered throughout organizations and are col- lected by many individuals using various methods and devices. Th ese data are frequently stored in numerous servers and locations and in diff erent computing systems, databases, formats, and human and computer languages.

> Data come from multiple sources. > Information systems that support particular business

processes impose unique requirements on data, which results in repetition and confl icts across an organization. One strategy for implementing data governance is mas- ter data management. Master data management provides companies with the ability to store, maintain, exchange, and synchronize a consistent, accurate, and timely “single version of the truth” for the company’s core master data. Master data management consistently manages data gathered from across an organization, consistently man- ages data from multiple sources, and consistently man- ages data across business processes in an organization.

2. Explain how to interpret relationships depicted in an entity-relationship diagram. See Figure 3.4 and its accompanying explanation for a dem- onstration of interpreting relationships in an ER diagram.

3. Discuss the advantages and disadvantages of relational databases. Relational databases allow people to compare information quickly by row or column. In addition, items are easy to retrieve by fi nding the point of intersection of a particular row and column. On the other hand, large-scale relational data- bases can be composed of many interrelated tables, making the overall design complex with slow search and access times.

4. Explain the elements necessary to successfully imple- ment and maintain data warehouses. To successfully implement and main a data warehouse, an organization must:

> Link source systems that provide data to the warehouse or mart.

> Prepare the necessary data for the data warehouse us- ing data integration technology and processes.

> Decide on an appropriate architecture for storing data in the data warehouse or data mart.

> Select the tools and applications for the variety of orga- nizational users.

> Ensure that metadata, data quality, and governance processes are in place to ensure that the data ware- house or mart meets its purposes.

5. Describe the benefits and challenges of implementing knowledge management systems in organizations. Organizations can realize many benefi ts with KMSs.

> Best practices are readily available to a wide range of employees.

> Improved customer service; > More effi cient product development; > Improved employee morale and retention.

Challenges to implementing KMSs include: > Employees must be willing to share their personal tacit

knowledge; > Organizations must create a knowledge management

culture that rewards employees who add their exper- tise to the knowledge base

> Th e knowledge base must be continually maintained and updated.

> Companies must be willing to invest in the resources needed to carry out these operations.

Organizations can use knowledge management to develop best practices, to establish the most eff ective and effi cient ways of doing things, and to make these practices readily available to a wide range of employees. Other benefi ts of knowledge management include improved customer service, more effi cient product development, and improved employee morale and retention.

A functioning KMS follows a cycle that consists of six steps: create knowledge, capture knowledge, refi ne knowl- edge, store knowledge, manage knowledge, and dissemi- nate knowledge.

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112 3 l Data and Knowledge Management

attribute Each characteristic or quality describing a particular entity.

best practices Th e most eff ective and effi cient ways to do things.

bit A binary digit—that is, a 0 or a 1.

byte A group of eight bits that represents a single character.

clickstream data Data collected about user behavior and brows- ing patterns by monitoring users’ activities when they visit a Web site.

data dictionary Collection of defi nitions of data elements; data characteristics that use the data elements; and the individuals, busi- ness functions, applications, and reports that use this data element.

data governance An approach to managing information across an entire organization.

data mart A low-cost, scaled-down version of a data warehouse that is designed for the end-user needs in a strategic business unit (SBU) or a department.

data model Defi nition of the way data in a DBMS are conceptu- ally structured.

data warehouse A repository of historical data that are orga- nized by subject to support decision makers in the organization.

database A group of logically related fi les that stores data and the associations among them.

database management system (DBMS) Th e soft ware pro- gram (or group of programs) that provides access to a database.

entity A person, place, thing, or event about which information is maintained in a record.

entity classes Groupings of entities of a given type.

entity-relationship (ER) diagram Document that shows data entities and attributes and relationships among them.

entity-relationship (ER) modeling Th e process of designing a database by organizing data entities to be used and identifying the relationships among them.

explicit knowledge Th e more objective, rational, and technical types of knowledge.

field A grouping of logically related characters into a word, a small group of words, or a complete number.

file A grouping of logically related records.

identifiers Attributes that are unique to an entity instance.

instance A particular entity within an entity class.

intellectual capital (or intellectual assets) Other terms for knowledge.

knowledge management (KM) A process that helps organiza- tions identify, select, organize, disseminate, transfer, and apply informa- tion and expertise that are part of the organization’s memory and that typically reside within the organization in an unstructured manner.

knowledge management systems (KMSs) Information tech- nologies used to systematize, enhance, and expedite intra- and inter- fi rm knowledge management.

master data A set of core data, such as customer, product, em- ployee, vendor, geographic location, and so on, that spans an enter- prise’s information systems.

master data management A process that provides companies with the ability to store, maintain, exchange, and synchronize a con- sistent, accurate, and timely “single version of the truth” for the com- pany’s core master data.

multidimensional structure Storage of data in more than two dimensions; a common representation is the data cube.

normalization A method for analyzing and reducing a relational database to its most streamlined form for minimum redundancy, maximum data integrity, and best processing performance.

online transaction processing (OLTP) Processing of business transactions online as soon as they occur.

primary key Th e identifi er fi eld or attribute that uniquely identi- fi es a record.

query by example (QBE) Database language that enables the user to fi ll out a grid (form) to construct a sample or description of the data wanted.

record A grouping of logically related fi elds.

relational database model Data model based on the simple concept of tables in order to capitalize on characteristics of rows and columns of data.

secondary key An identifi er fi eld or attribute that has some iden- tifying information but typically does not identify the fi le with com- plete accuracy.

structured query language (SQL) Popular relational database language that enables users to perform complicated searches with relatively simple instructions.

table A grouping of logically related records.

tacit knowledge Th e cumulative store of subjective or experien- tial learning, which is highly personal and hard to formalize.

>>> C H A P T E R G L O S S A R Y

1. Explain the diffi culties involved in managing data.

2. What are the problems associated with poor-quality data?

3. What is master data management? What does it have to do with high-quality data?

4. Explain why master data management is so important in companies that have multiple data sources.

5. Describe the advantages of relational databases.

6. Explain why it is important to capture and manage knowledge.

7. Compare and contrast tacit knowledge and explicit knowledge.

>>> D I S C U S S I O N Q U E S T I O N S

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Collaboration Exercise 113

1. Access various employment Web sites (e.g., www. monster.com and www.dice.com) and fi nd several job descriptions for a database administrator. Are the job descriptions similar? What are the salaries off ered in these positions?

2. Access the Web sites of several real estate companies. Find the sites that take you through a step-by-step process for buying a home, that provide virtual reality tours of homes in your price range and location, that provide mortgage and interest rate calculators, and that off er fi nancing for your home. Do the sites require that you register to access their services? Can you request that an e-mail be sent to you when properties in which you might be interested become available?

3. It is possible to fi nd many Web sites that provide demographic information. Access several of these sites and see what they off er. Do the sites diff er in the types of demographic information they off er? If so, how? Do the sites require a fee for the information they off er? Would demographic information be useful to you if you wanted to start a new business? If so, how and why?

4. Th e Internet contains many Web sites that provide information on fi nancial aid resources for students. Access several of these sites. Do you have to register to access the information? Can you apply for fi nancial aid on the sites, or do you have to request paper applica- tions that you must complete and return?

5. Draw an entity-relationship diagram for a small retail store. You wish to keep track of the product name, description, unit price, and number of items of that product sold to each customer. You also wish to record customer name, mailing address, and billing address. You must track each transaction (sale) as to date, product purchased, unit price, number of units, tax, and total amount of the sale.

6. Draw the entity-relationship diagram for the following patient appointment system. Th e business rules of this system are the following:

A doctor can be scheduled for many appointments but might not have any scheduled at all. Each appoint- ment is scheduled with exactly one doctor. A patient can schedule one or more appointments. One appointment is scheduled with exactly one patient. An appointment must generate exactly one bill, and a bill is generated by only one appointment. One payment is applied to exactly one bill, and one bill can be paid off over time by several payments. A bill can be outstanding, having nothing yet paid on it at all. One patient can make many payments, but a single payment is made by only one patient. Some patients are insured by an insurance company. If they are insured, they can only carry insurance with one insurance company. An insurance company can have many patients carry their policies. For patients who carry insurance, the insurance company will make payments, with each single payment made by exactly one insurance company.

7. Access the Web sites of IBM (www.ibm.com), Sybase (www.sybase.com), and Oracle (www.oracle.com), and trace the capabilities of their latest data management products, including Web connections.

8. Enter the Web site of the Gartner Group (www.gartner. com). Examine the company’s research studies pertain- ing to data management. Prepare a report on the state of the art.

9. Calculate your personal digital footprint at http://www. wiley.com/go/rainer/problemsolving.

10. Diagram a knowledge management system cycle for a fi ctional company that sells customized T-shirts to students.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

Background

Imagine that you and a few colleagues are given the job of determining designing a database for a pet store. Th e manager has asked that the following data be collected. Of course, there are multiple attributes for each of these entities. Your team has been tasked with outlining the specifi c data required to make this database a reality.

• Customer data • Product data • Employee data • Financial data • Vendor data • Sales data

• Inventory data • Building data • Other data (specify)

Recall from the chapter that an entity-relationship diagram (ER diagram) displays the data that would be contained within multiple tables as well as the relationships between those tables.

Activity

Divide into teams as instructed by your professor. Th en equally divide the team by functional area. You will need some operations, marketing, accounting, human resources, management, etc., representatives on your team. Decide

>>> C O L L A B O R AT I O N E X E R C I S E

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114 3 l Data and Knowledge Management

which functional area should work with the entities listed above. Independently defi ne the attributes for each entity. Once you complete this individual task, work with your group to fi nd relationships among the attributes. You may have to add or remove or change some to reconcile the data you would collect in the individual tables. Build your ER Diagram using Google Docs. If you are not familiar with Google Drawings, visit http://www.wiley.com/

go/rainer/collaboration and click on the link for Chapter 3 Collaboration Exercise. It will take you to a YouTube and search for “Introduction to Google Drawing” by “logontolearn.”

Deliverable

Submit your group’s ER Diagram to your instructor to review.

CLOSING CASE 1 > Big Data

Organizations and individuals need to process an unimaginably vast amount of data that is growing ever more rapidly. According to the IDC Digital Universe study, in 2011 the world generated 1.8 zettabytes of data. (A zettabyte is one trillion gigabytes, the equivalent of the information on 250 billion DVDs.) Furthermore, the amount of data produced worldwide is increasing by 50 percent each year. Analysts have coined the term Big Data for the super- abundance of data available today. Big data generally consists of the following: ● Traditional enterprise data—examples include customer information from customer

relationship management systems, transactional enterprise resource planning data, Web store transactions, general ledger data.

● Machine-generated/sensor data—examples include smart meters, manufacturing sen- sors, equipment logs, trading systems data.

● Social data—examples include customer feedback comments, microblogging sites such as Twitter, social media sites such as Facebook.

Big Data makes it possible to do many things that were previously impossible: e.g., spot business trends more rapidly and accurately, prevent disease, track crime, etc. Big Data, properly analyzed, can reveal valuable patterns and information that were previously hid- den because of the amount of work required to discover them. Leading corporations, such as Walmart and Google, have been able to process Big Data for years, but they have had to do so at great expense. Today’s commodity hardware, cloud computing (see Plug IT In #3), and open source soft ware bring Big Data processing within budget for most organizations.

Th e problems with Big Data fall into three general categories: volume, velocity, and variety. ● Volume: Irrespective of the source, structure, format, and frequency of data, data is al-

ways valuable. If a certain kind of data seems to have no value today, it is because we have not yet been able to analyze it effectively. For example, several years ago when Google began harnessing satellite imagery, capturing street views, and then sharing this geo- graphical data for free, few people understood its value at that time. Today, we recognize that such data is incredibly valuable.

Consider machine-generated data, which is produced in much larger quantities than nontraditional data. For instance, sensors in a single jet engine can generate 10 terabytes of data in 30 minutes. With more than 25,000 airline fl ights per day, the daily volume of data from just this single source is incredible. Smart electrical meters, sensors in heavy industrial equipment, and telemetry from automobiles add to the volume problem.

● Velocity: The rate at which data fl ows into an organization is rapidly increasing. Veloc- ity is critically important because it increases the speed of the feedback loop between a company and its customers. For example, the Internet and mobile technology mean that online retailers are able to compile histories not just on fi nal sales, but on their

THE PROBLEM >>>

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Closing Case 1: Big Data 115

customers’ every click and interaction. Companies that are able to quickly utilize that information—for example, by recommending additional purchases—gain competitive advantage.

● Variety: Traditional data formats tend to be relatively well described and change slowly. Examples of traditional data include fi nancial market data, point-of-sale transactions, and many others. In contrast, nontraditional data formats change rapidly. Nontradi- tional data formats include satellite imagery, broadcast audio streams, digital music fi les, Web page content, scans of government documents, and comments on social networks.

Th e fi rst step for many organizations toward managing Big Data was to integrate informa- tion silos into a database environment and then to develop data warehouses for decision making. Aft er completing this step, many organizations turned their attention to the busi- ness of information management—helping to make sense of their proliferating data. In recent years, Oracle, IBM, Microsoft , and SAP have spent billions of dollars all together buying soft ware fi rms that specialize in data management and business intelligence. (You will learn about business intelligence in Chapter 5.)

Many organizations are turning to NoSQL databases (think of them as “not only SQL” databases) to process Big Data. Th ese databases provide an alternative when a fi rm does not have traditional, structured data that fi ts neatly into the rows and columns of relational databases.

NoSQL databases can handle unstructured data and inconsistent or missing data. Many products utilize NoSQL databases, including Cassandra (http://cassandra.apache. org), CouchDB (http://couchdb.apache.org), MongoDB (www.mongodb.org), and Hadoop (http://hadoop.apache.org). As of mid-2012, Hadoop was receiving the most attention.

Hadoop is a soft ware platform that stores and manages large volumes of structured and unstructured data. Clickstream and social media applications are driving much of the demand for Hadoop, with particular emphasis on MapReduce. MapReduce is a data- processing approach supported on Hadoop (and other soft ware packages) that is ideal for processing big volumes of these new data types. MapReduce breaks a Big Data problem into subproblems, distributes those onto hundreds or thousands of servers, then combines the results to come up with an answer to the overarching data problem.

At the turn of the twentieth century, new fl ows of information through channels such as the telegraph and telephone supported mass production. Today, the availability of abundant data from a myriad of sources enables companies to cater to small niche markets (and even individual customers) anywhere in the world.

Some industries have led the way in their ability to gather and exploit data. Consider these industry examples: ● Credit card companies monitor every purchase and can accurately identify fraudulent

ones, using rules derived from analyzing billions of transactions. ● Insurance companies can analyze data in such a way as to spot suspicious claims.

● Mobile phone companies analyze subscribers’ calling patterns to determine whether most of their frequent contacts are on a rival network. If that rival network is offering an attractive promotion that might cause that subscriber to defect, he or she can be offered an incentive to stay.

● Retailers effectively analyze customer transactions to tailor promotions. Retailers also watch online sales and marketing trends, and closely monitor and analyze social media comments about their products, brands, and the companies themselves.

● The oil industry examines seismic data before drilling new wells in order to increase the likelihood that oil companies will fi nd oil and not a “dry hole.”

Unfortunately, despite years of eff ort, law enforcement and intelligence agencies’ data- bases are not particularly well integrated with each other. For instance, in the healthcare industry, large-scale eff orts to computerize health records have hit bureaucratic, techno- logical, and ethical roadblocks.

<<< THE RESULTS

<<< THE IT SOLUTION

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116 3 l Data and Knowledge Management

Despite these diffi culties, stories of eff ective data management in organizations abound. As just one example, let’s look at Nestlé. Nestlé sells more than 100,000 products in 200 countries, using 550,000 suppliers. Previously, the company was not using its huge buying power eff ectively because its databases had severe problems. Nestlé found that of its 9 mil- lion records of vendors, customers, and materials, about one-half were obsolete or dupli- cated and about one-third of the remainder was inaccurate or incomplete. Th e company overhauled its databases, improving the quality of its data. With the improved data, its American operation was able to save $30 million per year on just one ingredient (vanilla). Savings and improved effi ciency such as Nestle experienced will continue to become the norm for companies around the world, leading to improved decision making and competi- tive success. Sources: Compiled from S. Lohr, “Th e Age of Big Data,” Th e New York Times, February 11, 2012; “Volume, Veloc- ity, Variety: What You Need to Know About Big Data,” O’Reilly Media, January 19, 2012; E. Dumbill, “Five Big Data Predictions for 2012,” O’Reilly Media, December 14, 2011; “IDC Digital University Study 2011,” http://www. emc.com/collateral/demos/microsites/emc-digital-universe-2011/index.htm, 2011; J. Enriquez, “Th e Glory of Big Data,” Popular Science, November, 2011; R. Pacella, “Where Data Lives,” Popular Science, November, 2011; D. McCaff erty, “Th e Big Data Conundrum,” CIO Insight, November 9, 2010; D. Henschen, “Big Data,” Infor- mationWeek, October 10, 2011; M. Korn and S. Tibken, “Fumbling Over Data,” Th e Wall Street Journal, October 3, 2011; R. King, “Getting a Handle on Big Data with Hadoop,” Bloomberg BusinessWeek, September 7, 2011; D. Henschen, “What’s at Stake in the Big Data Revolution?” InformationWeek, August 18, 2010; S. Nunziata, “Busi- ness Analytics: Turning IP into Opportunity,”CIO Insight, August 17, 2010; D. Henschen, “Th e Big Data Era: How Data Strategy Will Change,” InformationWeek, August 7, 2010; M. Loukides, “What Is Data Science?” O’Reilly Media, June 2, 2010; “Data, Data Everywhere,” Th e Economist, February 25, 2010; D. Bollier, “Th e Promise and Peril of Big Data,” Th e Aspen Institute, January 1, 2010; T. Davenport, J. Harris, and R. Morison, “Analytics at Work: Smarter Decisions, Better Results,” Harvard Business Press, 2010; “Big Data—It’s Not Just for Google Anymore,” AMD White Paper, 2010; www.nestle.com, www.ibm.com, accessed February 19, 2011.

Questions 1. Is Big Data really a problem on its own, or are the use, control, and security

of the data the true problem? Provide specifi c examples to support your answer.

2. What are the implications of having incorrect data points in your Big Data? What are the implications of incorrect or duplicated customer information? How valuable are decisions that were made based on faulty information derived from incorrect data?

CLOSING CASE 2 > Kayak Uses QuickBase for Global Collaboration

Kayak, a travel Web site (www.kayak.com), wished to provide as-complete-as-possible real- time information on the pricing and availability of fl ights, hotels, automobile rentals, and other travel options to the thousands who visit their Web site each day. Although a large majority of its customer service, operations, and system development work occurs within the United States, Kayak still needed an effi cient way to coordinate and collaborate with employees and business partners in Europe, India, and China. Th e company lacked the abil- ity to update and exchange huge spreadsheets among dozens of people worldwide.

Another key area that Kayak had to address was their response time to customer feed- back. Th e company received many messages from customers each day, and considered this feedback to be an early predictor of the feelings of its customer base. For instance, if there was a travel provider who was performing poorly or if Kayak’s user interface on Safari browsers was not functioning properly, the company needed to be aware of these issues as soon as possible.

THE PROBLEM >>>

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Closing Case 2: Kayak Uses QuickBase for Global Collaboration 117

With such a diverse range of customer issues to address, Kayak’s philosophy was (and is) that every Kayak employee is a customer service representative. However, Kayak was impeded from fulfi lling this philosophy because it still lacked an effi cient method to quickly get customer feedback to the appropriate employees so that they could respond in a timely manner.

Kayak selected QuickBase as its IT solution to their above issues. QuickBase (http:// quickbase.intuit.com) is a Web-based collaborative database application that allows devel- opers and users to create their own custom applications without writing any computer code. QuickBase also enables Kayak to create customer applications that match their preex- isting business processes and then integrate those processes with their existing systems. Th at way, Kayak can centralize important data on the Web.

As a Web-based database, QuickBase improves the way Kayak’s distributed teams col- laborate. Kayak’s teams can now share information among members, customers, and busi- ness partners in real time. QuickBase also saves Kayak teams time by automating adminis- trative tasks. For instance, e-mail notifi cations and reminders keep team members informed and help them stay on track. QuickBase also allows Kayak to set custom roles and permis- sions to determine each team member’s level of access to data, so that team members only see database information to which they have been granted access.

Now, Kayak users can import data from an existing application, or add, edit, and delete data directly in QuickBase by fi lling in simple, customizable forms. Th ese data processes automatically update Kayak’s online database in real time, so regardless of when or where Kayak’s business teams work, they have accurate, up-to-date information that is easily accessible in one central location.

Best of all, QuickBase is hosted by Intuit (www.intuit.com), which means that Kayak does not need to buy, deploy, or maintain an information technology infrastructure. Th ere- fore, Kayak does not need to maintain an information systems department, which saves the company a great deal of time and money.

Kayak uses QuickBase to help manage its global internal and external systems developers who build and maintain its Web site. QuickBase provides a central repository where all team members can check in with their latest status, issues, questions, and other collabora- tive communications. Hundreds of Kayak employees share this information around the clock and around the world. Since 2009, Kayak has completed over 100 projects with out- side developers using QuickBase.

Kayak also uses QuickBase to create a sophisticated customer service application. When a customer message arrives, QuickBase can automatically analyze its contents and route it to a Kayak customer service representative for immediate attention. Th is automatic routing allows customer representatives to specialize—so one representative might fi eld questions about passwords, while another fi elds questions about credit cards, and still another fi elds questions about hotel sales. Once routed, QuickBase tracks all questions and answers. Th e representative receives the question, clicks the link, and goes to the QuickBase record where he or she sees complete details about the issue, including the thread history. Th is customer service application is so innovative that Kayak has applied for a patent on it. Sources: Compiled from R. Wang, “How Intuit Uses Cloud Computing,” Forbes, February 9, 2012; “QuickBase Helps Kayak Coordinate Global Teams and Manage Customer Feedback,” QuickBase Customer Success Story, http://intuit.quickbase.com, accessed February 26, 2012; B. Ives, “Shareable Databases: Intuit QuickBase Bringing Desktop Database Users into Enterprise 2.0,” Th e App Gap, February 17, 2009.

Questions 1. Describe the many ways that Kayak uses QuickBase. Is QuickBase just a

database management system, or is it something more? Support your answer.

2. How can Kayak, a Web-based company, operate without an information systems department? (Hint: See Plug IT In 3.) What are the advantages and disadvantages of operating this way?

<<< THE IT SOLUTION

<<< THE RESULTS

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118 3 l Data and Knowledge Management

It is important for Ruben and Lisa (on the front end) to determine the structure of their database. As you have learned in the chapter, this structure is called an entity- relationship (ER) model and is illustrated by an ER diagram. They would like to collect Customer Name, Drinks and/ or Food Purchased by customer, Sale Amount, Payment Method, Date and Time of Transaction, Drinks sold by Time, Food sold by Time, Time from entrance or last purchase (i.e., how long it took a customer to buy the fi rst drink), Drink Ingredients Used, Food Ingredients Used, Band Playing, and Genre for starters.

Ultimately, Ruben and Lisa want a system to capture data on the way out the door for an “Exit Survey.” It would be simple and only include a couple of items, but a quick rating of the overall experience by users would be worth a lot for the club’s planning process. They really feel these data items could be combined in various ways to give them very useful information. For now, these two business owners just need help getting the structure right. Take these items and create an appropriate ER diagram and submit it to Ruben and Lisa (your professor).

I N T E R N S H I P A S S I G N M E N T

Objective: Normalization is taught in this chapter. Often, normalization begins when organizations are ready to transition from a large spreadsheet to a multidimensional database. This exercise will have you work your way through this transition.

Chapter Connection: Primary key, secondary key, and attributes: These terms are a bit abstract until you have to make these determinations yourself. The process of normalization is best when it is practiced. Spreadsheets provide the perfect opportunity.

Activity: When schools fi rst began keeping digital records of students, they used a spreadsheet to manage the data. It did not take long before it was obvious that the spreadsheet alone was not suffi cient to manage this information. The problem was that the spreadsheet recorded each student as a single event. Every time someone accessed the page to update a grade, contact information, receipt of payment, or class enrollment, that person had to access the main page to make changes. This meant that everyone had access to everything. The registrar could see fi nancial information and the bursar could see academic information. A database, no doubt, is more suited for this type of application and the normalization process will prepare the spreadsheet for conversion. Visit http://www.wiley.com/go/rainer/spreadsheet and download the spreadsheet for this exercise (MIS— Chapter 3.xlsx). Carefully choose a primary key

according to the defi nitions provided in this chapter. Look for data that will uniquely identify each student. Perhaps this will be a student number or a combination of the student’s last and fi rst name. Whatever you decide, normalize the data and allow the primary key to tie the information together from one sheet to another. Your normalized spreadsheet will have multiple sheets rather than one single sheet. Perhaps you will have student information, fi nancial information, academic enrollment, major, grades, etc. Take the single sheet and move the data into multiple sheets. Be sure to copy your primary keys onto each page so that the data can be reconciled.

Deliverable: The fi nal product will be a normalized spreadsheet that is much easier to understand and update and that is ready to be converted to a database.

Discussion Questions:

1. Even though this exercise is about normalization for a database, is it also helpful to have data normalized in a spreadsheet? Why or why not?

2. What are the differences in spreadsheets and databases when it comes to data manipulation?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

SPREADSHEET ACTIVITY

RUBY’S CLUB

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Database Activity 119

DATABASE ACT IV ITY: ENTITY-RELATIONSHIP DIAGRAMS (ERDs) Objective Just as every house begins with an architectural drawing, every database must begin with a data model. In this activity, you will develop the most common type of data model: an entity-relationship diagram (ERD).

CHAPTER CONNECTION Section 2 of this chapter introduces you to data modeling, specifi cally entity-relationship diagramming, as part of learning about database management. This activity applies those concepts. Understanding the structure of a database is a good guide to developing it. It reduces the chances of errors that will be diffi cult to correct later on. In addition, professional database developers communicate with ERDs when they design a database for business needs. The ERD defi nes what the database will be. Knowing their language will improve your chances of getting a database that meets your needs.

PREREQUISITES Read the following material before proceeding on to the activity. Reading this chapter will also put the activity in perspective.

ERD Styles The ERD style that the book uses is one of many. They are similar but differ in details. If you learn one, you will be able to understand an ERD in another, much as an English speaker from London can converse with someone from New York. Some differences among versions follow:

• The name of an entity may be shown outside its box (usually just above it, as in part b of the fi gure in the book) or inside it (as in part a of the fi gure).

• The attributes of an entity may be shown in a separate box (as in the fi gure in the book), within its box, or in ovals surrounding the box and connected to it.

• An entity’s primary key may be in bold type; starred; underlined; or if the name of the entity is outside the box, in a separate part of the box (as in part b of the fi gure in the book).

• Foreign keys can be shown in italics or set off in any other way that is not the same as the one used for primary keys, not identifi ed at all, or not shown at all. In this last case, the lines connecting entities convey the relationship information.

• Relationships can be described in diamonds on the lines (as in part a of the fi gure in the book), in text next to the lines, or not described in the ERD.

When relationships are described once, the direction of the description is not always clear. In the fi gure, does “Can have” between Class and Professor mean “a class can have a professor” or “a professor can have a class?” It does not say. That is why some diagramming methods describe each relationship twice, once for each direction.

• When a relationship has “one” at one end, there may be a short line across the relationship line (as in part a of the fi gure in the book) or no symbol at all. In that case, the information is conveyed by the absence of crows’ feet.

ERD Symbols An ERD shows the kind of relationship two entities have by symbols at the ends of the line that connects the entities. Each end of each line has two symbols. The symbol all the way at the end of the line defi nes the maximum cardinality of the relationship: How many of that entity can there be? Rather than an exact count, the options are simply 1 or many, because that is all that matters in most database designs. A maximum of 1 is indicated by a short line across the line that connects the entities. A maximum of more than 1 is indicated by “crows’ feet”: three lines spreading out like the toes on a bird’s foot. Further away from that symbol is a symbol for minimum cardinality: What is the smallest valid number of this entity that there can be? Here, the choices are 0 (there does not have to be one) and 1 (there must be at least one). Zero is shown by a circle. You can think of it as representing the digit 0 or the fi rst letter of the word optional. A short line across the line that connects the entities means a minimum of 1. This is the same symbol as is used to indicate a maximum of 1, but there is no possible confusion because they are in different places.

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120 3 l Data and Knowledge Management

The four possible combinations of these two pairs of symbols, and their meanings, are as follows:

One or more

Exactly one

Zero or more

Zero or one

Suppose you have a database with information about students and their computers. Each computer belongs to exactly one student. A student, however, may have more than one computer—or may not have any. That one-to-many relationship would be shown this way:

Student Computer

A relationship in which both entities have a maximum cardinality of one is called a one-to-one relationship. If one of the entities has a maximum cardinality of many, it is called a one-to-many (or many-to-one) relationship. If they both do, it is called a many-to-many relationship.

Associative Entities Because foreign keys only work in one direction at a time, a many-to-many relationship requires a new table between the two entities. For example, consider a school database. There is a many-to-many relationship between students and courses: each student can take more than one course, and each course can have more than one student. A database cannot show that directly. A row of the course table cannot have a foreign key for students, because there can be more than one. A row of the student table cannot have a foreign key for courses either, because there can also be more than one. The solution is to put a third entity between them. Each row in it refl ects one student taking one course. Its ERD would look like this:

CourseStudent Grade

In this example, that entity also stores each student’s grade in that course, and takes its name from this. The grade cannot be in the student table, because students may earn different grades in different courses. It cannot be in the course table, because

different students in the same course may earn different grades. It has to go in a table that describes that unique combination of student and course. The circle symbols in this ERD fragment shows that a student might not be in any courses and that a course might not have any students. This would be the situation before students register for courses. It also shows that, if there is a record in the Grade table, it goes with exactly one student, no more and no less, and with exactly one course, also no more and no less. Finally, it shows that a student may be in more than one course and that a course may have more than one student. Be sure you understand how the ERD shows these things. Sales databases usually have a Line Item table that works this way. (The ORDERED-PARTS table in Section 3.3 is an example of this.) Each order can be for many products. Each product can appear in many orders. Each row of this table is for one product in one order. In this case, the additional data in that entity is the quantity of the item in the order. An entity that goes in the middle of a many-to- many relationship is called an associative entity. As a minimum, it contains two foreign keys: one for each connection. Often, as in these two examples, it also carries data. When an associative entity carries data, an ERD must show it. If it exists only to make the many-to-many relationship work and has no data of its own, some ER diagramming approaches show it but others do not. An associative entity, like any other entity, needs a primary key. Neither foreign key is unique, so they will not work. Suppose Susan is registered for English 307. The foreign key that identifi es Susan is not unique in the Grades table, because she has other courses.. The one that identifi es English 307 is not unique either, because other students also take it. However, Susan is only registered for it once, so the combination of Susan and English 307 is unique. Such a primary key, a unique combination of columns that are not unique individually, is called a composite key. To avoid dealing with composite keys, associative entities can be given separate primary keys such as sequence numbers. They do not mean anything, but they satisfy the requirement that every table must have a primary key.

Activity 1. Read the following description of a business

situation: A university needs a database to record student

information. You know the following: • The database will store information on

departments, courses, sections, and students. • Each department can teach many courses. • Each course is taught by one department. • Each course can have many sections.

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Database Activity 121

• Each section belongs to one course. • Each section has many students. • Each student enrolls in many sections.

2. Draw an ERD for a database that will convey the information in the above description. Use the graphics program of your choice, or paper and pencil. (People who draw ERDs for a living use specialized graphics programs that have the required shapes built in and that can enforce the rules of entity-relationship diagramming.)

• Show all relationships among entities. For each end of each relationship, use ERD symbols to show both the minimum cardinality (0 or 1; that is, can it be absent or must there be one?) and the maximum cardinality (1 or many). Use a short line across the relationship line to show a maximum cardinality of 1, as in the book.

• Show the primary key of each entity in a separate area at the top of the entity box, as in the fi gure in the book.

• Show all the foreign keys in each entity. Underline them.

• Show at least three attributes of each entity, based on your understanding of the situation described. If you cannot think of three, show all you have.

Deliverable Your completed ER diagram.

Quiz Questions 1. Which of the following is not a possible type of

relationship between database entities as shown in an ERD? (a) One to one (b) Many to many

(c) Two to one (d) Many to one

2. True or false: A many-to-one relationship requires an associative entity.

3. An associative entity has a primary key and at least this many foreign keys: (a) 0 (b) 1 (c) 2 (d) 3

4. The attributes of an entity are (a) The data items that describe it in a database (b) The names it can be called by (c) The foreign keys in its database record (d) The date and time it was entered into the

database, and the user ID of the person who entered it

Discussion Questions

1. Why is it important for people who are not database specialists to be familiar with ER concepts and diagramming?

2. Where does an ERD show the attributes of an entity?

3. What ERD symbols indicate a many-to-one relationship?

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4

CHAPTER OUTLINE

4.1 What Is a Computer Network?

4.2 Network Fundamentals 4.3 The Internet and the World

Wide Web 4.4 Network Applications

Telecommunications and Networking

LEARNING OBJECTIVES >>>

1. Compare and contrast the two major types of networks. 2. Describe the wireline communications media and transmission technologies. 3. Describe the most common methods for accessing the Internet. 4. Explain the impact that networks have had on business and everyday life for

each of the six major categories of network applications.

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Sometimes, using the right network can make all the diff erence. What is the right network? Well, it depends. As an organization grows, its network will need to change and evolve to meet its new needs. Th is is exactly the case with Studio G, an architec- ture fi rm in San Jose, California. When the fi rm had just been founded, it had only two employees and they needed only two lines to communicate with their customers. However, as the business grew, Studio G needed a better communication solution.

Solving the communication problem should be simple. Just add more telephone lines, right? Not quite. Studio G did not have a receptionist, so they needed some type of networked phone system that could route calls and help customers reach the appropriate contact. Th e only type of system capable of routing calls in this way is a private branch exchange (PBX). A PBX is a telephone exchange that serves a particular business or offi ce, as opposed to a telephone exchange operated by a telephone company for several businesses or for the public. A PBX makes connections among the internal telephones of a private

organization and connects them to the public switched telephone network.

As their networked phone system provider, Studio G chose Cisco’s Small Business Unifi ed Communications Series. Cisco’s system provides excellent fl exibility in routing calls and voice mails, transferring calls, etc. Also, the system provided these functions without the owners having to pay for a receptionist.

What is the result? Studio G is now able to keep pace with their larger competitors because of their ability to communicate with their customers at a fraction of the cost spent by other organiza- tions. Kelly Simcox, owner of Studio G Architects, Inc. said “We have grown substantially . . . [and] are competing for projects against fi rms that are substantially larger than ours.”

As we can see, in this situation, the right telecommunication solution was not the age-old telephone line. In fact, it was a computerized networking solution that utilized Web > > >

OPENING CASE > Studio G

© rzdeb/iStockphoto

The network at Ruby’s Club has consisted of digital subscriber line (DSL) and a computer. This is not much of a local area network (LAN) at all. To accomplish their desires of a collecting data from different customer contact points (such as cover charge, food and/or drink purchases, exit questionnaire), they will need multiple computers or devices connected to their network. Additionally, to create the community atmosphere they desire, they want to offer wireless Internet access to their customers so they never feel out of touch.

This will require lots of networking hardware on both the internal wired LAN and the public wireless LAN. To make matters more diffi cult, Ruben and Lisa know nothing about establishing a network. They did not even install their own DSL line . . . it was connected by their local telephone company. All they know is how to turn it on and the right phone number to call when they have a problem. Establishing and maintaining a LAN that connects employees and customers, while providing adequate security for all parties, will be quite an undertaking. However, they believe the benefi ts of establishing this network will far outweigh the costs.

Because you are learning about telecom and networks, it will be very helpful for you to share this information with them with a recommendation on how to build out their network!

RUBY’S CLUB

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124 4 l Telecommunications and Networking

Questions 1. As a business grows, why do its communication

network needs grow? 2. What advantages does the Cisco system provide for

Studio G?

technology and high-speed Internet. Many similar solutions are available today for small businesses to help them communicate with their customers in more effi cient ways. As you have seen in this case, networking solutions will continue to allow small businesses to compete on a more level playing fi eld with their larger competitors, which may have signifi cant ramifi cations for the customer in terms of pricing and available options.

Sources: Compiled from “Small Architecture Firm Keeps Pace with Large Competitors,” Cisco Customer Case Study, 2011; www.cisco.com, accessed March 11, 2012.

Introduction

You need to know three fundamental points about network computing. First, computers do not work in isolation in modern organizations. Rather, they constantly exchange data with one another. Second, this exchange of data—facilitated by telecommunications technologies—provides companies with a number of very signifi cant advantages. Th ird, this exchange can take place over any distance and over networks of any size.

Without networks, the computer on your desk would be merely another productivity- enhancement tool, just as the typewriter once was. Th e power of networks, however, turns your computer into an amazingly eff ective tool for accessing information from thousands of sources, thereby making both you and your organization more productive. Regardless of the type of organization (profi t/not-for-profi t, large/small, global/local) or industry (manufacturing, fi nancial services, healthcare), networks in general, and the Internet in particular, have transformed—and will continue to transform—the way we do business.

Networks support new ways of doing business, from marketing to supply chain man- agement to customer service to human resources management. In particular, the Internet and private intranets—networks located within a single organization—have an enormous impact on our lives, both professionally and personally. In fact, for all organizations, having an Internet strategy is no longer just a source of competitive advantage. Rather, it is neces- sary for survival.

Computer networks are essential to modern organizations, for many reasons. First, networked computer systems enable organizations to be more fl exible so they can adapt to rapidly changing business conditions. Second, networks enable companies to share hard- ware, computer applications, and data across the organization and among diff erent organi- zations. Th ird, networks make it possible for geographically dispersed employees and work groups to share documents, ideas, and creative insights. Th is sharing encourages teamwork, innovation, and more effi cient and eff ective interactions. In addition, networks are a critical link between businesses, their business partners, and their customers.

Clearly, networks are essential tools for modern businesses. But, why do you need to be familiar with networks? Th e simple fact is that if you operate your own business or work in a business, you cannot function without networks. You will need to communicate rapidly with your customers, business partners, suppliers, employees, and colleagues. Until about 1990, you would have used the postal service or telephone system with voice or fax capabilities for business communication. Today, however, the pace of business is much faster—almost real time. To keep up with this incredibly fast pace, you will need to use computers, e-mail, the Internet, cell phones, and mobile devices. Further, all of these tech- nologies will be connected via networks to enable you to communicate, collaborate, and compete on a global scale.

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What Is a Computer Network? 125

Networking and the Internet are the foundation for commerce in the twenty-fi rst century. Recall that one important objective of this book is to help you become an informed user of information systems. A knowledge of networking is an essential component of modern business literacy.

You begin this chapter by learning what a computer network is and identifying the vari- ous types of networks. You then study network fundamentals and follow by turning your attention to the basics of the Internet and the World Wide Web. You conclude the chapter by seeing the many network applications available to individuals and organizations—that is, what networks help you do.

4.1 What Is a Computer Network? A computer network is a system that connects computers and other devices (e.g., printers) via communications media so that data and information can be transmitted among them. Voice and data communication networks are continually becoming faster—that is, their bandwidth is increasing—and cheaper. Bandwidth refers to the transmission capacity of a network; it is stated in bits per second. Broadband refers to network transmission capaci- ties ranging from approximately 1 million bits per second (megabits/sec) to as much as 20 megabits/sec with fi ber-to-the-home (discussed later in this chapter). You are familiar with certain types of broadband connections, such as digital subscriber line (DSL) and cable to your homes and dorms. DSL and cable fall within the range of transmission capacity mentioned here and thus are defi ned as broadband connections.

Th e various types of computer networks range from small to worldwide. Th ey include (from smallest to largest) personal area networks (PANs), local area networks (LANs), met- ropolitan area networks (MANs), wide area networks (WANs), and the Internet. PANs are short-range networks—typically a few meters—used for communication among devices close to one person. PANs can be wired or wireless. (You will learn about wireless PANs in Chapter 10.) MANs are relatively large computer networks that cover a metropolitan area. MANs fall between LANs and WANs in size. WANs typically cover large geographic areas and can span the entire planet.

Local Area Networks Regardless of their size, networks represent a compromise among three objectives: speed, distance, and cost. Organizations can generally have any two of the three. To cover long distances, organizations can have fast communication if they are willing to pay for it, or cheap communication if they are willing to accept slower speeds. A third possible combina- tion of the three trade-off s is fast, cheap communication with distance limitations. Th is is the idea behind local area networks.

A local area network (LAN) connects two or more devices in a limited geographical region, usually within the same building, so that every device on the network can commu- nicate with every other device. Most LANs today use Ethernet (discussed later in this chapter). Figure 4.1 illustrates an Ethernet LAN that consists of four computers, a server, and a printer, all of which connect via a shared cable. Every device in the LAN has a network interface card (NIC) that allows the device to physically connect to the LAN’s communica- tions medium. Th is medium is typically unshielded twisted-pair wire (UTP).

Although it is not required, many LANs have a file server or network server. Th e server typically contains various soft ware and data for the network. It also houses the LAN’s network operating system, which manages the server and routes and manages communica- tions on the network.

Wide Area Networks When businesses have to transmit and receive data beyond the confi nes of the LAN, they use wide area networks. Interestingly, the term wide area network did not even exist until local area networks appeared. Before that time, what we call a wide area network today was simply called a “network.”

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126 4 l Telecommunications and Networking

A wide area network (WAN) is a network that covers a large geographic area. WANs typically connect multiple LANs. WANs generally are provided by common carriers such as telephone companies and the international networks of global communications services providers. WANs have large capacity, and they typically combine multiple channels (for example, fi ber-optic cables, microwave, and satellite). Th e Internet is an example of a WAN.

WANs also contain routers. A router is a communications processor that routes mes- sages from a LAN to the Internet, across several connected LANs, or across a wide area network such as the Internet.

Enterprise Networks Organizations today have multiple LANs and may have multi- ple WANs, which are interconnected to form an enterprise network. Figure 4.2 displays a model of enterprise computing. Note that the enterprise network in the fi gure has a backbone network. Corporate backbone networks are high-speed central networks to which multiple smaller networks (such as LANs and smaller WANs) connect. Th e LANs are called embed- ded LANs because they connect to the backbone WAN.

Server

NIC

Computer

NIC

Computer

NIC

Shared cable

NIC

ComputerComputer

NIC

Printer

NIC

Figure 4.1 An Ethernet LAN.

Figure 4.2 An enterprise network.

BEFORE YOU GO ON . . . 1. What are the primary business reasons for

using networks? 2. What is the difference between LANs and

WANs? 3. Describe an enterprise network.

Manufac- turing LAN

Corporate Backbone Wide Area Network

(WAN)

Human Resources

LAN

Accounting LAN

Finance LAN

Mainframe

Embedded LAN

Embedded LAN

Embedded LAN

Embedded LAN

Embedded LAN

File server for backbone

WAN

Marketing LAN

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What Is a Computer Network? 127

Apply the Concept 4.1

Background Th is section has introduced you to the diff erent types of net- works that connect businesses around the world. Because of this, today’s orga-

nizations are spread out over many geographic locations. Oft en headquarters are in one city and various branches are in other cities. Many times, employees even work from home and do not have a physical offi ce to go to. Th e computer network is the technology that allows all of this to happen. For a network to function, a few components are required. In this activity, you will place these components in the appropriate places to create a computer network.

Activity Consider the following company called JLB TechWizards and potential network components. JLB TechWizards Locations

1. Headquarters: Th is international company manufactures and sells computer equipment; the fi rm also services equipment it has sold. Th e company’s headquarters are in Chicago, Illinois, and offi ces there include marketing, accounting, HR, and manufacturing. Each offi ce has a number of PCs that connect with a main server in an IS. All offi ces are closely located and share data and printers.

2. Off shore manufacturing: A new manufacturing facility is opening in Hong Kong and needs to be connected 24/7 to company headquarters. Th ere are 30 terminals at this plant. Inventory, orders, and schedules are shared during the workday at both locations.

3. Sales force: JLB TechWizards has about 15 technicians who service equipment sold within the United States. Each technician has a laptop that needs to connect off and on to the database (at headquarters) about 3 hours each day for checking inventory and entering repairs and orders. Technicians are constantly on the road to small, mountainous, rural cities and need to be able to check inventory whether in a hotel or at a customer site. Each evening technicians must log on for updates and to post daily activity. You may want to include multiple options so they can always connect!

4. Employees from home: JLB TechWizards has a number of employees that work from home part time on fl extime. Th ese employees need a fast, secure connection because some are dealing with fi nancial data and the main computer and its databases at headquarters. Th ey all live within 20 miles of their workplace.

Components

1. Network: LAN, MAN, WAN 2. Connection: direct connection (in-house), dial-up, Internet 3. Interface devices: network interface card (Ethernet or wireless), server, routers,

DSL/cable 4. Channel: twisted pair (UTP-Cat3 or 5), fi ber, wireless, satellite, or tower)

Deliverable

From the lists above, indicate which components are needed to connect JLB TechWizards employees to a database that is located at the company’s headquarters. Without this, they will not be able to do their jobs and answer customer-related questions. (You may need multiple components for each group.) If you are not familiar with any of the terms, review the text for more information.

Submit your list of required components to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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128 4 l Telecommunications and Networking

1. Which type of network would best suit the needs of Ruby’s Club? A LAN, a MAN, or a WAN? Why?

2. What type of wired connections would you recommend to Ruben and Lisa within their club? Be sure to pick something that is widely used so it will be easy to fi nd support.

Q U E S T I O N S

4.2 Network Fundamentals In this section, you will learn the basics of how networks actually operate. You will then distinguish between analog and digital signals and explain how modems enable computer networks to “translate” among them. You follow by studying wireline communications media, which enable computers in a network to transmit and receive data. You conclude this section by looking at network protocols and types of network processing.

Analog and Digital Signals Networks transmit information with two basic types of signals, analog and digital. Analog signals are continuous waves that transmit information by altering the characteristics of the waves. Analog signals have two parameters, amplitude and frequency. For example, all sounds—including the human voice—are analog, traveling to human ears in the form of waves. Th e higher the waves (or amplitude), the louder the sound; the more closely packed the waves, the higher the frequency or pitch. In contrast, digital signals are discrete pulses that are either on or off , representing a series of bits (0s and 1s). Th is quality allows digital signals to convey information in a binary form that can be interpreted by computers. Figure 4.3 illustrates both analog and digital signals.

Th e function of a modem is to convert digital signals to analog signals—a process called modulation—and analog signals to digital signals—a process called demodulation. (Th e name modem is a contraction of modulator-demodulator.) Modems are used in pairs. Th e modem at the sending end converts a computer’s digital information into analog

Analog Signal (Wave Signals)

Digital Signal (Stream of Bits)

0 1 0 1 0 1 0 1 0 1 0 1 0 1

Figure 4.3 Analog and digital signals.

RUBY’S CLUB

Fancy/Image Source; Media Bakery; © Zoonar/Dmitry Rukhle/Age Fotostock America, Inc.

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Network Fundamentals 129

signals for transmission over analog lines, such as telephone lines. At the receiving end, another modem converts the analog signal back into digital signals for the receiving computer. Th ere are three types of modems: dial-up modems, cable modems, and DSL modems.

Th e U.S. public telephone system was originally designed as an analog network to carry voice signals or sounds in an analog wave format. In order for this type of circuit to carry digital information, that information must be converted into an analog wave pattern by a dial-up modem. Dial-up modems have transmission speeds of up to 56 kilobytes per second (Kbps).

Cable modems are modems that operate over coaxial cable—for example, cable TV. Th ey off er broadband access to the Internet or corporate intranets. Cable modem speeds vary widely. Most providers off er bandwidth between 1 and 6 million bits per second (Mbps) for downloads (from the Internet to a computer) and between 128 and 768 thou- sand bits per second (Kbps) for uploads. Cable modem services share bandwidth among subscribers in a locality. Th at is, the same cable line connects to many households. Th ere- fore, when large numbers of neighbors access the Internet at the same time, cable speeds can decrease signifi cantly during those times.

DSL (discussed later in this chapter) modems operate on the same lines as voice tele- phones and dial-up modems. DSL modems always maintain a connection, so an Internet connection is immediately available.

Communications Media and Channels Communicating data from one location to another requires some form of pathway or medi- um. A communications channel is such a pathway and is comprised of two types of media: cable (twisted-pair wire, cable, or fi ber-optic cable) and broadcast (microwave, satellite, radio, or infrared).

Cable media or wireline media use physical wires or cables to transmit data and information. Twisted-pair wire and coaxial cables are made of copper, and fiber-optic cable is made of glass. The alternative is communication over broadcast media or wireless media. The key to mobile communications in today’s rapidly moving society is data transmissions over electromagnetic media—the “airwaves.” In this section you will study the three wireline channels. Table 4.1 summarizes the advantages and disad- vantages of each of these channels. You will become familiar with wireless media in Chapter 10. Twisted-Pair Wire. Twisted-pair wire is the most prevalent form of communications wiring; it is used for almost all business telephone wiring. Twisted-pair wire consists of

TABLE 4.1 Advantages and Disadvantages of Wireline Communications Channels

Channel Advantages Disadvantages

Twisted-pair wire Inexpensive Slow (low bandwidth) Widely available Subject to interference Easy to work with Easily tapped (low security)

Coaxial cable Higher bandwidth than Relatively expensive and infl exible twisted-pair Easily tapped (low to medium security) Less susceptible to Somewhat diffi cult to work with electromagnetic interference

Fiber-optic cable Very high bandwidth Diffi cult to work with (diffi cult Relatively inexpensive to splice) Diffi cult to tap (good security)

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130 4 l Telecommunications and Networking

strands of copper wire twisted in pairs (see Figure 4.4). It is relatively inexpensive to purchase, widely available, and easy to work with. However, it also has some signifi cant disadvantages. Specifi cally, it is relatively slow for transmitting data, it is subject to interfer- ence from other electrical sources, and it can be easily tapped by unintended receivers for gaining unauthorized access to data. Coaxial Cable. Coaxial cable (Figure 4.5) consists of insulated copper wire. It is much less susceptible to electrical interference than is twisted-pair wire and it can carry much more data. For these reasons, it is commonly used to carry high-speed data traffi c as well as television signals (thus the term cable TV). However, coaxial cable is more expensive and more diffi cult to work with than twisted-pair wire. It is also somewhat infl exible. Fiber Optics. Fiber-optic cable (Figure 4.6) consists of thousands of very thin fi la- ments of glass fi bers that transmit information via light pulses generated by lasers. Th e fi ber-optic cable is surrounded by cladding, a coating that prevents the light from leaking out of the fi ber.

Fiber-optic cables are signifi cantly smaller and lighter than traditional cable media. Th ey also can transmit far more data, and they provide greater security from interference and tapping. As of 2011, optical fi ber had reached data transmission rates of more than 50 tril- lion bits (terabits) per second in laboratory experiments. Fiber-optic cable is typically used as the backbone for a network, whereas twisted-pair wire and coaxial cable connect the backbone to individual devices on the network.

Network Protocols Computing devices that are connected to the network must access and share the network to transmit and receive data. Th ese devices are oft en referred to as nodes of the network. Th ey work together by adhering to a common set of rules and procedures—known as a protocol—that enable them to communicate with one another. Th e two major protocols are the Ethernet and Transmission Control Protocol/Internet Protocol.

Figure 4.4 Two views of twisted- pair wire.

Figure 4.5 Two views of coaxial cables.

Cross-section view How twisted pair looks to us

© David Schliepp/iStockphoto; © Krzysztof/iStockphoto

Cross-section view How coaxial cable looks to us GIPhotoStock/Photo Researchers; © Piotr Malczyk/iStockphoto

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Network Fundamentals 131

Ethernet. A common LAN protocol is Ethernet. Most large corporations use 10-gigabit Ethernet, where the network provides data transmission speeds of 10 gigabits (10 billion bits) per second. However, 100-gigabit Ethernet is becoming the standard. Transmission Control Protocol/Internet Protocol. Th e Transmission Con- trol Protocol/Internet Protocol (TCP/IP) is the protocol of the Internet. TCP/IP uses a suite of protocols, the main ones being the Transmission Control Protocol (TCP) and the Internet Protocol (IP). Th e TCP performs three basic functions: (1) It manages the move- ment of packets between computers by establishing a connection between the computers, (2) it sequences the transfer of packets, and (3) it acknowledges the packets that have been transmitted. Th e Internet Protocol (IP) is responsible for disassembling, delivering, and reassembling the data during transmission.

Before data are transmitted over the Internet, they are divided into small, fi xed bundles of data called packets. Th e transmission technology that breaks up blocks of text into packets is called packet switching. Each packet carries the information that will help it reach its destination—the sender’s IP address, the intended receiver’s IP address, the number of packets in the message, and the number of the particular packet within the message. Each packet travels independently across the network and can be routed through diff erent paths in the net- work. When the packets reach their destination, they are reassembled into the original message.

It is important to note that packet-switching networks are reliable and fault tolerant. For example, if a path in the network is very busy or is broken, packets can be dynamically (“on the fl y”) rerouted around that path. Also, if one or more packets does not get to the receiving computer, then only those packets need to be resent.

Why do organizations use packet switching? Th e main reason is to achieve reliable end-to-end message transmission over sometimes unreliable networks that may have tran- sient (short-acting) or persistent (long-acting) faults.

Th e packets use the TCP/IP protocol to carry their data. TCP/IP functions in four lay- ers (see Figure 4.7). Th e application layer enables client application programs to access the other layers, and it defi nes the protocols that applications use to exchange data. One of these application protocols is the Hypertext Transfer Protocol (HTTP), which defi nes how mes- sages are formulated and how they are interpreted by their receivers. Th e transport layer provides the application layer with communication and packet services. Th is layer includes TCP and other protocols. Th e Internet layer is responsible for addressing, routing, and packaging data packets. Th e IP is one of the protocols in this layer. Finally, the network interface layer places packets on, and receives them from, the network medium, which can be any networking technology.

Two computers using TCP/IP can communicate even if they use diff erent hardware and soft ware. Data sent from one computer to another proceed downward through all four layers, beginning with the sending computer’s application layer and going through its net- work interface layer. Aft er the data reach the receiving computer, they travel up the layers.

Cross-section view How fiber-optic cable looks to us Figure 4.6 Two views of fi ber- optic cables.Phillip Hayson/Photo Researchers; Chris Knapton/Photo Researchers.

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132 4 l Telecommunications and Networking

TCP/IP enables users to send data across sometimes unreliable networks with the assurance that the data will arrive in uncorrupted form. TCP/IP is very popular with busi- ness organizations because of its reliability and the ease with which it can support intranets and related functions.

Let’s look at an example of packet-switching across the Internet. Figure 4.8 illustrates a message being sent from New York City to Los Angeles over a packet-switching network. Note that the diff erent colored packets travel by diff erent routes to reach their destination in Los Angeles, where they are reassembled into the complete message.

Types of Network Processing Organizations typically use multiple computer systems across the fi rm. Distributed pro- cessing divides processing work among two or more computers. Th is process enables com- puters in diff erent locations to communicate with one another via telecommunications links. A common type of distributed processing is client/server processing. A special type of client/server processing is peer-to-peer processing. Client/Server Computing. Client/server computing links two or more computers in an arrangement in which some machines, called servers, provide computing services for user PCs, called clients. Usually, an organization performs the bulk of its processing or application/data storage on suitably powerful servers that can be accessed by less powerful

Email: Sending a Message via SMPT (Simple Mail Transfer Protocol)

Application Email: Message received

Break Message into packets and determine order Transport

Packets reordered and replaced (if lost)

Assign sending and receiving IP addresses and apply to each packet Internet

Packets routed through internal network to desired IP address

Determine path across network/ Internet to intended destination

Network Interface

Receipt of packets

Figure 4.7 The four layers of the TCP/IP.

New York City

Atlanta

Dallas

Chicago

Los Angeles

Message (reassembled)

P1 P2 P3 P4 P5 P6

Message

P1 P2 P3 P4 P5 P6

P2 P4 P5

P2

P3

P4

P1 P4

P5 P6

P 3

P1

Figure 4.8 Packet switching.

© CostinT/iStockphoto

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Network Fundamentals 133

client machines. Th e client requests applications, data, or processing from the server, which acts on these requests by “serving” the desired commodity.

Client/server computing leads to the ideas of “fat” clients and “thin” clients. As dis- cussed in “Plug IT In 2,” fat clients have large storage and processing power and therefore can run local programs (such as Microsoft Offi ce), if the network is down. In contrast, thin clients may have no local storage and limited processing power. Th us, they must depend on the network to run applications. For this reason, they are of little value when the network is not functioning. Peer-to-Peer Processing. Peer-to-peer (P2P) processing is a type of client/server distributed processing where each computer acts as both a client and a server. Each computer can access (as assigned for security or integrity purposes) all fi les on all other computers.

Th ere are three basic types of peer-to-peer processing. Th e fi rst accesses unused CPU power among networked computers. A well-known application of this type is SETI@home (http://setiathome.ssl.berkeley.edu). Th ese applications are from open-source projects and can be downloaded at no cost.

Th e second form of peer-to-peer is real-time, person-to-person collaboration, such as Microsoft SharePoint Workspace (http://offi ce.microsoft.com/en-us/sharepoint-workspace). Th is product provides P2P collaborative applications that use buddy lists to establish a connection and allow real-time collaboration within the application.

Th e third peer-to-peer category is advanced search and fi le sharing. Th is category is characterized by natural-language searches of millions of peer systems. It enables users to discover other users, not just data and Web pages. One example of this category is BitTorrent.

BitTorrent (www.bittorrent.com) is an open-source, free, peer-to-peer fi le-sharing application that is able to simplify the problem of sharing large fi les by dividing them into tiny pieces, or “torrents.” BitTorrent addresses two of the biggest problems of fi le sharing: (1) downloading bogs down when many people access a fi le at once, and (2) some people leech, meaning they download content but refuse to share. BitTorrent eliminates the bottleneck by enabling all users to share little pieces of a fi le at the same time—a process called swarming. Th e program prevents leeching because users must upload a fi le while they download it. Th is means that the more popular the content, the more effi ciently it zips over a network.

BEFORE YOU GO ON . . . 1. Compare and contrast the three wireline

communications channels. 2. Describe the various technologies that

enable users to send high-volume data over any network.

3. Describe the Ethernet and TCP/IP protocols.

4. Differentiate between client/server computing and peer-to-peer processing.

Apply the Concept 4.2

Background Th is section covers network channels, protocols, and other funda- mentals. Th ese computer networks are the way in which most business workers

receive and share information with customers, suppliers, and fellow employees. Th ese net- works work because they adhere to a common set of rules called a protocol. Two common protocols are Ethernet and Transmission Control Protocol/Internet Protocol (TCP/IP). Ethernet is used more for a LAN within an offi ce. TCP/IP is the protocol of the Internet. Th is exercise is aimed at helping you understand how TCP/IP and packet switching work and the benefi ts of their use.

Chances are you have used the Internet for research, for e-mail, or to share photos with friends. Th e Internet would not function without a network. In fact, it is the largest network in the world because it allows us to communicate and share information all over the world. For all of us to be able to share fi les over this vast network, some standards are needed for the messages sent. Th e standard currently used is TCP/IP. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the links provided for Apply the Concept 4.2. It will take you to two YouTube videos. Th e fi rst is “IS 300: Packet Switching and the Internet (I)” and the second is “IS 300: Packet Switching and the Internet (II).” Both are by user “uwis300.” You will see that for TCP/IP to function, a

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134 4 l Telecommunications and Networking

number of components are involved. Be sure to pay attention to the following components and their functions:

Address Router Ports 80 and 25 Packet Firewall Web browser Proxy Paths of the packets Network interface Web server

Deliverable

Using the information from the videos and your text, draw a fl owchart showing the steps that a homework assignment sent via e-mail would take from your computer to your pro- fessor. Be sure to use the components listed above in your drawing.

Submit your drawing to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. What networking model should work best for the employees of Ruby’s Club? A client/server or peer-to-peer network? What aspects cause you to make this choice?

2. If the client/server method is chosen, do you think the data should be stored on the client or the server? Defend your view.

Q U E S T I O N SRUBY’S CLUB

4.3 The Internet and the World Wide Web Th e Internet (“the Net”) is a global WAN that connects approximately 1 million organiza- tional computer networks in more than 200 countries on all continents, including Antarc- tica, and features in the daily routine of almost 2 billion people. Participating computer systems include smart phones, PCs, LANs, databases, and mainframes.

Th e computers and organizational nodes on the Internet can be of diff erent types and makes. Th ey are connected to one another by data communications lines of diff erent speeds. Th e primary network connections and telecommunications lines that link the nodes are referred to as the backbone. For the Internet, the backbone is a fi ber-optic network that is operated primarily by large telecommunications companies.

As a network of networks, the Internet enables people to access data in other organiza- tions and to communicate, collaborate, and exchange information seamlessly around the world, quickly and inexpensively. Th us, the Internet has become a necessity for modern businesses.

Th e Internet grew out of an experimental project of the Advanced Research Project Agency (ARPA) of the U.S. Department of Defense. Th e project began in 1969 as the ARPA- net. Its purpose was to test the feasibility of a WAN over which researchers, educators, military personnel, and government agencies could share data, exchange messages, and transfer fi les.

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The Internet and the World Wide Web 135

Today, Internet technologies are being used both within and among organizations. An intranet is a network that uses Internet protocols so that users can take advantage of familiar applications and work habits. Intranets support discovery (easy and inexpensive browsing and search), communication, and collaboration inside an organization. For the numerous uses of intranets, see www.intranetjournal.com.

In contrast, an extranet connects parts of the intranets of diff erent organizations. In addition, it enables business partners to communicate securely over the Internet using vir- tual private networks (VPNs, explained in Chapter 7). Extranets off er limited accessibility to the intranets of participating companies, as well as necessary interorganizational com- munications. Th ey are widely used in the areas of business-to-business (B2B) electronic commerce (see Chapter 9) and supply chain management (SCM; see Chapter 13).

No central agency manages the Internet. Instead, the cost of its operation is shared among hundreds of thousands of nodes. Thus, the cost for any one organization is small. Organizations must pay a small fee if they wish to register their names, and they need to have their own hardware and soft ware to operate their internal networks. Th e organizations are obliged to move any data or information that enter their organiza- tional network, regardless of the source, to their destination, at no charge to the senders. Th e senders, of course, pay the telephone bills for using either the backbone or regular telephone lines.

Accessing the Internet Th e Internet may be accessed in several ways. From your place of work or your university, you can access the Internet via your organization’s LAN. A campus or company backbone connects all of the various LANs and servers in the organization to the Internet. You can also log onto the Internet from your home or on the road, using either wireline or wireless connections. Connecting via an Online Service. You can also access the Internet by opening an account with an Internet service provider. An Internet service provider (ISP) is a company that provides Internet connections for a fee. Large ISPs include America Online (www.aol. com), Juno (www.juno.com), Earthlink (www.earthlink.com), and NetZero (www.netzero. net). In addition, many telephone providers and cable companies sell Internet access, as do computer companies such as Microsoft . To use this service you need a modem and stan- dard communication soft ware. To fi nd a local ISP, access www.thelist.com. Th ere, you can search by your telephone area code for an ISP that services your area.

ISPs connect to one another through network access points (NAPs). NAPs are exchange points for Internet traffi c. Th ey determine how traffi c is routed. NAPs are key components of the Internet backbone. Figure 4.9 shows a schematic of the Internet. Th e white links at the top of the fi gure represent the Internet backbone; the brown dots where the white links meet are the NAPs.

Connecting via Other Means. Th ere have been several attempts to make access to the Internet cheaper, faster, and easier. For example, terminals known as Internet kiosks have been located in such public places as libraries and airports (and even in convenience stores in some countries) for use by people who do not have their own computers. Accessing the Internet from smart phones and iPads is common, and fi ber-to-the-home (FTTH) is growing rapidly. FTTH involves connecting fi ber-optic cable directly to individual homes. Th is system initially was restricted to new residential developments, but it is rapidly spreading. Table 4.2 summarizes the various means that you can use to connect to the Internet.

Addresses on the Internet. Each computer on the Internet has an assigned address, called the Internet Protocol (IP) address, that distinguishes it from all other computers.

© Mark Stay/iStockphoto.

Figure 4.9 Internet (backbone in white).

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136 4 l Telecommunications and Networking

Th e IP address consists of numbers, in four parts, separated by dots. For example, the IP address of one computer might be 135.62.128.91. You can access a Web site by typing this number in the address bar of your browser.

Currently, there are two IP addressing schemes. Th e fi rst scheme, IPv4, is the most widely used. IP addresses using IPv4 consist of 32 bits, meaning that there are 232 possibili- ties for IP addresses, or 4,294,967,295 distinct addresses. Note that the IP address in the preceding paragraph (135.62.128.91) is an IPv4 address. At the time that IPv4 was devel- oped, there were not as many computers needing addresses as there are today. Th erefore, a new IP addressing scheme has been developed, called IPv6.

IP addresses using IPv6 consist of 128 bits, meaning that there are 2128 possibilities for distinct IP addresses, which is an unimaginably large number. IPv6, which is replacing IPv4, will accommodate the rapidly increasing number of devices that need IP addresses, such as smart phones.

IP addresses must be unique so computers on the Internet know where to fi nd one another. Th e Internet Corporation for Assigned Names (ICANN) (www.icann.org) coordi- nates these unique addresses throughout the world. Without that coordination, we would not have one global Internet.

Because the numeric IP addresses are diffi cult to remember, most computers have names as well. ICANN accredits certain companies called registrars to register these names, which are derived from a system called the domain name system (DNS). Domain names consist of multiple parts, separated by dots, that are read from right to left . For example, consider the domain name business.auburn.edu. Th e rightmost part of an Internet name is its top-level domain (TLD). Th e letters edu in business.auburn.edu indicate that this is an educational site. Th e following are popular U.S. TLDs:

com commercial sites edu educational sites mil military government sites gov civilian government sites org organizations

To fi nish our domain name example, auburn is the name of the organization (Auburn University), and business is the name of the particular machine (server) within the organi- zation to which the message is being sent.

In other countries, the country name or designator is the TLD. For example, de stands for Germany, it for Italy, and ru for Russia. In essence, every country decides for itself whether to use TLDs. Moreover, those countries that use TLDs do not necessarily follow the

TABLE 4.2 Internet Connection Methods

Service Description

Dial-up Still used in the United States where broadband is not available.

DSL Broadband access via telephone companies.

Cable modem Access over your cable TV coaxial cable. Can have degraded performance if many of your neighbors are accessing the Internet at once.

Satellite Access where cable and DSL are not available.

Wireless Very convenient, and WiMAX will increase the use of broadband wireless.

Fiber-to-the-home (FTTH) Expensive and usually only placed in new housing developments.

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U.S. system. For example, the United Kingdom uses .co where the U.S. uses .com and .ac (for academic) where the U.S. uses .edu. In contrast, many other non-U.S. Web sites use U.S. TLDs, especially .com.

The Future of the Internet Consumer demand for content delivered over the Internet is increasing at 60 percent per year. In 2010, monthly traffi c across the Internet totaled roughly 8 exabytes (1 exabyte is equivalent to 50,000 years of DVD-quality data). Many experts are now concerned that Internet users will experience brownouts from three factors: (1) the increasing number of people who work online, (2) the soaring popularity of Web sites such as YouTube that require large amounts of bandwidth, and (3) the tremendous demand for high-defi nition television delivered over the Internet. Th ese brownouts will lead to computers going offl ine for several minutes at a time. Researchers assert that if Internet bandwidth is not improved rapidly, then within a few years (see this chapter’s Closing Case 1) the Internet will be able to function only at a much reduced speed.

Even today, the Internet sometimes is too slow for data-intensive applications such as full-motion video fi les (movies) or large medical fi les (X-rays). In addition, the Internet is unreliable and is not secure. As a result, Internet2 has been developed by more than 200 U.S. universities collaborating with industry and government. Internet2 develops and deploys advanced network applications such as remote medical diagnosis, digital libraries, distance education, online simulation, and virtual laboratories. Internet2 is designed to be fast, always on, everywhere, natural, intelligent, easy, and trusted. Internet2 is not a separate physical network from the Internet. For more detail, see www.internet2.edu.

The World Wide Web Many people equate the Internet with the World Wide Web. However, they are not the same thing. Th e Internet functions as a transport mechanism, whereas the World Wide Web is an application that uses those transport functions. Other applications, such as e-mail, also run on the Internet.

Th e World Wide Web (The Web, WWW, or W3) is a system of universally accepted standards for storing, retrieving, formatting, and displaying information via a client/ server architecture. Th e Web handles all types of digital information, including text, hypermedia, graphics, and sound. It uses graphical user interfaces (GUIs), so it is very easy to navigate.

Organizations that wish to off er information through the Web must establish a home page, which is a text and graphical screen display that usually welcomes the user and pro- vides basic information on the organization that has established the page. In most cases, the home page will lead users to other pages. All the pages of a particular company or individ- ual are collectively known as a Web site. Most Web pages provide a way to contact the organization or the individual. Th e person in charge of an organization’s Web site is its Web- master. (Note: Webmaster is a gender-neutral title.)

To access a Web site, the user must specify a uniform resource locator (URL), which points to the address of a specifi c resource on the Web. For instance, the URL for Microsoft is http://www.microsoft.com. Recall that HTTP stands for hypertext transport protocol. Th e remaining letters in this URL—www.microsoft.com— indicate the domain name that identifi es the Web server that stores the Web site.

Users access the Web primarily through soft ware applica- tions called browsers. Browsers provide a graphical front end that enables users to point-and-click their way across the Web, a process called surfi ng. Web browsers became a means of uni- versal access because they deliver the same interface on any operating system under which they run. As you see in IT’s About Business 4.1, companies are pouring resources into improving their browsers.

BEFORE YOU GO ON . . . 1. Describe the various ways that you can

connect to the Internet. 2. Identify the parts of an Internet address. 3. What are the functions of browsers? 4. Describe the difference between the

Internet and the World Wide Web.

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Browser Competition Heats Up

Companies are investing increasing amounts of resources in browsers, which are the programs through which users access content on the Web. The credit for this trend of increased investments (which is highly benefi cial to the consumer) goes to two parties. The fi rst party is Google, whose big plans for its Chrome browser (www.google.com/chrome) have forced Micro- soft to pay fresh attention to its own browser, Internet Explorer (IE). Previously, Microsoft had all but stopped efforts to enhance IE after the company won the last browser war by defeating Netscape.

The European Union (EU) is the second party responsible for increased investments in Web browsers. Starting in March 2010, the EU required personal computer manufactur-

ers to offer their Europe-based customers more free- dom to choose. This requirement originated as part of an antitrust settlement with Microsoft. Under the new regime, when European purchasers boot up their com- puters for the fi rst time, they will be presented with a screen that lists a dozen browsers (all free) in random order. Users can then download any of these browsers and start surfi ng the Web.

When considering the subject of Web browsers, users should bear in mind the business reasons for companies to provide free Web browsers. Chrome, for instance, is a key part of Google’s strategy to make computer users comfortable with cloud computing (discussed in Plug IT In 3). The objective of Chrome is to convince users to spend less money and time on programs that they have to license from software companies (e.g., from Microsoft), and to instead use free data and services such as Google Docs, which resides on servers and storage systems on the Inter- net. In this way, Chrome—which is available in ver- sions for Windows, Mac, and Linux—is designed to drive user dependency on Google’s own ad-driven services.

In order for this strategy to work, the browser (in this case, Chrome) has to be good. It turns out that Chrome is good—Chrome 17 is fast, takes up little space on users’ hard drives, and offers advanced sup- port for HTML5. Chrome Instant even has your Web

page ready to read before you fi nish typing in the Web address!

There are other good browsers out there, however. Mac users, for instance, can use Apple’s own browser, Safari 5.1.2 (www.apple.com/safari), which is excellent. Safari is also available in a Windows version. Safari 5.1.2 mostly adds support for OS X Lion (Apple’s latest version of its OS X operating system). Both Mac and Windows users of Safari get the added bonus of a Reading List panel, which provides a personal to-do list that you can edit.

Another excellent browser is Mozilla Firefox 11 (www.mozilla.com/en-US/fi refox/fx/), a next-generation descendant of Netscape. Maintained by an open- source community, Firefox is not affi liated with any one corporation and is noted for its constant creative inno- vation. It is available for Windows, Macs, and Linux systems. Firefox benefi ts from a well-developed appli- cation base that includes thousands of add-ons for everything from speeding up YouTube downloads to StumbleUpon, which helps users discover and share Web sites that match their interests.

Another good browser choice is Opera 11.60 (www. opera.com), created by the Norwegian company Opera Software. Like Firefox, Opera 11.60 is available in Windows, Mac, and Linux versions. Opera is fast, HTML5 compliant, and provides features such as Opera Turbo, which speeds up weak Internet connections. Users occa- sionally encounter a Web site that does not cooperate with Opera, but that situation is becoming quite rare.

Finally, there is Microsoft Internet Explorer 9 (www. microsoft.com/IE9). IE 9 contains many enhancements, including additional security features and HTML5 com- pliance. Microsoft has promised that IE 9 will run faster than the previous IE version.

Regardless of which browser users select, they should take into consideration issues of security and privacy. Every company brags about its Web browser’s security features, but there is truly no such thing

ABOUT BUSINESS 4.1i B T’S

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The Internet and the World Wide Web 139

as a “secure browser,” because that would imply 100 percent security (in Chapter 7, you will learn that 100 percent security is impossible). Furthermore, browsing privacy can never be truly guaranteed. All browsers offer “private” or “incognito” modes, but for the most part such settings only prevent people look- ing at your computer from seeing the Web sites you have browsed. They do not stop those sites from keep- ing records of your visits.

In light of these issues, different browsers have taken different approaches to security and privacy. IE9 offers Tracking Protection, which allows users to sub- scribe to block lists, so that advertising networks do not have access to your data (and therefore cannot exchange data) about your browsing habits.

Firefox offers the Do Not Track header tag. This feature is analogous to the phone-based Do Not Call lists, indicating your preference to the advertiser. In a test run by PC Magazine’s, however, this Firefox feature did not block interactions with third-party advertisers. In mid-2012, Chrome, Opera, and Safari have yet to implement any tracking protection.

As of February 2012, usage statistics, courtesy of StatCounter (www.statcounter.com), for the major desk- top browsers were as follows:

Microsoft IE 35.7 percent Google Chrome 30 percent Mozilla Firefox 25 percent Apple Safari 7 percent Opera 2.3 percent

Sources: Compiled from M. Muchmore, “Browser Wars,” PC Magazine, March 14, 2012; “Internet Browser Software Review,” TopTenReviews, May 2011; R. Jaroslovsky, “Browser Wars: The Sequel,” Bloomberg BusinessWeek, March 8, 2010.

Questions 1. Given that all browsers are free, what features do

the major browser companies focus on to gain competitive advantage?

2. Which browser do you use? Why? Provide examples of why you use this particular browser.

Apply the Concept 4.3

Background Th is section has introduced you to the diff erence in the Internet and the World Wide Web. Additionally, it has shown that the Internet is the largest net-

work in the world and it would not function without domain names and IP addresses. Domain names work much like the address book on your phone. It is much easier to remember the name of the person you want to call than to remember that person’s specifi c number. You typically open your address book and click a name and it calls the related number.

Domain names are similar to this in that the Internet actually runs on IP addresses (strings of numbers) and we use domain names to point to them. When you type a domain name, there is an “address book” (technically called a domain name server) on the Web that fi nds the right string of numbers to direct your request to. Activity HowStuff Works.com has a nice explanation of how this domain-naming system works. Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link pro- vided for Apply the Concept 4.3. It will take you to the How Stuff Works site and the page on How Domain Name Servers Work. Read this section of content as well as the content in the chapter that explains domain name servers.

Deliverable

Write an e-mail to your best friend explaining how excited you are (and if you are not excited just fake it…) that you have learned how a domain name server works. Consider the following questions as you prepare your e-mail:

1. What is the function of a domain name server? 2. What are three top-level domains? 3. What is the country code for Germany?

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1. What is the difference in the Internet and an Intranet? How can Ruby’s use the strengths of each to better serve its customers and make its vision a reality?

2. Ruben and Lisa want to build a new Web site. Do you think they should host it locally or use a Web hosting service? What hardware and connectivity would they need to support a locally run Web site?

Q U E S T I O N SRUBY’S CLUB

140 4 l Telecommunications and Networking

4. How many bits are in IPv4? Give an example of IPv4. 5. How many bits are in IPv6? Give an example of IPv6.

Send the email to your instructor (and your friend if you are really excited!).

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

4.4 Network Applications Now that you have a working knowledge of what networks are and how you can access them, the key question is, How do businesses use networks to improve their operations? Th is section addresses that question. Stated in general terms, networks support businesses and other organizations in all types of functions.

Th is section will explore numerous network applications, including discovery, com- munication, collaboration, e-learning and distance learning, virtual universities, and tele- commuting. Th ese applications, however, are merely a sampling of the many network appli- cations currently available to users. Even if these applications formed an exhaustive list today, they would not do so tomorrow when something new will be developed. Further, placing network applications in categories is diffi cult because there will always be border- line cases. For example, the diff erence between chat rooms (in the communications catego- ry) and teleconference (in the collaboration category) is only one of degree.

Discovery Th e Internet enables users to access or discover information located in databases all over the world. By browsing and searching data sources on the Web, users can apply the Inter- net’s discovery capability to areas ranging from education to government services to enter- tainment to commerce. Although having access to all this information is a great benefi t, it is critically important to realize that there is no quality assurance for information on the Web. Th e Web is truly democratic in that anyone can post information to it. Th erefore, the fundamental rule about information on the Web is “User beware!”

In addition, the Web’s major strength—the vast stores of information it contains—also presents a major challenge. Th e amount of information on the Web can be overwhelming, and it doubles approximately each year. As a result, navigating through the Web and gaining access to necessary information are becoming more and more diffi cult. To accomplish these tasks, people increasingly are using search engines, directories, and portals. Search Engines and Metasearch Engines. A search engine is a computer pro- gram that searches for specifi c information by key words and then reports the results. A search engine maintains an index of billions of Web pages. It uses that index to fi nd pages

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Network Applications 141

that match a set of user-specifi ed keywords. Such indexes are created and updated by web- crawlers, which are computer programs that browse the Web and create a copy of all visited pages. Search engines then index these pages to provide fast searches.

In mid-2010, three search engines accounted for almost all searches in the United States: Google (www.google.com, 65.5 percent), Yahoo (www.yahoo.com, 16.8 percent), and Microsoft Network (now called Bing, www.msn.com, 11.8 percent). In addition, there is an incredible number of other search engines that are quite useful, many of which per- form very specifi c searches (see an article on “Th e Top 100 Alternative Search Engines” that appeared on www.readwriteweb.com). Th e leading search engine in China is Baidu, with 64 percent of the Chinese market.

For an even more thorough search, you can use a metasearch engine. Metasearch engines search several engines at once and then integrate the fi ndings to answer users’ queries. Examples are Surf-wax (www.surfwax.com), Metacrawler (www.metacrawler. com), Mamma (www.mamma.com), KartOO (www.kartoo.com), and Dogpile (www. dogpile.com). Figure 4.10 illustrates the KartOO home page.

One interesting search engine is known as Summly. IT’s About Business 4.2 explains how Summly works. Publication of Material in Foreign Languages. Not only is there a huge amount of information on the Internet, but it is written in many diff erent languages. How, then, do you access this information? Th e answer is that you use an automatic translation of Web pages. Such translation is available to and from all major languages, and its qual- ity is improving with time. Some major translation products are Microsoft ’s Bing transla- tor (http://www.microsofttranslator.com) and Google (www.google.com/language_ tools) (see Figure 4.11), as well as products and services available at Trados (www. trados.com).

Should companies invest their time and resources to make their Web sites accessible in multiple languages? Th e answer is, absolutely. In fact, multilingual Web sites are now a competitive necessity because of the global nature of the business environment. Companies

Figure 4.10 The KartOO home page (www.kartoo.com).

Figure 4.11 Google Translate.

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142 4 l Telecommunications and Networking

A New Search Engine

When Nick D’Alosio was 12, he created an app called SongStumblr, which used Bluetooth to let users know what people nearby were listening to. Next, he taught himself the basics of artifi cial intelligence (AI) software and built an app called Facemood, which updates you on the emotional state of your friends by monitoring their Facebook status. Over the next 3 years, Nick earned about $30,000 from profi ts from one-time sales of his apps, netting about $1.50 for each app down- load after deducting Apple’s 30 percent share of the profi ts. By age 15, he had set up his own company (his mother had to sign all legal documents because he was underage).

In 2011, while studying for a history exam, he grew frustrated with the huge amount of text that showed up on Google search results. To save himself time, he wrote a program that summarized content in an easily digestible preview. He used his fl air for languages—he was studying Latin, Mandarin, and French at the time— to create a program that would extract the most rele- vant sentences out of long text. Microsoft Word already had a summarizing tool that ran on a “linear” algorithm that searched for the most frequent keywords sequentially, but Nick fi gured he could do better with a genetic algorithm that could choose important sentences as a human does. Therefore, he created a program that detects the topic of a text and uses that information to determine what metrics to apply. Then, the program will use those metrics to determine, for example, if numbers are more impor- tant than descriptive words, and extract critical sentences accordingly.

Nick realized that his program could be used as much more than just a personal study tool. It could be used as a service for media companies, fi nancial institu- tions, law fi rms, or any organization having to extract key points from huge amounts of data. For example, if you visit a Web site with lots of information, Summly (the name of the app) will give you a more user-friendly version of the information in 3 to 5 bullet points. Sum- mly works especially well with news articles, because it bullet points the main headlines. Summly also gives you key words for the article.

D’Alosio spent the summer of 2011 honing his knowl- edge of AI and writ- ing computer code. He contacted a lin- guistics researcher at MIT’s Semantics Lab and paid him $250 to analyze his algorithm. The researcher’s conclu- sion: Summly con- structed summaries in a way that was 40 percent more similar to the process humans use than its competitors. This fi nding was enough validation for D’Alosio to release a free app (then called Trimit), which ran on an iPhone and received regular updates as he refi ned it. He set up a Web site and a demo video of the app on YouTube. A patent search revealed that, while similar apps existed in the market, none featured the trained AI component or tie-in to the iPhone that Trimit could boast.

Shortly after the app’s release, two investment funds contacted d’Alosio via his Web site. One was Horizons Ventures, whose founder and manager had seen a story about Trimit on TechCrunch (a technology blog) and was interested in the technology behind the app. After thoroughly examining D’Alosio’s app, Hori- zons bought a 25 percent stake in the product for $300,000 in September 2011.

Over the course of the next 3 months, Summly was downloaded 130,000 times. The downloads were free in order to build name recognition for the product.

You might ask, if the downloads are free, how does D’Alosio plan to make a profi t? Rather than make money from users, he plans to license Summly to media and fi nancial companies, Web browsers, and search engines. He will charge these outlets either a regular subscription fee or a fee for every 1,000 summaries. He has yet to set the exact pricing on his product.

D’Alosio is currently hiring full-time programmers who will train his genetic algorithm to mimic choices made by humans. This process is tedious and time- consuming, and involves reading thousands and

ABOUT BUSINESS 4.2i A N T’S

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Network Applications 143

increasingly are looking outside their home markets to grow revenues and attract new cus- tomers. When companies are disseminating information around the world, getting that infor- mation correct is essential. It is not enough for companies to translate Web content. Th ey must also localize that content and be sensitive to the needs of the people in local markets.

To reach 80 percent of the world’s Internet users, a Web site needs to support a mini- mum of ten languages: English, Chinese, Spanish, Japanese, German, Korean, French, Ital- ian, Russian, and Portuguese. At 20 cents and more per word, translation services are expensive. Companies supporting ten languages can spend $200,000 annually to localize information and another $50,000 to maintain the Web sites. Translation budgets for major multinational companies can run in the millions of dollars. Many large companies use Systran S.A. (www.systransoft.com) for high-quality machine translation services. Portals. Most organizations and their managers encounter information overload. Infor- mation is scattered across numerous documents, e-mail messages, and databases at diff erent locations and systems. Finding relevant and accurate information is oft en time-consuming and may require users to access multiple systems.

One solution to this problem is to use portals. A portal is a Web-based, personalized gateway to information and knowledge that provides relevant information from diff erent IT systems and the Internet using advanced search and indexing techniques. Aft er reading the next section, you will be able to distinguish among four types of portals: commercial, affi nity, corporate, and industrywide.

A commercial (public) portal is the most popular type of portal on the Internet. It is intended for broad and diverse audiences and off ers routine content, some of it in real time (for example, a stock ticker). Examples are Lycos (www.lycos.com) and Microsoft Network (www.msn.com).

In contrast, an affinity portal off ers a single point of entry to an entire community of affi liated interests, such as a hobby group or a political party. Your university most likely has an affi nity portal for its alumni. Figure 4.12 displays the affi nity portal for the Univer- sity of West Georgia. Other examples of affi nity portals are www.techweb.com and www. zdnet.com.

As the name suggests, a corporate portal off ers a personalized, single point of access through a Web browser to critical business information located inside and outside an orga- nization. Th ese portals are also known as enterprise portals, information portals, and enter- prise information portals. In addition to making it easier to fi nd needed information, corpo- rate portals off er customers and employees self-service opportunities.

Whereas corporate portals are associated with a single company, an industrywide portal serves entire industries. An example is TruckNet (www.truck.net), a portal for the trucking industry and the trucking community, including professional drivers, owner/

Minutes,” ReadWriteWeb, December 13, 2011; P. Olson, “Teenage Programmer Backed by Hong Kong Billionaire Li Ka Shing,” Forbes, December 13, 2011; C. Bonnington, “Teen’s IOS App Uses Complex Algorithms to Summarize the Web,” Wired, December 13, 2011; www.summly.com, accessed March 2, 2012.

Questions 1. Go to http://itunes.apple.com/us/app/summly/

id488689465?mt=8) and watch the demo video. What are the advantages of the Summly app? Do you see any disadvantages in using the product?

2. Has D’Alosio actually created a new kind of search engine? Why do you say that? Support your answer.

thousands of Web articles (such as Wikipedia, movie reviews, and Quora answers), choosing the three to fi ve most important sentences, and feeding them into the algorithm.

D’Alosio believes his product will be successful because search interfaces like Google have not changed in many years, despite a dramatic increase in the amount of content available on the Web. He believes that he has developed an entirely new type of search engine that can revolutionize the search-engine fi eld.

Sources: Compiled from P. Olson, “Search Engine Wunderkind,” Forbes, March 12, 2012; J. Wakefi eld, “British Designer of Summly App Hits Jackpot,” BBC News, December 28, 2011; M. Kirkpatrick, “Summly: New App Helps You Read All Your Bookmarked Links in

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144 4 l Telecommunications and Networking

operators, and trucking companies (see Figure 4.13). TruckNet provides drivers with per- sonalized Web-based e-mail, access to applications to leading trucking companies in the United States and Canada, and access to the Drivers Round Table, a forum where drivers can discuss issues of interest. Th e portal also provides a large database of trucking jobs and general information related to the trucking industry.

Th ese four types of portals are diff erentiated by the audiences they serve. Another type, the mobile portal, is distinguished by its technology. A mobile portal is accessible from mobile devices, although any of the four portals just discussed can be accessed by mobile devices. Mobile devices are typically wireless, so you will study them in detail in Chapter 10.

Communication Th e second major category of network applications is communication. Th ere are many types of communication technologies, including e-mail, call centers, chat rooms, and voice. You learn about each one in this section. You will see another type of communication, blog- ging, in Chapter 8. Electronic Mail. Electronic mail (e-mail) is the largest-volume application running over the Internet. Studies have found that almost all companies conduct business transactions via e-mail, and the vast majority confi rm that e-mail is tied to their means of generating revenue. In fact, for many users, e-mail has all but replaced the telephone.

Figure 4.12 University of West Georgia affi nity portal. (Courtesy of University of West Georgia.)

Figure 4.13 The TruckNet portal. Courtesy of the Truck.net® copyright

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Network Applications 145

Web-Based Call Centers. Eff ective personalized customer contact is becoming an important aspect of Web-based customer support. Such service is provided through Web- based call centers, also known as customer care centers. For example, if you need to contact a soft ware vendor for technical support, you will usually be communicating with the ven- dor’s Web-based call center, using e-mail, a telephone conversation, or a simultaneous voice/Web session. Web-based call centers are sometimes located in foreign countries such as India. Such off shoring is an important issue for U.S. companies.

For several reasons, some U.S. companies are moving their call center operations back to the United States. First, they feel that they have less control of their overseas call center operations. Th ey must depend on the vendor company, ensuring that it can uphold their standards, such as quality of service. Second, language diffi culties can occur. Th ird, com- panies that manage sensitive information can run the risk of breaching customer confi - dentiality. Finally, the vendor company’s call center representatives typically work with many companies. As a result, they may not deliver the same level of customer services that is required.

Electronic Chat Rooms. Electronic chat refers to an arrangement whereby partici- pants exchange conversational messages in real time. A chat room is a virtual meeting place where many people (in fact, anyone) come to chat. Chat programs allow you to send messages to people who are connected to the same channel of communication at the same time. Anyone can join in the conversation. Messages are displayed on your screen as they arrive, even if you are in the middle of typing a message.

Th ere are two major types of chat programs. Th e fi rst type is Web based, which allows you to send messages to Internet users by using a Web browser and visiting a Web chat site (for example, http://messenger.yahoo.com). Th e second type is e-mail based (text only) and is called Internet Relay Chat (IRC). A business can use IRC to interact with customers, provide online experts for answers to questions, and so on.

Voice Communication. When people need to communicate with one another from a distance, they use the telephone more frequently than any other communication device. With the plain old telephone service (POTS), every call opened up a dedicated circuit for the duration of the call. A dedicated circuit connects you to the person with whom you are talking and is devoted only to your call. In contrast, as you saw earlier in this chapter, the Internet divides data into packets, which traverse the Internet in random order and are reassembled at their destination.

With Internet telephony, also known as voice-over Internet protocol or VoIP, phone calls are treated as just another kind of data. Th at is, your analog voice signals are digitized, sectioned into packets, and then sent over the Internet. In the past, to utilize VoIP you needed a computer with a sound card and a microphone. Today, however, you do not need special phones or headsets for your computer.

VoIP can reduce your monthly phone bills. However, packet switching can cause gar- bled communications. For example, if the packets of a message arrive out of order, that is not a problem when you are sending an e-mail or transmitting a photo. Correctly reas- sembling the packets of a voice message, however, can garble the message. Fortunately, this is less of a problem than in the past, because VoIP soft ware continues to improve and typical communications links are much faster. So, although VoIP is not perfect, it is ready for prime time.

Skype (www.skype.com) provides several VoIP services for free: voice and video calls to users who also have Skype, instant messaging, short message service, voice mail, one-to- one and group chats, and conference calls with up to nine people (see Figure 4.14). As of mid-2010, the most current version of Skype for Windows was version 5.5. Skype 5.5 off ers full-screen, high-defi nition video calling, Skype Access (to access WiFi hotspots), call transfer to a Skype contact on a mobile or landline, improved quality of calls, and ease of use. In addition, it off ers other functions for which users pay. For example, SkypeOut allows you to make calls to landline phones and mobile phones. SkypeIn provides a number that your friends can call from any phone and you pick up the call in Skype.

Vonage (www.vonage.com) also provides VoIP services, but for a fee (approximately $25 per month). With Vonage you make and receive calls with your existing home phone

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through your broadband Internet connection. Your phone actually connects to Vonage instead of an actual phone company. Th e person whom you are calling does not need to have Vonage or even an Internet connection. Unifi ed Communications. In the past, organizational networks for wired and wire- less data, voice communications, and videoconferencing operated independently, and the IT department managed each network separately. Th is arrangement increased costs and reduced productivity.

Unified communications (UC) simplifi es and integrates all forms of communications— voice, voice mail, fax, chat, e-mail, instant messaging, short message service, presence (loca- tion) services, and videoconferencing—on a common hardware and soft ware platform. Presence services enable users to know where their intended recipients are and if they are available, in real time.

UC unifi es all forms of human and computer communications into a common user experience. For example, UC allows an individual to receive a voice mail message and then read it in his or her e-mail inbox. In another example, UC enables users to seamlessly col- laborate with another person on a project, regardless of where the users are located. One user could quickly locate the other user by accessing an interactive directory, determine if that user were available, engage in a text messaging session, and then escalate the session to a voice call, or even a video call, all in real time.

Collaboration Th e third major category of network applications is collaboration. An important feature of modern organizations is that people collaborate to perform work. Collaboration refers to eff orts by two or more entities—that is, individuals, teams, groups, or organizations—who work together to accomplish certain tasks. Th e term work group refers specifi cally to two or more individuals who act together to perform some task.

Workflow is the movement of information as it fl ows through the sequence of steps that make up an organization’s work procedures. Workfl ow management makes it possible to pass documents, information, and tasks from one participant to another in a way that is governed by the organization’s rules or procedures. Workfl ow systems are tools for auto- mating business processes.

Figure 4.14 Skype 5.5 interface. Courtesy of Skype.

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If group members are in diff erent locations, they constitute a virtual group (team). Virtual groups conduct virtual meetings—that is, they “meet” electronically. Virtual collaboration (or e-collaboration) refers to the use of digital technologies that enable orga- nizations or individuals to collaboratively plan, design, develop, manage, and research prod- ucts, services, and innovative applications. Organizational employees frequently collaborate— virtually with one another. In addition, organizations collaborate virtually with customers, suppliers, and other business partners to improve productivity and competitiveness.

One type of collaboration is crowdsourcing, which refers to outsourcing a task to an undefi ned, generally large group of people in the form of an open call. Let’s look at some examples of crowdsourcing on college campuses.

• Crowdsourcing help desks: IT help desks are a necessary service on college campuses because students depend on their computers and Internet access to complete their school work and attend class online. At Indiana University at Bloomington, new IT help desks use crowdsourcing to alleviate the cost and pressure of having to answer so many calls. Students and professors post their IT problems on an online forum, where other students and amateur IT experts answer them.

• Recruitment: In 2010, Champlain College in Vermont instituted a Champlain For Reel program, inviting students to share via YouTube videos their experiences at the school and how they benefi ted from their time there. Th e YouTube channel serves to recruit prospective students and even updates alumni on campus and community events.

• Scitable (www.nature.com/scitable) combines social networking and academic collaboration. Th rough crowdsourcing, students, professors, and scientists discuss problems, fi nd solutions, and swap resources and journals. It is a free site that lets each individual user turn to crowdsourcing for answers even while helping others.

• Th e Great Sunfl ower Project: Gretchen LeBuhn, an associate biology professor at San Francisco State University, needed help with her studies of honeybees, but she had limited grant money, so she contacted gardening groups around the country. Th rough this crowdsourcing strategy, LeBuhn ultimately created a network of more than 25,000 gardeners and schools to assist with her research. She then sent these participants seeds for plants that attract bees. In return, the participants recorded honeybee visits and activity for her on her Web site.

Collaboration can be synchronous, meaning that all team members meet at the same time. Teams may also collaborate asynchronously when team members cannot meet at the same time. Virtual teams, whose members are located throughout the world, typically must collaborate asynchronously.

A variety of soft ware products are available to support all types of collaboration. Among the most prominent are Microsoft SharePoint Workspace, Google Docs, IBM Lotus Quickr, and Jive. In general, these products provide online collaboration capabilities, work- group e-mail, distributed databases, bulletin whiteboards, electronic text editing, document management, workfl ow capabilities, instant virtual meetings, application sharing, instant messaging, consensus building, voting, ranking, and various application development tools.

Th ese products also provide varying degrees of content control. Wikis, Google Docs, Microsoft SharePoint Workspace, and Jive provide for shared content with version manage- ment, whereas Microsoft SharePoint Workspace and IBM Lotus Quickr off er version con- trol. Products that provide version management track changes to documents and provide features to accommodate multiple people working on the same document at the same time. In contrast, version-control systems provide each team member with an account that includes a set of permissions. Shared documents are located in shared directories. Docu- ment directories are oft en set up so that users must check out documents before they can edit them. When one team member checks out a document, no other member can access it. Once the document has been checked in, it becomes available to other members.

In this section, we review the major collaboration soft ware products. We then shift our attention to two tools that support collaboration—electronic teleconferencing and videoconferencing.

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Microsoft SharePoint. Microsoft ’s SharePoint product (www.microsoft.com/ Sharepoint/default.mspx) provides shared content with version control. SharePoint sup- ports document directories and has features that enable users to create and manage sur- veys, discussion forums, wikis, member blogs, member Web sites, and workfl ow. It also has a rigorous permissions structure, which allows organizations to control users’ access based on their organizational role, team membership, interest, security level, or other criteria.

One company that has used SharePoint eff ectively is Continental Airlines. When new federal regulations regarding long runway delays went into eff ect, Continental responded by implementing a SharePoint system that puts various aspects of fl ight operations— aircraft status, pilots, crews, and customer care—on the same page. Using the system, the 135 general managers at the airline’s domestic airports fi ll out a 16-page form online. Th e form includes the names and numbers of airport workers, from the airport authority to the person who drives the stairs to planes waiting on the runway. Th e general managers have to specify how they would manage delays of an hour, two hours, and two-and-one-half hours. Th e Sharepoint system includes a dashboard for Continental’s centralized system opera- tions center. People in the center can use the dashboard to fi nd information about delays quickly and to communicate with pilots, crews, and dispatchers to decide what to do to mitigate any delays. Google Docs. Google Docs (http://docs.google.com) is a free Web-based word processor, spreadsheet, and presentation application. It enables users to create and edit documents online while collaborating with other users. In contrast to Microsoft SharePoint Workspace, Google Docs allows multiple users to open, share, and edit documents at the same time. IBM Lotus Quickr. IBM’s Lotus Quickr (www.ibm.com/lotus/quickr) product pro- vides shared content with version control in the form of document directories with check-in and check-out features based on user privileges. Quickr provides online team spaces where members can share and collaborate by utilizing team calendars, discus- sion forums, blogs, wikis, and other collaboration tools for managing projects and other content.

Compagnie d’Enterprises (CFE), one of Belgium’s largest construction companies, has put the collaboration tools of Quickr to good use. Construction projects require many par- ties to collaborate eff ectively. When these projects are conducted on a global scale and the parties are scattered throughout the world, the projects become incredibly complex. CFE needed to tap its best resources for its projects, regardless of where those resources were located. Th e company was using e-mail to share documents with suppliers and clients, but this process resulted in version-control errors and security vulnerabilities. To eliminate these problems, CFE deployed Quickr with its centralized document libraries and version control. Th e soft ware reduced both the volume of large attachments sent through e-mail and the impact of those e-mails on the system. As a result, project teams were able to work more effi ciently. Jive. Jive’s (www.jivesoftware.com) newest product, Clearspace, uses Web collaboration and communication tools such as forums, wikis, and blogs to allow people to share content with version management, via discussion rooms, calendars, and commotion lists. For example, Nike originally used Clearspace Community to run a technical support forum on Nike Plus (http://nikerunning.nike.com), a Web site where runners track their miles and calories burned using a sensor in their shoes. Th e company soon noticed that runners were also using the forum to meet other athletes. In response, Nike expanded its forum to include a section where runners could meet and challenge one another to races. Since that time, 40 percent of visitors to the site who did not own the Nike Plus sensor ended up buying the product. Electronic Teleconferencing. Teleconferencing is the use of electronic communi- cation technology that enables two or more people at diff erent locations to hold a simulta- neous conference. Th ere are several types of teleconferencing. Th e oldest and simplest is a telephone conference call, where several people talk to one another from multiple locations. Th e biggest disadvantage of conference calls is that they do not allow the participants to

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communicate face to face. In addition, participants in one location cannot see graphs, charts, and pictures at other locations.

To overcome these shortcomings, organizations are increasingly turning to video tele- conferencing, or videoconferencing. In a videoconference, participants in one location can see participants, documents, and presentations at other locations. Th e latest version of videoconferencing, called telepresence, enables participants to seamlessly share data, voice, pictures, graphics, and animation by electronic means. Conferees can also transmit data along with voice and video, which allows them to work together on documents and to exchange computer fi les.

Several companies are off ering high-end telepresence systems. For example, Hewlett- Packard’s Halo system (www.hp.com), Cisco’s TelePresence 3000 (www.cisco.com), and Polycom’s HDX (www.polycom.com) use massive high-defi nition screens up to eight feet wide to show people sitting around conference tables (see Figure 4.15). Telepresence sys- tems also have advanced audio capabilities that let everyone talk at once without canceling out any voices. Telepresence systems can cost up to $400,000 for a room, with network management fees ranging up to $18,000 per month. Financial and consulting fi rms are quickly adopting telepresence systems. For example, the Blackstone Group (www. blackstone.com), a private equity fi rm, has 40 telepresence rooms around the world, and Deloitte & Touche has 12.

Let’s look at two other organizations that use telepresence systems. Th e telepresence system of international law fi rm DLA Piper (www.dlapiper.com)

saves the company approximately $1 million per year in travel costs and lost productivity. Th e fi rm realizes these savings by rescheduling half of its in-person board meetings as tele- presence conferences and relying on at least two attorneys per week to use telepresence rather than travel. Making it possible for globally based attorneys to work closely together via telepresence helps drive home the reality that the fi rm has offi ces all over the world and therefore should have an international focus. Th is benefi t of telepresence cannot be quanti- fi ed in terms of dollars and cents.

Th e insurance giant MetLife (www.metlife.com) is using telepresence in three dedi- cated conference rooms in Chicago, New York, and New Jersey and is expanding the system to other offi ces nationally and internationally. MetLife has experienced a direct cost savings as well as better employee time effi ciency. Further, telepresence is helping the company meet its “green initiative” goal of reducing its carbon emissions by 20 per- cent. Interestingly, one MetLife executive noted that when the company uses telepres- ence for meetings, employees who would not normally be asked to travel to headquar- ters now have the opportunity to make presentations and get valuable exposure to company executives.

Figure 4.15 Telepresence system.Marketwire/Newscom

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E-Learning and Distance Learning E-learning and distance learning are not the same thing, but they do overlap. E-learning refers to learning supported by the Web. It can take place inside classrooms as a support to conventional teaching, such as when students work on the Web during class. It also can take place in virtual classrooms, in which all coursework is done online and classes do not meet face-to-face. In these cases, e-learning is a part of distance learning. Distance learning (DL) refers to any learning situation in which teachers and students do not meet face-to-face.

Today, the Web provides a multimedia interactive environment for self-study. Web- enabled systems make knowledge accessible to those who need it, when they need it, anytime, anywhere. For this reason, e-learning and DL can be useful both for formal education and for corporate training. IT’s About Business 4.3 illustrates how high school students are using e-learning and distance learning to take advanced placement (AP) classes online.

Massive Open Online Courses

Massive Open Online Courses—known as MOOCs—are a tool for democratizing higher education. Hundreds of thousands of stu- dents around the world who lack access to

elite universities have been embracing MOOCs as a way to acquire sophisticated skills and high-paying jobs without having to pay tuition or secure a college degree.

Consider Stanford University’s experience. In fall 2011, 160,000 students in 190 countries enrolled in a single AI course offered by Stanford. An additional 200 registered for the course on campus. A few weeks into the semester, attendance for the on-campus course decreased to about 30, as students decided to watch online videos instead of physically attending the class. The course gave rise to its own community, including a Facebook group, online discussions among partici- pants, and volunteer translators who made the course available in 44 languages.

The 23,000 students who completed the course received a PDF fi le (suitable for framing) by e-mail showing their percentile score. However, the fi le did not contain the name “Stanford University.” A total of 248 students, none from Stanford, earned grades of 100 percent.

Besides the AI course, Stanford offered two other MOOCs in fall 2011—Machine Learning (104,000 reg- istered, 13,000 completed the course), and Introduc-

tion to Databases (92,000 registered, 7,000 completed the course). In Spring 2012, Stanford offered 13 MOOCs, including Anatomy, Cryptography, Game Theory, and Natural Language Processing.

On February 13, 2012, the Massachusetts Institute of Technology, which had been posting course materi- als online for 10 years, opened registration for its fi rst MOOC, a circuits and electronics course. The course served as a prototype for the university’s MITx project, which will eventually offer a wide range of courses and some sort of credential for those who complete them.

Several factors enabled the creation of MOOCs, including improved technology and the rapidly increas- ing costs of traditional universities. MOOCs are highly automated, with computer-graded assignments and exams. Nonetheless, MOOCs offer many opportunities for social interaction. The Stanford MOOCs, for exam- ple, offered virtual offi ce hours and online discussion forums where students could ask and answer questions— and vote on which questions were important enough to fi lter up to the professors.

One Stanford professor noted that in a classroom, when a professor asks a question to the class, one stu- dent answers and the others do not get a chance to participate. On the other hand, in an online environ- ment with embedded quizzes, everyone has to try to answer the questions. If they do not know the answer to the questions, they can go back and listen to the lecture over and over until they do. The professor

ABOUT BUSINESS 4.3i M i T’S

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Th ere are many benefi ts to e-learning. For example, online materials can deliver very current content that is of high quality (created by content experts) and consistent (pre- sented the same way every time). It also gives students the fl exibility to learn at any place, at any time, and at their own pace. In corporate training centers that use e-learning, learn- ing time generally is shorter, which means that more people can be trained within a given timeframe. Th is system reduces training costs as well as the expense of renting facility space.

Despite these benefi ts, e-learning has some drawbacks. For one, students must be com- puter literate. Also, they may miss the face-to-face interaction with instructors. In addition, accurately assessing students’ work can be problematic because instructors really do not know who completed the assignments.

E-learning does not usually replace the classroom setting. Rather, it enhances it by tak- ing advantage of new content and delivery technologies. Advanced e-learning support envi- ronments, such as Blackboard (www.blackboard.com), add value to traditional learning in higher education.

learned new skills, and many of those students will want to make those skills known to potential employ- ers. For example, if a recruiter were searching for the top one hundred people in a certain geographic area who have knowledge about machine learning, Udacity and Udemy would be able to provide that information for a fee.

Sources: Compiled from T. Lewin, “Instruction for Masses Knocks Down Campus Walls,” The New York Times, March 4, 2012; B. Sheridan and B. Greeley, “Computer Coding: Not for Geeks Only,” Bloomberg BusinessWeek, January 26, 2012; L. Chamberlin and T. Parish, “MOOCs: Massive Open Online Courses or Massive and Often Obtuse Courses?” eLearn Magazine, August 2011; I. de Waard, “Explore a New Learning Frontier: MOOCs,” Learning Solutions Magazine, July 25, 2011; R. Kop, “The Challenges to Connectivist Learning on Open Online Networks: Learning Experiences During a Massive Open Online Course,” International Review of Research in Open and Distance Learning, v. 12, no. 3, 2011; K. Masters, “A Brief Guide to Understanding MOOCs,” The Internet Journal of Medical Education, v. 1, no. 2, 2011; E. Fuller, “Top 10 Benefi ts of a College Degree,” Christian Science Monitor, October 2010; www.udacity.com, www.stanford.edu, www.mit.edu, accessed February 25, 2012.

Questions 1. Discuss possible quality control issues with

MOOCs. For each issue that you list, please also describe how you would go about solving the problem.

2. What are some specifi c examples of the impact that MOOCs could have on traditional higher education? Please explain your answer.

3. Would you be willing to enroll in a MOOC as a full-time student at your university? Would you be willing to enroll in a MOOC after you graduate? Why or why not?

noted that MOOCs allow students to work at their own pace and keep practicing until they master the content.

A student in one of Stanford’s Fall 2011 MOOCs had not been a technology major, nor did she follow a technological career path. She studied psychology at the University of Pittsburgh and was a physician’s assis- tant in charge of the presurgical ward at New York Downtown Hospital. She took the Stanford MOOC on technology in order to better understand her husband’s career (he was a developer at Foursquare). Despite the fact that she did not initially take the class to affect her

own job, she has since used her new software skills to automate some of the routine tasks she performs at work, such as keeping track of

which patients require follow-up before surgery. Her skills also help her communicate with the information technology specialists installing electronic medical records systems at the hospital.

In what some academicians see as a threat to higher education, some MOOCs now offer an informal cre- dential (although such a credential, in most cases, is not free). The provost at Stanford notes that there are many issues to consider with MOOCs, from questions of copyright of course materials to implications for Stanford’s accreditation if the university provides an offi cial credential for these courses.

One of the professors who taught Stanford’s fi rst MOOC cofounded Udacity (www.udacity.com), a for- profi t startup that offers a variety of MOOCs. Nor is Udacity the only such startup—Udemy (www.udemy. com), founded in 2010, is a similar startup with backing from the founders of Groupon (www.groupon.com). Both sites plan to monetize their students’ skills and obtain their permission to sell leads to recruiters, thereby helping them to fi nd jobs. Both companies will have detailed records on thousands of students who have

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Virtual Universities Virtual universities are online universities in which students take classes via the Internet at home or an off -site location. A large number of existing universities off er online education of some form. Some universities, such as the University of Phoenix (www.phoenix.edu), California Virtual Campus (www.cvc.edu), and the University of Maryland (www.umuc. edu), off er thousands of courses and dozens of degrees to students worldwide, all online. Other universities off er limited online courses and degrees but use innovative teaching methods and multimedia support in the traditional classroom.

Telecommuting Knowledge workers are being called the distributed workforce, or digital nomads. Th is group of highly prized workers is now able to work anywhere and anytime, a process called telecommuting. Distributed workers are those who have no permanent offi ce at their com- panies, preferring to work at home offi ces, in airport lounges or client conference rooms, or on a high school stadium bleacher. Th e growth of the distributed workforce is driven by globalization, extremely long commutes to work, rising gasoline prices, ubiquitous broad- band communications links (wireline and wireless), and powerful laptop computers and computing devices.

Telecommuting has a number of potential advantages for employees, employers, and society. For employees, the benefi ts include reduced stress and improved family life. In addition, telecommuting off ers employment opportunities for housebound people such as

single parents and persons with disabilities. Employer benefi ts include increased productivity, the ability to retain skilled employees, and the ability to attract employees who do not live within commuting distance.

However, telecommuting also has some potential disad- vantages. For employees, the major disadvantages are increased feelings of isolation, possible loss of fringe benefi ts, lower pay (in some cases), no workplace visibility, the potential for slower promotions, and lack of socialization. In addition, telecom- muting employees oft en have diffi culties “training” their fami- lies to understand that they are at work even though they are physically at home. Families have to understand that they should not disturb the telecommuter for anything that they would not have disturbed him or her about in a “real” offi ce. Th e major disadvantages to employers are diffi culties in super- vising work and potential data security problems.

BEFORE YOU GO ON . . . 1. Discuss the network applications that you

studied in this section and the tools and technologies that support each one.

2. Identify the business conditions that have made videoconferencing more important.

3. Differentiate between e-learning and distance learning.

4. Describe virtual universities. 5. What is telecommuting? Do you think

you would like to telecommute? Why or why not?

Apply the Concept 4.4

Background Th is section has shown that the three big applications of a network are discovery, communication, and collaboration. Discovery occurs when you fi nd

information in other places that is useful to you. Communication occurs when you send information to another person that is helpful to them and collaboration exists when two or more people work on information together at the same time. Corporate networks (intranets) attempt to accomplish this within an organization by making data accessible to employees in diff erent departments. You will learn more about this in Chapter 10: Information Sys- tems Within the Organization.

Because the Internet has opened the door for more employees to work from a distance (telecommuting), there have been a number of tools built to support discovery, communi- cation, and collaboration online. Many of these tools are mentioned in the text of this chapter (Microsoft SharePoint, Google Docs, etc.).

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Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the links provided for Apply the Concept 4.4. First is the Web site for Fuze Meeting and second are some video tutorials that may be helpful if you have never used this type of system before. Fuze Meeting also off ers apps for many mobile devices. Have a look to better understand the platforms that exist to support this type of communication and collaboration.

Deliverable

Describe an imaginary situation where you may have a online group meeting where the purpose was to design an advertising scheme for a new product. In your description, be sure to outline how the Fuze Meeting soft ware would support discovery, communication, and collaboration. Are there any of these three that are more or less supported than others?

Submit your write-up to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. How can Ruby’s Club capitalize on network tools such as e-mail, chat, or instant messaging?

2. What type of workfl ow projects could help streamline the operations for Ruby’s Club?

Q U E S T I O N SRUBY’S CLUB

What’s in for ME? FOR THE ACCOUNTING MAJOR Accounting personnel use corporate intranets and portals to consolidate transac- tion data from legacy systems to provide an overall view of internal projects. Th is

view contains the current costs charged to each project, the number of hours spent on each project by individual employees, and an analysis of how actual costs compare to projected costs. Finally, accounting personnel use Internet access to government and professional Web sites to stay informed on legal and other changes aff ecting their profession.

FOR THE FINANCE MAJOR Corporate intranets and portals can provide a model to evaluate the risks of a project or an investment. Financial analysts use two types of data in the model:

historical transaction data from corporate databases via the intranet and industry data obtained via the Internet. In addition, fi nancial services fi rms can use the Web for market- ing and to provide services.

FOR THE MARKETING MAJOR Marketing managers use corporate intranets and portals to coordinate the activi- ties of the sales force. Sales personnel access corporate portals via the intranet to

discover updates on pricing, promotion, rebates, customer information, and information

ffT

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about competitors. Sales staff can also download and customize presentations for their cus- tomers. Th e Internet, particularly the Web, opens a completely new marketing channel for many industries. Just how advertising, purchasing, and information dispensation should occur appears to vary from industry to industry, product to product, and service to service.

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR Companies are using intranets and portals to speed product development by pro- viding the development team with three-dimensional models and animation. All

team members can access the models for faster exploration of ideas and enhanced feedback. Corporate portals, accessed via intranets, enable managers to carefully supervise their inventories as well as real-time production on assembly lines. Extranets are also proving valuable as communication formats for joint research and design eff orts among companies. Th e Internet is also a great source of cutting-edge information for POM managers.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR Human resources personnel use portals and intranets to publish corporate -policy manuals, job postings, company telephone directories, and training classes. Many

companies deliver online training obtained from the Internet to employees through their intranets. Human resources departments use intranets to off er employees health care, sav- ings, and benefi t plans, as well as the opportunity to take competency tests online. Th e Internet supports worldwide recruiting eff orts; it can also be the communications platform for supporting geographically dispersed work teams.

FOR THE MIS MAJOR As important as the networking technology infrastructure is, it is invisible to users (unless something goes wrong). Th e MIS function is responsible for keeping all

organizational networks up and running all the time. MIS personnel, therefore, provide all users with an “eye to the world” and the ability to compute, communicate, and collaborate anytime, anywhere. For example, organizations have access to experts at remote locations without having to duplicate that expertise in multiple areas of the fi rm. Virtual teaming allows experts physically located in diff erent cities to work on projects as though they were in the same offi ce.

SUMMARY 1. Compare and contrast the two major types of networks.

Th e two major types of networks are local area networks (LANs) and wide area networks (WANs). LANs encom- pass a limited geographic area and are usually composed of one communications medium. In contrast, WANs encompass a broad geographical area and are usually com- posed of multiple communications media.

2. Describe the wireline communications media and channels. Twisted-pair wire, the most prevalent form of communica- tions wiring, consists of strands of copper wire twisted in pairs. It is relatively inexpensive to purchase, widely avail- able, and easy to work with. However, it is relatively slow for transmitting data, it is subject to interference from other

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Chapter Glossary 155

electrical sources, and it can be easily tapped by unintended receivers.

Coaxial cable consists of insulated copper wire. It is much less susceptible to electrical interference than is twisted- pair wire and it can carry much more data. However, coaxi- al cable is more expensive and more diffi cult to work with than twisted-pair wire. It is also somewhat infl exible.

Fiber-optic cables consist of thousands of very thin fi laments of glass fi bers that transmit information via light pulses generated by lasers. Fiber-optic cables are signifi - cantly smaller and lighter than traditional cable media. Th ey also can transmit far more data, and they provide greater security from interference and tapping. Fiber-optic cable is oft en used as the backbone for a network, whereas twisted-pair wire and coaxial cable connect the backbone to individual devices on the network.

3. Describe the most common methods for accessing the Internet. Common methods for connecting to the Internet include dial-up, DSL, cable modem, satellite, wireless, and fi ber to the home.

4. Explain the impact that networks have had on business and everyday life for each of the six major categories of network applications.

> Discovery involves browsing and information retrieval, and provides users the ability to view information in databases, download it, and/or process it. Discovery tools include search engines, directories, and portals.

Discovery tools enable business users to effi ciently fi nd needed information.

> Networks provide fast, inexpensive communications, via e-mail, call centers, chat rooms, voice communica- tions, and blogs. Communications tools provide busi- ness users with a seamless interface among team mem- bers, colleagues, business partners, and customers.

> Collaboration refers to mutual eff orts by two or more entities (individuals, groups, or companies) who work together to accomplish tasks. Collaboration is enabled by workfl ow systems. Collaboration tools enable busi- ness users to collaborate with colleagues, business part- ners, and customers.

> E-learning refers to learning supported by the Web. Distance learning refers to any learning situation in which teachers and students do not meet face-to-face. E-learning provides tools for business users to enable their lifelong learning.

> Virtual universities are online universities in which stu- dents take classes via the Internet at home or an off -site location. Virtual universities make it possible for stu- dents to obtain degrees while working full time, thus increasing their value to their fi rms.

> Telecommuting is the process whereby knowledge workers are able to work anywhere and anytime. Tele- commuting provides fl exibility for employees, with many benefi ts and some drawbacks.

affinity portal A Web site that off ers a single point of entry to an entire community of affi liated interests.

analog signals Continuous waves that transmit information by altering the amplitude and frequency of the waves.

backbone networks High-speed central networks to which multiple smaller networks (such as LANs and smaller WANs) connect.

bandwidth Th e transmission capacity of a network, stated in bits per second.

broadband A transmission speed ranging from approximately one megabit per second up to several terabits per second.

broadcast media (also called wireless media) Communica- tions channels that use electromagnetic media (the ”airwaves”) to transmit data.

browsers Soft ware applications through which users primarily access the Web.

cable media (also called wireline media) Communications channels that use physical wires or cables to transmit data and information.

chat room A virtual meeting place where groups of regulars come to “gab” electronically.

client/server computing Form of distributed processing in which some machines (servers) perform computing functions for end-user PCs (clients).

clients Computers, such as users’ personal computers, that use any of the services provided by servers.

coaxial cable Insulated copper wire; used to carry high-speed data traffi c and television signals.

collaboration Mutual eff orts by two or more individuals who per- form activities in order to accomplish certain tasks.

commercial (public) portal A Web site that off ers fairly routine content for diverse audiences; off ers customization only at the user interface.

communications channel Pathway for communicating data from one location to another.

computer network A system that connects computers and other devices via communications media so that data and information can be transmitted among them.

>>> C H A P T E R G L O S S A R Y

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156 4 l Telecommunications and Networking

corporate portal A Web site that provides a single point of access to critical business information located inside and outside of an organization.

digital signals A discrete pulse, either on or off , that conveys information in a binary form.

digital subscriber line (DSL) A high-speed, digital data- transmission technology using existing analog telephone lines.

distance learning (DL) Learning situations in which teachers and students do not meet face-to-face.

distributed processing Network architecture that divides pro- cessing work between two or more computers, linked together in a network.

domain name system (DNS) Th e system administered by the Internet Corporation for Assigned Names (ICANN) that assigns names to each site on the Internet.

domain names Th e name assigned to an Internet site, consisting of multiple parts, separated by dots, which are translated from right to left .

e-learning Learning supported by the Web; can be done inside traditional classrooms or in virtual classrooms.

enterprise network An organization’s network composed of in- terconnected multiple LANs and WANs.

Ethernet A common local area network protocol.

extranet A network that connects parts of the intranets of diff er- ent organizations.

fiber-optic cable A communications medium consisting of thousands of very thin fi laments of glass fi bers, surrounded by clad- ding, that transmit information via light pulses generated by lasers.

file server (also called network server) A computer that contains various soft ware and data fi les for a local area network and contains the network operating system.

Hypertext Transport Protocol (HTTP) Th e communications standard used to transfer pages across the WWW portion of the Internet; defi nes how messages are formulated and transmitted.

industrywide portal A Web-based gateway to information and knowledge for an entire industry.

Internet (The Net) A massive global WAN that connects approxi- mately 1 million organizational computer networks in more than 200 countries on all continents, including Antarctica, and features in the daily routine of almost 2 billion people. Participating computer sys- tems include smart phones, PCs, LANs, databases, and mainframes.

Internet Protocol (IP) A set of rules responsible for disassem- bling, delivering, and reassembling packets over the Internet.

Internet Protocol (IP) address An assigned address that uniquely identifi es a computer on the Internet.

Internet service provider (ISP) A company that provides Inter- net connections for a fee.

Internet telephony (Voice-over Internet Protocol or VoIP) Th e use of the Internet as the transmission medium for telephone calls.

Internet2 A new, faster telecommunications network that deploys advanced network applications such as remote medical diagnosis,

digital libraries, distance education, online simulation, and virtual laboratories.

intranet A private network that uses Internet soft ware and TCP/ IP protocols.

local area network (LAN) A network that connects communi- cations devices in a limited geographical region, such as a building, so that every user device on the network can communicate with ev- ery other device.

metasearch engine A computer program that searches several engines at once and integrates the fi ndings of the various search en- gines to answer queries posted by users.

mobile portal A Web site that is accessible from mobile devices.

modem Device that converts signals from analog to digital and vice versa.

network access points (NAPs) Computers that act as exchange points for Internet traffi c and determine how traffi c is routed.

network server (see file server)

packet switching Th e transmission technology that divides blocks of text into packets.

peer-to-peer (P2P) processing A type of client/server distrib- uted processing that allows two or more computers to pool their re- sources, making each computer both a client and a server.

portal A Web-based personalized gateway to information and knowledge that provides information from disparate informa- tion systems and the Internet, using advanced search and indexing techniques.

protocol Th e set of rules and procedures governing transmission across a network.

router A communications processor that routes messages from a LAN to the Internet, across several connected LANs, or across a wide area network such as the Internet.

search engine A computer program that searches for specifi c in- formation by key words and reports the results.

servers Computers that provide access to various network services, such as printing, data, and communications.

synchronous optical network (SONET) An interface stan- dard for transporting digital signals over fi ber-optic lines; allows the integration of transmissions from multiple vendors.

telecommuting A work arrangement whereby employees work at home, at the customer’s premises, in special workplaces, or while trav- eling, usually using a computer linked to their place of employment.

teleconferencing Th e use of electronic communication that allows two or more people at diff erent locations to have a simultane- ous conference.

Transmission Control Protocol/Internet Protocol (TCP/IP) A fi le transfer protocol that can send large fi les of information across sometimes unreliable networks with assurance that the data will arrive uncorrupted.

twisted-pair wire A communications medium consisting of strands of copper wire twisted together in pairs.

unified communications Common hardware and soft ware plat- form that simplifi es and integrates all forms of communications—voice,

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Problem-Solving Activities 157

e-mail, instant messaging, location, and videoconferencing—across an organization.

uniform resource locator (URL) Th e set of letters that identifi es the address of a specifi c resource on the Web.

videoconference A virtual meeting in which participants in one location can see and hear participants at other locations and can share data and graphics by electronic means.

virtual collaboration Th e use of digital technologies that enable organizations or individuals to collaboratively plan, design, develop, manage, and research products, services, and innovative informa- tion systems and electronic commerce applications.

virtual group (team) A work group whose members are in dif- ferent locations and who meet electronically.

virtual universities Online universities in which students take classes via the Internet at home or an off -site location.

Voice-over Internet Protocol (VOIP; see Internet telephony)

Web site Collectively, all of the Web pages of a particular company or individual.

wide area network (WAN) A network, generally provided by common carriers, that covers a wide geographic area.

wireless media (see broadcast media)

wireline media (see cable media)

work group Two or more individuals who act together to perform some task, on either a permanent or temporary basis.

workflow Th e movement of information as it fl ows through the sequence of steps that make up an organization’s work procedures.

World Wide Web (The Web, WWW, or W3) A system of uni- versally accepted standards for storing, retrieving, formatting, and displaying information via a client/server architecture; it uses the transport functions of the Internet.

1. What are the implications of having fi ber-optic cable to everyone’s home?

2. What are the implications of BitTorrent for the music industry? For the motion picture industry?

3. Discuss the pros and cons of P2P networks.

4. Should the Internet be regulated? If so, by whom?

5. Discuss the pros and cons of delivering this book over the Internet.

6. Explain how the Internet works. Assume you are talking with someone who has no knowledge of information technology (in other words, keep it very simple).

7. How are the network applications of communication and collaboration related? Do communication tools also support collaboration? Give examples.

8. Search online for the article from Th e Atlantic: “Is Google Making Us Stupid?” Is Google making us stupid? Support your answer.

>>> D I S C U S S I O N Q U E S T I O N S

1. Calculate how much bandwidth you consume when using the Internet every day. How many e-mails do you send daily and what is the size of each? (Your e-mail program may have e-mail fi le size information.) How many music and video clips do you download (or upload) daily and what is the size of each? If you view YouTube oft en, surf the Web to fi nd out the size of a typical YouTube fi le. Add up the number of e-mail, audio, and video fi les you transmit or receive on a typical day. When you have calculated your daily Internet usage, determine if you are a “normal” Internet user or a “power” Internet user. What impact does network neutrality have on you as a “normal” user? As a “power” user?

2. Access several P2P applications, such as SETI@home. Describe the purpose of each application, and indicate which ones you would like to join.

3. Access http://ipv6.com and www.ipv6news.info and learn about more advantages of IPv6.

4. Access www.icann.org and learn more about this important organization.

5. Set up your own Web site using your name for the domain name (for example, KellyRainer). • Explain the process for registering a domain. • Which top-level domain will you use and why?

6. Access www.icann.org and obtain the name of an agency or company that can register a domain for the TLD that you selected. What is the name of that agency or company?

7. Access the Web site for that agency or company (in question 6) to learn the process that you must use. How much will it initially cost to register your domain name? How much will it cost to maintain that name in the future?

8. You plan to take a two-week vacation in Australia this year. Using the Internet, fi nd information that will help

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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158 4 l Telecommunications and Networking

you plan the trip. Such information includes, but is not limited to, the following: a. Geographical location and weather conditions at the

time of your trip b. Major tourist attractions and recreational facilities c. Travel arrangements (airlines, approximate fares) d. Car rental; local tours e. Alternatives for accommodation (within a moderate

budget) and food f. Estimated cost of the vacation (travel, lodging, food,

recreation, shopping, etc.) g. Country regulations regarding the entrance of your

dog h. Shopping i. Passport information (either to obtain one or to

renew one) j. Information on the country’s language and culture k. What else do you think you should research before

going to Australia?

9. From your own experience or from the vendor’s infor- mation, list the major capabilities of Lotus Notes/ Domino. Do the same for Microsoft Exchange. Compare and contrast the products. Explain how the products can be used to support knowledge workers and managers.

10. Visit Web sites of companies that manufacture telepres- ence products for the Internet. Prepare a report. Diff erentiate between telepresence products and videoconferencing products.

11. Access Google (or YouTube) videos and search for “Cisco Magic.” Th is video shows Cisco’s next-generation telepresence system. Compare and contrast it with current telepresence systems.

12. Access the Web site of your university. Does the Web site provide high-quality information (right amount, clear, accurate, etc.)? Do you think a high-school student who is thinking of attending your university would feel the same way?

13. Compare and contrast Google Sites (www.google.com/ sites) and Microsoft Offi ce Live (www.liveoffi ce.com). Which site would you use to create your own Web site? Explain your choice.

14. Access the Web site of the Recording Industry Associa- tion of America (www.riaa.com). Discuss what you fi nd there regarding copyright infringement (that is, downloading music fi les). How do you feel about the RIAA’s eff orts to stop music downloads? Debate this issue from your point of view and from the RIAA’s point of view.

15. Research the companies involved in Internet telephony (Voice-over IP). Compare their off erings as to price, necessary technologies, ease of installation, and so on. Which company is the most attractive to you? Which company might be the most attractive for a large company?

16. Access some of the alternative search engines at http:// www.wiley.com/go/rainer/problemsolving. Search for the same terms on several of the alternative search engines and on Google. Compare the results on breadth (number of results found) and precision (results are what you were looking for).

17. Second Life (www.secondlife.com) is a three- dimensional, online world built and owned by its residents. Residents of Second Life are avatars who have been created by real people. Access Second Life, learn about it, and create your own avatar to explore this world. Learn about the thousands of people who are making “real-world” money from operations in Second Life.

18. Access Microsoft ’s Bing translator (http://www. microsofttranslator.com) or Google (www.google.com/ language_tools) translation pages. Type in a paragraph in English and select, for example, English-to-French. When you see the translated paragraph in French, copy it into the text box, and select French-to-English. Is the paragraph that you fi rst entered the same as the one you are looking at now? Why or why not? Support your answer.

Background

Napster was initially created as a music-sharing site where users would copy songs off of CDs they had purchased and then share them with other users. It was wildly popular in spite of the fact that the majority of users’ at the time were connected via dial-up networks. It could take up to an hour to download a 3 MB music fi le over an old 56K modem! Eventually it became so big that it caught the eye of the music industry, which began a series of lawsuits against the heaviest

users. Today, the music industry operates off of multiple “subscription”-type sites that have legalized digital music.

Activity

Work with a group to imagine the type of data sharing you may experience on the job. Divide your group into func- tional areas. What kind of fi les would benefi t from a central- ized fi le sharing site? Th is would not necessarily be a database, but large fi les that are easier stored and shared

>>> C O L L A B O R AT I O N E X E R C I S E

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Closing Case 1: The Network Neutrality Wars 159

through fi le sharing services—things like handbooks, catalogs, manuals, etc., that are oft en too large to e-mail. For the functional area you are assigned, search the Web for diff erent fi les that are too large for e-mail and download them. Once everyone in your group has his or her fi les (make sure they are all public fi les), upload them into a single group fi le sharing service. You can use Dropbox, LimeWire, or whatever you want. Most will off er a free trial account you can use.

Deliverable

Share your folder with your instructor with an accompany- ing document explaining what documents have been placed there from each department. Include an explanation of your experience as a group of using the Web for discovery, communication, and collaboration.

CLOSING CASE 1 > The Network Neutrality Wars

Although the steady progress of communications technologies has resulted in bandwidth commensurate with user traffi c on most Web sites in 2011, the explosion of streaming video and mobile technologies is beginning to cause bandwidth problems. Th e Internet was designed to transmit content such as e-mails and Web pages. Media items being trans- mitted through the Web today, such as high-defi nition movies, are several magnitudes greater in size than the Internet was originally designed to handle. To further compound this problem, there are now more than 50 million smart phone users in the United States, many of whom use the Internet to stream video content to their phones. Th is means that the number of users uploading large content such as videos has skyrocketed within the past few years.

In a widely cited estimate, Cisco Systems (www.cisco.com) predicted that Internet traf- fi c will triple by 2014, increasing to 64 exabytes (1 exabyte is 1 million terabytes) a month. To provide a reference point, monthly traffi c in 2006 was 5 exabytes, enough to store every word ever spoken. Moreover, by 2014, more than 90 percent of Internet traffi c will consist of video uploads, downloads, and streaming. As startling as Cisco’s statistics may sound, market researcher Infonetics (www.infonetics.com) contends that Cisco’s numbers may be conservative. Infonetics proposed several possible scenarios of how Internet development could unfold, one frightening example of which is that Internet backbone carriers might cease upgrading their technologies, leaving consumers with slow connections and hinder- ing Internet innovation.

Th is potential issue with Internet bandwidth is as much about economics as technology. Currently, consumers can send 1-kilobyte e-mails or watch the latest 30-gigabyte movie on their large-screen televisions for the same monthly broadband fee. Unlike the system used for power and water bills where higher usage equals higher fee, monthly broadband fees are not tied to bandwidth usage.

A study from Juniper Networks (www.juniper.net) highlights this “revenue-per-bit” problem. Th e report predicts that Internet revenue for carriers such as AT&T (www.att. com) and Comcast (www.comcast.com) will grow by 5 percent per year through 2020. At the same time, Internet traffi c will increase by 27 percent annually, meaning that carriers will have to increase their bandwidth investment by 20 percent per year just to keep up with demand. Under this model, the carriers’ business models will break down by 2014, because their total necessary investment will come to exceed revenue growth.

Few industry analysts expect carriers to stop investing in new capacity, but analysts agree that a fi nancial crunch is coming. As Internet traffi c soars, analysts expect the revenue per megabit to fall from 43 cents in 2010 to just 2 cents in 2014. Th ese fi gures translate into a far lower return on investment. Although carriers can fi nd ways to increase their capacity, it will be diffi cult for them to reap any revenue benefi ts from doing so.

Th e heart of the problem is that, even if the technology is up to the task of shipping huge amounts of data, no one is sure how to pay for these technologies. One possible solu- tion is to eliminate network neutrality.

<<< THE PROBLEM

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Network neutrality is the current model under which Internet service providers (ISPs) are required to operate. Under this model, ISPs must allow customers equal access to content and applications, regardless of the source or nature of the content. Th at is, Internet back- bone carriers must treat all Web traffi c equally on a fi rst-come, fi rst-serve basis.

Telecommunications and cable companies want to eliminate network neutrality. Instead, they want to charge diff erentiated prices based on the amount of bandwidth con- sumed by the content that is being delivered over the Internet. Th ese companies believe that diff erentiated pricing is the most equitable method by which they can fi nance necessary investments in their network infrastructures.

To bolster the argument in favor of diff erentiated pricing, ISPs point to the enormous amount of bandwidth required to transmit pirated versions of copyrighted materials over the Internet. In fact, Comcast (the second largest ISP in the United States) reported in 2010 that illegal fi le sharing of copyrighted material was consuming 50 percent of its network capacity. In 2008, the company slowed down transmission of BitTorrent (www.bittorrent. com) fi les, which are frequently used for piracy and illegal sharing of copyrighted materials. In response, the Federal Communications Commission (FCC) ruled that Comcast had to stop slowing down peer-to-peer traffi c. Comcast then fi led a lawsuit challenging the FCC’s authority to enforce network neutrality.

ISPs further contend that mandating net neutrality will hinder U.S. international com- petitiveness by decreasing innovation and discouraging capital investments in new network technologies. According to this scenario, ISPs will be unable to handle the exploding demand for Internet and wireless data transmission.

In April 2010, a federal appeals court ruled in favor of Comcast, declaring that the FCC did not have the authority to regulate how an ISP manages its network. Th is ruling favored diff erentiated pricing of transmissions over the Internet and was a major blow to network neutrality.

Meanwhile, proponents of network neutrality are petitioning Congress to regulate the industry to prevent network providers from adopting strategies similar to Comcast. Th ey argue that the risk of censorship increases when network providers can selectively block or slow access to certain content, such as access to competing low-cost services such as Skype and Vonage. Th ey also assert that a neutral network encourages everyone to innovate with- out needing permission from phone companies, cable companies, or other authorities, and that the neutral Internet has helped to create many new businesses.

Most analysts expect that those users who consume the most data eventually will have to pay more, most likely in the form of tiered pricing plans. Americans, however, have never had to contend with limits on the amount of data they upload and download, so there may be some pushback from users.

Despite the fact that the court ruled against network neutrality in April 2010, on December 21, 2010, the FCC approved network neutrality rules that prohibited broadband providers from blocking customer access to legal Web content. Th e new rules bar wireline-based broadband providers—but not mobile broadband providers—from “unreasonable discrim- ination” against Web traffi c. In January 2011, Verizon fi led a legal appeal challenging the FCC’s authority to enforce these new rules. As of mid-2012, the battle over network neutral- ity is still ongoing.

U.S. wireless networks have already moved in the direction of tiered-pricing plans. In June 2010, for example, AT&T discontinued its all-you-can-use $30 a month data plan and announced tiered-pricing plans for its mobile consumers.

One iPhone user related his story. For 4 years, he had been doing the same things on his iPhone: checking e-mail, listening to Pandora Internet radio, using Google Maps, brows- ing the Web, and shopping online. He averaged about 1.76 gigabytes of data per month in 2011. In January 2012, however, he surpassed a limit set by AT&T (his wireless carrier). AT&T sent an e-mail to him, suggesting that he consider using Wi-Fi when possible for applications that use the highest amounts of data, such as streaming video apps, remote Web camera apps, and other high-bandwidth uses. To say that he was unhappy would be an understatement. He promptly began searching wireless plans at competing companies.

A POSSIBLE >>> SOLUTION

THE EARLY >>> RESULTS

MORE RECENT >>> RESULTS FOR

WIRELESS USERS

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Closing Case 2: Marriott’s Corporate Portal 161

Th ere is little, if any, agreement on what constitutes excessive data usage. An NPD Connected Intelligence (www.connected-intelligence.com) study of 700 Android smart- phone users found that these users utilized 724 megabytes per month on AT&T’s network, 1.7 gigabytes on T-Mobile’s network, 902 megabytes on Verizon Wireless’ network, and 1.2 gigabytes on Sprint’s network.

On October 1, 2011, AT&T started slowing speeds for the 5 percent of their unlimited- plan users who use the most bandwidth. AT&T subscribers on tiered plans do not see band- width limitations. Th ey just have to pay for more data if they go over the data limit in their plans. AT&T new data plans off er 300 megabytes for $20 per month, 3 gigabytes for $30, and 5 gigabytes for $50. New customers are no longer allowed to sign up for unlimited plans anymore. Th e AT&T model may foreshadow the direction that many Internet and cable providers will need to take in the future in order to remain profi table in the face of skyrock- eting bandwidth demands. Sources: J. Hamilton, “AT&T Must Give Shareholders Net Neutrality Vote,” Bloomberg, February 14, 2012; W. Plank, “Confessions of an iPhone Data Hog,” Th e Wall Street Journal, January 27, 2012; J. Engebretson, “Verizon Confi rms It Will Appeal Newly Published Net Neutrality Rules Soon,” Connected Planet, September 27, 2011; E. Wyatt, “House Votes Against ‘Net Neutrality’,” Th e New York Times, April 8, 2011; L. Segall, “Verizon Challenges FCC Net Neutrality Rules,” CNN Money, January 21, 2011; K. Corbin, “Net Neutrality 2011: What Storms May Come,” Internet News, December 30, 2010; C. Albanesius, “What Do the FCC’s Net Neutrality Rules Mean for You?” PC Magazine, December 22, 2010; G. Gross, “FCC Approves Compromise Net Neutrality Rules,” Network World, December 21, 2010; P. Burrows, “Will Video Kill the Internet, Too?” Bloomberg BusinessWeek, December 6–12, 2010; J. Nocera, “Th e Struggle for What We Already Have,” New York Times, September 4, 2010; C. Miller, “Web Plan Is Dividing Companies,” New York Times, August 11, 2010; A. Schatz and S. Ante, “FCC Web Rules Create Push- back,” Wall Street Journal, May 6, 2010; www.comcast.com, www.att.com, accessed March 13, 2012.

Questions 1. How do you feel about the net neutrality issue? Do you believe heavier

bandwidth users should pay for more bandwidth? Do you believe wireless carriers should operate under diff erent rules than wireline carriers? Please explain your answer.

2. Evaluate your own bandwidth usage. (For example, do you upload and download large fi les, such as movies?) If network neutrality were to be eliminated, what would the impact be for you?

3. Should businesses monitor network usage? Do see a problem with employ- ees using company-purchased bandwidth for personal use? Please explain your answer.

CLOSING CASE 2 > Marriott’s Corporate Portal

Marriott International operates more than 3,500 hotel properties worldwide under its portfolio of brands, including Marriott Hotels & Resorts, JW Marriott, Renaissance, Edi- tion, Autograph Collection, and Courtyard by Marriott. Th e properties fall into the follow- ing categories: luxury, collections, lifestyle and boutique, signature, select service, and extended stay.

Until 2011, Marriott used a “one size fi ts all” approach for its advertising, marketing, and branding eff orts in diff erent locations, despite the fact that independent franchisers own most of its properties. For years, regardless of location or brand, each property was off ered the exact same (low) level of marketing support.

As a result of this policy, each Marriott property was largely responsible for its own marketing eff orts, meaning that there was little consistency from location to location, or brand to brand. Furthermore, many properties did not have the funds to support their own marketing eff orts. Finally, to compound the problem even further, Marriott had no easy

<<< THE PROBLEM

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162 4 l Telecommunications and Networking

method set up for sharing of marketing materials between corporate headquarters and the various properties.

As customer attitudes and preferences changed, Marriott realized that its corporate marketing practices needed to evolve as well. Consequently, the company launched a rebranding eff ort to tailor its marketing and branding decisions to each unique brand and target market. To fully implement this shift in strategy, the company needed a better way to share and leverage its marketing assets. Th erefore, it created a user-friendly online corpo- rate portal to manage the creation, distribution, and review of marketing practices and material, as well as to support its new brand standards.

To help address its marketing concerns, Marriott International deployed BrandWorks, an automated online marketing portal, in all of its locations. BrandWorks makes it quick, easy, and cost-eff ective for each of the company’s properties to create their own customized mar- keting materials. Marriot hotels, advertising agencies, and marketing managers use the por- tal to share and/or download stock photography, view brand standards and guidelines, download marketing templates, and use document wizards to create customized marketing material.

With BrandWorks, Marriott is able to off er diff erent programs and strategies to each of its distinct brands to better appeal to their respective target audiences (for instance, leisure travelers and business travelers use very diff erent criteria when deciding which hotel to stay in). Using BrandWorks, Marriott compiled a comprehensive catalog of updated brand guidelines, templates, strategies, and materials so that its promotions and marketing activi- ties could be implemented properly and cost-eff ectively across all of its markets and in multiple languages.

Marriott also deployed a centralized off er-management system in BrandWorks. Th is system allows its properties worldwide to create Marriott rewards off ers and deals, and then promote them on the Marriott Web site and in other marketing channels.

BrandWorks also has built-in tracking capabilities to report on promotional programs, as well as automated analyses to identify which off ers, programs, and marketing campaigns are most successful. In 2012, Marriott integrated social media strategies for all its brands and properties into the portal.

BrandWorks enabled Marriott to improve information sharing and collaboration among its global locations and corporate teams. Internal users can report on total log-ins, the number of documents currently in the system based on brand and category, and the number of off ers created and disseminated through each marketing channel. Th is data enables the company to determine what marketing information to activate for each brand and for each audience, and thereby deliver a better customer experience, educate global properties on brand, ensure consistency across locations and languages, and enable executives to make better decisions.

Th e off er management system within BrandWorks enables Marriott users to deliver revenue-generating off ers to customers more rapidly. Because BrandWorks has built-in capabilities to tailor its off ers to distinct audiences, demographics, and marketing channels, more than three times as many off ers have been submitted through the portal than were submitted without it.

Other Marriott departments have started to use BrandWorks as well. For example, the HR department has begun posting its presentations on the portal. Th e food and beverage department also posts its menus to the portal, as well as information on group sales and event management.

From 2009 to 2011, user log-ins to Marriott’s increased by 186 percent, while the amount of marketing material distributed through the portal more than doubled. In 2011 alone, more than 6,000 users from Marriott properties, corporate headquarters, and regional departments logged in to BrandWorks. Th e users came from 70 countries and territories, and represented 16 diff erent brands. Th ey accessed BrandWorks remotely through any Internet browser using desktops, laptops, tablets, and smart phones.

Sources: Compiled from S. Brier, “How Marriott Got Marketing Right,” Baseline Magazine, January 17, 2012; S. Brier, “Marriott Saves Estimated $9.2 Million in Marketing Costs with Online Portal,” Hospitality Technology,

THE IT >>> SOLUTION

THE RESULTS >>>

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Spreadsheet Activity 163

December 19, 2011; T. McQuilken, “Marriott Brings Marketing to Next Level with BrandWorks,” Hotel Business, September 21, 2011; “Case Study: Marriott International,” Excella Consulting, accessed February 28, 2012; www. marriott.com, accessed February 29, 2012.

Questions 1. Provide examples of the advantages BrandWorks brought to Marriott’s

franchisees. 2. Provide examples of how BrandWorks could be used for functional areas of

Marriott other than marketing.

Ruben and Lisa have lots of questions and they need lots of answers. For now, it would be helpful if they understood the difference between DSL, cable, and fi ber connections. They are especially interested in the upfront cost of installation, speed, and monthly fee. In addition, they need to know how to wire their building. What cable medium would be best for them to use to wire their building for network access?

Finally, look at the hardware requirements for running a Web site. Compare this with the fees charged by a hosting company and give Ruben and Lisa a suggestion on whether they should include a Web server (and faster Internet connection) when they are designing their LAN.

I N T E R N S H I P A S S I G N M E N T

SPREADSHEET ACTIVITY: BUILDING CHARTS AND TABLES Objective: Creating charts and graphs is a really nice

skill for you to develop. Visual data can be shared more quickly, comprehended more easily, and displayed much more cleanly than simply numbers in a spreadsheet. This activity will require you to build both charts and tables to present data surrounding network speeds.

Chapter Connection: As you learn about network connections and speeds, this exercise will show you how to do an analysis on your own. It is possible that your Internet connection is not providing the speeds you are paying for! This tool is also useful when your Internet does not seem to be running as quickly as it should. Knowing how to test the speed will help you determine where the possible problem could be.

Prerequisites: There are no prerequisites for this activity.

Activity: Calculating return on investment (ROI) is extremely diffi cult when it comes to ROI for information systems. For example, when network

administrators sense a strain on their network (from network diagnostics or user complaints), they may look into upgrading their network.

To get a feel for the type of information someone might see, create your own spreadsheet of data while watching your Internet connection at home. If you are not at home regularly, choose a computer in a convenient location and test the speed there. Go to http://www.wiley.com/go/rainer/ spreadsheet and look for the link provided for Chapter 4. This link will take you to “speedtest. net” and the network test will be on the home page asking you to “Begin Test.” The test will take only a few minutes. In a new spreadsheet, create columns for the following:

• Date • Time • Ping speed • Upload speed

RUBY’S CLUB

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DATABASE ACT IV ITY: REPORTS I Objective In this activity, you will learn how to create an Access report, with grouping and summaries. A database is not useful if you can’t get information out of it. Reports are one way users get information from a database. Reports can connect data from several tables, organize it, sort it, group it, summarize it and more. Once designed, a report can be run as needed, refl ecting the database content as of that instant.

CHAPTER CONNECTION Companies must monitor their network performance to make sure it’s reliable, secure, and free of performance bottlenecks. Reports such as those in this activity help them do this. The database in this activity tracks network problems. Users who notice problems submit “trouble tickets.” These describe the problem and, later, its resolution. They identify the user who submitted the it, the equipment involved, and the technician who fi xed it. Management can use reports derived from this database to identify problem devices and vendors, to evaluate technician performance, to identify users who are helpful in fi nding problems or who report non-existent ones, and more.

PREREQUISITES None.

Activity: In this activity, which you will fi nd online at http://www. wiley.com/rainer/go/database, you’ll take a database and create multi-level reports from it. You will add summary fi elds to this report and reformat it to improve its appearance.

1. Download the Ch 04 NeTrouble database from http://www.wiley.com/rainer/go/database and open it. (You saw this database earlier if you did the Chapter 1 activity. This version does not include the report, query or form you used there. Here, you’ll create other reports from the same underlying data.)

2. To create a new report, click the Create tab over the ribbon.

3. The section labeled “Reports” offers several reporting tools. We’ll use the Report Wizard, a compromise between the Report button (which doesn’t offer much control) and Report Design (which forces us to do all the “heavy lifting” ourselves, without the head start that the Wizard can provide). Click on it.

4. The fi rst screen lets us choose which tables we’ll base our report on and which fi elds from those tables we want to use. (It also lets us base the report on queries. A query creates a temporary table, so for this purpose they’re the same. You’ll create reports based on queries in later activities.) Our report will list trouble tickets by

164 4 l Telecommunications and Networking

• Download speed • Test location (not your location, but the host of the

test) Collect this data for a week, preferably three times a day (i.e., morning, afternoon, and evening). Once you have your 15 data points, create a chart that shows the change in bandwidth available over time. This is exactly what a network administrator might see when trying to determine if it is necessary to upgrade the system. Additionally, calculate the average, minimum, and maximum for each day and for the entire week. Place this data in a chart for quick reference. Back at http://www.wiley.com/go/rainer/ spreadsheet you will also fi nd a short video on creating charts and graphs to help you create your fi nal product.

Deliverable: The deliverable will be a line chart that shows data speeds over time.

Note: There is no correct answer, but there are wrong answers if you do not collect enough data or do not create the chart appropriately.

Discussion Questions:

1. What is it about a chart that makes it easier to comprehend than raw numbers?

2. Is it possible for charges and graphs to depict real data in a way that misleads the viewer?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

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Database Activity 165

user, so start by selecting the UserTbl table. from the pull-down list under the Tables/Queries heading.

5. The left box shows all fi elds in the selected table. To move a fi eld into the report, select it and click “>.” It moves into the right box. If you move a fi eld you don’t want, “<” moves it back. “>>”moves all the fi elds of that table into the report. This is useful when you want most of them, since “>>” followed by one or two “<” can be faster than moving all those you want individually. Finally, “<<” moves everything in this table out of the report and back to the table so you can start over.

Here, move the user’s name into the report. 6. Next, select DeptTbl, move DeptName into the

report. 7. Finally, select the TicketTbl table. Move

TicketSubmitted, TicketResolved and TicketStatus into the report. Click Next.

8. This is the panel where you structure your report. Choose each of the three tables, one after another, and see how the report organization changes. For this report, select “by DeptTbl” and click Next.

9. We don’t need any more grouping levels. Click Next.

10. Within each category, choose to sort the tickets by when they were submitted. Pull down the fi rst sorting menu and select TicketSubmitted. Click Next.

11. Leave the layout unchanged here. Click Next. 12. (Number not used in Access 2010 version of

activity; there’s another step here in Access 2007.) 13. Change the title of the report to DeptRpt. Then

click Finish and see the result. Usage Hint: If you see “###” in any of the fi elds, the reason is almost certainly that the standard fi eld width isn’t wide enough to show the data. Switch to Layout view by clicking the second icon from the right in the lower right corner of the window, click in each fi eld that has this problem to select it, and make it

wide enough to see the data. You may have to move column headers to keep them aligned with the data. Or, click on the data and shift-click on the heading to select them both, then make them wider together. 14. Our second report will add summary fi elds to this

report. First, make a copy of the report so your instructor can see the version without summary fi elds. Right-click on the report in the navigation panel at the left of the Access window and select Copy. Then click Paste in the ribbon. (It’s under the Home tab, so click that tab if it’s not already selected.) Name the new report SumDeptRpt and confi rm.

15. Open SumDeptRpt and select Layout view. Make sure the Design tab is selected, and click Group & Sort from the Grouping & Totals section.

Usage Hint: Access calls any kind of summary a “total.” If you want an arithmetic total, you must ask for a sum. We’ll use the term “summary” rather than “total” here to avoid this common source of confusion, but you’ll see “total” on Access screens. 16. A new panel will open up at the bottom of the

window. Its top row starts “Group on DeptID” and ends with “More” and a triangle pointing to the right. That word “more” hides many options. Click the triangle to see them.

17. We want to count the number of tickets each department submits. Pull down the triangle next to “with no totals.” The fi rst option lets us summarize TicketSubmitted, TicketStatus or TicketResolved. We should count TicketSubmitted since every trouble ticket has a value in this fi eld. Next, select either count. (They would be different if we counted a fi eld that is blank for some tickets. Therefore, if we had selected TicketResolved or TicketStatus, we would use Count Records so that records that are blank in this fi eld would be counted.) Check boxes to show the grand total and department totals in the group footer. When you click the triangle again to release the dialogue box, you’ll see department totals after each department with the grand total at the bottom. Your report should start like this:

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166 4 l Telecommunications and Networking

If we had wanted to total by user, we would have clicked on the “More” triangle at that level in the panel at the bottom of the window.

Close your report, saving your changes. 18. Now we’ll improve the appearance of this report.

Make a copy of SumDeptRpt. Call it FmtDeptRpt, open it, and go to Layout view. (Layout changes can also be made in Design view. Design view gives more control over some aspects of the layout, but Layout view can often suffi ce and gives immediate visual feedback when you make a change. It’s preferable when it will do the job.)

19. First, change the column headings. Access sets them to the names of the database

20. Now it’s your turn. Develop a report that shows trouble tickets by device ID. Group devices by name (category). Within a name, group by ticket status: Closed, Open or Cancelled. Provide counts for each category and for the entire report. Edit column headings and report title to be meaningful to business-oriented readers of the report. Name your report “DeviceRpt,” and be sure to save it when you’re done.

As with other aspects of Access, many videos on creating reports are available on the Web. You can fi nd them by searching for “Access report,” “Access report tutorial,” or any similar string on a video hosting site such as YouTube, or using the general search engine of your choice while restricting its answers to videos.

Deliverables Your database with the four reports as specifi ed above. Your instructor may add additional requirements.

Quiz Questions 1. A report shows the content of the database as of:

A. The time the report is run (opened). B. The time the report was designed.

fi elds. However, database fi eld names are for developers. Report headings should be for people who will read the report. Select each, just as in a word processor, and change them to read “Department,” “User,” “Date Submitted,” “Date Resolved” and “Status.” Change the main report heading to “Trouble Tickets by Department and User.” Shrink the width of the User column to bring the data elements closer together. Click “Logo” in the ribbon (Design tab, Header/Footer section), fi nd a suitable picture, and insert. (By default, Access puts logos in the main heading area.) Switch to Report view. Your report should now start like this:

C. The time the user looks at the report. D. The time the user keys into the Report Effective

Time fi eld. 2. True or false: A report can contain information from

no more than two tables. 3. True or false: Report design can only be changed in

Design mode.

Discussion Questions

1. Suppose you own or manage a restaurant. You have a typical restaurant computer system in which servers enter orders, which the kitchen uses to prepare orders, and which later creates bills and processes payments. Describe three reports that this system could prepare for your use. Draw, using paper and pencil, the top of each: header, column headings, a few lines of sample data, and the fi rst summary fi eld.

2. Your instructor may have received a report with a class roster soon after the term started. It is based on two tables: a class table that lists the student IDs of everyone in the class, and a student table that gives the name, major, GPA, and so on for each student. Students are normally listed alphabetically by family name. (It’s also based on a query, which

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Database Activity 167

fi nds only students in this class, but that’s a separate topic.) A. Discuss two ways this list could be organized,

besides the usual order by name. B. Discuss two summaries that this report,

organized either in its usual way or in one of the above two ways (your choice), could have.

3. Your e-mail program has an address list. Each entry in it includes an e-mail address. Some entries also include the sender’s real name. A few may have other information. Describe a report that could be produced from this list and other information that your e-mail program stores. Give it at least one summary fi eld. Draw its fi rst few rows.

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5 CHAPTER OUTLINE

5.1 Managers and Decision Making

5.2 What Is Business Intelligence? 5.3 Business Intelligence

Applications for Data Analysis 5.4 Business Intelligence

Applications for Presenting Results

5.5 Business Intelligence in Action: Corporate Performance Management

Business Intelligence

LEARNING OBJECTIVES >>>

1. Explain diff erent ways in which IT supports managerial decision making. 2. Provide examples of diff erent ways that organizations make use of BI. 3. Explain the value that diff erent BI applications provide to large and small

businesses. 4. Off er examples of how businesses and government agencies can use diff erent BI

applications to analyze data. 5. Explain how your university could use CPM to eff ect solutions to two campus

problems.

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If you were in the business of supplying heating oil in the northeastern United States, would it be useful to know if a big winter snowstorm was likely to arrive with subzero temperatures in Massachusetts the following month? If you were a fi refi ghter in the backcountry of California and knew that the odds of intense Santa Anna winds would increase dramatically in 3 weeks, how would you react? If you were a Home Depot manager, wouldn’t you want to have snow shovels in stock if there was going to be a large snowstorm? If you worked in the Federal Emergency Management Agency, would you want to get a 30-day advance warning of the next hurricane?

Although there is widespread use of satellite imaging and computer modeling in the fi eld of meteorology, the founders of EarthRisk Technologies (www.earthrisktech.com), a 2010 startup, say it is still nearly impossible to use current weather forecasting models to make anything more than the most general predictions about weather more than 2 weeks away.

EarthRisk has imple- mented weather forecasting soft ware to estimate the likelihood of extreme weather events 30 to 40 days in advance. Th e founders emphasize that EarthRisk provides information that helps its clients make decisions of value.

EarthRisk draws on 60 years of weather data to identify conditions that could lead to big temperature swings weeks later. Th e weather events that precede a hot or cold stretch are like dominoes toppling in sequence. Th e company’s soft ware predicts the probability of each domino falling over and sells that information to energy companies that want to lock in fuel prices before periods of peak demand.

EarthRisk’s next project is to detect Atlantic hurricanes days in advance by analyzing conditions such as ocean temperatures, sea level pressures, and vertical wind shear. Th e > > >

OPENING CASE > EarthRisk Technologies

RUBY’S CLUB

As Ruben and Lisa prepare to reopen Ruby’s Club for business, they need to establish some measurements to help them stay on track. They have a goal of a $300,000 net profi t for their fi rst year after their grand “reopening.” This is an increase from $150,000 the previous year. To achieve this, they have to deal with one of the biggest problems they face—shrinkage.

Shrinkage occurs when a bartender pours someone a little more alcohol than the drink recipe calls for, gives someone a free drink, or accidentally spills some alcohol on the fl oor. The result is that a bottle of alcohol that (for example) should provide enough alcohol to make 40 drinks only actually brings in money for 30 drinks. This shrinkage may not seem like much, but on a large scale (including food items) it can make a huge difference.

What Ruben and Lisa need is data and decision support. This chapter refers to this as business intelligence. They need to know how to set and measure monthly and weekly goals to know whether or not they are on track to make their overall goal of $300,000 net profi t when they reopen.

RUBY’S CLUB

© Vitalina Rybakova/iStockphoto

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170 5 l Business Intelligence

Questions 1. What impact will EarthRisk have on the business

model of The Weather Channel? If you were a Weather Channel executive, what would you do to counter the threat of EarthRisk?

2. Provide examples of other organizations to whom long-range weather forecasts would be valuable.

company also wants to make its soft ware intuitive enough to be used by nonmeteorologists at insurance companies and other businesses.

Sources: B. Bigelow, “EarthRisk Figures Odds in Long-Range Forecasts of ‘Extreme Weather’,” Xconomy, January 25, 2012; D. Rice, “Team Seeks to Provide More Advance Warning on Hurricanes,” USA Today, October 11, 2011; J. Tozzi, “Weather Seer,” Bloomberg BusinessWeek, September 26–October 2, 2011; G. Robbins, “EarthRisk Seeks Business Niche Spotting Severe Weather,” San Diego Union Tribune, August 2011; www. earthrisktech.com, accessed February 27, 2012.

Introduction

Business intelligence (BI) is a broad category of applications, technologies, and processes for gathering, storing, accessing, and analyzing data to help business users make better decisions. BI applications enable decision makers to quickly ascertain the status of a busi- ness enterprise by examining key information. Managers need current, timely, and accurate information that their current systems oft en cannot provide. Implementing BI applications can generate signifi cant benefi ts throughout a company, supporting important decisions about the fi rm’s overall business goals.

Consider these examples:

• Th e low-budget Oakland A’s of major-league baseball analyzed data to develop new statistics to discover undervalued players. Th e team’s analysis was described in a 2003 book by Michael Lewis, Moneyball, which was made into a 2011 movie starring Brad Pitt.

• Retailers such as Walmart and Kohl’s analyze sales, pricing, and economic, demographic, and weather data to tailor product selections at particular stores and determining the timing of price markdowns.

• Shipping companies, such as UPS, analyze data on truck delivery times and traffi c patterns to fi ne-tune routing.

• Online dating services, such as Match.com, constantly analyze their Web listings of personal characteristics, reactions, and communications to improve their algorithms for matching individuals on dates.

Th is chapter describes information systems that support decision making. We begin by reviewing the manager’s job and the nature of modern managerial decisions. Th is discussion will help you to understand why managers need computerized support. You then learn about the concepts of business intelligence for supporting individuals, groups, and entire organizations.

It is impossible to overstate the importance of BI to you. Recall from Chapter 1 that the essential goal of information systems is to provide the right information to the right person in the right amount at the right time in the right format. In essence, BI achieves this goal. BI systems provide business intelligence that you can act on in a timely fashion.

It is also impossible to overstate the importance of your input into the BI process within an organization, for several reasons. First, you (the user community) will decide what data should be stored in your organization’s data warehouse. You will then work closely with the MIS department to obtain these data.

Going further, you will use your organization’s BI applications, probably from your fi rst day on the job. With some BI applications, such as data mining and decision support sys- tems, you will decide how you want to analyze the data (user-driven analysis). With other BI applications such as dashboards, you will decide which data you want to see and in which format. Again, you will work closely with your MIS department to ensure that the dash- board meets your needs.

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Managers and Decision Making 171

Much of this chapter is concerned with large-scale BI applications. However, you should keep in mind that smaller organizations, and even individual users, can implement small-scale BI applications as well. For example, Excel spreadsheets provide some BI func- tions, as do SQL queries of a database.

Th e most popular BI tool by far is Excel. For years, BI vendors “fought” against the use of Excel. Eventually, however, they decided to “join it” by designing their soft ware so that it interfaces with Excel. How does this process work? Essentially, users download plug-ins that add functionality (e.g., the ability to list the top 10 percent of customers, based on sales) to Excel (or any of the Microsoft Offi ce products). Th is process can be thought of as creating “Excel on steroids.” Excel then connects to the vendor’s application server—which provides additional data-analysis capabilities—which in turn connects to a back-end database, such as a data mart or warehouse. Th is arrangement gives Excel users the functionality and access to data that are typical of sophisticated BI products, while allowing users to work with a familiar client: Excel.

Microsoft has made similar changes to its product line. In particular, Excel can now be used with MS SQL Server (a database product), and it can be utilized in advanced BI appli- cations, such as dashboards and data mining/predictive analysis.

Aft er you fi nish this chapter, you will have a basic understanding of decision making, the business intelligence process, and BI applications in organizations today. Th is knowl- edge will enable you to immediately and confi dently provide input into your organization’s BI processes and applications. Further, the hands-on exercises in this chapter will familiar- ize you with the actual use of BI soft ware. Th ese exercises will enable you to use your orga- nization’s BI applications to eff ectively analyze data and thus make better decisions. Enjoy!

5.1 Managers and Decision Making Management is a process by which an organization achieves its goals through the use of resources (people, money, materials, and information). Th ese resources are considered to be inputs. Achieving the organization’s goals is the output of the process. Managers oversee this process in an attempt to optimize it. A manager’s success is oft en measured by the ratio between inputs and outputs for which he or she is responsible. Th is ratio is an indica- tion of the organization’s productivity.

The Manager’s Job and Decision Making To appreciate how information systems support manag- ers, you must fi rst understand the manager’s job. Manag- ers do many things, depending on their position in the organization, the type and size of the organization, the organization’s policies and culture, and the personalities of the managers themselves. Despite these variations, however, all managers perform three basic roles:

1. Interpersonal roles: fi gurehead, leader, liaison 2. Informational roles: monitor, disseminator,

spokesperson, analyzer 3. Decisional roles: entrepreneur, disturbance handler,

resource allocator, negotiator1

Early information systems primarily supported the informational roles. In recent years, information systems have been developed that support all three roles. In this chapter, you will focus on the support that IT can provide for decisional roles.

1Mintzberg, H. (1973). Th e Nature of Managerial Work. New York: Harper & Row.

Media Bakery; © Sigrid Olsson/Photo Alto/Age Fotostock; Image Source Limited; Artiga Photo/Masterfi le

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172 5 l Business Intelligence

A decision refers to a choice among two or more alternatives that individuals and groups make. Decisions are diverse and are made continuously. Decision making is a system- atic process. Economist Herbert Simon described decision making as composed of three major phases: intelligence, design, and choice.2 Once the choice is made, the decision is implemented. Figure 5.1 illustrates this process, indicating which tasks are included in each phase. Note that there is a continuous fl ow of information from intelligence to design to choice (bold lines), but at any phase there may be a return to a previous phase (broken lines).

Th is model of decision making is quite general. Undoubtedly, you have made decisions where you did not construct a model of the situation, validate your model with test data, or conduct a sensitivity analysis. Th e model we present here is intended to encompass all of the conditions that might occur when making a decision. For some decisions, some steps or phrases may be minimal, implicit (understood), or absent.

Th e decision-making process starts with the intelligence phase, in which managers exam- ine a situation and identify and defi ne the problem or opportunity. In the design phase, deci- sion makers construct a model for the situation. Th ey do this by making assumptions that simplify reality and by expressing the relationships among all the relevant variables. Managers then validate the model by using test data. Finally, decision makers set criteria for evaluating all of the potential solutions that are proposed. Th e choice phase involves selecting a solution or course of action that seems best suited to resolve the problem. Th is solution (the decision) is then implemented. Implementation is successful if the proposed solution solves the prob- lem or seizes the opportunity. If the solution fails, then the process returns to the previous phases. Computer-based decision support assists managers in the decision-making process.

Implementation of Solution

Yes

No

Validation of the Model

Examination

Verification, Testing of Proposed Solution

REALITY

FA ILURE

Choice Phase

Pick an option and decide how to

implement it.

Intelligence Phase

What is the problem?

What are my options?

Design Phase

SU CCESS

Did this option work as proposed?

Media Bakery; © Sigrid Olsson/Photo Alto/Age Fotostock; Image Source Limited; Artiga Photo/Masterfi le

2Simon, H. A. (1977). Th e New Science of Management Decision Making. Upper Saddle River, NJ: Prentice Hall.

Figure 5.1 The process and phases of decision making.

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Managers and Decision Making 173

Why Managers Need IT Support Making good decisions is very diffi cult without solid information. Information is vital for each phase and activity in the decision-making process. Even when information is avail- able, however, decision making is diffi cult because of the following trends:

• Th e number of alternatives is constantly increasing from innovations in technology, improved communications, the development of global markets, and the use of the Internet and e-business. A key to good decision making is to explore and compare many relevant alternatives. Th e more alternatives that exist, the more a decision maker needs computer-assisted searches and comparisons.

• Most decisions must be made under time pressure. It is oft en not possible to process information manually fast enough to be eff ective.

• Because of increased uncertainty in the decision environment, decisions are becoming more complex. It is usually necessary to conduct a sophisticated analysis in order to make a good decision.

• It is oft en necessary to rapidly access remote information, consult with experts, or conduct a group decision-making session, all without incurring large expenses. Decision makers can be situated in diff erent locations, as can the information. Bringing them all together quickly and inexpensively can be a major challenge.

Th ese trends create major diffi culties for decision makers. Fortunately, as you will see throughout this chapter, a computerized analysis can be of enormous help.

What Information Technologies Are Available to Support Managers? In addition to discovery, communication, and collaboration tools (Chapter 4) that provide indirect support to decision making, several other information technologies have been suc- cessfully used to support managers. As noted, these technologies are collectively referred to as business intelligence (BI). BI is closely linked to data warehousing, which provides the data needed for BI. You will now learn about additional aspects of decision making to place our discussion of BI in context. You will fi rst look at the diff erent types of decisions that managers face.

A Framework for Computerized Decision Analysis To better understand BI, you will note that various types of decisions can be placed along two major dimensions: problem structure and the nature of the decision.3 Figure 5.2 provides an overview of decision making along these two dimensions. Problem Structure. Th e fi rst dimension of decision making is problem structure, where decision-making processes fall along a continuum ranging from highly structured to highly unstructured (see the left column in Figure 5.2). Structured decisions refer to routine and repetitive problems for which standard solutions exist, such as inventory control. In a structured problem, the fi rst three phases of the decision process—intelligence, design, and choice—are laid out in a particular sequence, and the procedures for obtaining the best (or at least a good enough) solution are known. Two basic criteria that are used to evaluate proposed solutions are minimizing costs and maximizing profi ts. Th ese types of decisions are candidates for decision automation.

At the other extreme of problem complexity are unstructured decisions. Th ese are “fuzzy,” complex problems for which there are no cut-and-dried solutions. An unstructured problem is one in which there is no standardized procedure for carrying out any of the three phases. In such a problem, human intuition and judgment oft en play an important role in making the decision. Typical unstructured problems include planning new service off er- ings, hiring an executive, and choosing a set of research and development (R&D) projects

3Gorry, G. A., & Scott Morton, M. S. (1971). “A Framework for Management Information Systems,” Sloan Management Review, 13(1), pp. 55–70.

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174 5 l Business Intelligence

for the coming year. Although BI cannot make unstructured decisions, it can provide infor- mation that assists decision makers.

Located between structured and unstructured problems are semistructured problems, in which only some of the decision process phases are structured. Semistructured prob- lems require a combination of standard solution procedures and individual judgment. Examples of semistructured problems are evaluating employees, setting marketing bud- gets for consumer products, performing capital acquisition analysis, and trading bonds.

The Nature of Decisions. Th e second dimension of decision support deals with the nature of decisions. All managerial decisions fall into one of three broad categories:

1. Operational control: executing specifi c tasks effi ciently and eff ectively 2. Management control: acquiring and using resources effi ciently in accomplishing

organizational goals 3. Strategic planning: the long-range goals and policies for growth and resource allocation

Th ese categories are displayed along the top row of Figure 5.2. Note: Strategic decisions defi ne the context in which management control decisions are

made. In turn, management control decisions defi ne the context in which operational con- trol decisions are made.

The Decision Matrix. Th e decision matrix. Th e three primary classes of decision types and the three broad categories of the nature of decisions can be combined in a decision- support matrix that consists of nine cells, as diagrammed in Figure 5.2. Lower-level managers perform tasks in cells 1 and 4, but not 7 because operational managers are not expected to make strategic decisions. Th e tasks in cells 2, 5, and 8 are usually the respon- sibility of middle-managers and professional staff . Finally, the tasks in cells 6 and 9 are generally carried out by senior executives while cell 3 is empty because senior executives are not involved in day-to-day operational tasks.

Computer Support for Structured Decisions. Examples of computer support that might be used for the nine cells in the matrix are displayed in the right-hand column of Figure 5.2. Structured and some semistructured decisions, especially of the operational and management control type, have been supported by computers since the 1950s. Deci- sions of this type are made in all functional areas, but particularly in fi nance and operations management.

Accounts receivable, order entry

Budget analysis, short-term forecasting, personnel reports, make-or-buy analysis

2 31

Production scheduling, inventory control

Credit evaluation, budget preparation, plant layout, project scheduling, reward systems design

Building a new plant, mergers and acquisitions, planning (product, quality assurance, compensation, etc.)

5 64

Negotiating, recruiting an executive, buying hardware, lobbying

New technology development, product R&D, social responsibility planning

8 97

MIS, statistical models (management science, financial, etc.)

Operational Control

Management Control

Strategic Planning

IS Support

Decision support systems, business intelligence

Structured

Semistructured

Decision support systems, expert systems, enterprise resource planning, neural networks, business intelligence, big data

Unstructured

Figure 5.2 Decision support framework. Technology is used to support the decisions shown in the column at the far right.

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Managers and Decision Making 175

Problems that lower-level managers encounter on a regu- lar basis typically have a high level of structure. Examples are capital budgeting (for example, replacement of equipment), allocating resources, distributing merchandise, and control- ling inventory. For each type of structured decision, prescribed solutions have been developed, which oft en include mathe- matical formulas that can oft en be used. Th is approach is called management science or operations research, and it is exe- cuted with the aid of computers.

BEFORE YOU GO ON . . . 1. Describe the decision-making process

proposed by Simon. 2. You are registering for classes next

semester. Apply the decision-making process to your decision about how many and which courses to take. Is your decision structured, semistructured, or unstructured?

3. Consider your decision-making process when registering for classes next semester. Explain how information technology supports (or does not support) each phase of this process.

Apply the Concept 5.1

Background If you look back through this section you will see that Henry Mintzberg’s 1973 book, Th e

Nature of Managerial Work, was referenced when the three basic roles of a manager were presented. Th is text focuses on the decisional role because that is the one most supported by information systems. Professor Mintzberg’s work goes much farther than just the decisional role. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 5.1. It will take you to a YouTube video titled “Data Driven Decision Making” by user “minnetonka schools.” Th is video mentions a strategic plan, operational control, and decisional control. As you watch the video, be sure to watch for these key points and to see how they are supported by data.

Deliverable

Write a short paper (a couple of paragraphs is plenty) for your professor detailing how Min- netonka Schools uses data to make better decisions. Also ask a few teachers to see if your school has any similar data systems that allow this type of decision making. If it does not, what would you recommend (from the student perspective) that would help you be suc- cessful? Submit this paper to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Discuss how the three roles of a manager (interpersonal, informational, and decisional) might play out as Ruben and Lisa tackle shrinkage. Will bartenders become defensive? Should they share fi nancial information? How much should they monitor the bartenders?

2. Which of the four reasons why a manager needs IT support do you feel is most applicable in this situation? Is it that the number of alternatives is increasing? Time pressure? Uncertainty? Or the need to bring remote individuals and data into the picture?

3. Is the shrinkage problem a structured, semistructured, or unstructured situation? If it is structured, what controls may be put in place to handle it? If it is unstructured, what policies might be instituted to help reign in the problem?

4. Does this situation fall into operational control, management control, or strategic planning? Or does it fall into all three?

5. In what ways could IT provide help to Ruben and Lisa as they try to make their $300,000 net profi t and control shrinkage?

Q U E S T I O N SRUBY’S CLUB

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176 5 l Business Intelligence

5.2 What Is Business Intelligence? To provide users with access to corporate data, many organizations are implementing data warehouses and data marts, which you learned about in Chapter 3. Users analyze the data in warehouses and marts using a wide variety of BI tools. Many vendors off er integrated packages of these tools under the overall label of “business intelligence (BI)” soft ware. Major BI vendors include SAS (www.sas.com), Hyperion (www.hyperion.com, now owned by Oracle), Business Objects (www.businessobjects.com, now owned by SAP), Informa- tion Builders (www.informationbuilders.com), SPSS (www.spss.com, now owned by IBM), and Cognos (www.ibm.com/cognos).

As has been shown, BI is vital to modern decision making and organizational perfor- mance. Let’s now consider in greater detail the technical foundation for BI and the wide variety of ways that BI can be used.

Th e term business intelligence is relatively new. Business and IT analyst Howard Dresner coined the term in 1989 while he was an analyst at Gartner, a market research fi rm. Th e term is especially popular in industry, where it is used as an umbrella term that encom- passes all decision support applications.

BI encompasses not only applications but also technologies and processes. It includes both “getting data in” (to a data mart or warehouse) and “getting data out” (through BI applications).

In addition, a signifi cant change is taking place within the BI environment. In the past, organizations used BI only to support management. Today, however, BI applications are increasingly available to front-line personnel (e.g., call center operators), suppliers, custom- ers, and even regulators. Th ese groups rely on BI to provide them with the most current information.

The Scope of Business Intelligence Th e use of BI in organizations varies considerably. In smaller organizations, BI may be lim- ited to Excel spreadsheets. In larger ones, BI is oft en enterprisewide, and it includes applica- tions such as data mining/predictive analytics, dashboards, and data visualization. It is important to recognize that the importance of BI to organizations continues to grow. It is not an exaggeration to say that for many fi rms, BI is now a requirement for competing in the marketplace, as illustrated in IT’s About Business 5.1.

Analytics in the National Basketball Association

Six high-defi nition cameras are positioned within the Oracle Arena, home of the National Basketball Associ- ation’s Golden State Warriors. The system is part of SportVU (www.sportvu.com) a player-tracking system

from Stats (www.stats.com). Data from the cameras, collected 25 times per second, is analyzed by SportVU’s proprietary algorithms.

The software deciphers and iden- tifi es every dribble and pass, based only on optical movement of the ball and its relative dis- tance to the players.

Stats thought that the NBA would be an excellent venue for its SportVU system for several reasons. First, with its consistent scoring, there would be enough data points in a game that teams would be

ABOUT BUSINESS 5.1i A l i T’S

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What Is Business Intelligence? 177

Not all organizations use BI in the same way. For example, some organizations employ a single or a few applications, while others utilize enterprisewide BI. Th e following subsec- tions examine three specifi c BI targets that represent diff erent levels of change:

• Th e development of a single or a few related BI applications • Th e development of infrastructure to support enterprisewide BI • Support for organizational transformation

Th ese targets diff er in terms of their focus; scope; level of sponsorship, commitment, and required resources; technical architecture; impact on personnel and business processes; and benefi ts. The Development of a Single or a Few Related BI Applications. Th is BI target is oft en a point solution for a departmental need, such as campaign management in

interested to see the results. Second, the NBA games are played in a relatively confi ned space (a regulation NBA court is only 94 feet by 50 feet), meaning that it is relatively easy to fi lm players. Finally, the NBA is a $4 billion industry that would have money to spare on an analytics system.

Unfortunately for Stats, NBA teams had already had access to play-by-play data for decades. This data con- sisted of simple, textual rundowns that effi ciently mapped how a game played out. A brief scan of a one- page printout as the coach was running into the locker room at halftime, and he could determine intermediate- level metrics such as assist-to-fi eld-goal ratio and turnovers-per-minute.

As a result, the system was a diffi cult sell to the NBA, but four teams signed on to be charter members: the Houston Rockets, the Dallas Mavericks, the San Antonio Spurs, and the Oklahoma City Thunder. The Golden State Warriors signed on later.

The system has provided these teams with many previously unknown metrics. For example, the system revealed that for the Warriors’ fi rst 14 home games at Oracle Arena, guards Monta Ellis and Stephen Curry accounted for nearly 60 percent of the team’s entire ball possession. Curry, the team’s point guard, had achieved 937 touches of the ball over those games, compared to 948 for Ellis, the team’s leading scorer. More interesting for the Warriors was seeing that the team had a 51.5 percent shooting percentage off passes from Ellis compared to 44.6 percent from Curry.

The system provided other interesting insights for all fi ve teams as well. These insights included points per touch, catch-and-shoot fi eld-goal percentage, secondary assists per game, and even how physically far apart players were from their defenders during the game.

Golden State did have a .477 winning percentage after implementing SportVU, compared to .395 before they deployed the system. In addition, SportVU clients San Antonio, Dallas, and Oklahoma City represent three of the eight Western Conference playoff teams. The most successful NBA franchise in history, the Bos- ton Celtics, recently signed on as the sixth SportVU- equipped team.

Concluding that the SportVU system has contrib- uted to the success of these teams is premature in mid- 2012. Stats is planning on adding features to its Sport- VU system, including near real-time functionality, so that the tracking data can be synchronized to the play- by-play data in less than 30 seconds. This new function- ality will provide a close representation and analysis of on-court play almost as it is happening.

Sources: Compiled from S. Wickersham, “Can NBA Teams Harness a Deluge of Next-Level Numbers?” ESPN the Magazine, June 27, 2011; E. Malinowski, “Hoops 2.0: Inside the NBA’s Data-Driven Revolution,” Wired, April 18, 2011; “NBA Teams that Have Analytics Department,” nbastuffer.com, accessed February 27, 2012; www. sportvu.com, www.stats.com, accessed February 27, 2012.

Questions 1. How do you think an NBA player would feel about

SportVU? Pro or con? Support your answer.

2. How do you think an NBA coach would feel about SportVU? Pro or con? Support your answer.

3. How do you think an NBA team’s front offi ce would feel about SportVU? Pro or con? Support your answer.

4. Do the constituencies represented in the fi rst three questions differ in how you think they would feel about SportVU? If so, why? If not, why not?

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178 5 l Business Intelligence

marketing. Sponsorship, approval, funding, impacts, and benefi ts typically occur at the departmental level. For this target, organizations usually create a data mart to store the necessary data. Organizations must be careful that the mart—an “independent” applica- tion—does not become a “data silo” that stores data that are inconsistent with and cannot be integrated with data used elsewhere in the organization. The Development of Infrastructure to Support Enterprisewide BI. Th is BI target supports current and future BI needs. A crucial component of BI at this level is an enterprise data warehouse. Because it is an enterprisewide initiative, senior management oft en provides sponsorship, approval, and funding. In addition, the impacts and benefi ts are felt throughout the organization.

An example of this target is the 3M Corporation. Traditionally 3M’s various divisions had operated independently and had utilized separate decision support platforms. Not only was this arrangement costly, but it also prevented 3M from integrating the data and present- ing a “single face” to its customers. Th us, for example, sales representatives did not know whether or how business customers were interacting with other 3M divisions. Th e solution was to develop an enterprise data warehouse that enabled 3M to operate as an integrated company. As an added benefi t, the cost of implementing this system was covered by savings resulting from the consolidation of the various platforms. Support for Organizational Transformation. With this target, BI is used to fundamentally transform the ways in which a company competes in the marketplace. BI supports a new business model and it enables the business strategy. Because of the scope and importance of these changes, critical elements such as sponsorship, approval, and fund- ing originate at the highest organizational levels. Th e impact on personnel and processes can be signifi cant, and the benefi ts are organizationwide.

Harrah’s Entertainment provides a good example of this BI target. Traditionally, Harrah had managed its various properties as “independent fi efdoms.” Th en, in the early 1990s, gam- bling on riverboats and Indian reservations became legal. Harrah’s senior management per- ceived this as an opportunity to expand the company’s properties. In addition, the company decided to implement a new business model that would enable it to operate all of these proper- ties in an integrated way. At the heart of this model was the collection and use of customer data and the creation of a customer loyalty program, known as Total Rewards, that encouraged customers to play across all of Harrah’s casinos. To implement this strategy, Harrah’s had to create a BI infrastructure (a data warehouse) that collected data from casino, hotel, and special event systems (e.g., wine-tasting weekends) across the various customer touchpoints (e.g., slot machines, table games, and Internet). Harrah’s used these data to reward loyal customers and reach out to them in personal and appealing ways—for example, through promotional off ers created using BI. As a result, the company became a leader in the gaming industry.

Nonprofi t organizations also use BI to transform the way they operate. As you see in IT’s About Business 5.2, Marwell Wildlife uses BI to transform the organization’s conserva- tion eff orts.

Using Analytics to Save the Grevy’s Zebra

Marwell Wildlife (www.marwell.org.uk) is an international conservation charity and zoo based in Hampshire,

England, that works to preserve the wild population of Grevy’s zebra. This species of zebra is on the endangered species list, with a wild population of only 2,500. Marwell

relies heavily on analytics software from IBM to aid in its conservation efforts. The software allows Marwell to analyze information from the fi eld, including data from aerial surveys, camera traps, and radio collars. This analysis gives the conservation group a crucial understanding of both the threats facing the zebras and the policies that could help the zebra population to recover organically.

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What Is Business Intelligence? 179

In Chapter 3, you studied the basics of data warehouses and data marts. In this section, you have seen how important data warehouses and marts are to the diff erent ways that orga- nizations use BI. In the next section, you will learn how the user community can analyze the data in warehouses and marts, how the results of these analyses are presented to users, and how organizations can use the results of these analyses.

Some of the most important data available to Marwell comes from a survey of nomadic herdsmen in northern Kenya, the area where most of the remaining Grevy’s zebras live. People in the local pastoral com- munities are able to provide valuable information to Marwell because they have such an in-depth knowl- edge about the landscape and its wildlife.

To extract information from the local communities, fi eld researchers from Marwell and other organizations partnering in the survey spent a month in remote areas of Kenya, conducting a questionnaire-based survey. These fi eld researchers gathered information about the distribution of the zebra population and threats to zebras, and learned about the attitudes of the people of the region toward the zebra.

The survey confi rmed what conservationists have long recognized—that the needs of the local human population can confl ict with those of an endangered species. An obvious example of this confl ict is the fact that local herdsmen were hunting the zebras, but there were also more subtle manifestations of this confl ict. The zebras live in dry areas near herdsmen who raise livestock, so the zebras often compete with livestock for water and pasture space.

The researchers also analyzed their data for insights into human practices and attitudes that may have an impact on the zebra population. The IBM analytics software enabled them to examine multiple variables affecting attitudes, such as education level and whether or not people had been previously exposed to conservation efforts, to better understand the reasons behind people’s various attitudes and beliefs.

Some of the patterns the researchers uncovered did not relate to the zebras, but rather to the humans sharing their habitat. Marwell researchers discovered that herdsmen saw benefi ts from living close to the zebras. For example, zebras can point the way to pas- tures in dry years and they attract tourists, which boosts the economy. The researchers further found that zebras are hunted not just for their meat, but also for medi- cine. Zebra fat is highly valued by the pastoral commu- nities as a treatment for illnesses ranging from head- aches to tuberculosis. Most of the survey respondents said that they would be glad to switch to conventional medicines if they were available. These fi ndings show promising opportunities to make changes that have the potential to benefi t people and zebras.

Sources: Compiled from M. Behan, “Analytics Helps Save an Endangered Species,” Baseline Magazine, July 28, 2011; “Marwell Wildlife Uses Analytics in the Conservation of Endangered Species,” IBM Case Study, April 5, 2011; A. Bridgwater, “IBM Predictive Analytics Software Helps Save Grevy’s Zebra,” ComputerWeekly. com, September 15, 2010; www.marwell.org.uk, accessed February 26, 2012.

Questions 1. What other types of data could Marwell analyze

to better understand the problem of the Grevy’s zebra?

2. What advantages does the IBM software provide to Marwell in its goal to save endangered species? Are there other advantages not mentioned in this case? Provide specifi c examples.

BEFORE YOU GO ON . . . 1. Defi ne BI. 2. Discuss the breadth of support provided by

BI applications to organizational employees. 3. Identify and discuss the three basic targets

of BI.

Apply the Concept 5.2

Background You have read in this section about how data can be used to pro- vide business intelligence. Google Analytics is a tool that provides just such data to

help businesses make decisions about their website. Th e information is captured by Google and then presented to create business intelligence. However, Google only provides the data in graphs and charts. It is still up to the business to make informed decisions based on the information they fi nd.

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By looking at this application, you should begin to see how data must be captured, categorized, and be fl exible for reporting. Th e video illustrates the dimensions of a cube without calling it a cube, mentions a data warehouse as the repository of all the data, and shows “drill down” without calling it such. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 5.2. It will take you to a YouTube video titled “Google Ana- lytics for Business Intelligence” by user “clicksharpmarketing.” By watching this video, you should begin to see how data must be captured, be categorized, and be fl exible for reporting. Th e video illustrates the dimensions of a cube without calling it a cube, mentions a data warehouse as the repository of all the data, and shows “drill down” without calling it such.

Based on the terms that were introduced in the video, answer the following:

1. What is a bounce rate? 2. What is the diff erence between a visit and a new visit? 3. Defi ne the three main categories of Web traffi c. 4. What is the concept of a key word, and how is it used by Google Analytics?

Deliverable

Write an email to your best “imaginary” friend who is also a Web designer. Explain these terms in the email to help him/her know how to analyze results from their Web sites. Sub- mit your “email” to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

5.3 Business Intelligence Applications for Data Analysis A good strategy to study the ways in which organizations use BI applications is to consider how the users analyze data, how the results of their analyses are presented to them, and how managers and executives implement these results. Recall from Chapter 3 that the data are stored in a data warehouse or data mart. Th e user community analyzes these data using a variety of BI applications. Th e results of these analyses can be presented to users via other BI applications. Finally, managers and executives put the overall results to good use. You will become familiar with data analysis, presentation, and use in depth in the next three sections.

A variety of BI applications for analyzing data are available. Th ey include multidimen- sional analysis (also called online analytical processing, or OLAP), data mining, and deci- sion support systems.

Multidimensional Analysis or Online Analytical Processing Some BI applications include online analytical processing (OLAP) capabilities, also referred to as multidimensional data analysis. OLAP involves “slicing and dicing” data stored in a dimensional format, drilling down the data to greater detail, and aggregating the data.

1. BI tools allow better decisions to be made by presenting information to the right person at the right time. Imagine a scenario where the bartender has a computer screen that monitors the club's collections vs. its sales. What would keep this system from working properly?

2. How would you collect information to make this a reality?

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Business Intelligence Applications for Data Analysis 181

Consider our example from Chapter 3. Recall Figure 3.10 showing the data cube. Th e product is on the x-axis, geography is on the y-axis, and time is on the z-axis. Now, suppose you want to know how many nuts the company sold in the West region in 2009. You would slice and dice the cube using nuts as the specifi c measure for product, West as the measure for geography, and 2009 as the measure for time. Th e value(s) in the cell(s) that remain aft er our slicing and dicing is (are) the answer to our question. You might also want to know how many nuts were sold in January 2009; this is an example of drilling down. Alternatively, you might want to know how many nuts were sold during 2008–2010, which is an example of aggregation, also called “rollup.”

Data Mining Data mining refers to the process of searching for valuable business information in a large database, data warehouse, or data mart. Data mining can perform two basic operations: (1) predicting trends and behaviors and (2) identifying previously unknown patterns. BI applications typically provide users with a view of what has happened. Data mining helps to explain why it is happening, and it predicts what will happen in the future.

Regarding the fi rst operation, data mining automates the process of fi nding predictive information in large databases. Questions that traditionally required extensive hands-on analysis can now be answered directly and quickly from the data. A typical example of a pre- dictive problem is targeted marketing. Data mining can use data from past promotional mail- ings to identify those people who are most likely to respond favorably to future mailings. Another example of a predictive problem is forecasting bankruptcy and other forms of default.

Data mining can also identify previously hidden patterns in a single step. For example, it can analyze retail sales data to discover seemingly unrelated products that people oft en purchase together. Th e classic example is beer and diapers. Data mining found that young men tend to buy beer and diapers at the same time when they shop at a convenience store.

One signifi cant pattern-discovery operation is detecting fraudulent credit card trans- actions. Aft er you use your credit card for a time, a pattern emerges of the typical ways you use your card—the places you use your card, the amount you spend, and so on. If your card is stolen and used fraudulently, this usage is oft en diff erent from your pattern. Data mining tools can discern this diff erence and bring this issue to your attention.

Numerous data mining applications are used in business and in other fi elds. According to a Gartner report (www.gartner.com), most of the Fortune 1000 companies worldwide currently use data mining, as the following representative examples illustrate. Note that in most cases the intent of data mining is to identify a business opportunity in order to create a sustainable competitive advantage.

• Retailing and sales: Predicting sales, preventing theft and fraud, and determining correct inventory levels and distribution schedules among outlets. For example, retailers such as AAFES (stores on military bases) use Fraud Watch from SAP (www.sap.com) to combat fraud by employees in their 1,400 stores.

• Banking: Forecasting levels of bad loans and fraudulent credit card use, predicting credit card spending by new customers, and determining which kinds of customers will best respond to (and qualify for) new loan off ers.

• Manufacturing and production: Predicting machinery failures, and fi nding key factors that help optimize manufacturing capacity.

• Insurance: Forecasting claim amounts and medical coverage costs, classifying the most important elements that aff ect medical coverage, and predicting which customers will buy new insurance policies.

• Policework: Tracking crime patterns, locations, and criminal behavior; identifying attributes to assist in solving criminal cases.

• Health care: Correlating demographics of patients with critical illnesses, and developing better insights on how to identify and treat symptoms and their causes.

• Marketing: Classifying customer demographics that can be used to predict which customers will respond to a mailing or buy a particular product.

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Decision Support Systems Decision support systems (DSS) combine models and data in an attempt to analyze sem- istructured and some unstructured problems with extensive user involvement. Models are simplifi ed representations, or abstractions, of reality. DSS enable business managers and analysts to access data interactively, to manipulate these data, and to conduct appropriate analyses.

Decision support systems can enhance learning and contribute to all levels of decision making. DSS also employ mathematical models. In addition, they have the related capabili- ties of sensitivity analysis, what-if analysis, and goal-seeking analysis, which you will learn about next. You should keep in mind that these three types of analysis are useful for any type of decision support application. For example, Excel supports them. Sensitivity Analysis. Sensitivity analysis is the study of the impact that changes in one or more parts of a decision-making model have on other parts. Most sensitivity analyses examine the impact that changes in input variables have on output variables.

Most models include two types of input variables: decision variables and environmen- tal variables. “What is our reorder point for these raw materials?” is a decision variable (internal to the organization). “What will the rate of infl ation be?” is an environmental vari- able (external to the organization). Th e output in this example would be the total cost of raw materials. Th e point of a sensitivity analysis is usually to determine the impact of environ- mental variables on the result of the analysis.

Sensitivity analysis is extremely valuable because it enables the system to adapt to changing conditions and to the varying requirements of diff erent decision-making situa- tions. It provides a better understanding of the model and the problem that the model purports to describe. What-If Analysis. A model builder must make predictions and assumptions regarding the input data, many of which are based on the assessment of uncertain futures. Th e results depend on the accuracy of these assumptions, which can be highly subjective. What-if analysis attempts to predict the impact of a change in the assumptions (input data) on the proposed solution. For example, what will happen to the total inventory cost if the origi- nally assumed cost of carrying inventories is not 10 percent but 12 percent? In a well- designed BI system, managers themselves can interactively ask the computer these types of questions as many times as needed. Goal-Seeking Analysis. Goal-seeking analysis represents a “backward” solution approach. It attempts to fi nd the value of the inputs necessary to achieve a desired level of

output. For example, let’s say that an initial BI analysis pre- dicted a profi t of $2 million. Management might want to know what sales volume would be necessary to generate a profi t of $3 million. To fi nd out, the company would perform a goal- seeking analysis.

However, managers cannot simply press a button that says “increase sales.” Some action(s) will be necessary to make the sales increase possible. Th e action(s) could be to lower prices, to increase research and development, to provide a higher commission rate for the sales force, to increase advertising, to take some other action, or to implement some combination of these actions. Whatever the action is, it will cost money, and the goal-seeking analysis must take this into account.

BEFORE YOU GO ON . . . 1. Describe multidimensional analysis and

construct a data cube with information from IT's About Business 5.1. (Hint: You must decide which three business dimensions you would like to analyze in your data cube.)

2. What are the two basic operations of data mining?

3. What is the purpose of decision support systems?

Apply the Concept 5.3

Background Th is section has shown that data is more abundant today than ever before. One thing we are learning is that there is much we can know that we do not

know. In fact, there are many questions that we do not even know should be asked! Th is is

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Business Intelligence Applications for Presenting Results 183

the purpose of data mining. It uses computers and soft ware to look into large databases searching out trends that can become the foundation for future business planning. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 5.3. It will take you to a video about data mining. As you watch, consider the following questions:

1. What is the goal of data mining? 2. What is classifi cation? 3. What is clustering? 4. How does a person know if a model is right?

Now go to Walmart and look around the store. How did the company determine which items would be on an end cap (the end of an aisle)? Who decided how high to put the Cheerios and where to put the Lucky Charms? Why is the milk in the back of the store? How much of the layout do you think was determined by past data mining?

Deliverable

Write a newspaper article titled “I Was Data Mined By Walmart—Why I Buy Too Much” for your professor that details the answers to the four questions above and that presents your thoughts from your visit to Walmart. Submit this to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Ruben and Lisa hope to use Excel as their decision support tool. Which analysis would be best suited for their goal and shrinkage problem? The what-if analysis? The goal-seeking analysis? Or the sensitivity analysis? Or, do you think it would be a combination of all three?

2. What tools can you fi nd in Excel that would support these analyses? (Hint: Google “Sensitivity Analysis Excel.”)

Q U E S T I O N S

5.4 Business Intelligence Applications for Presenting Results Th e results of the types of data analyses you just learned about can be presented with dash- boards and data visualization technologies. Today, users increasingly rely on data that are real time or almost real time. Th erefore, you will note a discussion of real-time BI in this section.

Dashboards Dashboards evolved from executive information systems, which were information systems designed specifi cally for the information needs of top executives. However, as you saw in this chapter’s opening case, today all employees, business partners, and customers can use digital dashboards.

A dashboard provides easy access to timely information and direct access to manage- ment reports. It is very user friendly and is supported by graphics. Of special importance, it enables managers to examine exception reports and drill down into detailed data. Table 5.1 summarizes the various capabilities that are common to many dashboards. In addition,

RUBY’S CLUB

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some of the capabilities discussed in this section are now part of many BI products, as illustrated in Figure 5.3.

One outstanding example of a dashboard is the “Bloomberg.” Bloomberg LLP (www.bloomberg.com), a privately held company, provides a subscription service that sells fi nancial data, soft ware to analyze these data, trading tools, and news (electronic, print, TV, and radio). All of this information is accessible through a color-coded Bloom- berg keyboard that displays the desired information on a computer screen, either the user’s or one that Bloomberg provides. Users can also set up their own computers to access the service without a Bloomberg keyboard. Th e subscription service plus the key- board is called the “Bloomberg.” It literally represents a do-it-yourself dashboard, because users can customize their information feeds as well as the look and feel of those feeds (see Figure 5.4).

Figure 5.3 Sample performance dashboard.

TABLE 5.1 The Capabilities of Dashboards

Capability Description

Drill down Th e ability to go to details, at several levels. Can be done through a series of menus or by clicking on a drillable portion of the screen.

Critical success factors (CSFs) Th e factors most critical for the success of business. Can be organizational, industry, departmental, or for individual workers.

Key performance indicators (KPIs) Th e specifi c measures of CSFs.

Status access Th e latest data available on KPIs or some other metric, oft en in real time.

Trend analysis Short-term, medium-term, and long-term trend of KPIs or metrics, which are projected using forecasting methods.

Exception reporting Reports that highlight deviations larger than certain thresholds. Reports may include only deviations.

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Business Intelligence Applications for Presenting Results 185

In another example, Figure 5.5 shows a human resources dashboard/scorecard devel- oped by iDashboards, one of the leading BI soft ware vendors. At a glance, users can see employee productivity, hours, team, department, and division performance in graphical, tabular, summary, and detailed form. Th e selector box to the left enables the user to easily change between specifi c analysts to compare their performance.

A unique and interesting application of dashboards to support the informational needs of executives is the Management Cockpit. Essentially, a Management Cockpit is a strategic management room containing an elaborate set of dashboards that enable top-level decision makers to pilot their businesses better. Th e goal is to create an environment that encourages more effi cient management meetings and boosts team performance via eff ective communi- cation. To help achieve this goal, the dashboard graphically displays key performance indi- cators and information relating to critical success factors on the walls of a meeting room, called the Management Cockpit Room (see Figure 5.6). Th e cockpitlike arrangement of instrument panels and displays helps managers visualize how all the diff erent factors in the business interrelate.

Courtesy of iDashboards

Figure 5.5 A human resource dashboard/scorecard.

Bloomberg via Getty Images, Inc.

Figure 5.4 The Bloomberg Terminal is a specifi c set of hardware and software used by fi nancial professionals on trading fl oors around the world.

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186 5 l Business Intelligence

Within the room, the four walls are designated by color: Black, Red, Blue, and White. Th e Black Wall displays the principal success factors and fi nancial indicators. Th e Red Wall measures market performance. Th e Blue Wall projects the performance of internal processes and employees. Th e White Wall indicates the status of strategic projects. Th e Flight Deck, a six-screen, high-end PC, enables executives to drill down to detailed infor- mation. External information needed for competitive analyses can easily be imported into the room.

Board members and other executives hold meetings in the Cockpit Room. Managers also meet there with the comptroller to discuss current business issues. For this purpose, the Management Cockpit can implement various what-if scenarios. It also provides a com- mon basis for information and communication. Finally, it supports eff orts to translate a corporate strategy into concrete activities by identifying performance indicators.

Data Visualization Technologies Aft er data have been processed, they can be presented to users in visual formats such as text, graphics, and tables. Th is process, known as data visualization, makes IT applications more attractive and understandable to users. Data visualization is becoming more and more pop- ular on the Web for decision support. A variety of visualization methods and soft ware pack- ages that support decision making are available. Two particularly valuable applications are geographic information systems and reality mining. Geographic Information Systems. A geographic information system (GIS) is a computer-based system for capturing, integrating, manipulating, and displaying data using digitized maps. Its most distinguishing characteristic is that every record or digital object has an identifi ed geographical location. Th is process, called geocoding, enables users to gen- erate information for planning, problem solving, and decision making. In addition, the graphical format makes it easy for managers to visualize the data.

Today, relatively inexpensive, fully functional PC-based GIS packages are readily avail- able. Representative GIS soft ware vendors are ESRI (www.esri.com), Intergraph (www. intergraph.com), and Pitney Bowes Mapinfo (www.pbinsight.com/welcome/mapinfo). In addition, both government sources and private vendors provide diversifi ed commercial GIS data. Some of these GIS packages are free—for example, CD-ROMs from Mapinfo and downloadable material from www.esri.com and http://data.geocomm.com.

Figure 5.6 Management Cockpit. Th e Management Cockpit is a registered trademark of SAP, created by Professor M. Georges.

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Business Intelligence Applications for Presenting Results 187

Reality Mining. One important emerging trend is the integration of GISs and global posi- tioning systems (GPSs, discussed in Chapter 10). Using GISs and GPSs together can produce an interesting new type of technology, called reality mining. Reality mining allows analysts to extract information from the usage patterns of mobile phones and other wireless devices.

SecureAlert

SecureAlert (www.securealert.com) works with law enforce- ment agencies around the United States to track about 15,000 ex-convicts, all of whom wear electronic, location- reporting ankle cuffs. To accomplish this task, SecureAlert must collect and analyze billions of global positioning system (GPS) signals transmitted by the cuffs each day. Technicians at SecureAlert’s monitoring center watch computer screens fi lled with multicolored dots moving about digital maps. Each dot represents someone on parole or probation wearing one of the company’s cuffs.

The more traditional part of the work consists of ensuring that people under house arrest stay in their houses. However, advances in the way information is collected and analyzed mean that SecureAlert is not just watching. The company says that it can actually predict when a crime is about to be committed.

Using data from the ankle cuffs and other sources, SecureAlert identifi es patterns of suspicious behavior. A person convicted of domestic violence, for example, might get out of jail and set up a law-abiding routine. Quite often, however, SecureAlert’s technology sees such people backslide and start visiting locations fre- quented by their victims. If the convict gets too close to these locations for comfort, an alarm goes off at Secu- reAlert and a fl ashing siren appears on SecureAlert screens. At this time, the system can call an offender through a two-way cellphone attached to the ankle cuff to ask what the person is doing, or set off a 95-decibel audio device as a warning to others. More typically, the company will notify probation offi cers or police about the suspicious activity and have them investigate.

S e c u r e A l e r t emphasizes that if a parolee wearing an ankle cuff wanders out-of-bounds, there is always a human in the process to make a judgment call. The company says that it is always tuning its mon- itoring systems to balance between “crying wolf” and “catching serious situations.” SecureAlert’s innovative use of information technology saves law enforcement agencies a great deal of time and money, while also contributing to the prevention of crime.

Sources: Compiled from “New GPS Device to Help Warn Domestic Violence Victims About Abusers,” CBS New York, November 1, 2011; “Trinidad & Tobago Interested in Electronic Tagging Programme,” Antigua Observer, October 24, 2011; A. Vance, “New Analytics Technology Is Predicting What You’re About To Do Next,” Bloomberg BusinessWeek, September 12–18, 2011; D. Randall, “Oh, That? That’s My Pal,” Forbes, September 4, 2008; www.securealert.com, accessed February 27, 2012.

Questions 1. Discuss the privacy implications of the SecureAlert

system.

2. What are the weaknesses of the SecureAlert system? Provide specifi c examples to support your answer.

ABOUT BUSINESS 5.3i S T’S

Th ere are countless applications of GISs to improve decision making in both the public and private sectors. For example, IT’s About Business 5.3 shows how SecureAlert uses elec- tronically transmitted location data and data visualization in its monitoring system.

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188 5 l Business Intelligence

Real-Time Business Intelligence Until recently, BI has focused on the use of historical data. Th is focus has changed with the emergence of technology for capturing, storing, and using real-time data. Real-time BI enables users to employ multidimensional analysis, data mining, and decision support- systems to analyze data in real time. In addition, it helps organizations to make decisions and to interact with customers in new ways as presented in IT’s About Business 5.4.

Catalina Marketing

Catalina Marketing (www.catalinamarketing.com) pro- vides precision marketing capabilities to manufactur-

ers, retailers, and health providers. The com- pany’s marketing systems enable the delivery of the right message to the right audience in

the right environment so clients can successfully build their brands. In this way, Catalina helps clients develop deeper, more productive consumer relationships.

Catalina manages the evolving purchase histories of more than 75 percent of U.S. shoppers. The com- pany uses the transaction-level data to help clients develop customized, measurable campaigns to acquire, maximize, and retain their most valuable con- sumers. Catalina clients include manufacturers such as Coca-Cola, Kellogg’s, Kraft Foods, and Procter & Gamble, and retailers such as Kmart, Kroger, Ralph’s, Safeway, Stop & Shop, Target, and Winn-Dixie.

Catalina’s in-store network consists of 50,000 food, drug, and mass-merchant locations worldwide. In the United States, Catalina is installed in more than 26,000 locations. In addition, Catalina’s CouponNetwork.com is one of the world’s largest consumer couponing sites.

Catalina’s primary database holds more than 2.5 petabytes of data and adds data on more than 300 mil- lion transactions per week. When you pay with a loyalty card at any one of 50,000 member grocery, drug, or mass-merchandise retail stores in the United States, Germany, and Japan, insights derived from Catalina’s database trigger promotions and offers based on your past purchases. Catalina’s point-of-sale printers at checkout lanes produce coupons that are handed to customers along with their receipts within seconds of the transactions.

To deliver its data analytics results in a timely fash- ion, Catalina pioneered in-database processing with

Netezza (www.netezza.com). In-database pro- cessing means that data analytics software runs inside a database or data warehouse. This process eliminates the time, effort, and expense of moving large data sets from an enterprise database or data warehouse to a separate data analytics software application. In-database processing meant that Catali- na moved its scoring of purchase-behavior models into the Netezza data warehouse for faster processing.

For Catalina, in-database processing was the only way to solve a productivity challenge. Catalina’s data warehouse is roughly the same size as the enterprise data warehouses at Walmart and Bank of America. The company uses it to analyze what consumers buy, the pattern of items they buy together, and how these pur- chase patterns vary by geography, market area, chain, store, and zip code. Most importantly for Catalina and its clients, these analyses predict and reveal the power of promotions, delivered through coupons, to change purchasing behavior.

Catalina captures transactions and delivers cou- pons in real time no matter which store a customer is shopping in. As a result, Catalina can support multitrip “threshold” promotions that were never before possi- ble. For example, a retail chain or manufacturer might offer $10 off your next shopping trip if you buy 10 products from a specifi c manufacturer within three months. In this example, Catalina delivers up-to-the- minute customer status information to all retail loca- tions. And, customers earn an incentive instantaneously, no matter which store they are in, as soon as they meet the purchase threshold.

Without data-driven analyses, redemption rates on coupons are around 1 percent. With basic target- ing, such as giving buyers of diet soda or dog food coupons for alternative brands, redemption rates rise to 6 to 10 percent. Using historical purchase-

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Business Intelligence Applications for Presenting Results 189

behavior data and the sophisticated predictive models that Catalina uses, redemption rates are as high as 25 percent.

Sources: Compiled from D. Henschen, “Oracle Analytics Package Expands In-Database Processing Options,” InformationWeek, February 8, 2012; D. Henschen, “At the Cutting Edge of ’Big Data’,” InformationWeek, September 19, 2011; J. Vijayan, “Need for ‘Big Data’ Analytics Drives Vendors’ Acquisitions,” Computerworld, March 4, 2011; www.catalinamarketing.com, www.netezza.com, accessed February 27, 2012.

Questions 1. Why is the timely delivery of coupons tailored

to customers’ purchase histories so important to Catalina’s client companies? Provide specifi c examples to support your answer.

2. Discuss privacy concerns that could come from Catalina’s use of customers’ purchase histories. Provide examples to support your answer.

Apply the Concept 5.4

Background Th is section discusses visualization tools to help understand the information that is contained in data. Th is is important because it is easier and

much quicker to glance at a graph than it is to look at a page full of numbers. MicroStrategy is a company that specializes in dashboards and products that help with data visualization. Recently, the company has also off ered iPad and iPhone apps to allow data to be accessible on mobile devices. Taking things a step further, MicroStrategy now can create a conference room that allows sharing of graphs and charts over devices to a large TV or projector in the meeting room. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 5.4. It will take you to a YouTube video titled “MicroStrategy Mobile Integrates with Apple TV” by user “microstrategybi.” Th is video demonstrates how the company’s product not only allows a single user to analyze data visually, but that user can easily share his or her view of the data with others in a conference room with minimal setup. You may also want to visit MicroStrategy’s Web site as mentioned in the video for more infor- mation (this link is also provided at http://www.wiley.com/go/rainer/applytheconcept).

Deliverable

Write an imaginary request to your boss to install a system like this in your boardroom. Be sure to point out what is so signifi cant of visual, instant, on-demand information sharing. Because you know your boss is skeptical of everything, go ahead and address the following concern as well: “Given that strategy cannot change instantaneously, why do we need infor- mation on a minute-by-minute basis?”

Submit your request to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Dashboards are very nice, but seem very complex to create. Do you think graphs and charts in Excel could be as effective as the elaborate dashboard examples provided in the chapter?

2. What type of chart do you think would be benefi cial in tackling the problem of shrinkage? Would it be a bar chart? Pie chart? Line chart? How could this be developed in Excel?

Q U E S T I O N SRUBY’S CLUB

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5.5 Business Intelligence in Action: Corporate Performance Management

Corporate performance management (CPM) is involved with monitoring and managing an organization’s performance according to key performance indicators (KPIs) such as reve- nue, return on investment (ROI), overhead, and operational costs. For online businesses, CPM includes additional factors such as the number of page views, server load, network traffi c, and transactions per second. BI applications allow managers and analysts to analyze data to obtain valuable information and insights concerning the organization’s KPIs.

BEFORE YOU GO ON . . . 1. What is corporate performance

management? 2. How do BI applications contribute to

corporate performance management?

What’s in for ME? FOR THE ACCOUNTING MAJOR BI is used extensively in auditing to uncover irregularities. It is also used to uncover and prevent fraud. CPAs use BI for many of their duties, ranging from risk analysis

to cost control.

FOR THE FINANCE MAJOR People have been using computers for decades to solve fi nancial problems. Inno- vative BI applications have been created for activities such as making stock market

Apply the Concept 5.5

Background Key performance indicators (KPIs) are defi ned by management as the key ratios or numbers that it needs to watch to be sure the company is staying

on track according to the managers’ strategy. Once these are determined (oft en through data mining), dashboards can be created so that management can look at and understand current trends and performance measures. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 5.5. It will take you to a YouTube video titled “Introduction to Dashboards” by user “asutraining.” Also visit the site mentioned in the video (also pro- vided at http://www.wiley.com/go/rainer/applytheconcept) and look at the dashboard descriptions. At the time of this writing, the “factbook” (on the left -hand side of the Web site) was in the public domain. Click on this link and look through the data. As you watch the video and review the Web site, consider the following questions: 1. Why does Arizona State University (ASU) have a procedure in place to grant access to

its dashboards? 2. Would you be able to get access? 3. How important is the use of color in a dashboard? 4. Why a summary page and a data page?

Deliverable

Write a small report to the vice president of academic aff airs at ASU (do not send it of course) that details of your fi ndings. Outline the past trends, the current situations, and the future possibilities for the vice-president. Explain how the dashboard proved helpful in your report. Submit it to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

ffT

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Summary 191

decisions, refi nancing bonds, assessing debt risks, analyzing fi nancial conditions, predicting business failures, forecasting fi nancial trends, and investing in global markets.

FOR THE MARKETING MAJOR Marketing personnel utilize BI in many applications, from planning and execut- ing marketing campaigns to allocating advertising budgets to evaluating alterna-

tive routings of salespeople. New marketing approaches such as targeted marketing and database marketing are heavily dependent on IT in general and on data warehouses and BI applications in particular.

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR BI supports complex operations and production decisions, from inventory control to production planning to supply chain integration.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR Human resources personnel use BI for many of their activities. For example, BI applications can fi nd résumés of applicants posted on the Web and sort them to

match needed skills and to support management succession planning.

FOR THE MIS MAJOR MIS provides the data infrastructure used in BI. MIS personnel are also involved in building, deploying, and supporting BI applications.

SUMMARY 1. Explain diff erent ways in which IT supports managerial

decision making. When making a decision, either organizational or person- al, the decision maker goes through a three-step process: intelligence, design, and choice. When the choice is made, the decision is implemented.

Several information technologies have been success- fully used to directly support managers. Collectively, they are referred to as business intelligence information systems. Figure 5.2 provides a matrix that shows how technology supports the various types of decisions that managers must make.

2. Provide examples of diff erent ways that organizations make use of BI.

> Th e development of a single or a few related BI applications. Th is BI target is oft en a point solution for a departmen- tal need, such as campaign management in marketing. A data mart is usually created to store necessary data.

> Th e development of infrastructure to support enterprise- wide BI. Th is target supports current and future BI needs. A critical component is an enterprise data warehouse.

> Support for organizational transformation. With this target, BI is used to fundamentally change how a com- pany competes in the marketplace. BI supports a new business model and enables the business strategy.

3. Explain the value that diff erent BI applications provide to large and small businesses. Users have a variety of BI applications available to help them analyze data. Th ese applications include multidimen- sional analysis, data mining, and decision support systems.

Multidimensional analysis, also called online analyti- cal processing (OLAP), involves “slicing and dicing” data stored in a dimensional format, drilling down to greater data detail, and aggregating data. Data mining refers to the process of searching for valuable business information in a large database, data warehouse, or data mart. Decision

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192 5 l Business Intelligence

support systems (DSS) combine models and data in an attempt to analyze semistructured and some unstructured problems with extensive user involvement. (Th e examples of using each application at your university, we leave to you.)

4. Off er examples of how businesses and government agencies can use diff erent BI applications to analyze data. A dashboard provides easy access to timely information and direct access to management reports. A geographic information system (GIS) is a computer-based system for capturing, integrating, manipulating, and displaying data using digitized maps. Reality mining analyzes information

extracted from the usage patterns of mobile phones and other wireless devices. (Examples of how these technologies might be used by businesses and government agencies, we leave to you.)

5. Explain how your university could use CPM to eff ect solutions to two campus problems. CPM is involved with monitoring and managing an orga- nization’s performance according to key performance indicators (KPIs) such as revenue, return on investment (ROI), overhead, and operational costs. (An example of how your university might use CPM, we leave to you.)

business intelligence A broad category of applications, technol- ogies, and processes for gathering, storing, accessing, and analyzing data to help business users make better decisions.

corporate performance management Th e area of business in- telligence involved with monitoring and managing an organization’s performance, according to key performance indicators (KPIs) such as revenue, return on investment (ROI), overhead, and operational costs.

dashboard A BI application that provides rapid access to timely information and direct access to management reports.

data mining Th e process of searching for valuable business infor- mation in a large database, data warehouse, or data mart.

decision A choice among two or more alternatives that individuals and groups make.

decision support systems (DSS) Business intelligence systems that combine models and data in an attempt to solve semistructured and some unstructured problems with extensive user involvement.

geographic information system A computer-based system for capturing, integrating, manipulating, and displaying data using digitized maps.

management A process by which organizational goals are achieved through the use of resources.

models (in decision making) Simplifi ed representations, or ab- stractions, of reality.

online analytical processing (OLAP) (or multidimensional data analysis) A set of capabilities for “slicing and dicing” data using dimensions and measures associated with the data.

reality mining Extraction by analysts of information from the usage patterns of mobile phones and other wireless devices.

>>> C H A P T E R G L O S S A R Y

1. Your company is considering opening a new factory in China. List several typical activities involved in each phase of the decision (intelligence, design, and choice).

2. Recall that data mining found that young men tend to buy beer and diapers at the same time when they shop at a convenience store. Now that you know this relationship exists, can you provide a rationale for it?

3. American Can Company announced that it was inter- ested in acquiring a company in the health maintenance

organization (HMO) fi eld. Two decisions were involved in this act: (1) the decision to acquire an HMO and (2) the decision of which HMO to acquire. How can the company use BI to assist it in this endeavor?

4. Discuss the strategic benefi ts of BI systems.

5. Will BI replace business analysts? (Hint: See W. McKnight, “Business Intelligence: Will Business Intelli- gence Replace the Business Analyst?” DMReview, February 2005).

>>> D I S C U S S I O N Q U E S T I O N S

1. Th e city of London (United Kingdom) charges an entrance fee for automobiles and trucks into the central city district. About a thousand digital cameras photo- graph the license plate of every vehicle passing by. Computers read the plate numbers and match them

against records in a database of cars for which the fee has been paid for that day. If the computer does not fi nd a match, the car owner receives a citation by mail. Examine the issues pertaining to how this process is accomplished, the mistakes it can make, and the consequences of those

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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Closing Case 1: Procter & Gamble Uses Analytics in Novel Ways 193

mistakes. Also examine how well the system is working by checking press reports. Finally, relate the process to business intelligence.

2. Enter www.cognos.com and visit the demos on the right side of the page. Prepare a report on the various features shown in each demo.

3. Enter www.fi co.com and fi nd products for fraud detec- tion and risk analysis. Prepare a report.

4. Enter www.teradatastudentnetwork.com (TSN) (you will need a password) and fi nd the paper titled “Data Warehousing Supports Corporate Strategy at First American Corporation” (by Watson, Wixom, and Goodhue). Read the paper and answer the following questions:

a. What were the drivers for the data warehouse/business intelligence project in the company?

b. What strategic advantages were realized? c. What were the critical success factors for the project?

5. Access http://www.wiley.com/go/rainer/problemsolving to fi nd the video of Hans Rosling’s presentation. Com- ment on his data visualization techniques.

6. Enter www.visualmining.com. Explore the relationship between visualization and business intelligence. See how business intelligence is related to dashboards.

7. Access http://www.wiley.com/go/rainer/problemsolving. Identify all types of business intelligence soft ware. Join a discussion group about topics discussed in this chapter. Prepare a report.

8. Visit the sites of some GIS vendors (such as www. mapinfo.com, www.esri.com, or www.autodesk.com). Download a demo. What are some of the most important capabilities and applications?

9. Analyze Microsoft Virtual Earth (www.microsoft.com/ virtualearth) as a business intelligence tool. (Hint: Access http://www.wiley.com/rainer/go/problemsolving. What are the business intelligence features of this product?

Background

In this chapter a company named MicroStrategy has come up multiple times. Th is business off ers many products for business use that are intended to help companies manage and interpret their data. One of these products is a free tool called “MicroStrategy Cloud Personal” where you can upload your own data and let MicroStrategy soft ware create reports for you. Go to http://www.wiley.com/go/rainer/ collaboration and click the link provided. It will take you to Microstrategy’s Web site explaining some “cloud” tools available for personal data analysis.

Activity

Work with a team to create data on the money you spend on food for a week. Have each team member create 10 rows of

data in a spreadsheet. You will fi rst have to agree on the type of data you will create and the column titles so everyone’s data will match up. Once you all create your data points, combine them into one spreadsheet and upload it into the MicroStrategy Personal Cloud.

Deliverable

Share your work with your teammates. Let everyone on the team have some time to look through the data and then compile a report for your professor based on the data your team put together. Be sure to include images of your graphs and reports. Is there anything in this analysis that surprises you? Did you determine if you should change any habits based on this work?

>>> C O L L A B O R AT I O N E X E R C I S E

CLOSING CASE 1 > Procter & Gamble Uses Analytics in Novel Ways

Procter & Gamble (www.pg.com), the world’s largest consumer products company with $79 billion in sales and 127,000 employees, manages massive streams of data in order to eff ectively operate its global business. Th e company has been forecasting its profi ts on a monthly basis for about 40 years, trying to predict components such as sales, commodity prices, and exchange rates. Before P&G deployed new information technologies, decisions took weeks or months, because data had to be manually gathered, collated, and channeled through various committees before reaching high-level company executives.

<<< THE PROBLEM

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194 5 l Business Intelligence

Today, P&G uses high-speed networks, data visualization, and high-speed analysis on mul- tiple streams of data and information. More effi cient soft ware and increased computing power has vastly increased the amount of real-time data that P&G can process compared to what IT could do previously. In order to make better, faster decisions, P&G implemented the information technologies Business Sphere, the Immersion Lab, and the Handshake Room.

P&G implemented Business Sphere early in 2011. Business Sphere is an umbrella tech- nology that integrates 14 diff erent technologies from multiple vendors. Th e room contains two huge monitors, which give the executives a visual of the 4 billion times each day that P&G products are used in more than 80 countries.

In the Immersion Lab, another information technology employed by P&G, managers work in a mock hotel room where they try out many diff erent mobile devices, building confi dence that their employees can work anywhere on any type of phone or tablet.

In the Handshake Room, P&G solves customers’ business problems and makes sales. Th e Handshake Room provides virtual store simulations with two screens along one wall. One of the screens, about 8 feet square, shows blank store shelves onto which can be pro- jected three-dimensional images of any P&G product that a manager might want to stock in any size or label confi guration. Another monitor shows store interiors of big retailers such as Walmart and Safeway. P&G can insert any new store display into these views so buyers can observe the display’s look and its eff ect on store fl ow.

P&G’s executives hold their meetings in the Business Sphere at the company’s headquarters. In four clicks on a tablet computer, they can change the image on a screen from a view of a world map to a graph of toothpaste prices in India with a sales comparison that shows local brands are gaining market share. A few clicks on another computer can bring up a view of shampoo sales in Australia, which renders it immediately apparent that P&G will need to sell 585,000 more cases of shampoo for sales just to break even. Yet another view might indicate big opportunities for hair care in Germany and pet food in the United States.

One of the great advantages of the Business Sphere is that from day 1, it enabled man- agers in some 40 locations worldwide to see the exact same data. Th is data consistency meant that everyone can recognize and agree upon target countries, regions, or products for particular attention. Everyone can also easily judge the company’s progress against its strategic plan and inroads made against the competition, in some cases even down to indi- vidual retailers.

Th e Business Sphere also enables P&G executives and managers to make decisions in minutes based on data provided. All information about sales is now decided at the executive level each week and production is viewed in near real time worldwide. Th e company is also increasing the amount of data collected by a factor of seven.

Th e Immersion Lab allows P&G managers to test various information technologies to ensure that they will work on whatever device an employee prefers. P&G analysts are also testing various tools that could allow employees to collaborate more eff ectively, such as wikis (discussed in detail in Chapter 8) for project management.

In the Handshake Room, P&G analysts ask customers to present a business problem. Th e analysts use the technology in the room to present a solution to the problem, and oft en make a sale on the spot.

Sources: Compiled from C. Murphy, “How to Get One Version of the Truth,” InformationWeek, November 7, 2011; D. Henschen, “P&G Turns Analysis into Action,” InformationWeek, September 14, 2011; Q. Hardy, “Th e Matrix of Soap,” Forbes, August 22, 2011; Q. Hardy, “At Procter & Gamble Toothpaste is Data,” Forbes, August 3, 2011; www.pg.com, accessed February 25, 2012.

Questions 1. Why is the Business Sphere so important to P&G executives? Provide

examples to support your answer. 2. Why is the Handshake Room so important in gaining new business for P&G?

Provide examples to support your answer.

THE IT >>> SOLUTION

THE RESULTS >>>

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Closing Case 2: Predictive Policing 195

CLOSING CASE 2 > Predictive Policing

In the city of Santa Cruz, California, there were 160 car theft s and 495 burglaries in 2011. For a city of 60,000, those numbers are average. Nonetheless, the Santa Cruz police force (SCPD) faces signifi cant challenges. Since 2001, the SCPD has had to lay off 10 of its 104 offi cers, despite a citywide population growth in the city of 5,500 people. Th erefore, the department now has to do more with less.

Since 2001, property crime in Santa Cruz decreased by 29 percent and violent crime decreased by 39 percent. At the end of 2011, both types of crime were at their lowest levels since 1973, when the collection of systematic nationwide data was instituted. Many factors—for example, an aging population and increased incarceration rates—have contrib- uted to these decreases. However, most criminologists believe the major reason for these decreases to be the intelligence now available to the SCPD based on data analysis.

On July 1, 2011, the SCPD changed the way it fi ghts crime. Th e department began using a new information system that provides intelligence to the police about when and where future crimes were most likely to take place and how offi cers could be deployed to prevent those crimes. Th e information system consists of a sophisticated algorithm (soft ware) that analyzes large sets of data. Th is approach is called predictive policing.

Th e algorithm is based on one used by seismologists to predict earthquakes. It targets property crime such as home burglaries, car break-ins, and vehicle theft s. Such crimes tend to cluster and spread in a way that is similar to tremors aft er a large earthquake.

Th e algorithm identifi es hot spots, which are 500-foot-by-500-foot areas at the highest risk for property crimes. Th e SCPD then divides the city into fi ve regions, with at least one car on duty in each. Offi cers pick up their hot spot maps at the roll call meeting that precedes each shift . Each map contains a hot spot. Above each map is a set of statistics: the probability that a crime will take place in that hot spot that day; the two hour-long windows when that potential crime is most likely to occur; and the likelihood that the crime will be a property crime.

Before the soft ware was implemented, individual offi cers had to decide where and how to focus their time when on patrol based on their own limited experience of the area. Aft er the implementation, offi cers were able to clearly identify hot spots based on the maps they received and then make a concerted eff ort to heavily patrol those areas.

Th e impacts of the new information system on crime in Santa Cruz are promising, although it is too early for them to be conclusive. By the end of July 2011, property crime was down 27 percent from the year before, an impressive drop, particularly given the 25 percent rise in the fi rst 6 months of the year. Furthermore, seven criminals had been discovered inside the hot spots.

One aft ernoon at a hot spot, two women were detained aft er they were caught looking into cars in a triple-decker parking garage. One had an outstanding warrant out for her arrest for previous possession of methamphetamines and the other was caught in posses- sion of meth on the site. At another hot spot, police offi cers stopped a man for suspicious behavior. When they searched him, they found stolen goods from a burglary that had taken place nearby a few days before. Th ese arrests point to the eff ectiveness of the SCPD’s new predictive policing system.

Predictive policing saves Santa Cruz money. For every crime prevented by the police, they save the costs they would have incurred of processing and booking the perpetrators, detaining them if need be prior to trial, trying them in court, and housing them in correc- tional institutions postconviction.

When predictive policing was fi rst introduced in Santa Cruz in July 2011, some police offi cers thought it sounded like “voodoo magic.” Relying on mathematics and statistics to combat property crime ran counter to many offi cers’ ideas of police work. Some offi cers took it as an aff ront to their skills. Others were concerned that it would mean extra work. However, many offi cers came around when they realized that driving through a 500-by- 500-foot hot spot during an hour-long window requires very little eff ort in, for quite a lot of

<<< THE PROBLEM

<<< THE IT SOLUTION

<<< THE RESULTS

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196 5 l Business Intelligence

result out. Th is favorable result-to-eff ort ratio perfectly exemplifi es the impact of intelli- gence systems on various organizations, businesses, and government operations. Small, directed eff orts, guided and informed by intelligence systems, can bring about great change. Sources: Compiled from B. Gourley, “Predictive Policing with Big Data,” Cloud Computing Journal, February 26, 2012; L. Eldridge, “Predictive Policing Is Not ‘Minority Report’…At Least Not Yet,” PoliceOne.com, January 13, 2012; R. King, “IBM Analytics Help Memphis Cops Get ‘Smart’,” Bloomberg BusinessWeek, December 5, 2011; K. Th ompson, “Th e Santa Cruz Experiment,” Popular Science, November, 2011; L. Brokaw, “Predictive Policing: Working the Odds to Prevent Future Crimes,” Sloan Management Review, September 12, 2011; J. Rubin, “Stopping Crime Before It Starts,” Th e Los Angeles Times, August 21, 2011; E. Goode, “Sending the Police Before Th ere’s a Crime,” Th e New York Times, August 15, 2011; www.cityofsantacruz.com, accessed February 26, 2012.

Questions 1. What are the advantages of predictive policing to the city of Santa Cruz?

Provide specifi c examples. 2. What are potential disadvantages of predictive policing to the city of Santa

Cruz? To the SCPD? Provide specifi c examples. 3. Which of the following choices best describes predictive policing? (1) A way

to catch criminals; (2) a way to prevent crimes from happening; or (3) both? Support your answer.

Objective: The objective of this activity is to help you understand that while spreadsheets are powerful, an interconnected workbook is even more so. You will learn how to write formulae that use information contained in different pages to help tie the workbook together.

Chapter Connection: Even though the opening case makes the point that spreadsheets are

antiquated and often not able to keep up with the vast amounts of data needed to run an organization, spreadsheets still occupy an important place in smaller organizations. This activity brings business intelligence to the smaller mom-and-pop organizations.

Activity: As you have seen, business intelligence is a huge concept. It can, however, also apply

SPREADSHEET ACTIVITY: LINKING SHEETS WITH FORMULAS

Go to http://www.wiley.com/go/rainer/rubysclub and look for the links provided for Chapter 5. You will fi nd Ruben and Lisa’s spreadsheet from last year as well as some video tutorials that deal with using Excel for a goal-seeking analysis.

The spreadsheet includes data on cover sales, food sales, and drink sales for each week. It also provides information on the type of music (genre, band, DJ, etc.) that was playing and what other type of events may have been going on that week.

Your task will be to use Excel as a platform for creating BI and to provide Ruben and Lisa with projected profi t margin that will be required to meet their goals depending on their

level of sales. This will then determine how closely they need to monitor shrinkage.

Assume that total sales (drink+food+cover) are $425000 for their fi rst year back open. To achieve the $300,000 net profi t goal, what will their profi t margin have to be? Compare this to the profi t margin from their last year open (net profi t was $150,000 and sales data is in the spreadsheet). Will they need to be more effi cient with regard to shrinkage? If so, how much?

Finally, write a business letter to Ruben and Lisa to help them understand their sales and profi t margin goals for the coming year. Submit your spreadsheet along with your letter.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

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DATABASE ACT IV ITY: USING PIVOT TABLES Objective To learn how to turn a database into a pivot table, which is a structured representation of the database content that lets you observe the relationships of any data fi eld, or group of data fi elds, to others.

CHAPTER CONNECTION In this chapter, you read how information systems can be used for better decisions. Most of what you read discussed specialized tools for organizing and presenting data. These are found mostly in medium- large organizations and up. What’s a small business to do? Even a small business can use a database management system (DBMS) to organize and store information. In this module, we will see one way to use an Access database to support decision making: the pivot table. This is a small-scale example of business intelligence (section 5.2) and a BI application (section 5.3).

PREREQUISITES None.

Activity In this activity, which you will fi nd online at http://www. wiley.com/go/rainer/database, you will use a sales database for a group of computer stores. You will analyze it for differences among stores, for trends, and to see how the group could improve sales. 1. Download the Ch 05 CarlaComputerStores

database from http://www.wiley.com/go/rainer/ database and open it.

2. Open the OrderQry query by clicking on it in the Navigation Pane at the left of the Access window.

Database Activity 197

in much smaller ways to everyday business. Business intelligence can help small mom-and-pop organizations in tremendous ways. Consider the following example.

Ted is a 45-year-old full-time accountant. He loves his job and has had quite a successful career. He also takes great pride in working with his hands. Specifi cally, he has always enjoyed working with wood and making small rocking horses for children. For years he just made these for family and friends, but lately he has decided to start selling his work. The accountant side of him has kept detailed records of his inventory, costs, sales, hours, profi ts, losses, and so on. Now it is time to take his workbook and create business intelligence out of it. Ted’s spreadsheet contains some basic information but no formulas. Notes describe what he has done and the decisions he wants to make. You can download the spreadsheet from http://www. wiley.com/go/rainer/spreadsheet (look for Chapter 5 links). Specifi cally, Ted wants to know how much he has invested in each rocking horse. His time,

materials, advertising, and other costs will defi nitely make a difference in his fi nal price. Keep in mind that the point of this spreadsheet is to provide business intelligence. Although spreadsheet skills are required, they are the means to the end of helping Ted set appropriate prices. Deliverable: The fi nal product will be a spreadsheet

with Ted’s data calculated to provide business intelligence in a small business scenario.

Discussion Questions:

1. How does algebra play a role in writing formulas? 2. What happens to your data if you build a formula

off of a previously incorrect formula? 3. If formulas are set up to predict or forecast (such

as in regression), how many scenarios could be calculated?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

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198 5 l Business Intelligence

Usage Hint: If you do not see the navigation pane, but the words “Navigation Pane” run vertically at the far left of the window, click on those words or on the » above them to expand it. Usage Hint: Depending on how your copy of Access is set up, navigation pane items may open with a single or double click. If a single click does not work, double- click. If you are using your own copy, you can set this preference in Options under the File tab. In the Current Database section, click “Navigation Options… .” You will see what looks like a table with information about every sale since in this database. (Its fi rst few rows are shown below.) As you will learn in the Chapter 10 activity, this “table” is not stored in the database. It is created as needed by combining data from other tables in a query. Those other tables are listed under Tables in the navigation pane. You can see how they are related to each other by clicking “Relationships” in the Database Tools ribbon.

These tables are a simplifi ed version of what a real store would use. For example, a real database would include order date and method of payment. However, this database has purchase history: what each customer bought, when, at what store, and with what other items. That is what we will use here.

3. To analyze customer spending, look at this query in Pivot Table view. Select that view from the drop-down View menu at the left of the Home ribbon, or click the second icon from the left at the bottom right of the window.

Usage Hint: Access often provides multiple ways to do something. It usually does not matter which you choose. As you use Access more, you will develop preferences. They do not have to be the same as anyone else’s.

4. A windoid labeled “Pivot Table Field List” fl oats above the main Access window. It lists all the fi elds in the query, plus other items that can be derived from them. You will drag these into sections of the pivot table pane to analyze the data.

Usage Hint: If you do not see the Field List windoid, click the Field List icon in the

Show/Hide section toward the left end of the ribbon, under the Design tab.

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Database Activity 199

Let’s see if there are differences in order size among stores. Drag OrderPrice into the main area of the pane, labeled “Drop Totals or Detail Fields Here.”

5. You will see all the order amounts in the central section of the pivot table. It is useless by itself. In terms of Chapter 1 concepts, it is data, not information. To organize them by store, drag StoreCity into the “Drop Row Fields Here” area at the left of the pane.

6. We want to see the average order size for each store. Select the OrderPrice column by clicking on its header. Then click the AutoCalc icon on the Design ribbon (S, the uppercase Greek letter sigma, a common mathematical symbol for summation). From the drop-down menu, select Average. You will see each store’s average order size below the list of orders.

Usage Hint: The overall average is labeled “Grand Total.” In everyday language, a “total” is what you get when you add several numbers. Access refers to that concept as a sum. To Access, a “total” is any summary calculation: sum, average, count, or any of the others listed under the AutoCalc icon. Which city has the highest average sales? The lowest? 7. Suppose we only care about averages, not

individual sales. To hide the details, select that column again and click “Hide Details” in the Show/ Hide area at the left of the Design ribbon. “Show Details” in the same section will toggle them back on. You can hide or show details for one store by clicking “–” (hide) or “1” (show) under the store’s city.

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200 5 l Business Intelligence

8. This is called a “pivot table” because you can pivot data from the top to the left and vice versa to make it easier to analyze. Drag the StoreCity label from its current position, above the city names, to the “Drop Column Fields Here” area at the top of the table. Hide and show details. See how the display changes.

Usage Hint: If you get an error message when you move the label, delete one of the totals and re-create it. To delete a total, right-click it in the fi eld list and select Delete, the only item in the drop-down menu that appears.. 9. Select Show Details, if they are not already

showing, to display order prices. Select it by clicking OrderPrice near the top of any city column. Under AutoCalc, display the sum and the count. One store has the highest total sales but the smallest average sale. Why?

10. Close the query, saving changes when prompted. 11. We want to analyze our sales by city. Open

ItemsQry. The TotPrice column in this table is not in the database. It is a calculated fi eld: it is derived on the fl y by multiplying the price of the product (in ProductTbl, for consistency across all orders) and the quantity in a given order. Switch to Pivot Table view.

Usage Hint: If you are curious about how calculated fi elds work, switch to Design View of the query and look at the rightmost column in the lower pane. You will have to make the column wider to see the entire formula, but it is not complicated. Now, move TotPrice into the main section of the pivot table pane and StoreCity into the Row Fields section. Select TotPrice in the pivot table, add its sum, and click Hide Details in the Show/Hide section of the ribbon. 12. It seems that Boston sold more during the period

than any of the other stores. To fi nd out why, we must drill down into the data. (Drilling down is central to most data analysis.) Add ProdCategory to the pivot table as a column fi eld. What you get should look like this:

Usage Hint: If your product categories ended up to the left of the city names, just select its name at the top of the column and drag it to the right until a thick blue line shows up to the right of the StoreCity column. Then release your mouse button. 13. You realize that this table is not easy to interpret.

A chart would be better. Choose Pivot Chart view from the drop-down menu at the left end of the ribbon, or click the Pivot Chart icon at the bottom right of the Access window. Add a legend with the tool in the Show/Hide section of the Design ribbon.

14. You now realize that this is not the ideal chart design. It tells us that Atlanta, for example, got more revenue from CPUs than from memory, but anyone who knows computers would expect that. We would like to know how Atlanta compares with other stores in terms of memory revenue. Click Switch Row/Column in the Active Field section of the Design ribbon. You should get a chart whose lower left corner looks like this:

Usage Hint: If your chart does not look like this, try returning to Pivot Table view, swapping categories and cities by dragging one column past the other, and returning to the chart. You may have to switch chart row and columns again. 15. From the part of this chart above the screen shot,

we see that Chicago’s CPU sales are a concern. Before calling the Chicago store manager, however, we need to do more research. Go back to PivotTable view and drag ProdDescrip into the row fi eld area. Each category will be broken down by product. To see only products in the CPU category, click the down arrow next to ProdCategory to get a list of categories to fi lter. Uncheck everything except CPU and confi rm.

Usage Hint: Rather than unchecking all the categories except the one we care about, it is easier to uncheck everything by clicking “All,” then check “CPU.”

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Database Activity 201

16. Now look at the chart again. The Chicago store did not sell any SuperCPUs! Its sales of the three slower models are more or less in line with expectations. We do not know the reason for this, of course. Maybe there are few gamers and graphic artists in the store’s sales area. (These are two major markets for top-of-the-line systems.) Maybe the Chicago store ran a promotion for these during an earlier period and most of its potential customers bought one then. Maybe a competitor is running such a promo now. We do know, however, what we want to ask when we call the Chicago store manager.

17. Close your database, saving changes when prompted.

Deliverable 1. Your database, with the most recent pivot table and

chart. 2. Answers to the questions in items 6 and 9 above, in

the form specifi ed by your instructor.

Quiz Questions 1. In step 6, which store had the highest average

order amount? (a) Atlanta (b) Boston (c) Chicago (d) Denver

2. A pivot table is a way of looking at this type of Access object: (a) Query (b) Table (c) Form (d) Either A or B (e) Either B or C

3. The central section of the pivot table pane contains this type of information: (a) Names of pivot table categories (b) Summary data for pivot table cells

(c) Individual data elements from the database, but not totals

(d) Links to the underlying Access tables 4. If a pivot table has only one column (that is, it has

categories down the left but none across the top), then: (a) You can create categories across the top by

dragging categories from the side. (b) You can create categories across the top by

dragging new table fi elds into the “Drag Colum Fields Here” area.

(c) You can analyze data in that column without having fi elds across the top.

(d) All of the above are correct.

Discussion Questions

1. How could pivot tables be useful for someone in the kind of job you hope to have after you graduate? (Say what that job is.)

2. Describe a business decision for which pivot tables would not be helpful. Explain why you don’t think they would help with it.

3. Suppose you worked for a large chain of photo stores. Your database has millions of rows with a few dozen columns in each, but its structure is much like this one. Would that change your approach to using pivot tables? If so, how? (Assume your computer is fast enough that the database size does not cause slow response times. In practice, that might not be true.)

Additional Resources The ten-minute video at http://www.wiley.com/rainer/go/ database is an excellent resource for this activity. As you watch it, keep in mind that Access has many ways to do almost anything. Matthew MacDonald does not always do things exactly as we did here. You can do them as he does them, as described here, and often in other ways as well.

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6 CHAPTER OUTLINE

6.1 Ethical Issues 6.2 Privacy

Ethics and Privacy

LEARNING OBJECTIVES >>>

1. Describe the four categories of ethical issues related to information technology.

2. Discuss potential threats to the privacy of personal data stored in diff erent locations.

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You probably never thought of yourself as a lawbreaker, right? Most likely you would not go into a music store and steal a CD

or DVD, or go into a bookstore and steal a book. But would you download something that you had not purchased? Would you copy a picture from someone else’s Web site and claim it for your own?

Would you download an article and try to customize it so that it did not appear to be plagiarized?

These issues are becoming more and more important as we move into the 21st century. Social networks are making it very easy to share and reshare information. So, who owns information that gets posted on the Internet? Consider one social network, Pinterest. Pinterest is a small business with only about 20 employees. It is primarily a technology company that provides infrastructure and software to users so that they can "pin" things they like. Realizing that many users would likely try to “pin” pictures or ideas that were not

their own, they pre-empted the problem by writing into their user agreement that users could only pin pictures or ideas that were their own original work. Sounds simple enough, right?

Wrong. What happens when Pinterest users pin ideas that are not theirs? Pinterest is a small business and does not have the personnel to police every pin that its users make. And, of course, many Pinterest users do not adhere to the terms of the user agreement. So, given the facts of the case, who is at fault? Is Pinterest at fault? The company will revoke access if it catches users downloading copyrighted third-party material, but it does not have the manpower to effectively police this. Or, are the users who agree not to steal intellectual property but do so anyway the ones who are truly at fault? > > >

OPENING CASE > Pinterest

Ruben and Lisa have never developed an ethics and privacy statement for their club. Honestly, they never thought they would need one. But with the new information systems that will collect customer data and establish memberships, they realize it is now imperative that they develop a statement of this type.

Ruben and Lisa have both seen privacy statements. They get them in the mail from their credit card companies and agree to them anytime they create their own memberships online. However, they have never really paid attention to them and now have a lot of questions about their own statements.

Obviously, they know they need to deal with how they will handle the privacy of online information. But they are unsure of how to deal with ethical issues in their club. Should they use their information systems to track the number of alcoholic beverages their customers purchase? If they do, is it ethical to limit a customer? Should they request a release form to continue to sell drinks after a certain point?

Use the information in this chapter to help them make these decisions.

RUBY’S CLUB

© Alex Slobodkin/ iStockphoto

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Pinterest is just an example of a site that suff ers from this dilemma. All social media sites have similar agreements and also experience a host of intellectual property issues. Is the main issue here that people do not care about user agreements? Do you think there will eventually be a legal "crackdown" in social media over ethical issues like there was with Napster a few years ago?

Sources: Compiled from T. Poletti, “Is Pinterest the Next Napster?” The Wall Street Journal, March 14, 2012; A. Prakash, “Exploring the Ethics of Pinterest,” www.ohmyhandmade.com, March 14, 2012; www.pinterest.com, accessed March 9, 2012.

Questions 1. Who is at fault for the third-party copyright violations

enabled by Pinterest? Pinterest or its users? 2. Compare the ethics of “pinning” on Pinterest with

downloading music fi les on Napster. Do you think that Pinterest will face the same fate as Napster? Why or why not?

Introduction

You will study two major issues in this chapter: ethics and privacy. Both issues are closely related to IT and raise signifi cant questions. For example, consider Chapter Closing Case 2. Are the actions of the Samwer brothers ethical? Th e answer to this question is not straight- forward. In fact, IT has made fi nding answers to these questions even more diffi cult.

You will encounter numerous ethical and privacy issues in your career, many of which will involve IT in some manner. Th is chapter will give you insights into how to respond to these issues. Further, it will help you to make immediate contributions to your company’s code of ethics and its privacy policies. You will also be able to provide meaningful input concerning the potential ethical and privacy impacts of your organization’s information systems on people inside and outside the organization.

For example, suppose your organization decides to adopt Web 2.0 technologies (presented in Chapter 8) to include business partners and customers in new product development. You will be able to analyze the potential privacy and ethical implications of implementing these technologies.

6.1 Ethical Issues Ethics refers to the principles of right and wrong that individuals use to make choices that guide their behaviors. Deciding what is right or wrong is not always easy or clear-cut. For- tunately, many frameworks are available to help us make ethical decisions.

Ethical Frameworks Th ere are many sources for ethical standards. Here we consider four widely used standards: the utilitarian approach, the rights approach, the fairness approach, and the common good approach. Th ere are many other sources, but these four are representative.

Th e utilitarian approach states that an ethical action is the one that provides the most good or does the least harm. Th e ethical cor- porate action would be the one that produces the greatest good and does the least harm for all aff ected parties—customers, employees, shareholders, the community, and the environment.

Th e rights approach maintains that an ethical action is the one that best protects and respects the moral rights of the aff ected par- ties. Moral rights can include the rights to make one’s own choices about what kind of life to lead, to be told the truth, not to be injured, and to a degree of privacy. Which of these rights people are actually entitled to—and under what circumstances—is widely debated. Nevertheless, most people acknowledge that individuals are entitled to some moral rights. An ethical organizational action would be one

© AlexMax/iStockphoto

All ethical frameworks attempt to balance good for all. (Source: maxstockphoto/Shutterstock)

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Ethical Issues 205

that protects and respects the moral rights of customers, employees, shareholders, business partners, and even competitors.

Th e fairness approach posits that ethical actions treat all human beings equally, or, if unequally, then fairly, based on some defensible standard. For example, most people might believe it is fair to pay people higher salaries if they work harder or if they contribute a greater amount to the fi rm. However, there is less certainty regarding CEO salaries that are hundreds or thousands of times larger than those of other employees. Many people question whether this huge disparity is based on a defensible standard or whether it is the result of an imbalance of power and hence is unfair.

Th e common good approach highlights the interlocking relationships that underlie all societies. Th is approach argues that respect and compassion for all others is the basis for ethi- cal actions. It emphasizes the common conditions that are important to the welfare of every- one. Th ese conditions can include a system of laws, eff ective police and fi re departments, health care, a public educational system, and even public recreation areas.

If we combine these four standards, we can develop a general framework for ethics or ethical decision making (Figure 6.1). Th is framework consists of fi ve steps:

• Recognize an ethical issue. • Could this decision or situation damage someone or some group? • Does this decision involve a choice between a good and bad alternative? • Is this issue about more than what is legal? If so, how?

• Get the facts. • What are the relevant facts of the situation? • Do I know enough to make a decision? • Which individuals and/or groups have an important stake in the outcome? • Have I consulted all relevant persons and groups?

• Evaluate alternative actions. • Which option will produce the most good and do the least harm? (the utilitarian

approach) • Which option best respects the rights of all stakeholders? (the rights approach) • Which option treats people equally or proportionately? (the fairness approach) • Which option best serves the community as a whole, and not just some members?

(the common good approach) • Make a decision and test it.

• Considering all the approaches, which option best addresses the situation? • Act and refl ect on the outcome of your decision.

• How can I implement my decision with the greatest care and attention to the concerns of all stakeholders?

• How did my decision turn out, and what did I learn from this specifi c situation?

Now that we have created a general ethical framework, we will focus specifi cally on ethics in a corporate environment.

Ethics in the Corporate Environment Many companies and professional organizations develop their own codes of ethics. A code of ethics is a collection of principles that are intended to guide decision making by members of the organization. For example, the Association for Computing Machinery (www.acm.org), an organization of computing professionals, has a thoughtful code of ethics for its members.

Keep in mind that diff erent codes of ethics are not always consistent with one another. Th erefore, an individual might be expected to conform to multiple codes. For example, a person who is a member of two large professional computing-related organizations may be

Recognize the Issue

Get the Facts

Evaluate Alternatives

Make a Choice

Reflect on your Decision Figure 6.1 General framework

for ethical decision making.

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206 6 l Ethics and Privacy

Carrier IQ

Carrier IQ is a mobile software company that provides diagnostic analysis of smartphones to the wireless industry. The company produces software installed on over 150 million smartphones that logs everything their users do, from what Web sites they visit to what they say in their text messages. The software is a diagnostic

tool that wireless carriers say plays a crucial role in help- ing them assess and troubleshoot their networks.

The problem with Carrier IQ was

ABOUT BUSINESS 6.1i C i T’S

© Photri Images/SuperStock

The Bill of Rights is basically a legalized set of ethical standards. (Source: © Photri Images/SuperStock)

required by one organization to comply with all applicable laws and at the same time be required by the other organization to refuse to obey unjust laws.

Fundamental tenets of ethics include responsibility, account- ability, and liability. Responsibility means that you accept the con- sequences of your decisions and actions. Accountability refers to determining who is responsible for actions that were taken. Liability is a legal concept that gives individuals the right to recover the dam- ages done to them by other individuals, organizations, or systems.

Before you go any further, it is very important that you realize that what is unethical is not necessarily illegal. For example, a bank’s decision to foreclose on a home can be technically legal, but it can raise many ethical questions. In many instances, then, an individual or organization faced with an ethical decision is not considering whether to break the law. As the foreclosure example illustrates, how- ever, ethical decisions can have serious consequences for individuals, organizations, and society at large.

In recent years we have witnessed a large number of extremely poor ethical decisions, not to mention outright criminal behavior.

During 2001 and 2002, three highly publicized fi ascos occurred at Enron, WorldCom, and Tyco, respectively. At each company, executives were convicted of various types of fraud for using illegal accounting practices. Th ese actions

led to the passage of the Sarbanes-Oxley Act in 2002. Sarbanes- Oxley requires publicly held companies to implement fi nancial controls and company exec- utives to personally certify fi nancial reports.

More recently, the subprime mortgage crisis exposed unethical lending practices throughout the mortgage industry. Th e crisis also highlighted pervasive weaknesses in the regulation of the U.S. fi nancial industry as well as the global fi nancial system. It ultimately contributed to a deep recession in the global economy.

Improvements in information technologies have generated a new set of ethical prob- lems. Computing processing power doubles about every two years, meaning that organiza- tions are more dependent than ever before on their information systems. Organizations can store increasing amounts of data at decreasing cost, enabling them to store more data on individuals for longer periods of time. Computer networks, particularly the Internet, enable organizations to collect, integrate, and distribute enormous amounts of information on individuals, groups, and institutions. As a result, ethical problems are arising concerning the appropriate collection and use of customer information, personal privacy, and the protection of intellectual property, as IT’s About Business 6.1 illustrates.

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Ethical Issues 207

that users did not initially know that the tracking applica- tion was on their smartphones. When security research- ers drew attention to it at the end of 2011, privacy and security concerns exploded.

Interestingly, Carrier IQ’s own privacy policy states, “When Carrier IQ’s products are deployed, data gathering is done in a way where the end user is informed or involved.” This policy statement is particularly interesting because the Carrier IQ tool runs without the knowledge of users and appears to be diffi -

cult, if not impossible, to uninstall. On November 12, 2011, Android developer Trevor

Eckhart stated in a post on http://androidsecuritytest.com that Carrier IQ was logging information such as location without notifying users or allowing them to opt out. That logged information included keystrokes, an inclusion that potentially violated U.S. federal law. On November 16, 2011, Carrier IQ sent Eckhart a cease-and-desist let- ter claiming he was making “false allegations” and infringing upon copyright by posting Carrier IQ training documents on his Web site. In response, Eckhart sought and received the backing of user rights advocacy group Electronic Frontier Foundation (EFF; www.eff.org).

On November 18, 2011, Eckhart published a You- Tube video in which he showed Carrier IQ software in the act of logging as plain text, a variety of keystrokes. Included in the demonstration were clear text captures of passwords to otherwise secure Web sites, and activ- ities performed when the cellular network was dis- abled. The video of the demonstration showed Carrier IQ’s software processing keystrokes, browser data, and text messages’ contents, but the video did not show that the information was transmitted.

On November 23, 2011, Carrier IQ backed down and apologized. In the statement of apology, Carrier IQ denied allegations of keystroke logging and other forms of tracking, and offered to work with the EFF.

Carrier IQ stated that the core purpose of its tool is to uncover broad trends across a network. Its software, for example, can help carriers fi nd out where calls are dropping and why, and zero in on device glitches. For instance, if a specifi c handset has a battery life prob- lem, Carrier IQ’s tool can help fi nd out why.

Sprint (www.sprint.com) said it uses Carrier IQ to uncover network problems. Sprint says that CarrierIQ collects enough information for them to understand “the customer experience” with devices on their net- work and to have an idea of how to address any connec- tion problems. Sprint says that it does not, and in fact does not have the ability to, look at the contents of mes- sages, photos, videos, etc., using the Carrier IQ tool.

One privacy advocate stated that Carrier IQ “does not seem as nefarious as incompetent, but that may not be enough to allay the legitimate concerns of the public.” He went on to state that the enormous amount of data stored by the Carrier IQ tool on smartphones would be a “gold mine to a hacker.”

On December 2, 2011, the controversy made its way into the courts. A lawsuit was fi led in the U.S. Dis- trict Court for the Northern District of California against Carrier IQ and phone makers Samsung and HTC, claiming that Carrier IQ’s app violates customer privacy. Class-action lawsuits against Carrier IQ have been fi led by the U.S. Department of Justice, the Federal Trade Commission, Massachusetts, and Missouri as well. Sources: Compiled from J. Vijayan, “AT&T, Sprint Confi rm Use of Carrier IQ Software on Handsets,” Computerworld, December 1, 2011; D. Gross, “Fallout Continues Over Smartphone Tracking App,” CNN, December 2, 2011; C. Albanesius, “Carrier IQ Controversy Results in Class-Action Suits,” PC Magazine, December 2, 2011; M. Peckham, “Carrier IQ ’Wiretap’ Debacle: Much Ado about Something?” Time, December 1, 2011; D. Goldman, “Carrier IQ: Your Phone’s Secret Recording Device,” CNN Money, December 1, 2011; A. Greenberg, “Phone ’Rootkit’ Maker Carrier IQ May Have Violated Wiretap Law in Millions of Cases,” Forbes, November 30, 2011; D. Kravets, “Researcher’s Video Shows Secret Software on Millions of Phones Logging Everything,” Wired, November 29, 2011; S. Shankland, “Carrier IQ Apologizes, Drops Threat to Security Researcher,” CNET News, November 25, 2011; “The Rootkit of All Evil—CIQ,” MIT Technology Review, November 17, 2011; R. Holly, “How Much of Your Phone Is Yours?” Geek.com, November 15, 2011; www.carrieriq.com, accessed March 14, 2012.

Questions 1. Describe the ethical implications of Carrier IQ

software.

2. Describe the privacy implications of Carrier IQ software.

Ethics and Information Technology All employees have a responsibility to encourage ethical uses of information and informa- tion technology. Many of the business decisions you will face at work will have an ethical dimension. Consider these decisions you might have to make:

• Should organizations monitor employees’ Web surfi ng and e-mail? • Should organizations sell customer information to other companies?

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208 6 l Ethics and Privacy

• Should organizations audit employees’ computers for unauthorized soft ware or illegally downloaded music or video fi les?

Th e diversity and ever-expanding use of IT applications have created a variety of ethical issues. Th ese issues fall into four general categories: privacy, accuracy, property, and accessibility.

1. Privacy issues involve collecting, storing, and disseminating information about individuals.

2. Accuracy issues involve the authenticity, fi delity, and accuracy of information that is collected and processed.

3. Property issues involve the ownership and value of information. 4. Accessibility issues revolve around who should have access to information and

whether they should have to pay for this access.

Table 6.1 lists representative questions and issues for each of these categories. In addi- tion, Online Appendix W6.1 presents 14 ethics scenarios for you to consider. Th ese sce-

narios will provide a context for you to consider situations that involve ethical or unethical behavior.

Many of the issues and scenarios we have examined, such as photo tagging and geotagging, involve privacy as well as ethics. In the next section, you will learn about privacy issues in more detail.

BEFORE YOU GO ON . . . 1. What does a code of ethics contain? 2. Describe the fundamental tenets of ethics.

TABLE 6.1 A Framework for Ethical Issues

• Privacy Issues ° What information about oneself should an individual be required to reveal to others? ° What kind of surveillance can an employer use on its employees? ° What types of personal information can people keep to themselves and not be forced to

reveal to others? ° What information about individuals should be kept in databases and how secure is the

information there?

• Accuracy Issues ° Who is responsible for the authenticity, fi delity, and accuracy of the information collected? ° How can we ensure that the information will be processed properly and presented

accurately to users? ° How can we ensure that errors in databases, data transmissions and data processing are

accidental and not intentional? ° Who is to be held accountable for errors in information and how should the injured parties

be compensated?

• Property Issues ° Who owns the information? ° What are the just and fair prices for its exchange? ° How should we handle soft ware piracy (copying copyrighted soft ware)? ° Under what circumstances can one use proprietary databases? ° Can corporate computers be used for private purposes? ° How should experts who contribute their knowledge to create expert systems be

compensated? ° How should access to information channels be allocated?

• Accessibility Issues ° Who is allowed to access information? ° How much should companies charge for permitting accessibility to information? ° How can accessibility to computers be provided for employees with disabilities? ° Who will be provided with equipment needed for accessing information? ° What information does a person or an organization have a right to obtain, under what

conditions, and with what safeguards?

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Privacy 209

6.2 Privacy In general, privacy is the right to be left alone and to be free of unreasonable personal intru- sions. Information privacy is the right to determine when, and to what extent, information about you can be gathered and/or communicated to others. Privacy rights apply to indi- viduals, groups, and institutions.

Apply the Concept 6.1

Background As you move into the business world, you need to be aware of the current trends and happenings dealing with the four areas of concern presented in

Section 6.1 (privacy, property, accuracy, and accessibility). It is important that you are aware of these issues as you move into the business world because these are the exact issues you will have to deal with. Activity Review various articles in mainstream, business, and IS/IT-related sources and identify articles with an IT ethical issue in the article. Mainstream sources might include Time magazine, Newsweek, and the local newspaper. Business sources might include the Wall Street Journal and BusinessWeek. IS/IT-related sources might include Infoweek, Info- World, and Computerworld.

Review (scan for the main topic) at least two articles from a mainstream source, a busi- ness source, and an IS/IT-related source, and then classify the articles based upon the four categories of ethical issues (privacy, property, accuracy, and accessibility) found in Section 6.1. Note that more than one category may apply to the same article.

Deliverable

Create a table to submit to your professor that identifi es the following:

• Article’s title • Source of the article (mainstream, business, or IS/IT-related) • Ethical category or categories in the article (they may fall into multiple areas) • Summary of the article’s main points • Submit your report to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Which framework do you think is the best for Ruby’s Club: utilitarian, rights, fairness, or the common good? Why do you feel this way?

2. How do the concepts of responsibility, accountability, and liability play into the number of drinks an individual has consumed? At what point does Ruby’s become responsible for the condition in which a customer leaves the club?

3. Because purchase does not necessarily equal consumption (perhaps the person is buying drinks for a friend), should Ruby’s limit the number of drinks a customer can purchase?

Q U E S T I O N SRUBY’S CLUB

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210 6 l Ethics and Privacy

Th e defi nition of privacy can be interpreted quite broadly. However, court decisions in many countries have followed two rules fairly closely:

1. Th e right of privacy is not absolute. Privacy must be balanced against the needs of society.

2. Th e public’s right to know supersedes the individual’s right of privacy.

Th ese two rules illustrate why determining and enforcing privacy regulations can be diffi - cult. Th e right to privacy is recognized today in all U.S. states and by the federal govern- ment, either by statute or common law.

Rapid advances in information technologies have made it much easier to collect, store, and integrate data on individuals in large databases. On an average day, you gener- ate data about yourself in many ways: surveillance cameras on toll roads, in public places, and at work; credit card transactions; telephone calls (landline and cellular); banking transactions; queries to search engines; and government records (including police records). Th ese data can be integrated to produce a digital dossier, which is an elec- tronic profi le of you and your habits. Th e process of forming a digital dossier is called profiling.

Data aggregators, such as LexisNexis (www.lexisnexis.com) and Acxiom (www. acxiom.com), are good examples of profiling. These companies collect public data such as real estate records and published telephone numbers, in addition to nonpublic infor- mation such as Social Security numbers, financial data, and police, criminal, and motor vehicle records. They then integrate these data to form digital dossiers on most adults in the United States. They ultimately sell these dossiers to law enforcement agencies and companies that conduct background checks on potential employees. They also sell them to companies that want to know their customers better, a process called customer intimacy.

However, data on individuals can be used in more controversial manners. For example, a controversial new map in California identifi es the addresses of donors who supported Proposition 8, the referendum that outlawed same-sex marriage in California (see www. eightmaps.com). Gay activists created the map by combining Google’s satellite mapping technology with publicly available campaign records that listed Proposition 8 donors who contributed $100 or more. Th ese donors are outraged, claiming that the map invades their privacy and could expose them to retribution.

Electronic Surveillance According to the American Civil Liberties Union (ACLU), tracking people’s activities with the aid of computers has become a major privacy-related problem. Th e ACLU notes that this monitoring, or electronic surveillance, is rapidly increasing, particularly with the emergence of new technologies. Electronic surveillance is conducted by employers, the government, and other institutions.

In general, employees have very limited legal protection against surveillance by employers. Th e law supports the right of employers to read their employees’ e-mail and other electronic documents and to monitor their employees’ Internet use. Today, more than three-fourths of organizations are monitoring employees’ Internet usage. In addi- tion, two-thirds use soft ware to block connections to inappropriate Web sites, a practice called URL fi ltering. Further, organizations are installing monitoring and fi ltering soft - ware to enhance security by stopping malicious soft ware and to increase productivity by discouraging employees from wasting time.

In one organization, the chief information offi cer (CIO) monitored about 13,000 employees for three months to determine the type of traffi c they engaged in on the network. He then forwarded the data to the chief executive offi cer (CEO) and the heads of the human resources and legal departments. Th ese executives were shocked at the ques- tionable Web sites the employees were visiting, as well as the amount of time they were spending on those sites. Th e executives quickly made the decision to implement a URL fi ltering product.

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Privacy 211

Surveillance is also a concern for private individuals regardless of whether it is conducted by corporations, government bodies, or criminals. Users in the United States are still struggling to defi ne the appropriate bal- ance between personal privacy and electronic surveillance, especially when threats to national security are involved.

Personal Information in Databases Modern institutions store information about individuals in many databas- es. Perhaps the most visible locations of such records are credit-reporting agencies. Other institutions that store personal information include banks and fi nancial institutions; cable TV, telephone, and utilities companies; employers; mortgage companies; hospitals; schools and universities; retail establishments; government agencies (such as the Internal Revenue Service, your state, your municipality); and many others.

Th ere are several concerns about the information you provide to these record keepers. Some of the major concerns are these:

• Do you know where the records are? • Are the records accurate? • Can you change inaccurate data? • How long will it take to make a change? • Under what circumstances will personal data be released? • How are the data used? • To whom are the data given or sold? • How secure are the data against access by unauthorized people?

Information on Internet Bulletin Boards, Newsgroups, and Social Networking Sites Every day you see more and more electronic bulletin boards, newsgroups, electronic discus- sions such as chat rooms, and social networking sites (discussed in Chapter 8). Th ese sites appear on the Internet, within corporate intranets, and on blogs. A blog, short for Weblog, is an informal, personal journal that is frequently updated and intended for general pub- lic reading. How does society keep owners of bulletin boards from disseminating infor- mation that may be off ensive to readers or simply untrue? Th is is a diffi cult problem because it involves the confl ict between freedom of speech on one hand and privacy on the other. Th is confl ict is a fundamental and continuing ethical issue in U.S. society.

There is no better illustration of the conflict between free speech and privacy than the Internet. Many Web sites contain anonymous, derogatory information on individu- als, who typically have little recourse in the matter. Approximately one-half of U.S. firms use the Internet in examining job applications, including searching for individu- als on Google and on social networking sites. Consequently, derogatory information that can be found on the Internet can harm your chances of being hired. This problem has become serious enough that a company called Reputation Defender (www. reputationdefender.com) will search for damaging content online and destroy it on behalf of clients.

Social networking sites can also present serious privacy concerns. IT’s About Business 6.2 takes a look at privacy problems arising as the U.S. government mines publicly available data on the Internet.

Privacy Codes and Policies Privacy policies or privacy codes are an organization’s guidelines for protecting the privacy of its customers, clients, and employees. In many corporations, senior management

© Pamela Moore/iStockphoto

Electronic surveillance of employees is legal, but not of customers. But would you do it if you could make money from the information?

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212 6 l Ethics and Privacy

has begun to understand that when an organization collects vast amounts of personal information, it must be protected. In addition, many organizations give their customers some voice in how their information is used by providing them with opt-out choices. Th e opt-out model of informed consent permits an entity to collect personal information

© alengo/iStockphoto

Government Mines Publicly Available Internet Data

The Intelligence Advanced Research Projects Activity (IARPA; www.iarpa.gov) of the U.S. government is devel- oping a project aimed at mining the vast resources of the Internet to predict the behavior of large groups of humans. IARPA utilizes automated data collection to gather publicly accessible data such as Web search que- ries, Twitter messages, Facebook entries, blog entries, Internet traffi c fl ow, digital location trails generated by cell phones, fi nancial market indicators, traffi c webcams, and changes in Wikipedia entries. IARPA then utilizes this data to focus on patterns of communication, con- sumption, and population movement. IARPA’s automated system will operate without human supervision. Its scope will not be limited to political and economic events, but will also explore the ability to predict pandemics and other types of widespread contagion.

A similar project by the Defense Advanced Research Projects Agency (DARPA), aims to automati- cally identify insurgent social networks in Afghanistan. DARPA argues that its analyses can expose terrorist cells and other groups not based in a particular country by tracking their meetings, rehearsals, and sharing of material and money transfers.

Arguments rage on about the IARPA and DARPA projects between those who feel that the projects can provide valuable insights and those who feel that such projects may

give governments an unprecedented “Big Brother” surveillance ability. On the pro side, a computer scien- tist at the MIT Media Laboratory opined that the result of IARPA and DARPA would probably be a much better understanding of what is going on in the world and how well local governments handle diffi cult situations, enabling them to improve their performance (e.g., the reactions of New Orleans and the state of Louisiana in

the aftermath of Hurricane Katrina). A physicist at the University of Notre Dame also noted that there is a huge amount of predic- tive power in such data, which could allow governments to spot trends quickly and therefore operate more effi ciently and effectively.

However, on the con side, advocates of privacy rights worry that public data and the related analysis techniques can be adapted for clandestine “total infor- mation” operation. They feel that these techniques can be used as easily against political opponents in the United States as they can against threats from foreign countries. The main worry is that the growth of data mining techniques is quickly outpacing the ability of scientists and government offi cials to think through questions of privacy and ethics.

Sources: E. Montalbano, “FBI Seeks Data-Mining App for Social Media,” InformationWeek, January 26, 2012; S. Weinberger, “The Spy Who Tweeted Me: Intelligence Community Wants to Monitor Social Media,” Wired, September 2011; J. Markoff, “Government Aims to Build a ’Data Eye in the Sky’,” The New York Times, October 10, 2011; E. Montalbano, “Intelligence Agencies Seek Tools to Predict Global Events,” InformationWeek, August 25, 2011; www.iarpa.gov, accessed March 11, 2012.

Questions 1. Discuss the ethical implications of the IARPA and

DARPA projects.

2. Discuss the privacy implications of the IARPA and DARPA projects.

ABOUT BUSINESS 6.2i G T’S

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Privacy 213

until the individual specifi cally requests that the data not be collected. Privacy advocates prefer the opt-in model of informed consent, which prohibits an entity from collecting any personal information unless the individual specifi cally authorizes it.

One privacy tool currently available to consumers is the Platform for Privacy Prefer- ences (P3P), a protocol that automatically communicates privacy policies between an elec- tronic commerce Web site and visitors to that site. P3P enables visitors to determine the types of personal data that can be extracted by the Web sites they visit. It also allows visitors to compare a Web site’s privacy policy to the visitors’ preferences or to other standards, such as the Federal Trade Commission’s (FTC) Fair Information Practices Standard or the Euro- pean Directive on Data Protection.

Table 6.2 provides a sampling of privacy policy guidelines. Th e last section in Table 6.2, Data Confi dentiality, refers to security, which you will explore in Chapter 7. It is important to note that all the good privacy intentions in the world are useless unless they are supported and enforced by eff ective security measures.

International Aspects of Privacy As the number of online users has increased globally, governments throughout the world have enacted a large number of inconsistent privacy and security laws. Th is highly complex global legal framework is creating regulatory problems for companies. Approximately 50 countries have some form of data-protection laws. Many of these laws confl ict with those of other countries, or they require specifi c security measures. Other countries have no privacy laws at all.

Th e absence of consistent or uniform standards for privacy and security obstructs the fl ow of information among countries, which is called transborder data fl ows. Th e European Union (EU), for one, has taken steps to overcome this problem. In 1998 the European

TABLE 6.2 Privacy Policy Guidelines: A Sampler

• Data Collection ° Data should be collected on individuals only for the purpose of accomplishing a legitimate

business objective. ° Data should be adequate, relevant, and not excessive in relation to the business objective. ° Individuals must give their consent before data pertaining to them can be gathered. Such

consent may be implied from the individual’s actions (e.g., applications for credit, insurance, or employment).

• Data Accuracy ° Sensitive data gathered on individuals should be verifi ed before they are entered into the

database. ° Data should, where and when necessary, be kept current. ° Th e fi le should be made available so the individual can ensure that the data are correct. ° If there is disagreement about the accuracy of the data, the individual’s version should be

noted and included with any disclosure of the fi le.

• Data Confi dentiality ° Computer security procedures should be implemented to ensure against unauthorized

disclosure of data. Th ese procedures should include physical, technical, and administrative security measures.

° Th ird parties should not be given access to data without the individual’s knowledge or permission, except as required by law.

° Disclosures of data, other than the most routine, should be noted and maintained for as long as the data are maintained.

° Data should not be disclosed for reasons incompatible with the business objective for which they are collected.

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214 6 l Ethics and Privacy

Community Commission (ECC) issued guidelines to all its member countries regarding the rights of individuals to access information about themselves. Th e EU data-protection laws are stricter than U.S. laws and thus could create problems for multinational corpora- tions, which could face lawsuits for privacy violation.

Th e transfer of data in and out of a nation without the knowledge of either the authorities or the individuals involved raises a number of privacy issues. Whose laws have jurisdiction when records are stored in a diff erent country for reprocessing or retransmission purposes? For example, if data are transmitted by a Polish company through a U.S. satellite to a British corporation, which country’s privacy laws control the data, and when? Questions like these will become more complicated and frequent as time passes. Governments must make an eff ort to develop laws and standards to cope with rapidly changing information technologies in order to solve some of these privacy issues.

Th e United States and the EU share the goal of privacy protection for their citizens, but the United States takes a dif- ferent approach. To bridge the diff erent privacy approaches, the U.S. Department of Commerce, in consultation with the EU, developed a “safe harbor” framework to regulate the way that U.S. companies export and handle the personal data (such as names and addresses) of European citizens. See www.export. gov/safeharbor.

BEFORE YOU GO ON . . . 1. Describe the issue of privacy as it is

affected by IT. 2. Discuss how privacy issues can affect

transborder data fl ows.

Apply the Concept 6.2

Background Th is section has defi ned privacy as the right to be left alone and to be free of unreasonable personal intrusions. Information privacy is the right to

determine when, and to what extent, information about you can be gathered and/or com- municated to others. And we are in control, right?

If so, then why do people seem to always fear big government. Now that the entire world is connected by the Internet, it seems inevitable that people will fear the "big brother" of the government spying on us and invading our privacy. However, as this section points out, the law usually allows the right of society to have information over an individual’s right to privacy.

In 2002 the movie Minority Report presented a future time where a special police group was able to predict when and where crimes were going to happen. Th is group could arrest criminals before they committed the crime. Additionally, in 2008 a movie titled Eagle Eye showed a computer system becoming so smart that it chose to abide by the Constitution even if it meant having the president of the United States killed. Activity Movie night! If you have not seen the movies mentioned above, have a movie night and watch them from the perspective of privacy and information security. Talk to your friends about the movies and get their thoughts on these issues.

Deliverable

Summarize the movies and illustrate the privacy concerns they present. In your summary, attempt to answer the following question: At what point has data collection gone too far? When will consumers wake up and realize what is being stored? Will the government ever go as far as the movies present?

Submit your thoughts to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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What’s in IT for Me? 215

1. If privacy needs must be balanced against society’s need to know information, at what point should Ruby’s inform a customer’s friends (on Facebook or Twitter) that the customer is about to leave the club a little too intoxicated?

2. With their new network, Ruben and Lisa hope to offer wireless Internet access. However, they are concerned about whether or not they should block certain Web sites. In particular, they want to be sure their customers are not using their network to download offensive material. Although it may not be illegal content, it may not be appropriate or representative of the atmosphere they want to present in their club. What are your thoughts?

Q U E S T I O N SRUBY’S CLUB

What’s in for ME? FOR THE ACCOUNTING MAJOR Public companies, their accountants, and their auditors have signifi cant informa- tion security responsibilities. Accountants are now being held professionally and

personally responsible for reducing risk, eliminating fraud, increasing the transparency of transactions, and ensuring compliance with generally accepted accounting principles (GAAP). Regulatory agencies such as the SEC and the Public Company Accounting Over- sight Board (PCAOB) require accounting departments to monitor information security, fraud prevention and detection, and internal controls over fi nancial reporting. Forensic accounting, a combination of accounting and information security, is one of the most rap- idly expanding areas in accounting today.

FOR THE FINANCE MAJOR Because information security is essential to the success of modern organizations, it is no longer just the concern of the CIO. As a result of global regulatory require-

ments and the passage of Sarbanes-Oxley, responsibility for information security lies with the CEO and the chief fi nancial offi cer (CFO) as well. Consequently, all aspects of the secu- rity audit, including the security of information and information systems, are key concerns for fi nancial managers.

FOR THE MARKETING MAJOR Marketing professionals have new opportunities to collect data about their customers—for example, through business-to-consumer electronic commerce

(discussed in Chapter 9). Business ethics clearly mandate that these data should be used only within the company and should not be sold to anyone else. Marketers do not want to be sued for invasion of privacy over data collected for the marketing database.

Customers expect their data to be properly secured. However, profi t-motivated criminals want that data. Th erefore, marketing managers must analyze the risks of their operations. Failure to protect corporate and customer data will cause signifi cant public relations problems and outrage customers. Customer relationship management (discussed in Chapter 12) operations and tracking customers’ online buying habits can expose unencrypted data to misuse or result in privacy violations.

ffT

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216 6 l Ethics and Privacy

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR POM professionals decide whether to outsource (or off shore) manufacturing oper- ations. In some cases, these operations are sent overseas to countries that do not

have strict labor laws. Th is situation raises serious ethical questions. For example, is it ethical to hire employees in countries with poor working conditions in order to reduce labor costs?

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR Ethics are critically important to HR managers. HR policies explain the appropri- ate use of information technologies in the workplace. Questions such as these

arise: Can employees use the Internet, e-mail, or chat systems for personal purposes while at work? Is it ethical to monitor employees? If so, how? How much? How oft en? HR manag- ers must formulate and enforce such policies while at the same time maintaining trusting relationships between employees and management.

FOR THE MIS MAJOR Ethics might be more important for MIS personnel than for anyone else in the organization, because these individuals have control of the information assets.

Th ey also have control over a huge amount of personal information on all employees. As a result, the MIS function must be held to the highest ethical standards. In fact, as you will see in the chapter-closing case about Terry Childs, regardless of what he actually did, what one thinks of what he did, and whether his conviction was justifi ed, a person in his situation has the opportunity to behave improperly, and should not.

SUMMARY 1. Describe the four categories of ethical issues related to

information technology. Th e major ethical issues related to IT are privacy, accuracy, property (including intellectual property), and accessibility to information. Privacy may be violated when data are held in databases or transmitted over networks. Privacy policies that address issues of data collection, data accuracy, and data confi dentiality can help organizations avoid legal problems.

2. Discuss potential threats to the privacy of personal data stored in diff erent locations. Th reats to privacy include advances in information tech- nologies, electronic surveillance, and personal informa- tion in databases, Internet bulletin boards, newsgroups, and social networking sites. Th e personal threat in Inter- net bulletin boards, newsgroups, and social networking sites is that you might post too much information about yourself that many unknown people can see.

accountability A tenet of ethics that refers to determining who is responsible for actions that were taken.

code of ethics A collection of principles that are intended to guide decision making by members of the organization.

digital dossier An electronic description of you and your habits.

electronic surveillance Tracking people’s activities with the aid of computers.

ethics Th e principles of right and wrong that individuals use to make choices to guide their behaviors.

information privacy Th e right to determine when, and to what extent, information about you can be gathered and/or communi- cated to others.

liability A legal concept that gives individuals the right to recover the damages done to them by other individuals, organizations, or systems.

>>> C H A P T E R G L O S S A R Y

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Problem-Solving Activities 217

opt-in model A model of informed consent that prohibits an entity from collecting any personal information unless the individual specifi cally authorizes it. opt-out model A model of informed consent that permits an entity to collect personal information unless the individual specifi - cally requests that the data not be collected.

privacy Th e right to be left alone and to be free of unreasonable personal intrusions.

privacy codes (see privacy policies)

privacy policies (also known as privacy codes) An organiza- tion’s guidelines for protecting the privacy of customers, clients, and employees.

profiling Th e process of forming a digital dossier.

responsibility A tenet of ethics whereby you accept the conse- quences of your decisions and actions.

1. In 2008, the Massachusetts Bay Transportation Authority (MBTA) obtained a temporary restraining order barring three Massachusetts Institute of Technology (MIT) students from publicly displaying what they claimed to be a way to get “free subway rides for life.” Specifi cally, the 10-day injunction prohibited the students from revealing vulnerabilities of the MBTA’s fare card. Th e students were scheduled to present their fi ndings in Las Vegas at the DEFCON computer hacking conference. Were the students’ actions legal? Were their actions ethical? Discuss your answer from the perspective of the students and then from the perspective of the MBTA.

2. Frank Abagnale, the criminal played by Leonardo DiCaprio in the motion picture Catch Me If You Can, ended up in prison. However, when he left prison, he went to work as a consultant to many companies on matters of fraud. a. Why do companies hire perpetrators (if caught) as

consultants? Is this a good idea? b. You are the CEO of a company. Discuss the ethical

implications of hiring Frank Abagnale as a consultant.

>>> D I S C U S S I O N Q U E S T I O N S

1. An information security manager routinely monitored the Web surfi ng done by her company’s employees. She discovered that many employees were visiting the “sinful six” Web sites. (Note: Th e sinful six are Web sites with material related to pornography, gambling, hate, illegal activities, tastelessness, and violence.) She then prepared a list of the employees and their surfi ng histories and gave the list to management. Some managers punished their employees. Some employees, in turn, objected to the monitoring, claiming that they should have a right to privacy. a. Is monitoring of Web surfi ng by managers ethical?

(It is legal.) Support your answer. b. Is employee Web surfi ng on the “sinful six” ethical?

Support your answer. c. Is the security manager’s submission of the list of

abusers to management ethical? Why or why not? d. Is punishing the abusers ethical? Why or why not? If

yes, then what types of punishment are acceptable? e. What should the company do in this situation? (Note:

Th ere is a variety of possibilities here.)

2. Access the Computer Ethics Institute’s “Ten Command- ments of Computer Ethics” at the Web site of the Com- puter Professionals for Social Responsibility: http://www .wiley.com/go/rainer/problemsolving. Study these ten rules and decide if any others should be added.

3. Access the Association for Computing Machinery’s code of ethics for its members at http://www.wiley.com/go/ rainer/problemsolving. Discuss the major points of this

code. Is this code complete? Why or why not? Support your answer.

4. Access www.eightmaps.com. Is the use of data on this Web site illegal? Unethical? Support your answer.

5. Th e Electronic Frontier Foundation (www.eff.org) has a mission of protecting rights and promoting freedom in the “electronic frontier.” Review the organization’s suggestions about how to protect your online privacy and summarize what you can do to protect yourself.

6. Access your university’s guidelines for ethical computer and Internet use. Are there limitations as to the types of Web sites that you can visit and the types of material you can view? Are you allowed to change the programs on the lab computers? Are you allowed to download soft ware from the lab computers for your personal use? Are there rules governing the personal use of computers and e-mail?

7. Access “Th e Core Rules of Netiquette” at http://www.wiley. com/go/rainer/problemsolving. What do you think of this code of ethics? Should it be expanded? Is it too general?

8. Access www.cookiecentral.com and www.epubliceye. com. Do these sites provide information that helps you protect your privacy? If so, then explain how.

9. Do you believe that your university should be allowed to monitor e-mail sent and received on university comput- ers? Why or why not? Support your answer.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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218 6 l Ethics and Privacy

Background

We all receive privacy statements each day. But how many of us read them? Do you actually read every statement you agree to when you click the "I Agree" button? Periodically it is a good idea to skim over these to know exactly what you agree with when you check the box. It is even more impor- tant to study revisions to see what has changed when the company sends out a new and updated version.

Activity

Work with your team to research various privacy statements. Use popular sites like Facebook, Google, Twitter, LinkedIn, Pinterest, etc., as your main sources of information. For example, in 2012 Google updated its privacy and information sharing policy and would not allow anyone

to opt out of it. You either agreed to Google’s policy or you stopped using Google. What about Facebook and its privacy statements? Have each team member analyze a company and report back to the team. In most cases, you will be able to fi nd Web sites that have already analyzed and put together histories of privacy issues.

Deliverable

Work with your team to prepare a short paper that high- lights the major issues and trends you have found. Do you think companies are moving toward protecting customers’ data? Do you think customers are becoming smarter about what they share? Do social media have the best interest of their users in mind? Put some thought into these issues, prepare your paper, and submit it to your professor.

>>> C O L L A B O R AT I O N E X E R C I S E

CLOSING CASE 1 > Google and China

Google wished to open a search page in China, but in order to do so, it looked like the com- pany would need to accept censorship by the Chinese government. Google wanted to com- ply with government regulations so that it could expand its business to China, but Google did not wish to compromise the usefulness or appeal of its Web site’s search function.

On January 27, 2006, Google launched its China-based search page (www.google.cn). Google hoped that its decision to create a search engine in the .cn domain—one that fol- lowed the Chinese government’s rules of censorship—would lead to a level playing fi eld with Baidu, the leading Chinese search engine. Baidu was launched in 2000, and therefore would compete directly with google.cn.

Unfortunately, even as Google rolled out its google.cn Web address, there were indica- tions that its compromise on censorship would not satisfy the Chinese government. For example, unexplained outages of its Web site occurred, but Baidu did not experience any outages.

Not long aft er Google received its operating license in December 2005, the Chinese government declared that the license was no longer valid. Th ey stated that it was not clear whether Google’s activities made it an Internet service or a news portal. (Foreigners are forbidden by the Chinese government from operating news portals in China.) Google then began an 18-month long negotiation to restore its license, which it fi nally received in June 2007. Th e negotiation was resolved in secret.

In 2007, Google was granted a valuable concession. Chinese users had only to type “g.cn” and they would go to the google.cn site. By then, however, many Chinese Web users had written off Google as an unwelcome outsider with less than reliable service.

Google had a fi rm policy against storing personal data inside China in order to avoid a situation in which the government could demand that Google turn over that data. Th ere- fore, the company did not off er a number of its key services for local Chinese users—no Gmail, no Blogger, no Picasa, no YouTube.

As Chinese employees were hired, it took some time for some of them to adjust to the Google style. For instance, many were uncomfortable with Google’s worldwide policy that employees initiate and pursue independent projects during 20 percent of their work time. Engineers had to be told by a visiting Google executive that they did not need permission to do a 20 percent project.

THE PROBLEM >>>

ATTEMPTS AT >>> A SOLUTION

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Closing Case 1: Google and China 219

However, the most pressing concern of Google’s Chinese engineers was their lack of access to Google’s production code. Google was a collaborative company that wanted its engineers around the world to innovate on its existing products and create exciting new ones. Th e company empowered them to do so by giving them access to its production code base. Without this access, Chinese engineers were limited in what they could do and felt that their lack of access sent a message that they were second-class employees. Suspicion lingered that the Google executives behind this no-access policy had intentionally placed rigid restrictions on Google’s employees in China as a form of corporate civil disobedience against Google’s cooperation with Chinese government censors.

Google’s success in China depended in part on having a government relations point person who could navigate the problems associated with preserving Google’s values with- out off ending Chinese offi cials. Google’s fi rst such point person was experienced in the ways of Chinese bureaucracies, but did not speak English and seemed to fail to appreciate issues from Google’s perspective.

Her tenure at Google ended when she took it upon herself to give iPods to Chinese offi cials. She charged the iPods to Google and another executive approved the charge. In Chinese business culture, such gift s are routine, but the act unambiguously violated Google policy, not least because it was an explicit violation of the U.S. Foreign Corrupt Practices Act.

To replace their fi rst (unsuccessful) government liaison, Google chose a three-person, all-female government relations team. However, as it turned out, they had their hands full fending off Chinese government directives. For example, a demand might come from a gov- ernment ministry to take down 10 items. Google would typically take down seven and hope that the compromise resolved the matter. Th en, aft er a few days or weeks, Google would quietly restore links it had censored. Every 5 months, Google’s policy review committee in China would meet to make sure it was fi ltering the minimum it could possibly get away with.

Google executives began to think that the company’s great China compromise was not working because of the heavy censorship. A turning point came in 2008, the year China hosted the summer Olympics. In the months before the Games, China apparently decided to increase its restrictions on Web content. It demanded that, in addition to censoring google.cn search results, Google also purge objectionable links from the Chinese-language version of Google.com. Th at was unacceptable to Google. Complying with these demands would mean that Google was acting as an agent of repression to Chinese-speaking people all over the world, including in the United States. Other search engines, including Micro- soft , agreed to such demands. But Google stalled, hoping that aft er the Olympics the Chi- nese would back off their demands. However, they did not and the demands for more cen- sorship became both broader in scope and more frequent.

Th en, a new problem arose involving Google Suggest, a Google search feature that instantly off ers fully developed search queries when users type just a few characters or words into the search box. Th is innovation was fi rst off ered in China aft er Google’s search team realized that, because of diffi culties associated with typing Chinese characters, Chi- nese users generally entered shorter queries into the search box. But, Chinese offi cials dis- covered that in many instances, the suggestions off ered by Google were related to sexual matters. Google China executives tried to explain that apparently someone had spammed keywords to artifi cially boost the popularity of sex sites in Google Suggest. Th e offi cials were not impressed and told Google that the company “would be punished.”

At the end of 2009, Google was hacked and some of the company’s more closely guarded intellectual property was stolen. Th e hack was geographically tied to China and both the sophistication of the attack and the nature of its targets pointed to the Chinese government itself as an instigator of, or a party to, the attack. Even worse, the attackers had penetrated the Gmail accounts of Chinese dissidents and human rights activists. All their contacts, their plans, and their most private information had fallen into the hands of the intruders.

On January 10, 2010, Google’s top executives decided to shut down google.cn. Th e company decided that it would no longer carry out censorship on behalf of the Chinese government. Google subsequently stopped off ering Web search on google.cn, and instead directed Web goers to a search site based in Hong Kong that is not subject to government censorship

<<< THE RESULTS

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220 6 l Ethics and Privacy

requirements. For users in mainland China, the Hong Kong search site, along with other Google services such as Gmail, suff ers frequent service disruptions.

In 2012, Google has acknowledged that it cannot aff ord to miss out on the world’s big- gest Internet market and has renewed its push to expand in China. One goal is to introduce its Android Market to China. Th e Android Market off ers thousands of mobile applications to users of Android-powered smartphones and tablets, but is not available in China despite the fact that it powers some 60 percent of all Chinese smartphones. Google is trying to win over Chinese consumers with services that do not require offi cial censorship, such as Shihui. Shihui helps people search Chinese sites that off er discounts at local stores.

Google’s move comes at a pivotal time for China’s Internet industry. Despite the preva- lence of government censorship, the Web is increasingly an outlet for Chinese citizens to share information and express discontent, even about the government. Twitter-like microblogging services such as Sina Corporation’s Weibo have become popular platforms for sharing opin- ions and information about controversial topics, even as Google has been on the sidelines.

Perhaps the most telling change is that in 2011, China renewed Google’s license to operate a Web site in the country. Sources: Compiled from S. Li and B. Womack, “Google China Business Grows, ‘Continues to Th rive’ Alegre Says,” Bloomberg BusinessWeek, January 24, 2012; J. Maragioglio, “Google Renews Expansion Eff orts in China,” Mobile- dia, January 13, 2012; A. Efrati and L. Chao, “Google Soft ens Tone on China,” Th e Wall Street Journal, January 12, 2012; M. Brian, “Google Gains China Internet License Renewal, Still Avoids Search Censorship,” Th eNextWeb, September 7, 2011; S. Levy, “Inside Google’s China Misfortune,” CNN, April 15, 2011; S. LaFraniere and D. Barboza, “China Tightens Censorship of Electronic Communications,” Th e New York Times, March 21, 2011; D. MacMillan, “Google’s Quixotic China Challenge,” Bloomberg BusinessWeek, March 25, 2010.

QUESTIONS 1. Google’s informal corporate motto is “Don’t Be Evil.” Discuss this motto in

light of Google’s decision to stop censoring its search results on behalf of the Chinese government.

2. Discuss Google’s decision to stop censoring its search results in China in terms of the ethical framework at the beginning of this chapter.

Closing CASE 2 > Attack of the Dot Clones

Fab (www.fab.com) is a highly successful fl ash-deal Web site for designer goods. Launched in June 2011, Fab had sales of $20 million in its fi rst six months. Th e company’s CEO attributed Fab’s success to the authenticity of its products, its refusal to off er knock-off s, and the fact that its off erings consisted of objects and design products that could not be found elsewhere.

Six months aft er Fab launched, other sites began to create knock-off s of their products. An e-commerce design Web site called Bamarang (www.bamarang.de) opened for busi- ness in Germany, the United Kingdom, France, Australia, and Brazil. Like Fab, Bamarang off ers discounts of up to 70 percent on designer goods. Th e layout, color scheme, and type- faces of their Web site closely resemble Fab. Bamarang even has a shot of an Eames chair as the background photo for its sign-in page, just as Fab does.

Bamarang is the creation of German brothers Oliver, Marc, and Alexander Samwer. Th is brotherly trio has hit upon a wildly successful business model: identify promising U.S. Internet businesses and then clone them internationally. Since starting their fi rst “dot clone” (a German version of eBay) in 1999, they have duplicated Airbnb, eHarmony, Pinterest, and other high-profi le businesses for the international market. In total, they have launched more than 100 companies. Th eir Zappos clone, Zalando, now dominates six European mar- kets and is estimated to be worth $1 billion by Financial Times Deutschland.

Th e Samwers’ base of operations is a startup business incubator in Berlin called Rocket Internet. Rocket launches companies, hires staff , and provides marketing and design support,

THE PROBLEM >>>

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Closing Case 2: Attack of the Dot Clones 221

search engine optimization, and day-to-day management until startups can take over for themselves.

Th e Samwers launched their clone of eBay, called Alando, in early 1999. Four months aft er Alando’s launch, eBay bought the company for $53 million—and the Samwers became Germany’s fi rst Internet millionaires.

In November 2008, Groupon went live in Chicago and shortly aft er became one of the fastest growing Internet businesses ever. In January 2010, the Samwers launched a Groupon knockoff called CityDeal. Within 5 months it was the top deal-of-the-day Web site in the United Kingdom, France, Spain, Italy, Ireland, the Netherlands, Switzerland, Austria, Poland, Finland, Denmark, Sweden, and Turkey.

Groupon could have fought CityDeal in the marketplace. Groupon could also have fi led an intellectual property lawsuit, although the chances of the company winning would have been very slim. Companies cannot be patented and trademarks apply only within the countries where they are registered. Perhaps taking the path of least resistance, in May 2010, Groupon bought its German clone for 14 percent of Groupon’s shares. (In March 2012, Rocket owned 6 percent of Groupon, a stake worth about $1 billion.)

Wrapp (www.wrapp.com) is a European startup that partners with retailers to allow users to give gift s to their friends through Facebook. Unsurprisingly, the Samwers launched DropGift s, a clone of Wrapp, in February 2012. Unlike Groupon, Wrapp responded in the off ensive. Th e company is planning on adding new territories much faster than it had previ- ously planned and it hope is to gain fi rst mover advantages in important markets. In order to fund its rapid growth, Wrapp is turning back to investors for additional funding.

Th e Wrapp management team feels that the best defense against copycats is to do a bet- ter job. It thinks that it has stronger existing relationships with retailer partners than the copycats and that it has more big partnerships on the way.

But what about Fab? On February 21, 2012, the company announced its acquisition of a German non-Samwer facsimile, Casacanda. Th e Fab CEO said that Casacanda is less of a copycat and more a group of people who came up with a similar idea to Fab’s.

Th e Samwers are revered among young German entrepreneurs for putting Berlin’s startup scene on the map. On the other hand, they are despised for giving Germany a reputation as the copycat capital of Europe.

Th ere are several indications of the Samwers’ image problem. In summer 2011, a Berlin startup called 6Wunderkinder called for an anticopycat revolution in that city. In January 2012, about 20 Rocket employees, some of them close allies of the Samwers, announced that they were leaving to launch a rival startup factory, called Project A Ventures, focusing on backing original ideas. In February 2012, Russian entrepreneur Yuri Milner, an investor in Facebook, Zynga, and Twitter, pulled out of a plan to invest in Rocket. Th e German media speculated that it was because of the Samwers’ reputation.

Despite their questionable image, the Samwers say that they are not necessarily copy- cats. Th ey say that they take an idea already on the Internet and “make it better.” Groupon’s CEO went so far as to say that “An idea for a company is the easy part, and execution is the hard part.” He said that the Samwers were the best operators had had ever seen. Sources: Compiled from B. Johnson, “Exclusive: Wrapp CEO Goes Toe-to-Toe with Samwer Bros.,” GigaOM.com, March 7, 2012; C. Winter, “Th e German Website Copy Machine,” Bloomberg BusinessWeek, March 5–11, 2012; M. Cowan, “Inside the Clone Factory: Th e Story of Germany Samwer Brothers,” Wired, March 2, 2012; B. Johnson, “Now Samwer Bros Clone Fab and Target European Rollout,” GigaOM.com, January 25, 2012; “Attack of the Clones,” Th e Economist, August 6, 2011.

Questions 1. Discuss the ethics of the Samwers’ business model. Now discuss the legality

of the Samwers’ business model. Compare the two discussions. 2. What are some alternatives that companies might use to combat dot clones? 3. Discuss the ethical implications of the statement from Groupon’s CEO that

the Samwers are superb operators, not simply copycats.

<<< THE RESULTS

<<< A POTENTIAL SOLUTION

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222 6 l Ethics and Privacy

To complete this assignment, Ruben and Lisa need suggestions on developing their Ethics and Privacy Statement. Search Google (or another search engine) for clubs in your local area and see if they have an Ethics and Privacy Statement online. Can you tell if they take the utilitarian, rights, fairness, or common good approach to ethics? What seems to be the norm for clubs? Do

any of them deal with the ethics of monitoring alcohol consumption?

Finally, prepare a statement for Ruben and Lisa to use as their rough draft as they prepare their own Ethics and Privacy Statement. Submit it to your professor.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

PROTECTING INFORMATION IN A SPREADSHEET Objective: You will learn how to lock and protect

spreadsheets to keep private information protected. You will also learn the difference between a “protected” spreadsheet and a secure database.

Chapter Connection: Ethics are a diffi cult subject in information systems. The tighter you keep a system, the less useful it is. However, the more freely you allow people to access data, the more privacy issues you have on your hands. The object of this exercise is to help establish the necessary balance between ethics, privacy, and data usefulness.

Activity: Recently, a fraternity on campus made plans to host a party with a sorority and took reservations for T-shirt orders. One of the members was an MIS student who had set up a Google Survey for the orders and had exported all of the data into a spreadsheet. The data included name, address, shirt size, address, phone number, and so on. The university has asked the fraternity to keep this data confi dential due to problems in the past. Specifi cally, a year earlier, the same data were stored in an unsecured spreadsheet that was e-mailed around the fraternity. One of the fraternity brothers took some of the information and used it to exploit and make fun of a physically larger sorority sister. To ensure that this does not happen again, the university is asking the fraternity to show evidence that the spreadsheet is locked and will only be seen

by those approved to deliver the T-shirts within the fraternity and the sorority. As a member of those approved by the university to manage this information, your job is to take the data collected by the Google Survey and move private information to the private page and lock it so that it cannot be used to exploit any member of either fraternity or sorority. You will need to use your own judgment to determine which information needs to be moved to the private, locked page of the spreadsheet. Go to http://www.wiley.com/go/rainer/spreadsheet to download the Excel fi le you will need. Then watch the accompanying video to learn how to make a spreadsheet secure.

Deliverable: The fi nal product will be a spreadsheet with the survey data in a spreadsheet with the single page of data divided between a secure page and an “open” page.

Discussion Questions:

1. How can a spreadsheet be helpful if it is so easy to secure and hack?

2. Are Google spreadsheets more secure than Excel spreadsheets?

3. If a sheet needs to be “very hidden,” then why not go ahead and delete it?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

SPREADSHEET ACTIVITY

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Database Activity 223

DATABASE ACT IV ITY: FILTERING AND SORTING Objective In this activity, you will learn how to select only the useful rows of a table, hiding the others, and sort a table on any column in it. A database is useless if you cannot get information out of it. Access offers many ways to do that. Some are simple but limited. Others are more capable but require more work. Filtering and sorting a table are at the low end but are still often useful. We will start with them here, and go on to more complex (but more capable) methods in later activities.

CHAPTER CONNECTION All organizations keep critical information in databases. Security and privacy considerations govern who can access that database and what they are allowed to see there. This means being able to see some parts of a database but not others. Hence, the way people select parts of a database to see is closely connected to privacy and security considerations. Discussion questions 1 and 2 at the end of this activity go into this connection more deeply.

PREREQUISITES None.

Activity In this activity, which you will fi nd online, you will learn how to fi lter and sort an Access table to zero in on exactly the rows you want. The techniques are simple, but will be useful often. The database you may have used with the Chapter 4 activity has information a company might use to track problems with network equipment. Its central element is the trouble ticket. A ticket is submitted by a user, who works in a department, and refers to a device (item of network equipment). A ticket is initially open. It is assigned to a technician, may go to “in process” or “on hold” (if there is any delay in resolving it), and is eventually closed or canceled. That database has fi ve tables: users, departments, technicians, devices, and trouble tickets. You can see how they are connected in the NeTrouble database on the Web site. Choose the Database Tools tab above the ribbon, and click on the relationship map. 1. Download and open the Ch 06 NetSimple

database from http://www.wiley.com/rainer/go/ database. It has one table with the same information as in NeTrouble, minus some columns (such as

employee date of birth and date of hire) to save screen space. This is usually a poor way to organize a database. It violates the normalization rules you learned in Chapter 3. However, this “fl at fi le” data structure is common; it is not always bad and it is where fi ltering works best.

2. Suppose you want to see the trouble tickets for all your routers. Open TroubleTbl in NetSimple. Make sure it is in Datasheet view. (It should open that way.) The second column of the table, DeviceName, gives the type of device.

3. Pull down the triangle to the right of the column name by clicking on it. You will see a list of all the different devices in the table, sorted alphabetically. (You will see entries for both “Router,” which is correct, and “Rooter,” a misspelling. The chance of this sort of error is one reason that a fl at fi le database is not a good idea for anything but the simplest data storage requirements.)

4. You will also see two entries in the table above the list of types: one that reads “Select All” and one that refers to blank (empty) cells in the datasheet. At this point all the boxes are checked. Click Select All to uncheck all the boxes. Then click “Bridge” and OK.

5. All the rows have gone away except for those with Bridge in the DevName column—that is, except for all the trouble tickets that refer to bridges. You will see a small funnel next to the triangle in that column. It means the data you see are fi ltered on the content of that column.

6. Click the Home tab above the ribbon. In the Sort & Filter section toward the right side of the ribbon, Toggle Filter (a funnel icon) will be highlighted. Click it a few times to see what it does.

7. You can fi lter for more than one column at a time. Pull down the fi ltering menu for the Department column. It shows only the departments that are now visible—that is, those that reported a problem with a bridge. Since HR did not report any problems with bridges, HR is not in the list. Now, click Marketing. The Marketing box will be unchecked. So will the Select All box because all the choices are no longer selected. Click OK. Trouble tickets from Marketing are now hidden, leaving those from all other departments. Both columns show funnels next to their triangles.

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224 6 l Ethics and Privacy

The Toggle Filter button in the ribbon alternates between both fi lters on and both off. If you want to turn one of them off while leaving the other on, you must clear it individually in its column.

5. To sort the visible trouble tickets by the date they were submitted, pull down the sorting and fi ltering menu of the TicketSubmitted column. Choose Sort Newest to Oldest and click OK. The table now shows the trouble tickets with the newest at the top. This is useful if you need to fi nd out about the latest problems.

Usage Hint: You can also sort by selecting a column and clicking one of the icons on the left side of the Sort & Filter section of the Home ribbon. The top icon sorts in ascending order; the middle one sorts in descending order; and the last one clears any existing sorts on that column. This may be faster if the Home ribbon is already selected, but probably is not if you are working with a different ribbon. 6. Select the TicketSubmitted column of the table

by clicking on its heading. Pull down its Sort & Filter menu and move your mouse pointer to Date Filters. (The type of fi lters you get here depends on the data type of the column you are working with.) Another menu will come out from the side of the main menu. Select After . . ., the fourth entry. In the dialogue box that appears, enter 3/1/2011.

7. Close this database, being sure to save your work. Usage Hint: If you open your database again at this point, it may seem that your sort and fi lters disappeared. They did not. They were saved with the database. They are just not applied. Clicking Toggle Filters will reactivate them. 8. Now, download and open the Ch 06 NeTrouble

database from the Web site. (You may have used a similar database in the Chapter 4 activity.) It is a better way to structure the trouble reporting data. However, as you will see, it is more awkward to fi lter on a multiple-table database. That is why we will learn about other query techniques for such databases later, in the Chapter 10 activity. To get the same result that was so easy to get above, proceed as follows:

9. Open DeviceTbl. Find the Bridge row or rows. Because this table is short, you can scan it by eye in a couple of seconds. Record its primary key (DeviceID, its fi rst column) and close it.

10. Open the TicketTbl. Find its Device column. Filter that column for the device key or keys you just recorded. This will select the trouble tickets for all bridges. This is a lot of work to get a result that you obtained more easily the fi rst time—and you only needed to use two tables, not seven or eight.

That is one downside of multiple-table databases versus fl at fi les. Their business advantages still outweigh their drawbacks. You will see how to get around those diffi culties by using other query tools in future activities.

11. Close this database, being sure to save your work.

Deliverables

1. Your Ch 06 NetSimple database, with the fi lters you applied.

2. Your Ch 06 NeTrouble database, with the fi lters you applied.

Quiz Questions

1. True or false: Clicking on a Sort icon, with a table column selected, does exactly the same as selecting the corresponding Sort option from that column’s pull-down fi ltering menu.

2. Consider the fi lter you applied to the single-table database in activity steps 3 to 5 above. Could you have used the same basic method, but checking different boxes, to select (a) All devices other than bridges? (b) All devices that are either bridges or switches? (c) All devices that are routers or rooters, to

include misspellings? (d) Any of the above?

3. True or false: You apply a fi lter to a database table, close the database, then reopen it. When you look at that table in Datasheet view, its rows will still be fi ltered as they were.

4. he Sort & Filter section of the ribbon is found under which ribbon tab? (a) Home (b) Create (c) Database Tools (d) Datasheet

Discussion Questions

1. Suppose you have the fi ve-table version of this database (NeTrouble) and have been asked to analyze the distribution of trouble tickets by department. You understand the diffi culty of doing this, as you did it for a different problem in activity steps 8 to 10, and are willing to put up with that. However, for privacy reasons, you are not allowed to access the user table. Would this be a problem? Why or why not? If it would, suggest a solution.

2. Sometimes a person should see only certain rows of a table. Student access to grades is one example: you may see your own rows, but not those of other students. One way to make this happen is to

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Database Activity 225

create a copy of the table, fi lter for rows this person should not see, select them all, delete them, and then clear the fi lter to show the remaining rows. (This would have to be done automatically, or by someone who is allowed to see the entire table.) The result can then be e-mailed to the student, plugged into a Web page template, etc.

Think of two other situations where access to a table must be controlled on a row basis. Would this solution work for each of them? Why or why not?

3. The fi ltering menu of a column shows all data values in that column with check boxes. Rows containing checked values will remain visible when the fi lter is applied. Other rows will be

hidden, but can be shown by clearing the fi lter or toggling it off. More complex criteria can be applied by selecting [____] Filters, where the blank specifi es the data type of the column (e.g., text) and providing any parameters as in activity step 6 above.

Choose any column of any table that contains text data. Select Text Filters from the drop-down menu. Consider the eight types of fi lters in the submenu that appears. Think of two situations in which those eight types do not meet the fi ltering needs. Be specifi c in explaining what these situations call for that they cannot handle.

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7 CHAPTER OUTLINE

7.1 Introduction to Information Security

7.2 Unintentional Threats to Information Systems

7.3 Deliberate Threats to Information Systems

7.4 What Organizations Are Doing to Protect Information Resources

7.5 Information Security Controls

Information Security

LEARNING OBJECTIVES >>>

1. Give one specifi c example of each of the fi ve factors that are contributing to the increasing vulnerability of information resources.

2. Compare and contrast human mistakes and social engineering by way of specifi c examples.

3. Describe negative consequences that might result from at least three diff erent kinds of deliberate attacks on information systems.

4. Assess how you might employ each of the three risk mitigation strategies in the context of your owning a home.

5. Identify the three major types of controls that organizations can use to protect their information resources.

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Picture your graduation day. You have fi nally completed your undergraduate degree. You initially looked for a job, but you have since decided that you want to start your own business. You pitch your idea to your best friend and ask him/her to join you in a new business venture. Because your degree is in marketing, you would like to start a small promotions business. You and your new business partner develop a solid business strategy, get a small business loan from the bank to purchase your computer equipment, and then head over to the court- house to set up your new Limited Liability Corporation.

Two years later, things could not have turned out better! Hard work, late nights, and social media exposure has landed your business quite a few clients. Th e two computers you purchased with your small business loan (one for you and one for your business partner) have turned out to be invaluable. In fact, you now realize more than ever how much you depend on your computers and how lost your business would be without them. You wonder if your antivirus soft ware is up-to-date and if there

is anything else you should be doing to protect your critical business data, especially your clients’ data. But, you are too busy to research these issues and you just trust that everything will be OK.

You and your partner have never had computers this nice. Fast processors, big monitors, and plenty of memory (all purchased with business intent of course) make for much better computers than either of you have at home. Naturally you both use your computers for personal work as well. Why not, right?

But then, suddenly, your business partner’s computer starts to slow down dramatically. Your machine is identical to his, but yours runs much faster. Your partner takes his computer back to Best Buy to have the Geek Squad look it over. Th e technician determines that malware has infected his computer so thoroughly that the hard drive must be replaced. Additionally, > > >

OPENING CASE > Small Businesses in Danger

Ruben and Lisa are very excited about their new Web site and the opportunity to sell merchandise online. However, it seems that every day they hear of an attack where credit card information has been stolen; disgruntled employees have shared passwords and made customer data vulnerable; computers physically stolen from behind locked doors; fi re creating loss of data; and other situations where customer information has been compromised. They really feel stuck between a “rock and a hard place” because they are experiencing immense pressure to move into the e-commerce realm, yet they are very concerned about information security by doing so!

They want to know what kind of threats are really out there and which ones are legitimate for them as a nightclub? In what ways would Ruby’s make itself vulnerable to cybercrime by adding e-commerce to its Web site? How many of these threats can be avoided by having a third party (such as Amazon, Yahoo, Google, or PayPal) provide e-commerce tools that provide some level of security and confi dence, but how much does Ruby’s need? How much training do employees need to truly create a secure environment for their customers and their private information?

RUBY’S CLUB

© Mark Bowden/iStockphoto

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228 7 l Information Security

the data on his hard drive cannot be recovered and he has not backed up any of his fi les (not even the business data).

Now, you have problems. Lost data may result in lost (certainly irritated) customers. In addition, you will have to spend time and money recreating that data.

How could your partner’s unprotected Web surfi ng have resulted in so much lost data? Th e fact is that even though you both consider yourselves somewhat tech savvy, neither of you ever took steps to protect your computers. You just assumed that a malware infection would never happen to you.

Now, what would you say if you knew that you are not alone? A recent report by GFI Soft ware showed that over 40 percent of small- to medium-sized businesses (SMBs) reported a security breach that resulted from an employee visiting a Web site that hosted malware. Amazingly, even though 40 percent of SMBs have experienced this problem, 55 percent reported that prevent- ing this from happening again was not a priority! Furthermore, 70 percent of the respondents do NOT have any policy about Web use at work and say that Web use is not a problem!

As you can see from this case, security on computers and information systems is vital to avoid losing business relation-

ships and signifi cant amounts of time and money. Th ere are many third-party companies that provide security solutions (see for example, GFI Soft ware at www.gfi .com), but you are responsible for seeking out their services and implementing security controls on your own systems and customer data. If you do not prioritize security measures, you expose your computer and your fi les to potentially irrevocable damage from thousands of malware systems and viruses.

Sources: Compiled from “GFI Soft ware Survey: 40% of SMBs Have Suff ered a Security Breach Due to Unsafe Web Surfi ng,” Enhanced Online News, October 12, 2011; “Small Businesses Hacked But Still Not Taking Precautions: Survey Says,” Th e Huffi ngton Post, November 7, 2011; www. gfi .com, accessed March 8, 2012.

Questions 1. What security controls should you and your business

partner have adopted at a minimum? 2. How important are backup plans and fi le backup

procedures to small businesses? 3. Why is it important to protect customer information in

businesses of any size?

As you saw in this case, information security controls are essential to all businesses, regard- less of size. In addition, a solid backup plan is critical to information security. As you con- sider this case, think about the devastating impact that a security breach would have on a small business. Th e loss of important data about the business, coupled with the loss of cus- tomer data, could shut the business down.

Introduction

Information security is closely related to IT and raises signifi cant questions. For example, how do organizations show due diligence in protecting sensitive, classifi ed information? Is the cause of security breaches in organizations managerial, technological, or some combi- nation of both? How should organizations protect their information more eff ectively? Th e most important question raised in this chapter, however, is whether it is possible to secure the Internet. Th e answer to this question aff ects every one of us.

Th e answers to these and other questions are not clear. As you learn about information security in the context of information technology, you will acquire a better understanding of these issues, their importance, their relationships, and their trade-off s.

Information technologies, properly used, can have enormous benefi ts for individuals, organizations, and entire societies. So far, you have learned about diverse ways in which IT has made businesses more productive, effi cient, and responsive to consumers. You have explored areas such as medicine and philanthropy in which IT has improved people’s health and well-being. Unfortunately, information technologies can also be misused, oft en with devastating consequences. Consider the following:

• Individuals can have their identities stolen.

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Introduction to Information Security 229

• Organizations’ customer information can be stolen, leading to fi nancial losses, erosion of customer confi dence, and legal action.

• Countries face the threat of cyberterrorism and cyberwarfare. Cyberwarfare is a critical problem for the U.S. government. In fact, President Barack Obama’s 2009 stimulus package contained billions of dollars to upgrade the government’s digital defenses.

In fact, the misuse of information technologies has come to the forefront of any discus- sion of IT. For example, the Ponemon Institute (www.ponemon.org), a research fi rm, found that organizations spent an average of $7.20 million for each security breach in 2011.

Th e study measured the direct costs of a data breach, such as hiring forensic experts, notifying customers, setting up telephone hotlines to fi eld queries from concerned or aff ected customers, off ering free credit monitoring subscriptions, and discounts for future products and services. Th e study also measured more intangible costs of a breach, such as the loss of business from increased customer turnover (known as customer churn) and decreases in customer trust.

According to the study, employee negligence caused many of the data breaches. Th is fi nding confi rms that organizational employees are a weak link in information security. As a result, it is very important for you to learn about information security so that you will be better prepared when you enter the workforce.

7.1 Introduction to Information Security Security can be defi ned as the degree of protection against criminal activity, danger, dam- age, and/or loss. Following this broad defi nition, information security means protecting an organization’s information and information systems (known as an organization’s infor- mation resources) from unauthorized access, use, disclosure, disruption, modifi cation, or destruction. Clearly, information and information systems can be compromised by deliber- ate criminal actions and by anything that can impair the proper functioning of an organiza- tion’s information systems.

Before you continue, let’s look at these key terms. Organizations have huge amounts of information and numerous information systems that are subject to many threats. A threat to an information resource is any danger to which a system may be exposed. Th e exposure of an information resource is the harm, loss, or damage that can result if a threat compro- mises that resource. An information resource’s vulnerability is the possibility that the sys- tem will suff er harm by a threat.

A number of factors are contributing to the increasing vulnerability of organizational information resources, making it much more diffi cult to secure them. Before you learn about these factors, they are listed here:

• Today’s interconnected, interdependent, wirelessly networked business environment • Smaller, faster, cheaper computers and storage devices • Decreasing skills necessary to be a computer hacker • International organized crime taking over cybercrime • Lack of management support

Th e fi rst factor is the evolution of the information technology resource from main- frame only to today’s highly complex, interconnected, interdependent, wirelessly net- worked business environment. Th e Internet now enables millions of computers and com- puter networks to freely and seamlessly communicate with one another. Organizations and individuals are exposed to a world of untrusted networks and potential attackers. A trusted network, in general, is any network within your organization. An untrusted net- work, in general, is any network external to your organization. In addition, wireless tech- nologies enable employees to compute, communicate, and access the Internet anywhere and anytime. Signifi cantly, wireless is an inherently nonsecure broadcast communications medium.

George Doyle/Image Source Limited

Human mistakes such as unattended equipment often leave resources vulnerable to theft.

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230 7 l Information Security

Th e second factor refl ects the fact that modern computers and storage devices (e.g., thumb drives or fl ash drives) continue to become smaller, faster, cheaper, and more porta- ble, with greater storage capacity. Th ese characteristics make it much easier to steal or lose a computer or storage device that contains huge amounts of sensitive information. Also, many more people are able to aff ord powerful computers and connect inexpensively to the Internet, thus increasing the target size of an attack on information assets.

Th e third factor is that the computing skills necessary to be a hacker are decreasing. Th e reason is that the Internet contains information and computer programs (called scripts) that users with few skills can download and use to attack any information system connected to the Internet. (Security experts can also use these scripts for legitimate purposes, such as testing the security of various systems.)

Th e fourth factor is that international organized crime is taking over cybercrime. Cybercrime refers to illegal activities taking place over computer networks, particularly the Internet. VeriSign’s iDefense Security Intelligence Services (http://idefense.com) provides security information to governments and Fortune 500 companies. VeriSign states that groups of well-organized criminals have taken control of a global billion-dollar crime net- work. Th e network, powered by skillful hackers, targets known soft ware security weak- nesses. Th ese crimes are typically nonviolent but quite lucrative. For example, the losses from armed robberies average hundreds of dollars and those from white-collar crimes aver- age tens of thousands of dollars. In contrast, losses from computer crimes average hundreds of thousands of dollars. In fact, the 2011 Norton Cybercrime Report estimates the total cost of cybercrime at $388 billion per year. Also, these crimes can be committed from anywhere in the world, at any time, eff ectively providing an international safe haven for cybercrimi-

nals. Computer-based crimes cause billions of dollars in damages to businesses each year, including the costs to repair information systems and the costs of lost business.

Th e fi ft h and fi nal factor is lack of management support. For the entire organization to take security policies and proce- dures seriously, senior managers must set the tone. Ultimately, however, lower-level managers may be even more important. Th ese managers are in close contact with employees every day and thus are in a better position to determine whether employees are following security procedures.

BEFORE YOU GO ON . . . 1. Defi ne information security. 2. Defi ne a threat, an exposure, and a

vulnerability. 3. Why are the skills needed to be a hacker

decreasing?

Apply the Concept 7.1

Background Th is section has taught you about the importance of information security when doing business over the Web. It is important to note that the chain

is only as strong as its weakest link. Th erefore, while you may have been careful to maintain security across your network, if your business partners do not, then as your information passes over their networks it will be at risk. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link to VeriSign’s Web site. As you read over this page, keep in mind that VeriSign is a company that is in the business of protecting Web sites and Web users and that is something that we all appreciate. In fact, it is likely that you feel some level of comfort when you see the Veri- Sign symbol on an e-commerce site.

Deliverable

Aft er reading the article, write a paragraph from VeriSign to potential business that explains the following questions:

1. What are the fi ve steps that occur when a browser connects to a secure Web site?

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Unintentional Threats to Information Systems 231

2. What is an SSL certifi cate and how does it fi t in the fi ve steps mentioned in question 1?

3. What are the normal visual cues that a connection is secure and what is the extended verifi cation that is seen on some sites?

4. What are the benefi ts of using VeriSign to both the merchant and the customer?

Submit your paragraph to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Describe the ways Ruby’s Club is vulnerable to security threats based on the nature of its business.

2. Based on the current operating environment, do you think it is acceptable for Ruben and Lisa to continue to operate without upgrading their IS because they are afraid of security issues? If they are too afraid, where will their business be in another 5 years with no information system?

Q U E S T I O N SRUBY’S CLUB

7.2 Unintentional Threats to Information Systems Information systems are vulnerable to many potential hazards and threats, as you see in Figure 7.1. Th e two major categories of threats are unintentional threats and deliberate threats. In this section you will learn about unintentional threats. Th e next section addresses deliberate threats.

Unintentional threats are those acts with no malicious intent. Human errors are unin- tentional and represent a serious threat to information security.

Human Errors Organizational employees span the breadth and depth of the organization, from mail clerks to the CEO, and across all functional areas. Th ere are two important points to be made about employees. First, the higher the level of employee, the greater the threat the employee poses to information security. Th is situation exists because higher-level employees typically have greater access to corporate data and enjoy greater privileges on organiza- tional information systems. Second, employees in two areas of the organization pose sig- nifi cant threats to information security: human resources and information systems. Human resources employees generally have access to sensitive personal information about all employees. Likewise, information systems employees not only have access to sensitive organizational data, but they also oft en control the means to create, store, transmit, and modify that data.

Other employees include contract labor, consultants, and janitors and guards. Contract labor, such as temporary hires, may be overlooked in information security. However, these employees oft en have access to the company’s network, information systems, and informa- tion assets. Consultants, while technically not employees, do work for the company. Depending on the nature of their work, these people may also have access to the company’s network, information systems, and information assets.

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232 7 l Information Security

Janitors and guards are the most frequently ignored people in information security. Companies might outsource their security and janitorial services, meaning that, although these individuals technically are not employees, they nevertheless do work for the company. Moreover, they are usually present when most—if not all—other employees have gone home. Th ey typically have keys to every offi ce and nobody questions their presence in even the most sensitive parts of the building. In fact, an article from the Winter 1994 edition of 2600: Th e Hacker Quarterly described how to get a job as a janitor for the purpose of gaining physical access to an organization.

Human errors or mistakes by employees pose a large problem as the result of laziness, carelessness, or a lack of awareness concerning information security. Th is lack of awareness

CORPORATE LAN (INTRANET)

EMPLOYEES

● Programming of applications to function contrary to specifications

Systems Programmer

● Bypassing security mechanisms ● Disabling security mechanisms ● Installing non-secure systems

Operators

● Duplication of confidential reports ● Initializing non-secure system ● Theft of confidential material

Users

● Data entry errors ● Weak passwords ● Lack of training

Application Programmer

M alw

are

(viruses, w orm

s, etc.)

D enial of service

U nauthorized

users

(crackers,

hackers)

OTHER INSIDERS

Consultants, contract labor, janitors

● Unauthorized access ● Theft ● Copying

HARDWARE THREATS

● Located in nonsecure environment

PCS

Terminals

● Fraudulent identification ● Illegal leakage of authorized information ● Viruses, worms, and other malware ● Physical theft

Databases

● Unauthorized access ● Copying ● Theft

Systems software

● Failure of protection mechanisms ● Information leakage ● Installed unauthorized software

Internet

Fire Power outages Other accidents

Natural Disasters (Floods, storms)

Man-made Disasters

OUTSIDE THREATS

INSIDE THREATS

Figure 7.1 Security threats.

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Unintentional Threats to Information Systems 233

TABLE 7.1 Human Mistakes

Mistake Description and Examples

Carelessness with laptops Losing laptops, misplacing laptops, leaving them in taxis, and so on.

Carelessness with computing devices Losing or misplacing these devices, or using them carelessly so that malware is introduced into an organization’s network.

Opening questionable e-mails Opening e-mails from someone unknown, or clicking on links embedded in e-mails (see “Phishing Attacks” later in this chapter).

Careless Internet surfi ng Accessing questionable Web sites; can result in malware and/or alien soft ware being introduced into the organization’s network.

Poor password selection and use Choosing and using weak passwords (see “Strong Passwords” later in this chapter).

Carelessness with one’s offi ce Unlocked desks and fi ling cabinets when employees go home at night; not logging off the company network when gone from the offi ce for any extended period of time.

Carelessness using unmanaged devices Unmanaged devices are those outside the control of an organization’s IT department and company security procedures. Th ese devices include computers belonging to customers and business partners, computers in the business centers of hotels, and computers in Starbucks, Panera Bread, and so on.

Carelessness with discarded equipment Discarding old computer hardware and devices without completely wiping the memory; includes computers, cell phones, Blackberries, and digital copiers and printers.

Careless monitoring of environment Th ese hazards, which include dirt, dust, humidity, and static electricity, are harmful to the safe operation of computing equipment.

Blend/Image Source Limited.

Who is real and who is engaged in social engineering? Can you tell?

comes from poor education and training eff orts by the organization. Human mistakes manifest themselves in many diff erent ways, as you see in Table 7.1.

Th e human errors that you have just studied are unintentional on the part of the employee. However, employees can also make unintentional mistakes as a result of actions by an attacker. Attackers oft en employ social engineering to induce individuals to make unintentional mistakes and disclose sensitive information.

Social Engineering In a social engineering attack, the perpetrator uses social skills to trick or manipulate a legitimate employee into pro- viding confi dential company information such as passwords. Th e most common example of social engineering occurs when the attacker impersonates someone else on the tele- phone, such as a company manager or information systems employee. Th e attacker claims to have forgotten the password and asks the legitimate employee to provide a password to use. Other common exploits include posing as an extermina- tor, an air conditioning technician, or a fi re marshal. Exam- ples of social engineering abound.

In one company, a perpetrator entered a company building wearing a company ID card that looked legitimate. He walked around and put up signs on bulletin boards saying, “Th e help desk telephone number has been changed. Th e new number is 555-1234.” He then exited the building and began receiving

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234 7 l Information Security

calls from legitimate employees thinking they were calling the company help desk. Naturally, the fi rst thing the perpetrator asked for was user name and password. He now had the infor- mation necessary to access the company’s information systems.

Two other social engineering techniques include tailgating and shoulder surfi ng. Tailgating is a technique designed to allow the perpetrator to enter restricted areas that are con- trolled with locks or card entry. Th e perpetrator follows closely behind a legitimate employee and, when the employee gains entry, asks the person to “hold the door.” Shoulder surfi ng occurs when a perpetrator watches the employee’s computer screen over that person’s shoulder. Th is technique is particu- larly successful in public areas such as airports and commuter trains and on airplanes.

© Creasource/Corbis

Piracy is theft. Would you steal a DVD?

Apply the Concept 7.2

Background Sensitive information is generally stored in a safe location both physically and digitally. However, as this section has discussed, there are oft en

unintentional threats that result from careless mistakes. Employees oft en use USB drives to take information home. Although the information may be completely legal for them to have, the USB drive makes it easy to lose or copy onto unauthorized machines. In fact, any device that stores information can become a threat to information security—backup drives, CDs, DVDs, and even printers!

Printers?! Because people can “copy” information? Not quite. Continue the activity to fi nd out more! Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 7.2. You will fi nd an article about how the hard drive in a printer sometimes stores images of all the documents that have been copied. In the past when these printers are discarded their hard drives have not been erased, leaving medical records, police reports, and other private information in a vulnerable state.

Visit your library (school or local) and local copy center (Kinkos, Staples, Offi ce Max, etc.) and see if their copiers, hard drives are ever cleaned to erase sensitive information. Find out if they even have a policy in place that would require this information to be erased or not.

Deliverable

Create a table that lists the locations you visited, if they ever clean their hard drives, and if they have a policy. Submit your table to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

BEFORE YOU GO ON . . . 1. What is an unintentional threat to an

information system? 2. Provide other examples of social

engineering attacks.

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Deliberate Threats to Information Systems 235

7.3 Deliberate Threats to Information Systems Th ere are so many types of deliberate acts that a brief list is provided here for your convenience:

• Espionage or trespass • Information extortion • Sabotage or vandalism • Th eft of equipment or information • Identity theft • Compromises to intellectual property • Soft ware attacks • Alien soft ware • Supervisory control and data acquisition (SCADA) attacks • Cyberterrorism and cyberwarfare

Espionage or Trespass Espionage or trespass occurs when an unauthorized individual attempts to gain illegal access to organizational information. It is important to distinguish between competitive intelli- gence and industrial espionage. Competitive intelligence consists of legal information- gathering techniques, such as studying a company’s Web site and press releases and attending trade shows. In contrast, industrial espionage crosses the legal boundary.

Information Extortion Information extortion occurs when an attacker either threatens to steal, or actually steals, information from a company. Th e perpetrator demands payment for not stealing the infor- mation, for returning stolen information, or for agreeing not to disclose the information.

Sabotage or Vandalism Sabotage and vandalism are deliberate acts that involve defacing an organization’s Web site, possibly causing the organization to lose its image and its customers to experience a loss of confi dence. One form of online vandalism is a hacktivist or cyberactivist operation. Th ese are cases of high-tech civil disobedience to protest the operations, policies, or actions of an organization or government agency.

Theft of Equipment and Information Computing devices and storage devices are becoming smaller yet more powerful with vastly increased storage (e.g., laptops, Blackberries, personal digital assistants, smart phones, dig- ital cameras, thumb drives, and iPads). As a result, these devices are becoming easier to steal and easier for attackers to use to steal information.

Table 7.1 points out that one type of human mistake is carelessness with laptops. In fact, such carelessness oft en leads to laptops being stolen. Th e cost of a stolen laptop includes the loss

1. To which of the social engineering methods do you think Ruby's is most vulnerable?

2. Given the threat that small USB-powered storage devices make it easy to store information, what type of policy could Ruby's implement to avoid information being stolen?

Q U E S T I O N SRUBY’S CLUB

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236 7 l Information Security

of data, the loss of intellectual property, laptop replacement, legal and regulatory costs, investigation fees, and lost productivity.

One form of theft , known as dumpster diving, involves the practice of rum- maging through commercial or residential trash to fi nd information that has been discarded. Paper fi les, letters, memos, photographs, IDs, passwords, credit cards, and other forms of information can be found in dumpsters. Unfortu- nately, many people never consider that the sensitive items they throw in the trash may be recovered. Such information, when recovered, can be used for fraudulent purposes.

Dumpster diving is not necessarily theft , because the legality of this act varies. Because dumpsters are usually located on private premises, dumpster diving is illegal in some parts of the United States. Even in these cases, however, the relevant laws are enforced with varying degrees of rigor.

Identity Theft Identity theft is the deliberate assumption of another person’s identity, usually to gain access to his or her fi nancial information or to frame him or her for a crime. Techniques for obtaining information include the following:

• Stealing mail or dumpster diving • Stealing personal information in computer databases • Infi ltrating organizations that store large amounts of personal

information (e.g., data aggregators such as Acxiom, www.acxiom.com) • Impersonating a trusted organization in an electronic communication

(phishing)

Recovering from identity theft is costly, time-consuming, and diffi cult. Victims also report problems in obtaining credit and obtaining or holding a job, as well as adverse eff ects on insurance or credit rates. In addition, victims state that it is oft en diffi cult to remove negative information from their records, such as their credit reports.

Anyone’s personal information can be compromised in other ways. For example, an identity can be uncovered just from examining searches in a search engine. Th e ability to analyze all searches by a single user can enable a criminal to identify who the user is and what he or she is doing. As just one example, the New York Times tracked down a particular person based solely on her AOL searches.

Compromises to Intellectual Property Protecting intellectual property is a vital issue for people who make their livelihood in knowledge fi elds. Intellectual property is the property created by individuals or corpora- tions that is protected under trade secret, patent, and copyright laws.

A trade secret is an intellectual work, such as a business plan, that is a company secret and is not based on public information. An example is a corporate strategic plan. A patent is a document that grants the holder exclusive rights on an invention or process for 20 years. Copyright is a statutory grant that provides the creators of intellectual property with own- ership of the property for the life of the creator plus 70 years. Owners are entitled to collect fees from anyone who wants to copy the property. It is important to note that these are defi nitions under U.S. law. Th ere is some international standardization, but it is far from total. Th erefore, diff erences may be found between U.S. law and other countries’ laws.

Th e most common intellectual property related to IT deals with soft ware. Th e U.S. Federal Computer Soft ware Copyright Act (1980) provides protection for source and object code of computer soft ware, but the law does not clearly identify what is eligible for protection. For example, copyright law does not protect similar concepts, functions, and general features such as pull-down menus, colors, and icons. However, copying a soft ware program without making payment to the owner—including giving a disc to a friend to install on his or her computer—is a copyright violation. Not surprisingly, this practice, called piracy, is a major problem for soft ware vendors. Th e global trade in pirated soft ware amounts to billions of dollars.

FSTOP/Image Source Limited.

Software attacks are frustrating, can be embarrassing, and often stop productivity.

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Deliberate Threats to Information Systems 237

Software Attacks Soft ware attacks have evolved from the outbreak era—during which malicious soft ware (malware) tried to infect as many computers worldwide as possible—to the profi t-driven, Web-based attacks of today. Cybercriminals are heavily involved with malware attacks to make money, and they use sophisticated, blended attacks typically via the Web. Table 7.2 shows a variety of soft ware attacks. You will see that soft ware attacks are grouped into three categories: remote attacks needing user action; remote attacks needing no user action; and soft ware attacks by programmers during the development of a system. IT’s About Business 7.1 provides an example of a soft ware attack.

TABLE 7.2 Types of Software Attacks

Type Description

(1) Remote Attacks Needing User Action

Virus Segment of computer code that performs malicious actions by attaching to another computer program.

Worm Segment of computer code that performs malicious actions and will replicate or spread, by itself (without requiring another computer program).

Phishing Attack Phishing attacks use deception to acquire sensitive personal information by masquerading as offi cial-looking e-mails or instant messages.

Spear Phishing Attack Phishing attacks target large groups of people. In spear phishing attacks, the perpetrators fi nd out as much information about an individual as possible to improve their chances that phishing techniques will be able to obtain sensitive, personal information.

(2) Remote Attacks Needing No User Action

Denial-of-Service Attack Attacker sends so many information requests to a target computer system that the target cannot handle them successfully and typically crashes (ceases to function).

Distributed Denial-of- An attacker fi rst takes over many computers, typically by Service Attack using malicious soft ware. Th ese computers are called

zombies, or bots. Th e attacker uses these bots (which form a botnet) to deliver a coordinated stream of information requests to a target computer, causing it to crash.

(3) Attacks by Programmer Developing a System

Trojan Horse Soft ware programs that hide in other computer programs and reveal their designed behavior only when they are activated.

Back Door Typically, a password, known only to the attacker, that allows him or her to access a computer system at will, without having to go through any security procedures (also called a trap door).

Logic Bomb Segment of computer code that is embedded within an organization’s existing computer programs and is designed to activate and perform a destructive action at a certain time or date.

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238 7 l Information Security

“Anonymous” Attacks the Vatican

“Anonymous” is an elusive hacker movement that has carried out Internet attacks on well- known organizations such as Sony and PBS. Anonymous fi rst gained widespread notoriety

with an attack on the Church of Scientology in 2008 and has carried out hundreds of cyberstrikes since then. The group has targeted law enforcement agen- cies, Internet security companies, and opponents of the whistle-blower Web site WikiLeaks.

In August 2011, Anonymous attacked the Vatican. The campaign against the Vatican involved hundreds of people, some with hacking skills and some without. A core group of participants openly encouraged sup- port for the attack using YouTube, Twitter, and Face- book. Others searched for vulnerabilities on the Vati- can Web site. When that failed, they enlisted amateur recruits to fl ood the site with traffi c, hoping it would crash. The attack, even though it was unsuccessful, pro- vides insight into the recruiting, reconnaissance, and warfare tactics used by Anonymous.

The Vatican attack was initially organized by hack- ers in South America and Mexico before spreading to other countries, and it was timed to coincide with Pope Benedict XVI’s visit to Madrid in August 2011 for World Youth Day. Hackers fi rst tried to take down a Web site that the Catholic Church had set up to pro- mote the pope’s visit, handle registrations, and sell merchandise. Anomymous’s goal—according to YouTube messages delivered by an Anonymous spokesperson—was to disrupt the event. The You- Tube videos that were posted included a verbal attack on the pope. One video even called on volunteers to “prepare your weapons, my dear brothers, for this August 17th to Sunday August 21st, we will drop anger over the Vatican.”

The hackers spent weeks spreading their message via their own Web site and via social sites such as Twitter and Flickr. Their Facebook page called on volunteers to download free attack software and implored them to “stop child abuse” by joining in the cause. This mes- sage featured split-screen images of the pope seated on a gilded throne on one side and starving African chil- dren on the other. It also linked to articles about abuse

cases and blog posts itemizing the church’s assets.

It took 18 days for the hackers to recruit enough people to launch their attack. Then, the reconnaissance phase of the mis- sion began. A core group of approxi- mately 12 skilled hackers spent three days poking around the church’s World Youth Day Web site, looking for common secu- rity holes that could let them inside. Probing for such loopholes used to be tedious and slow, but the emer- gence of automated scanning software to locate secu- rity weaknesses made the process much simple and quicker.

In this case, the scanning software failed to turn up any vulnerabilities on the World Youth Day Web page. So, the hackers turned to a brute-force attack—a distributed denial-of-service attack (DDoS) that clogs a Web site with data requests until it crashes. Even unskilled supporters could take part in this attack from their computers or smartphones.

Over the course of the campaign’s fi nal 2 days, Anonymous enlisted as many as a thousand people to download attack software, or directed them to custom- built Web sites that allowed them to participate in the campaign using their smartphones. Visiting a particular Web address caused the phones to instantly start fl ooding the target Web site with hundreds of data requests each second, without needing any special software.

On the fi rst day of the DDoS, the church site expe- rienced 28 times its normal amount of traffi c, rising to 34 times the normal amount of traffi c on the following day. Hackers involved in the attack, who did not iden- tify themselves, stated via Twitter that the 2-day effort succeeded in slowing the Web site’s performance and made the page unavailable in several countries.

Imperva (www.imperva.com), the fi rm hired by the Vatican to counter the attack, denied that the Web

ABOUT BUSINESS 7.1i “A T’S

© Nikada/iStockphoto

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Deliberate Threats to Information Systems 239

Another type of soft ware attack uses scareware. Scareware is a type of malware designed to trick victims into purchasing and downloading useless and potentially dangerous soft ware. IT’s About Business 7.2 provides an example of two criminals who made a fortune with scareware.

site’s performance was affected and said that the company’s technologies had successfully defended the World Youth Day site against the attack. Imperva said that the Vatican’s defenses held strong because it had invested in the infrastructure needed to repel cyberattacks.

Following this unsuccessful attack, Anonymous moved on to other targets, including an unoffi cial site about the pope, which the hackers were briefl y able to deface. Hacker movements such as Anonymous are now able to gain widespread membership through the Internet and represent a serious threat to Web sites and organizations.

Sources: Compiled from M. Schwartz, “Anonymous Leaves Clues in Failed Vatican Attack,” InformationWeek, February 29, 2012; R.

Vamosi, “Report: Anonymous Turns to Denial of Service Attacks as a Last Resort,” Forbes, February 28, 2012; A. Greenberg, “WikiLeaks Tightens Ties to Anonymous in Leak of Stratfor E-Mails,” Forbes, February 27, 2012; M. Liebowitz, “‘Anonymous’ Vatican Cyberattack Revealed by Researchers,” MSNBC, February 27, 2012; N. Perlroth and J. Markoff, “In Attack on Vatican Web Site, a Glimpse of Hackers’ Tactics,” The New York Times, February 26, 2012; www. imperva.com, accessed February 29, 2012.

Questions 1. Describe the various components of Anonymous’s

traditional attack method. Which aspects are of most concern to security companies?

2. Describe the distributed denial-of-service attack that Anonymous used on the Vatican.

Scareware

Sam Jain and Daniel Sundin were masters of social engineering who built an illegal empire by frightening people into handing over their money in exchange for low-quality software.

In August 2003, Jain and Sundin took advantage of the Blaster worm, a worm that had quickly compro- mised hundreds of thousands of computers and caused consumer panic. During the fi rst 4 days of the Blaster epidemic, some 40,000 computer users called Micro- soft for support. By playing off the general panic, Jain and Sundin were able to exploit a vast audience via manipulative ad campaigns. They founded a scareware company called Innovative Marketing, Inc., or IMI, based solely around this enterprise.

Here is how IMI worked. The company started by producing a subpar security software product. Then they deployed pop-up ads that announced fake alerts about problems on users' hard drives—for example, “you

have 284 severe sys- tem threats.” These pop-ups prompted customers to down- load a free trial of IMI's software or pay $39.95 for the “full- featured version” of IMI's software. Once installed, the trial versions pumped more ads into the users' Web brows- ers, which urged users to purchase the “full-featured version.” The ploy was quite ironic: Jain and Sundin exploited consumer fears of viruses in order to perpetrate what was, in effect, another virus—and victims paid for the privilege.

The IMI scheme was quite successful, as it quickly became a sophisticated enterprise with hundreds of

ABOUT BUSINESS 7.2i S T’S

© Stephen Zabel/iStockphoto

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240 7 l Information Security

Alien Software Many personal computers have alien soft ware (also called pestware) running on them that the owners do not know about. Alien soft ware is clandestine soft ware that is installed on a computer through duplicitous methods. Alien soft ware is typically not as malicious as viruses, worms, or Trojan horses, but it does use up valuable system resources. In addition, it can report on your Web surfi ng habits and other personal behavior.

Th e vast majority of pestware is adware—soft ware designed to help pop-up advertise- ments appear on your screen. Adware is so common because it works. According to advertising

employees and offi ces on four continents. IMI had telephone support centers in Ohio, Argen- tina, and India, and marketed its products under more than 1,000 different brand names

and in at least nine languages. From 2002 to 2008, IMI turned profi ts of hundreds of millions of dollars.

Over time, IMI also became an innovation hub. The company was constantly experimenting and tweaking its security software packages, which ranged from anti- virus programs to registry cleaners to fi rewall software. The company also refi ned its marketing techniques by sending customers ads for a variety of products and then conducting sophisticated statistical analyses to see which approach was the most effective.

One highly successful marketing technique that emerged from this research was the “scanner method.” A pop-up ad would offer users a “free scan” of their supposedly infected hard drive. Once the phony scan- ner announced its (always alarming) results, it provided a link to IMI’s software. This advertising method proved to be quite effective social hacking. Because potential customers had already invested time in the “scan” and been duly frightened by it, they were much more likely to purchase the software.

Leading advertising networks banned IMI, so the company set up a series of fake online ad agencies that placed banners on popular Web sites such as The Economist, eHarmony, and Major League Baseball. IMI embedded these ads with hidden computer code so that if someone from inside the hosting site's offi ces looked at the ads, they would see appeals from mainstream companies such as Travelocity, Priceline, and Weight Watchers. But, if regular users viewed the ads, they saw ads for used cars or diet pills. When consumers clicked on these ads, they were redirected to Web sites selling antivirus software, or even worse, “antivirus software” would automatically download to their computers.

One challenge IMI faced was dodging angry cus- tomers who were demanding their money back. The company's goal was to avoid refunding any money

while preventing customers from calling their credit card companies, which would endanger IMI's banking relationships. Customers were not upset that the com- pany's software was ineffective—most customers had no way of knowing that. But, in many cases, customers' existing antivirus software would fl ag IMI applications as malware. This made IMI applications diffi cult to install and slowed computer speeds to a crawl. IMI therefore set up call centers to provide support in mul- tiple languages, usually by instructing customers to uninstall their other antivirus software. This trick molli- fi ed users, as it returned computer speeds to normal. The IMI applications still provided no actual service to customers, but upsetting warnings from legitimate antivirus software stopped showing up, leaving ner- vous customers with the impression that their new pur- chase had done its job.

Today, Jain and Sundin's whereabouts are unknown and there are warrants out for both of their arrests. With IMI apparently out of action, a new gen- eration of scareware is rising to take its place. The most promising venues for these new scareware pro- grams are social networking sites, where misleading posts on Facebook and Twitter can snare unwary users.

Sources: Compiled from B. Wallace, “How Two Scammers Built an Empire Hawking Sketchy Software,” Wired, October 2011; M. Schwartz, “FBI Breaks Up Two Big Scareware Rings,” InformationWeek, June 23, 2011; J. Blum, “International Computer Scam Disrupted After $72 Million Lost,” Bloomberg BusinessWeek, June 22, 2011; R. McMillan, “Alleged $100 Million Scareware Sellers Facing Charges,” PC World, May 27, 2010; D. Kennedy, “The Proliferation of Scareware Hits Home,” Forbes, March 16, 2010.

Questions 1. Explain the difference between scareware and

other types of cyberattacks.

2. Describe methods that organizations can use to combat scareware.

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Deliberate Threats to Information Systems 241

agencies, for every 100 people who delete such an ad, three click on it. Th is “hit rate” is extremely high for Internet advertising.

Spyware is soft ware that collects personal information about users without their con- sent. Two types of spyware are addressed here: keystroke loggers and screen scrapers.

Keystroke loggers (also called keyloggers) record keystrokes and record Internet Web browsing history. Th e purposes range from criminal (e.g., theft of passwords and sensitive personal information such as credit card numbers) to annoying (e.g., recording Internet search history for targeted advertising).

Companies have attempted to counter key loggers by switching to other forms of input for authentication. For example, all of us have been forced to look at wavy, distorted letters and type them correctly into a box. Th at string of letters is called a CAPTCHA and it is a test. Th e point of CAPTCHA is that reading those distorted letters is something that computers cannot do accurately (yet). Th e fact that you can transcribe them means that you are probably not a soft ware program run by an unauthorized person, such as a spammer. As a result, attackers have turned to screen scrapers (or screen grabbers), soft - ware that records a continuous “movie” of a screen’s contents rather than simply record- ing keystrokes.

Spamware is pestware that is designed to use your computer as a launch pad for spam- mers. Spam is unsolicited e-mail, usually for the purpose of advertising for products and services. When your computer is used this way, e-mails from spammers appear to come from you. Even worse, spam will be sent to everyone in your e-mail address book.

Not only is spam a nuisance, but it wastes time and money. Spam costs U.S. companies billions of dollars per year. Th ese costs come from productivity losses, clogged e-mail sys- tems, additional storage, user support, and antispam soft ware. Spam can also carry viruses and worms, making it even more dangerous.

Cookies are small amounts of information that Web sites store on your computer, tem- porarily or more or less permanently. In many cases, cookies are useful and innocuous. For example, some cookies store passwords and user IDs that you do not have to retype every time you load a new page at the Web site that issued the cookie. Cookies are also necessary if you want to shop online, because they are used for your shopping carts at various online merchants.

Tracking cookies, however, can be used to track your path through a Web site, the time you spend there, what links you click on, and other details that the company wants to record, usually for marketing purposes. Tracking cookies can also combine this informa- tion with your name, purchases, credit card information, and other personal data, to devel- op an intrusive profi le of your spending habits.

Most cookies can be read only by the party that created them. However, some compa- nies that manage online banner advertising are, in essence, cookie-sharing rings. Th ese companies can track information such as which pages you load and which ads you click on. Th ey then share this information with their client Web sites (which may number in the thousands). For a cookie demonstration, see http://cookiedemo.com.

Supervisory Control and Data Acquisition (SCADA Attacks) SCADA refers to a large-scale, distributed, measurement and control system. SCADA systems are used to monitor or to control chemical, physical, or transport processes such as oil refi neries, water and sewage treatment plants, electrical generators, and nuclear power plants. Essen- tially, SCADA systems provide the link between the physical world and the electronic world.

SCADA systems consist of multiple sensors, a master computer, and communications infrastructure. Th e sensors connect to physical equipment and read status data such as the open/closed status of a switch or a valve, as well as measurements such as pressure, fl ow, voltage, and current. By sending signals to equipment, sensors control that equipment, such as opening or closing a switch or valve or setting the speed of a pump.

Th e sensors are connected in a network, and each sensor typically has an Internet (Internet Protocol, or IP) address. (You studied about IP addresses in Chapter 4.) If an attacker can gain access to the network, he or she can disrupt the power grid over a large area or disrupt the operations of a large chemical plant. Such actions could have catastrophic results.

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242 7 l Information Security

Cyberterrorism and Cyberwarfare With both cyberterrorism and cyberwarfare, attackers use a target’s computer systems, particularly via the Internet, to cause physical, real-world harm or severe disruption, usually to carry out a political agenda. Cyberterrorism and cyberwar- fare range from gathering data to attacking critical infrastruc- ture (via SCADA systems). Th e two types of attacks are dis- cussed synonymously here, even though cyberterrorism typically is carried out by individuals or groups, whereas cyberwarfare involves nations. Following are examples of cyberattacks against Estonia and the Republic of Georgia.

EXAMPLE In 2007, a 3-week wave of massive distributed denial-of-service (DDoS) cyberattacks against the Baltic country of Estonia disabled the Web sites of government ministries, political parties, newspapers, banks, and companies. One of the most wired societies in Europe, Estonia is a pioneer of e-government. As a result, the country is highly vulnerable to cyberattack. In the early phase of the DDoS attack, some perpetrators were identifi ed by their IP addresses. Many of these addresses were Russian and some of them were from Russian state institutions. In August 2008, Russian troops entered the Republic of Georgia’s province of South Ossetia to crush a Georgian attempt to control a breakaway by that region. DDoS attacks on Georgian Web sites were apparently synchronized with the Russian invasion. The cyberattack shut down the Web site of the Georgian president, Mikheil Saakashvilli, for 24 hours and defaced the Georgian parliament Web site with images of Adolf Hitler. Saakashvilli blamed Russia for the attacks, but the Russian government denied the charges. Terrorist groups around the world have expanded their activities on the Internet, increasing the sophistication and volume of their videos and messages, in an effort to recruit new members and raise money. In response, the U.S. military is expanding its offensive capabilities to attack terrorists’ Web sites, rather than just monitor them.

BEFORE YOU GO ON . . . 1. Why has the theft of computing devices

become more serious over time? 2. What are the three types of software

attacks? 3. Defi ne alien software. 4. What is a SCADA system?

Apply the Concept 7.3

Background It is sad that there are many people out there who are proud of the fact that they can take advantage of others. Fraud, espionage, information extor-

tion, identity theft , cyberterrorism, spamming, phishing, pharming, and many other delib- erate acts have created a world where we must always confi rm the identity and validity of those we share information with. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 7.3. It will take you to a video about foreign lotteries. Th is scam has taken advantage of many elderly simply because they are not aware that scams exist! Aft er watching the video, search the Web for other scams that involve Craigslist, Ebay, and any other site you may fi nd.

Deliverable

Imagine that you are the owner of a site such as Craigslist. Write a memo to your users (both buyers and sellers) explaining your intention to run a “clean” site where all parties are safe.

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What Organizations Are Doing to Protect Information Resources 243

In your memo, give your own defi nition of fraud for your users’ information. Include expectations of ethical behavior and legal transactions. Submit this memo to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

7.4 What Organizations Are Doing to Protect Information Resources Why is it so diffi cult to stop cybercriminals? Table 7.3 lists the major diffi culties involved in protecting information. Because organizing an appropriate defense system is so impor- tant to the entire enterprise, it is one of the major responsibilities of any prudent CIO as well as the functional managers who control information resources. In fact, IT security is the business of everyone in an organization.

1. Given the stories in the chapter, what are some scenarios where someone might use USB drives to access Ruby's private customer data?

2. Because Ruby's is being redesigned, where should “back offi ce” operations be housed to help deter theft of equipment?

Q U E S T I O N SRUBY’S CLUB

TABLE 7.3 The Diffi culties in Protecting Information Resources

Hundreds of potential threats exist.

Computing resources may be situated in many locations.

Many individuals control information assets.

Computer networks can be located outside the organization and are thus diffi cult to protect.

Rapid technological changes make some controls obsolete as soon as they are installed.

Many computer crimes are undetected for a long period of time, so it is diffi cult to learn from experience.

People tend to violate security procedures because the procedures are inconvenient.

Th e amount of computer knowledge necessary to commit computer crimes is usually minimal. As a matter of fact, one can learn hacking, for free, on the Internet.

Th e cost of preventing hazards can be very high. Th erefore, most organizations simply cannot aff ord to protect against all possible hazards.

It is diffi cult to conduct a cost–benefi t justifi cation for controls before an attack occurs because it is diffi cult to assess the value of a hypothetical attack.

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244 7 l Information Security

Another reason why it is diffi cult to protect information resources is that the online commerce industry is not particularly willing to install safeguards that would make it harder to complete transactions. It would be possible, for example, to demand passwords or per- sonal identifi cation numbers for all credit card transactions. However, these requirements might discourage people from shopping online. Also, there is little incentive for companies like AOL to share leads on criminal activity either with one another or with the FBI. For credit card companies, it is cheaper to block a stolen credit card and move on than to invest time and money on a prosecution.

Despite these diffi culties, the information security industry is battling back. Compa- nies are developing soft ware and services that deliver early warnings of trouble on the Inter- net. Unlike traditional antivirus soft ware, which is reactive, early-warning systems are pro- active, scanning the Web for new viruses and alerting companies to dangers.

Organizations spend a great deal of time and money protecting their information resources. Before doing so, they perform risk management.

Risk is the probability that a threat will impact an information resource. Th e goal of risk management is to identify, control, and minimize the impact of threats. In other words, risk management seeks to reduce risk to acceptable levels. Risk management encom- passes three processes: risk analysis, risk mitigation, and controls evaluation.

Risk analysis is the process by which an organization assesses the value of each asset being protected, estimates the probability that each asset will be compromised, and com- pares the probable costs of the asset’s being compromised with the costs of protecting that asset. Organizations perform risk analysis to ensure that their information systems’ secu- rity programs are cost eff ective. Th e risk analysis process prioritizes the assets to be pro- tected based on each asset’s value, its probability of being compromised, and the esti- mated cost of its protection. Th e organization then considers how to mitigate the risk.

In risk mitigation, the organization takes concrete actions against risks. Risk mitiga- tion has two functions: (1) implementing controls to prevent identifi ed threats from occur- ring and (2) developing a means of recovery should the threat become a reality. Several risk mitigation strategies may be adopted by organizations. Th e three most common are risk acceptance, risk limitation, and risk transference.

• Risk acceptance: Accept the potential risk, continue operating with no controls, and absorb any damages that occur.

• Risk limitation: Limit the risk by implementing controls that minimize the impact of the threat.

• Risk transference: Transfer the risk by using other means to compensate for the loss, such as by purchasing insurance.

In controls evaluation, the organization examines the costs of implementing adequate control measures against the value of those control measures. If the costs of implementing a control are greater than the value of the asset being protected, then control is not cost eff ective. In the next section, you will study the various controls that organizations use to protect their information resources.

BEFORE YOU GO ON . . . 1. Describe several reasons why it is diffi cult

to protect information resources. 2. Compare and contrast risk management

and risk analysis.

Apply the Concept 7.4

Background Th e heart of information systems is the data used in processing transactions and making business decisions. However, oft en this data is private

information about individuals and companies. It is important that this data and informa- tion be used wisely and protected. Th e Federal Trade Commission (FTC) has established a set of Fair Information Practices Principles as guidelines for government agencies’ collec- tion and use of personal information. Th ese same guidelines also should be a basis for business use of data.

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Information Security Controls 245

Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 7.4. Th is link will take you to a Web page where you can review the Fair Information Practices Principles for protecting America’s consumers. As you read over this document, pay attention to the fi ve key points of the guidelines. Once you are familiar with them, go back to http://www.wiley.com/go/rainer/applytheconcept and click on the second link. It will take you to a YouTube video titled “Ordering Pizza in the Future” video by user “dedots.”

Deliverable

Build a table that has the key points of the Fair Information Practices in one column and how this video met or broke each point. Submit this to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. A risk analysis is crucial for Ruby's. Is the e-commerce part of the club's site crucial to its business plan? If not, should the club accept the risk and go with its e-commerce plans? Should Ruben and Lisa limit the risk by simply displaying products but only selling them at their nightclub? Or should they transfer the risk and use a third-party company to run the e-commerce of the site?

2. Ruben and Lisa should be familiar with the “penetration attack” given that they sell alcohol and are often tested by the Beverage Control Board to see if they will sell alcohol to minors. How could they use this same concept and test their own security against intentional and unintentional threats?

Q U E S T I O N SRUBY’S CLUB

7.5 Information Security Controls To protect their information assets, organizations implement controls, or defense mecha- nisms (also called countermeasures). Information security controls are designed to protect all of the components of an information system, including data, soft ware, hardware, and networks. Because there are so many diverse threats, organizations utilize layers of controls, or defense-in-depth.

Controls are intended to prevent accidental hazards, deter intentional acts, detect problems as early as possible, enhance damage recovery, and correct problems. Before you study controls in more detail, it is important to emphasize that the single most eff ective control is user education and training, leading to increased awareness of the vital impor- tance of information security on the part of every organizational employee. As you have learned in this chapter, an organization’s employees are its greatest information security risk. In fact, the fastest way to build a botnet is to attack individual employees. Once a bot- net has been established, it is diffi cult to combat it. However, IT’s About Business 7.3 shows a company that has been successful in thwarting botnets.

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246 7 l Information Security

How to Fight a Botnet

FireEye (www.fi reeye.com) defends corporations and governments against targeted malicious software. FireEye's clients include Fortune 500 companies and members of the U.S. intelligence community. FireEye is one of the world's most effective private cybercrime fi ghters.

FireEye's software examines the entire life cycle of malicious software (or “malware”): how the malware operates in a network, what the malware is looking for, which servers delivered the malware, and from which

control servers the malware receives its orders. Since 2005, FireEye has defl ected some of the world's most destructive online attacks, includ- ing Aurora, the attack originating in China that

targeted Google and other technology fi rms in 2009; corefl ood, the botnet that had been stealing millions of dollars from global bank accounts since the mid-2000s and possibly earlier; and Zeus, a program that used personal information to steal hundreds of millions of dollars from fi nancial institutions in 2007.

Let's look at the confrontation between FireEye and the Rustock botnet. Rustock is the most advanced botnet the Web had ever seen. It reeled people in by putting out spam that advertised for fake drugs, online pharmacies, and Russian stocks. Then, from 2007 to 2011, Rustock quietly and illegally took control of over a million computers around the world. Symantec, a computer security company, found that Rustock gener- ated as many as 44 billion spam e-mails per day, or about 47.5 percent of the total number of junk e-mails sent per day worldwide. Although the perpetrators behind the Rustock botnet were not yet identifi ed at that time, profi ts from it were thought to be in the mil- lions of dollars.

For months, FireEye worked together with Micro- soft and Pfi zer to plot a counterattack. Microsoft and Pfi zer got involved because Rustock was selling fake Viagra, a Pfi zer product, as well as sham lotteries using the Microsoft logo. Working from FireEye’s intelli- gence, in March 2011 U.S. Marshals stormed seven Internet data centers across the United States where Rustock had hidden its 96 command servers. Microsoft lawyers and technicians and computer forensics experts also participated in the raids. A team deployed to the

Netherlands confi scated an additional two Rustock command servers.

Although the operation was executed fl awlessly, Rustock was still able to fi ght back. From an unknown location, the botmaster remotely sneaked back into its network, locked out Microsoft's technicians, and began to erase fi les. Clearly, the Rustock masterminds did not want anyone seeing what was inside their hard drives. After some diffi culty, the Microsoft technicians were able to regain control of their servers. However, the data that was erased in the 30 minutes that it took the Microsoft technicians to regain control of their servers may now be lost forever.

As FireEye and its partner companies analyzed Rustock's equipment, they discovered that much of it was leased to customers with addresses in Azerbaijan. Forensic analysis of the captured servers pointed Rustock's opponents to Moscow and St. Petersburg. Rustock had used the name Cosma2k to conduct busi- ness on the Internet and had a WebMoney account (www.webmoney.com) under the name Vladimir Alexan- drovich Shergin. No one knows whether Shergin was a real name or an alias. But, WebMoney was able to inform investigators that “Shergin” had listed an address in a small city outside Moscow.

On April 6, 2011, Microsoft delivered its fi rst status report in its lawsuit against Rustock to the federal court in Seattle. On June 14, Microsoft then published notic- es in Moscow and St. Petersburg newspapers, detailing its allegations against the botnet spammer. The notices urged the perpetrators of Rustock to respond to the charges or risk being declared guilty. Microsoft also offered (and is still offering) $250,000 for information about the identity of the person or persons operating the botnet. Unfortunately, the Rustock perpetrators have still not been caught and security experts believe that over 600,000 computers around the world are still infected with Rustock malware.

Sources: Compiled from K. Higgins, “Microsoft Offers $250,000 for Rustock Botnet Operator Identity,” InformationWeek, July 19, 2011; “Microsoft Offers Reward for Information on Rustock,” The Offi cial Microsoft Blog, July 18, 2011; C. Stewart, “Botnet Busters,” Bloomberg BusinessWeek, June 20–26, 2011; “Spammers Sought After Botnet Takedown,” BBC News, March 25, 2011; M. Schwartz, “Microsoft, Feds Knock Rustock Botnet Offl ine,” InformationWeek, March 18, 2011; N. Wingfi eld, “Spam Network Shut Down,” The Wall Street Journal, March 18, 2011; M. Hickens, “Prolifi c Spam

ABOUT BUSINESS 7.3i H t T’S

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Information Security Controls 247

Th e three major types of controls are physical controls, access controls, and communi- cations controls. Figure 7.2 illustrates these controls. In addition to applying controls, orga- nizations plan for business continuity in case of a disaster and audit their information resources.

Physical Controls Physical controls prevent unauthorized individuals from gaining access to a company’s facilities. Common physical controls include walls, doors, fencing, gates, locks, badges, guards, and alarm systems. More sophisticated physical controls include pressure sensors, temperature sensors, and motion detectors. One weakness of physical controls is that they can be inconvenient to employees.

Network Is Unplugged,” The Wall Street Journal, March 17, 2011; “Operation b107—Rustock Botnet Takedown,” Microsoft Malware Protection Center, March 17, 2011; www.fi reeye.com, accessed March 5, 2012.

Questions 1. Describe why it was so important for law

enforcement offi cials to capture all 96 Rustock command servers at one time.

2. If the perpetrators of Rustock are ever caught, will it be possible to prove that the perpetrators were responsible for the malware? Why or why not? Support your answer.

CORPORATE LAN (INTRANET)

Co mp

an y’s

ga te

Bu ild

ing do

or

Human guard

Employee or attacker in

office

ID System Encryption Access password

Authentication Access password Personal ID

Firewall

Denial-of-service protection Intrusion detection system Anti-malware software

Employee or

attacker

ID system (card or

biometric)

PC

Smartphone

iPad

Remote employee or attacker

Internet

PHYSICAL CONTROLS

ACCESS CONTROLS

ACCESS CONTROLS

COMMUNICATIONS CONTROLS

© Sergey Titov/iStockphoto; © fatihhoca/iStockphoto.

Figure 7.2 Where defense mechanisms are located.

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248 7 l Information Security

Guards deserve special mention because they have very diffi cult jobs for at least two reasons. First, their jobs are boring and repetitive and generally do not pay well. Second, if they do their jobs thoroughly, other employees harass them, particularly if their being con- scientious slows up the process of entering a facility.

Organizations also put other physical security considerations in place. Such controls limit users to acceptable log-in times and locations. Th ese controls also limit the number of unsuccessful log-in attempts and they require all employees to log off their computers when they leave for the day. In addition, computers are set to automatically log off the user aft er a certain period of disuse.

Access Controls Access controls restrict unauthorized individuals from using information resources. Th ese controls involve two major functions: authentication and authorization. Authentication determines the identity of the person requiring access. Aft er the person is authenticated (identifi ed), authorization is applied. Authorization determines which actions, rights, or privileges the person has, based on verifi ed identity. Authentication. To authenticate (identify) authorized personnel, an organization can use one or more of the following methods: something the user is, something the user has, something the user does, and/or something the user knows.

Something the user is (also known as biometrics), is an authentication method that examines a person’s innate physical characteristics. Common biometric applications are fi ngerprint scans, palm scans, retina scans, iris recognition, and facial recognition. Of these, fi ngerprints, retina scans, and iris recognition provide the most defi nitive identifi - cation. Th e following example shows how powerful biometrics can be for identifi cation purposes.

EXAMPLE The Biometric Identifi cation Project of India India has vast numbers of anonymous poor citizens. As a result, the nation is deploying its Unique Identifi cation Project, also known as Aadhaar, which means “the foundation” in several Indian languages. The goal of the Unique Identifi cation Project is to issue identifi cation numbers linked to the fi ngerprints and iris scans of every single person in India. This process will ultimately encompass some 1.2 billion people who speak more than 300 languages and dialects. The biometrics and the Aadhaar identifi cation number will serve as a verifi able, portable, and unique national ID. This project seeks to remedy a key problem with the poor. The existence of many poor Indian citizens is not offi cially acknowledged by the government because they lack birth certifi cates and other offi cial documentation. Therefore, these citizens are not able to access government services to which they are entitled. For example, in mid-2012, less than half of Indian households have an associated bank account. The rest of households are “unbanked” and must stash their savings in cash around their homes. Aadhaar kicked off the ground in September 2010, when offi cials armed with iris scanners, fi ngerprint scanners, digital cameras, and laptops began registering the fi rst few villagers and Delhi slum dwellers. By 2014, the government plans to have 600 million people entered into its biometric database. Each individual record is between 4 and 8 megabytes, meaning that the database will ultimately hold some 20 petabytes. The unprecedented scale of the Aadhaar database will make managing it extraordinarily diffi cult. Therefore, one of the most important tasks is to ensure that each record in the database is matched to one and only one person. For this process, Aadhaar

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Information Security Controls 249

Something the user has is an authentication mechanism that includes regular identifi ca- tion (ID) cards, smart ID cards, and tokens. Regular ID cards, or dumb cards, typically have the person’s picture, and oft en his or her signature. Smart ID cards have a chip embedded in them with pertinent information about the user. (Smart ID cards used for identifi cation diff er from smart cards used in electronic commerce [see Chapter 9]. Both types of card have embedded chips, but they are used for diff erent purposes). Tokens have embedded chips and a digital display that presents a log-in number that the employees use to access the organization’s network. Th e number changes with each log-in.

Something the user does is an authentication mechanism that includes voice and signa- ture recognition. In voice recognition, the user speaks a phrase (e.g., his or her name and department) that has been previously recorded under controlled, monitored conditions. Th e voice recognition system matches the two voice signals. In signature recognition, the user signs his or her name, and the system matches this signature with one previously recorded under controlled, monitored conditions. Signature recognition systems also match the speed of the signature and the pressure of the signature.

Something the user knows is an authentication mechanism that includes passwords and passphrases. Passwords present a huge information security problem in all organizations.

must check all 10 fi ngerprints and both irises of each person against those of everyone else. Using 10 prints and both irises boosts the accuracy rate to 99 percent. However, in a country the size of India, 99 percent accuracy means that 12 million people could end up with faulty records. Additionally, Aadhaar faces enormous physical and technical challenges: reaching millions of illiterate Indians who have never seen a computer, persuading them to have their irises scanned, ensuring that their scanned information is accurate, and safeguarding the resulting massive amounts of data. Another problem is that civil libertarians object to the project on privacy grounds. As an example of the impact of this project, consider Kiran, a poor citizen of India. She thinks she is 32, but she is not sure. She has no birth certifi cate or ID of any kind—no driver’s license, no voting card, nothing at all to document her existence. When she was 24, she left her home in a destitute farming village and ended up in a Delhi slum. She and her children were among the fi rst to have their personal information entered into the Aadhaar system. The fi rst thing Kiran plans to use her Aadhaar number for, she says, is to obtain a city government card that will entitle her to subsidized groceries. “I’ve tried very hard to get one before but they wouldn’t give it to me because I couldn’t prove I live in Delhi.” In sum, the Aadhar project should allow millions of poor Indian citizens to access government services that previously were out of reach to them.

Sources: Compiled from “World’s Biggest Biometric ID Scheme Forges Ahead,” BBC News India, February 12, 2012; M. Magnier, “India’s Biometric ID Number Plan Divided by Bureaucracy,” Los Angeles Times, January 28, 2012; B. Turbeville, “Cashless Society: India Implements First Biometric ID Program for All of Its 1.2 Billion Residents,” Infowars.com, January 12, 2012; V. Beiser, “Identifi ed,” Wired, September 2011; www.iaadhaar.com, accessed February 29, 2012.

Questions 1. Describe the problems that India is facing in implementing this biometric

identifi cation system. 2. Describe the benefi ts that India hopes to gain in implementing the

biometric identifi cation system. 3. Describe the benefi ts that the biometric identifi cation system should

provide to India’s impoverished citizens.

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250 7 l Information Security

All users should use strong passwords so that the password cannot easily be discovered. Strong passwords have the following characteristics:

• Th ey should be diffi cult to guess. • Th ey should be longer rather than shorter. • Th ey should contain uppercase letters, lowercase letters, numbers, and special

characters. • Th ey should not be a recognizable word. • Th ey should not be the name of anything or anyone familiar, such as family names or

names of pets. • Th ey should not be a recognizable string of numbers, such as a Social Security

number or birthday.

Unfortunately, strong passwords are irritating. If the organization mandates longer (stronger) passwords and/or frequent password changes, they become more diffi cult to remember, causing employees to write them down. What is needed is a way for a user to create a strong password that is easy to remember. A passphrase can help, either by being a password itself or by helping you create a strong password.

A passphrase is a series of characters that is longer than a password but can be memo- rized easily. Examples of passphrases are “may the force be with you always,” “go ahead make my day,” “live long and prosper,” and “a man’s got to know his limitations.” A user can turn a passphrase into a strong password in this manner. Start with the last passphrase above, and use the first letter of each word. You will have amgtkhl. Then capitalize every other letter, to have AmGtKhL. Th en add special characters and numbers, to have 9AmGtKhL//*. Now you have a strong password that you can remember.

Many organizations are using multifactor authentication (more than one type of authentication) to more effi ciently and eff ectively identify authorized users. Th is type of authentication is particularly important when users are logging in from remote locations.

Single-factor authentication, which is notoriously weak, commonly consists simply of a password. Two-factor authentication consists of a password plus one type of biometric identifi cation (e.g., a fi ngerprint). Th ree-factor authentication is any combination of three authentication methods. You should keep in mind that stronger authentication is more expensive and can be irritating to users as well. Authorization. Once users have been properly authenticated, then the rights and priv- ileges that they have on the organization’s systems are established, a process called authori- zation. Companies use the principle of least privilege for authorization purposes. A privi- lege is a collection of related computer system operations that can be performed by users of the system. Least privilege is a principle that users be granted the privilege for some activity only if there is a justifi able need to grant this authorization.

Communications Controls Communications (network) controls secure the movement of data across networks. Com- munications controls consist of fi rewalls, anti-malware systems, whitelisting and blacklist- ing, encryption, virtual private networking (VPN), secure socket layer (SSL), and employee monitoring systems. Firewalls. A firewall is a system that prevents a specifi c type of information from mov- ing between untrusted networks, such as the Internet, and private networks, such as your company’s network. Put simply, fi rewalls prevent unauthorized Internet users from access- ing private networks. All messages entering or leaving your company’s network pass through a fi rewall. Th e fi rewall examines each message and blocks those that do not meet specifi ed security rules. Firewalls fi lter network traffi c according to categories of activities likely to cause problems, whereas anti-malware systems fi lter traffi c according to a database of specifi c problems.

Firewalls range from simple, for home use, to very complex for organizational use. Figure 7.3a shows a basic fi rewall for a home computer. In this case, the fi rewall is

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Information Security Controls 251

implemented as soft ware on the home computer. Figure 7.3b shows an organization that has implemented an external fi rewall, which faces the Internet, and an internal fi re- wall, which faces the company network. Corporate fi rewalls typically consist of soft ware running on a computer dedicated to the task. A demilitarized zone (DMZ) is located between the two fi rewalls. Messages from the Internet must fi rst pass through the exter- nal fi rewall. If they conform to the defi ned security rules, then they are sent to company servers located in the DMZ. Th ese servers typically handle Web page requests and e-mail. Any messages designated for the company’s internal network (e.g., its intranet) must pass through the internal fi rewall, again with its own defi ned security rules, to gain access to the company’s private network.

Th e danger from viruses and worms is so severe that many organizations are placing fi rewalls at strategic points inside their private networks. In this way, if a virus or worm does get through both the external and internal fi rewalls, then the internal damage may be con- tained. Anti-malware Systems. Anti-malware systems (antivirus software), also called AV, are soft ware packages that attempt to identify and eliminate viruses, worms, and other malicious soft ware. Th is soft ware is implemented at the organizational level by the informa- tion systems department. Hundreds of AV soft ware packages are currently available. Among the best known are Norton Antivirus (www.symantec.com), McAfee Virusscan (www. mcafee.com), and Trend Micro PC-cillin (www.trendmicro.com).

Anti-malware systems are generally reactive. Th ey work by creating defi nitions, or signatures, of various types of malware, and then updating these signatures in their prod- ucts. Th e anti-malware soft ware then examines suspicious computer code to see if it matches a known signature. If it does, then the anti-malware soft ware will remove it. Th is is the reason why organizations update their malware defi nitions so oft en. (See Chapter Closing Case 2.)

Because malware is such a serious problem, the leading vendors are rapidly developing anti-malware systems that function proactively as well as reactively. Th ese systems evaluate behavior rather than relying on signature matching. In theory, therefore, it is possible to catch malware before it can infect systems. Whitelisting and Blacklisting. A report by the Yankee Group (www.yankeegroup. com), a technology research and consulting fi rm, stated that 99 percent of organizations had anti-malware systems installed, but 62 percent of companies still suff ered successful malware attacks. As you have noted, anti-malware systems are usually reactive, and mal- ware continues to infect companies.

Internet

Internet

INTRANET

CO RP

ORATE LAN

Broadband connection

DSL, cable modem, 3G, 4G

External Firewall

Internal Firewall

Servers

Demilitarized zone

Home Computer

Software firewall

(a)

(b)

Internet Service Provider

© Dmitry Rukhlenko/iStockphoto

Figure 7.3 (a) Basic fi rewall for home computer. (b) Organization with two fi rewalls and demilitarized zone.

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252 7 l Information Security

One solution to this problem is whitelisting. Whitelisting is a process in which a company identifi es the soft ware that it will allow to run and does not try to recognize malware. Whitelist- ing permits acceptable soft ware to run and either prevents anything else from running or lets new soft ware run in a quarantined environment until the company can verify its validity.

Whereas whitelisting allows nothing to run unless it is on the whitelist, blacklisting allows everything to run unless it is on the blacklist. A blacklist, then, includes certain types of soft ware that are not allowed to run in the company environment. For example, a com- pany might blacklist peer-to-peer fi le sharing on its systems. In addition to soft ware, people, devices, and Web sites can also be whitelisted and blacklisted. Encryption. When organizations do not have a secure channel for sending information, they use encryption to stop unauthorized eavesdroppers. Encryption is the process of convert- ing an original message into a form that cannot be read by anyone except the intended receiver.

All encryption systems use a key, which is the code that scrambles, and then decodes, the messages. Th e majority of encryption systems use public-key encryption. Public-key encryption—also known as asymmetric encryption—uses two diff erent keys: a public key and a private key (see Figure 7.4). Th e public key (locking key) and the private key (unlocking key) are created simultaneously using the same mathematical formula or algorithm. Because the two keys are mathematically related, the data encrypted with one key can be decrypted by using the other key. Th e public key is publicly available in a directory that all parties can access. Th e pri- vate key is kept secret, never shared with anyone, and never sent across the Internet. In this system, if Hannah wants to send a message to Harrison, she fi rst obtains Harrison’s public key (locking key), which she uses to encrypt her message (put the message in the "two-lock box"). When Harrison receives Hannah’s message, he uses his private key to decrypt it (open the box).

Although this system is adequate for personal information, organizations doing busi- ness over the Internet require a more complex system. In such cases, a third party, called a certificate authority, acts as a trusted intermediary between companies. As such, the cer- tifi cate authority issues digital certifi cates and verifi es the worth and integrity of the certifi - cates. A digital certificate is an electronic document attached to a fi le certifying that the fi le is from the organization it claims to be from and has not been modifi ed from its original format. As you can see in Figure 7.5, Sony requests a digital certifi cate from VeriSign, a certifi cate authority, and uses this certifi cate when doing business with Dell. Note that the digital certifi cate contains an identifi cation number, the issuer, validity dates, and the requester’s public key. For examples of certifi cate authorities, see www.entrust.com, www. verisign.com, www.cybertrust.com, www.secude.com, and www.thawte.com.

Figure 7.4 How public key encryption works. (Omnisec AG.)

LOCK UNLOCK

LOCK UNLOCK

LOCK UNLOCK

Message

Message

Hannah wants to send Harrison an encrypted message. Hannah has the message. Harrison has a "two-lock box" (encryption method) and

both a locking key and an unlocking key.

Hannah puts her message in the box and locks the box with her "lock" key. Sends the message to Harrison. Only he can open it with his "unlock" key.

Harrison sends Hannah the "two-lock box" with the "locking key".

He keeps the unlocking key to himself.

Unlocking key

Locking key

Unlocking key

Unlocking key

2

3

1

4

Locking key

Locking key

Courtesy of Brad Prince.

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Information Security Controls 253

Virtual Private Networking. A virtual private network (VPN) is a private net- work that uses a public network (usually the Internet) to connect users. As such, VPNs integrate the global connectivity of the Internet with the security of a private network and thereby extend the reach of the organization’s networks. VPNs are called “virtual” because they have no separate physical existence. Th ey use the public Internet as their infrastruc- ture. Th ey create a virtual private network by using log-ins, encryption, and other tech- niques to enhance privacy.

VPNs have several advantages. First, they allow remote users to access the company network. Second, they allow fl exibility. Th at is, mobile users can access the organization’s network from properly confi gured remote devices. Th ird, organizations can impose their security policies through VPNs. For example, an organization may dictate that only cor- porate e-mail applications are available to users when they connect from unmanaged devices.

To provide secure transmissions, VPNs use a process called tunneling. Tunneling encrypts each data packet to be sent and places each encrypted packet inside another pack- et. In this manner, the packet can travel across the Internet with confi dentiality, authentica- tion, and integrity. Figure 7.6 illustrates a VPN and tunneling.

Figure 7.5 How digital certifi cates work. Sony and Dell, business partners, use a digital certifi cate from VeriSign for authentication.

VeriSign creates digital certificate

for Sony

Sony requests digital certificate

from VeriSign

VeriSign transmits digital certificate to Sony

Sony presents digital certificate to Dell for authentication purposes

Dell

Sony VeriSign Digital Certificate

Number: 12691Issuer: VeriSignValid From 7/1/10 to 6/30/11Sony

Sony public key 0110111010110001

1 2

3

4

INTERNET

Tunnel

VPN

Your business partner’s

intranet

Your organization’s

intranet Data

Figure 7.6 Virtual private network and tunneling.

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254 7 l Information Security

Secure Socket Layer (SSL). Secure socket layer, now called transport layer secu- rity (TLS), is an encryption standard used for secure transactions such as credit card pur- chases and online banking. TLS encrypts and decrypts data between a Web server and a browser end to end.

TLS is indicated by a URL that begins with https rather than http, and it oft en includes a small padlock icon in the browser’s status bar. Using a padlock icon to indicate a secure connection and placing this icon in a browser’s status bar, are artifacts of specifi c browsers. Other browsers use other icons (e.g., a key that is either broken or whole). Th e important thing to remember here is that browsers usually provide visual confi rmation of a secure connection. Employee Monitoring Systems. Many companies are taking a proactive approach to protecting their networks from what they view as one of their major security threats, namely employee mistakes. Th ese companies are implementing employee monitoring systems, which monitor their employees’ computers, e-mail activities, and Internet surf- ing activities. Th ese products are useful to identify employees who spend too much time surfi ng on the Internet for personal reasons, who visit questionable Web sites, or who download music illegally. Vendors that provide monitoring soft ware include SpectorSoft (www.spectorsoft.com) and Websense (www.websense.com).

Business Continuity Planning An important strategy for organizations is to be prepared for any eventuality. A critical ele- ment in any security system is a business continuity plan, also known as a disaster recovery plan. Large businesses have these plans. For you as an individual, or for a small business, a plan for backing up your important data will serve. For example, Carbonite (www.carbonite. com) will provide unlimited data backup for a home or home offi ce for $59 per year. For small businesses, Carbonite off ers 50 gigabytes of backup for $229 per year and 500 giga- bytes for $599 per year.

Business continuity is the chain of events linking planning to protection and to recov- ery. Th e purpose of the business continuity plan is to provide guidance to people who keep the business operating aft er a disaster occurs. Using this plan, employees prepare for, react to, and recover from events that aff ect the security of information assets and the subsequent restoration to normal business operations. Th e plan helps to ensure that critical business functions continue.

In the event of a major disaster, organizations can employ several strategies for busi- ness continuity. Th ese strategies include hot sites, warm sites, and cold sites. A hot site is a fully confi gured computer facility, with all services, communications links, and physical plant operations. A hot site duplicates computing resources, peripherals, tele- phone systems, applications, and workstations. A warm site provides many of the same services and options of the hot site. However, a warm site typically does not include the actual applications the company needs. A warm site does include computing equipment such as servers, but it oft en does not include user workstations. A cold site provides only rudimentary services and facilities, such as a building or room with heating, air conditioning, and humidity control. Th is type of site provides no computer hardware or user workstations. Th e point of a cold site is that it takes care of long lead-time issues. Building or even renting space takes a long time. Installing high-speed communication lines, oft en from two or more carriers, takes a long time. Installing high-capacity power lines takes a long time. By comparison, buying and installing servers should not take a particularly long time.

Hot sites reduce risk to the greatest extent, but they are the most expensive option. Conversely, cold sites reduce risk the least, but they are the least expensive option.

Information Systems Auditing Companies implement security controls to ensure that information systems work properly. Th ese controls can be installed in the original system or they can be added aft er a system is in operation. Installing controls is necessary but not suffi cient to provide adequate security. In addition, people responsible for security need to answer questions such as these: Are all

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Information Security Controls 255

controls installed as intended? Are they eff ective? Has any breach of security occurred? If so, what actions are required to prevent future breaches?

Th ese questions must be answered by independent and unbiased observers. Such observers perform the task of information systems auditing. In an IS environment, an audit is an examination of information systems, their inputs, outputs, and processing. Types of Auditors and Audits. Th e two types of auditors and audits are internal and external. IS auditing is usually a part of accounting internal auditing, and it is frequent- ly performed by corporate internal auditors. An external auditor reviews the fi ndings of the internal audit as well as the inputs, processing, and outputs of information systems. Th e external audit of information systems is frequently a part of the overall external auditing performed by a certifi ed public accounting (CPA) fi rm.

IS auditing considers all potential hazards and controls in information systems. It focuses on topics such as operations, data integrity, soft ware applications, security and pri- vacy, budgets and expenditures, cost control, and productivity. Guidelines are available to assist auditors in their jobs, such as those from ISACA (for- merly the Information Systems Audit and Control Associa- tion, www.isaca.org). How Is Auditing Executed? IS auditing procedures fall into three categories: (1) auditing around the computer, (2) auditing through the computer, and (3) auditing with the computer.

Auditing around the computer means verifying processing by checking for known outputs using specifi c inputs. Th is approach is best used in systems with limited outputs. In auditing through the computer, inputs, outputs, and processing are checked. Auditors review program logic and test data. Auditing with the computer means using a combination of cli- ent data, auditor soft ware, and client and auditor hardware. Th is approach allows the auditor to perform tasks such as sim- ulating payroll program logic using live data.

BEFORE YOU GO ON . . . 1. What is the single most important

information security control for organizations?

2. Differentiate between authentication and authorization. Which one of these always comes fi rst?

3. Compare and contrast whitelisting and blacklisting.

4. What is the purpose of a disaster recovery plan?

5. What is information system auditing?

Apply the Concept 7.5

Background Security controls are designed to protect all components of an information system, including data, soft ware, hardware, and networks. Because

there are so many diverse threats, organizations utilize layers of controls. One area dis- cussed in the book is public key encryption. Th is method of encryption requires a public key and a private key. Th e public key is shared and used to encrypt a message that only the individual’s private key can decrypt. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 7.5. It will take you to a YouTube titled “SSL Explained” by user “pyroblue.” Th is video introduces you to the inventors of public key encryption as well as the method that it uses to work. Aft er watching this video, visit HowStuff Works.com (or click the second link for Apply the Concept 7.5 on the Apply the Concept link page) and read the article titled “How Encryption Works”.

Deliverable

Write an e-mail to an elderly person (or just anyone who may be hesitant to share his or her credit card online) that explains how the public key encryption works. Discuss the benefi ts of public key encryption (two keys) over private key encryption (one key). Submit this to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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256 7 l Information Security

FOR THE ACCOUNTING MAJOR Public companies, their accountants, and their auditors have signifi cant informa- tion security responsibilities. Accountants are now being held professionally

responsible for reducing risk, ensuring compliance, eliminating fraud, and increasing the transparency of transactions according to generally accepted accounting principles (GAAP). Th e Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB), among other regulatory agencies, require informa- tion security, fraud prevention and detection, and internal controls over fi nancial reporting. Forensic accounting, a combination of accounting and information security, is one of the most rapidly growing areas in accounting today.

FOR THE FINANCE MAJOR Because information security is essential to the success of organizations today, it is no longer just the concern of the chief information offi cer (CIO). As a result of global regulatory requirements and the passage of Sarbanes-Oxley, responsibility for information security lies with the chief executive offi cer

(CEO) and chief fi nancial offi cer (CFO). Consequently, all aspects of the security audit, including the security of information and information systems, are a key concern for fi nancial managers. In addition, CFOs and treasurers are increasingly involved with investments in infor- mation technology. Th ey know that a security breach of any kind can have devastating fi nancial eff ects on a company. Banking and fi nancial institutions are prime targets for com- puter criminals. A related problem is fraud involving stocks and bonds that are sold over the Internet. Finance personnel must be aware of both the hazards and the available con- trols associated with these activities.

FOR THE MARKETING MAJOR Marketing professionals have new opportunities to collect data on their customers (e.g., through business-to-consumer electronic commerce). Customers expect their data to be properly secured. However, profi t-motivated criminals want that data. Th erefore, marketing managers must analyze the risk of their operations.

Failure to protect corporate and customer data will cause signifi cant public relations prob- lems and make customers very angry. Customer relationship management (CRM) opera- tions and tracking customers’ online buying habits can expose data to misuse (if they are not encrypted) or result in privacy violations.

What’s in for ME?ffT

1. What security controls should Ruben and Lisa put in place to help ensure the safety of sensitive customer information?

2. Should Ruben and Lisa put these controls in place, or should they hire a third-party vendor to put them in place?

Q U E S T I O N SRUBY’S CLUB

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Summary 257

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR Every process in a company’s operations—inventory purchasing, receiving, qual- ity control, production, and shipping—can be disrupted by an information tech-

nology security breach or an IT security breach at a business partner. Any weak link in supply chain management or enterprise resource management systems puts the entire chain at risk. Companies may be held liable for IT security failures that aff ect other companies.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR HR managers have responsibilities to secure confi dential employee data. In addi- tion, they must ensure that all employees explicitly verify that they understand the

company’s information security policies and procedures.

FOR THE MIS MAJOR Th e MIS function provides the security infrastructure that protects the organiza- tion’s information assets. Th is function is critical to the success of the organiza-

tion, even though it is almost invisible until an attack succeeds. All application develop- ment, network deployment, and introduction of new information technologies have to be guided by IT security considerations. MIS personnel must customize the risk-exposure security model to help the company identify security risks and prepare responses to secu- rity incidents and disasters. Senior executives of publicly held companies look to the MIS function for help in meeting Sarbanes-Oxley requirements, particularly in detecting “signifi cant defi ciencies” or “material weaknesses” in internal controls and remediating them. Other functional areas also look to the MIS function to help them meet their security responsibilities.

SUMMARY 1. Give one specifi c example of each of the fi ve factors that

are contributing to the increasing vulnerability of infor- mation resources. Th e fi ve factors are as follows:

> Today’s interconnected, interdependent, wirelessly net- worked business environment

>> Example: the Internet > Smaller, faster, cheaper computers and storage devices >> Examples: netbooks, thumb drives, iPads > Decreasing skills necessary to be a computer hacker >> Example: information system hacking programs

circulating on the Internet > International organized crime taking over cybercrime >> Example: Organized crime has formed transnation-

al cybercrime cartels. Because it is diffi cult to know exactly where cyberattacks originate, these cartels are extremely hard to bring to justice.

> Lack of management support >> Example: Suppose that your company spent $10 mil-

lion on information security countermeasures last year and experienced no successful attacks on infor- mation resources. Shortsighted management might conclude that the company could spend less during the next year and obtain the same results. Bad idea.

2. Compare and contrast human mistakes and social engi- neering by way of specifi c examples. Human mistakes are unintentional errors. However, employ- ees can also make unintentional mistakes because of actions by an attacker, such as social engineering. Social engineering is an attack in which the perpetrator uses social skills to trick or manipulate a legitimate employee into providing confi dential company information.

An example of a human mistake is tailgating. An exam- ple of social engineering is when an attacker calls an employee on the phone and impersonates a superior in the company.

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258 7 l Information Security

3. Describe negative consequences that might result from at least three diff erent kinds of deliberate attacks on information systems. Th e types of deliberate attacks are as follows:

> Espionage or trespass occurs when an unauthorized individual attempts to gain illegal access to organiza- tional information.

> Information extortion occurs when an attacker either threatens to steal, or actually steals, information from a company. Th e perpetrator demands payment for not stealing the information, for returning stolen informa- tion, or for agreeing not to disclose the information.

> Sabotage and vandalism are deliberate acts that involve defacing an organization’s Web site, possibly causing the organization to lose its image and experience a loss of confi dence by its customers because of sabotage or vandalism.

> Computing devices and storage devices are becoming smaller yet more powerful with vastly increased stor- age, making these devices easier and more valuable to steal.

> Identity theft is the deliberate assumption of another person’s identity, usually to gain access to his or her fi - nancial information or to frame him or her for a crime.

> Protecting intellectual property is a vital issue for people who make their livelihood in knowledge fi elds. Pro- tecting intellectual property is particularly diffi cult when that property is in digital form.

> Soft ware attacks occur when malicious soft ware pene- trates a computer system. Today, these attacks are typi- cally profi t driven and Web based.

> Alien soft ware is clandestine soft ware that is installed on a computer through duplicitous methods. Alien soft - ware uses valuable system resources and can report on your Web surfi ng habits and other personal behavior.

> Supervisory control and data acquisition (SCADA) re- fers to a large-scale, distributed measurement and con- trol system. SCADA systems are used to monitor or to control chemical, physical, or transport processes. A SCADA attack attempts to compromise such a system in order to cause damage to the real-world processes that the system controls.

> With both cyberterrorism and cyberwarfare, attackers use a target’s computer systems, particularly via the

Internet, to cause physical, real-world harm or severe disruption, usually to carry out a political agenda.

4. Assess how you might employ each of the three risk mit- igation strategies in the context of your owning a home. Th e three risk mitigation strategies are the following:

> With risk acceptance, the organization accepts the po- tential risk, continues operating with no controls, and absorbs any damages that occur. If you own a home, you may decide not to insure it. Th us, you are practic- ing risk acceptance. Clearly, this is a bad idea.

> With risk limitation, the organization limits the risk by implementing controls that minimize the impact of threats. As a homeowner, you practice risk limitation by putting in an alarm system or by cutting down weak trees near your house.

> With risk transference, the organization transfers the risk by using other means to compensate for the loss, such as by purchasing insurance. Th e vast majority of homeowners practice risk transference by purchasing insurance on their houses and contents.

5. Identify the three major types of controls that organiza- tions can use to protect their information resources.

Physical controls prevent unauthorized individuals from gaining access to a company’s facilities. Common physi- cal controls include walls, doors, fencing, gates, locks, badges, guards, and alarm systems. More sophisticated physical controls include pressure sensors, temperature sensors, and motion detectors. Access controls restrict unauthorized individuals from using information resources. Th ese controls involve two major functions: authentication and authorization. Authentication determines the identity of the person requiring access. As an example, authentication can be established with biometrics. Aft er the person is authen- ticated (identifi ed), authorization is applied. Authoriza- tion determines which actions, rights, or privileges the person has, based on verifi ed identity. As an example, authorization is based on least privilege. Communications (network) controls secure the move- ment of data across networks. Communications controls consist of fi rewalls, anti-malware systems, whitelisting and blacklisting, encryption, virtual private networking (VPN), secure socket layer (SSL), and vulnerability man- agement systems.

access controls Controls that restrict unauthorized individuals from using information resources and are concerned with user identifi cation.

adware Alien soft ware designed to help pop-up advertisements appear on your screen.

alien software Clandestine soft ware that is installed on a com- puter through duplicitous methods.

anti-malware systems (antivirus software) Soft ware pack- ages that attempt to identify and eliminate viruses, worms, and other malicious soft ware.

>>> C H A P T E R G L O S S A R Y

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Chapter Glossary 259

audit An examination of information systems, their inputs, out- puts, and processing.

authentication A process that determines the identity of the per- son requiring access.

authorization A process that determines which actions, rights, or privileges the person has, based on verifi ed identity.

back door (also known as trap door) Typically a password, known only to the attacker, that allows the attacker to access the system without having to go through any security procedures.

biometrics Th e science and technology of authentication (i.e., es- tablishing the identity of an individual) by measuring the subject’s physiologic or behavioral characteristics.

blacklisting A process in which a company identifi es certain types of soft ware that are not allowed to run in the company environment.

certificate authority A third party that acts as a trusted interme- diary between computers (and companies) by issuing digital certifi - cates and verifying the worth and integrity of the certifi cates.

cold site A backup location that provides only rudimentary ser- vices and facilities.

communications (network) controls Controls that deal with the movement of data across networks.

controls Defense mechanisms (also called countermeasures).

cookies Small amounts of information that Web sites store on your computer, temporarily or more or less permanently.

copyright A grant that provides the creator of intellectual prop- erty with ownership of it for the life of the creator plus 70 years.

cybercrime Illegal activities executed on the Internet.

cyberterrorism Can be defi ned as a premeditated, politically motivated attack against information, computer systems, computer programs, and data that results in violence against noncombatant targets by subnational groups or clandestine agents.

cyberwarfare War in which a country’s information systems could be paralyzed from a massive attack by destructive soft ware.

demilitarized zone (DMZ) A separate organizational local area network that is located between an organization’s internal network and an external network, usually the Internet.

denial-of-service attack A cyberattack in which an attacker sends a fl ood of data packets to the target computer, with the aim of overloading its resources.

digital certificate An electronic document attached to a fi le cer- tifying that this fi le is from the organization it claims to be from and has not been modifi ed from its original format or content.

distributed denial-of-service (DDoS) A denial-of-service attack that sends a fl ood of data packets from many compromised computers simultaneously.

employee monitoring systems Systems that monitor employ- ees’ computers, e-mail activities, and Internet surfi ng activities.

encryption Th e process of converting an original message into a form that cannot be read by anyone except the intended receiver.

exposure Th e harm, loss, or damage that can result if a threat compromises an information resource.

firewall A system (either hardware, soft ware, or a combination of both) that prevents a specifi c type of information from moving between untrusted networks, such as the Internet, and private net- works, such as your company’s network.

hot site A fully confi gured computer facility, with all information resources and services, communications links, and physical plant operations, that duplicates a company’s computing resources and provide near real-time recovery of IT operations.

identity theft Crime in which someone uses the personal infor- mation of others to create a false identity and then uses it for some fraud.

information security Protecting an organization’s information and information systems from unauthorized access, use, disclosure, disruption, modifi cation, or destruction.

information systems controls Th e procedures, devices, or soft - ware aimed at preventing a compromise to a system.

intellectual property Th e intangible property created by indi- viduals or corporations that is protected under trade secret, patent, and copyright laws.

keystroke loggers (keyloggers) Hardware or soft ware that can detect all keystrokes made on a compromised computer.

least privilege A principle that users be granted the privilege for some activity only if there is a justifi able need to grant this authorization.

logic bomb Segments of computer code embedded within an or- ganization’s existing computer programs.

malware malicious soft ware such as viruses and worms.

network controls (see communications controls).

passphrase A series of characters that is longer than a password but that can be memorized easily.

passwords Private combinations of characters that only the user should know.

patent A document that grants the holder exclusive rights on an invention or process for 20 years.

phishing attack An attack that uses deception to fraudulently ac- quire sensitive personal information by masquerading as an offi cial- looking e-mail.

physical controls Controls that restrict unauthorized individuals from gaining access to a company’s computer facilities.

piracy Copying a soft ware program (other than freeware, demo soft ware, etc.) without making payment to the owner.

privilege A collection of related computer system operations that can be performed by users of the system.

public-key encryption (also called asymmetric encryption) A type of encryption that uses two diff erent keys: a public key and a private key.

risk Th e likelihood that a threat will occur.

risk acceptance A strategy in which the organization accepts the potential risk, continues to operate with no controls, and absorbs any damages that occur.

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260 7 l Information Security

risk analysis Th e process by which an organization assesses the value of each asset being protected, estimates the probability that each asset might be compromised, and compares the probable costs of each being compromised with the costs of protecting it.

risk limitation A strategy in which the organization limits its risk by implementing controls that minimize the impact of a threat.

risk management A process that identifi es, controls, and mini- mizes the impact of threats, in an eff ort to reduce risk to manageable levels.

risk mitigation A process whereby the organization takes con- crete actions against risks, such as implementing controls and devel- oping a disaster recovery plan.

risk transference A process in which the organization transfers the risk by using other means to compensate for a loss, such as by purchasing insurance.

SCADA (Supervisory Control and Data Acquisition) Large- scale, distributed, measurement and control systems used to moni- tor or to control chemical, physical, or transport processes.

secure socket layer (SSL) (also known as transport layer security) An encryption standard used for secure transactions such as credit card purchases and online banking.

security Th e degree of protection against criminal activity, danger, damage, and/or loss.

signature recognition Th e user signs his or her name, and the system matches this signature with one previously recorded under controlled, monitored conditions.

social engineering Getting around security systems by tricking computer users inside a company into revealing sensitive informa- tion or gaining unauthorized access privileges.

spam Unsolicited e-mail.

spamware Alien soft ware that uses your computer as a launch platform for spammers.

spyware Alien soft ware that can record keystrokes and/or capture passwords.

strong passwords Passwords that are diffi cult to guess; longer rather than shorter; contain uppercase and lowercase letters, num- bers, and special characters; and are not a recognizable word or string of numbers.

threat Any danger to which an information resource may be exposed.

trade secret Intellectual work, such as a business plan, that is a company secret and is not based on public information.

transport layer security (TLS) (see secure socket layer).

trap doors (see back door).

Trojan horse A soft ware program containing a hidden function that presents a security risk.

tunneling A process that encrypts each data packet to be sent and places each encrypted packet inside another packet.

virtual private network (VPN) A private network that uses a public network (usually the Internet) to securely connect users by using encryption.

virus Malicious computer code that can attach itself to (or “in- fect”) other computer programs without the owner of the program being aware of the infection.

voice recognition Th e user speaks a phrase that has been pre- viously recorded under controlled, monitored conditions, and the voice recognition system matches the two voice signals.

vulnerability Th e possibility that an information resource will suff er harm by a threat.

warm site A site that provides many of the same services and op- tions of a hot site but does not include the company’s applications.

whitelisting A process in which a company identifi es acceptable soft ware and permits it to run, and either prevents anything else from running or lets new soft ware run in a quarantined environ- ment until the company can verify its validity.

worm Destructive computer code that replicates itself without re- quiring another program to provide a safe environment for replication.

1. Why are computer systems so vulnerable?

2. Why should information security be of prime concern to management?

3. Is security a technical issue? A business issue? Both? Support your answer. Hint: Read Kim Nash, “Why Technology Isn’t the Answer to Better Security,” CIO (www.cio.com), October 15, 2008.

4. Compare information security in an organization with insuring a house.

5. Why are authentication and authorization important to e-commerce?

6. Why is cross-border cybercrime expanding rapidly? Discuss possible solutions.

7. Discuss why the Sarbanes-Oxley Act is having an impact on information security.

8. What types of user authentication are used at your university and/or place of work? Do these authentication measures seem to be eff ective? What if a higher level of authentication were implemented? Would it be worth it, or would it decrease productivity?

9. Why are federal government authorities so worried about SCADA attacks?

>>> D I S C U S S I O N Q U E S T I O N S

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Collaboration Exercise 261

1. A critical problem is assessing how far a company is legally obligated to go in order to secure personal data. Because there is no such thing as perfect security (i.e., there is always more that can be done), resolving this question can signifi cantly aff ect cost. a. When are security measures that a company

implements suffi cient to comply with its obligations?

b. Is there any way for a company to know if its security measures are suffi cient? Can you devise a method for any organization to determine if its security measures are suffi cient?

2. Assume that the daily probability of a major earthquake in Los Angeles is .07 percent. Th e chance of your computer center being damaged during such a quake is 5 percent. If the center is damaged, the average estimated damage will be $4.0 million. a. Calculate the expected loss in dollars. b. An insurance agent is willing to insure your facility for

an annual fee of $25,000. Analyze the off er and discuss whether to accept it.

3. Enter www.scambusters.org. Find out what the organiza- tion does. Learn about e-mail frauds and Web site scams. Report your fi ndings.

4. Visit http://www.wiley.com/go/rainer/problemsolving (to visit the website of the Department of Homeland

Security). Search the site for “National Strategy to Secure Cyberspace,” and write a report on the agency’s agenda and accomplishments to date.

5. Enter www.alltrustnetworks.com and other vendors of biometrics. Find the devices they make that can be used to control access into information systems. Prepare a list of products and major capabilities of each.

6. Soft ware piracy is a global problem. Access the following Web sites: www.bsa.org and www.microsoft.com/piracy. What can organizations do to mitigate this problem? Are some organizations dealing with the problem better than others are?

7. Investigate the Sony Playstation Network hack that occurred in April 2011. a. What type of attack was it? b. Was the success of the attack because of technology

problems at Sony, management problems at Sony, or a combination of both? Provide specifi c examples to support your answer.

c. Which Sony controls failed? d. Could Sony have prevented the hack? If so, how? e. Discuss Sony’s response to the hack. f. Describe the damages that Sony incurred from the

successful hack.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

Background

Th is chapter has shown the importance of information security. Th e “What’s in IT for Me?” section illustrated the diff erent ways each business area needs to be aware of security. In some cases there are government regulations, in others there are strategic, logistical, or technical reasons for needing security.

Activity

Divide your team into functional areas. Assign one person to each of the following: vice-president of accounting, vice- president of fi nance, vice-president of human resources, and vice-president of production. Imagine that your chief executive offi cer (CEO) is really having a hard time under- standing why you need to invest in a chief information offi cer (CIO) to oversee your information systems. Right now each department is doing its own thing and managing

its own systems. Everyone needs help and direction from an expert and the group of vice presidents has agreed that you need a CIO.

Deliverable

Write an executive summary that accompanies an imaginary full report. Th e imaginary report would include a full description of how the CIO would help each functional area, so the executive summary will include the highlights of what this position would mean to you. Have each team member research from his or her respective position why you need a CIO to help maintain information security. Finally, submit your executive summary to your professor. For help format- ting your executive summary, search Google for “Executive Summary Template.” You will fi nd many examples there to help you.

>>> C O L L A B O R AT I O N E X E R C I S E

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262 7 l Information Security

CLOSING CASE 1 > Compliance

Modern businesses face an incredible array of regulatory and compliance requirements. Various problems and scandals have forced political leaders and entire industries to intro- duce new laws, regulations, and industry standards (for example, Sarbanes-Oxley [SOX], the Health Insurance Portability and Accountability Act [HIPAA], the Payment Card Industry Data Security Standard [PCI DSS], the European Union Privacy Directive, and many others). Th erefore, governance, risk management, and compliance (GRC) solutions have become increasingly important to all organizations.

GRC involves almost every part of any organization, including business operations, security, and IT assets. Moreover, new information technologies—including mobile com- puting, cloud computing, and social media—have made it more diffi cult than ever to keep data secure and comply with government and industry requirements. To make matters even more diffi cult, as systems and organizations become more interconnected, fi rms need to be able to track where data originates, where it travels, where it is stored, and who has access to it. Enterprises must therefore be able to provide constant real-time protection for appli- cations, fi les, and data.

In addition, organizations must oft en deal with the foreign corrupt practices, diff ering business practices of contractors and third-party providers, obtaining background checks in other countries, and many other issues. Th e ability to track internal transactions and processes is only one part of the problem. GRC typically spans an entire supply chain.

Although many organizations have constructed GRC frameworks—with applications designed to monitor, report, and provide alerts about compliance activities—gaps and potential hazards still exist. Many organizations deal with potential problems by writing a policy, procedure, or prohibition. Unfortunately, employees oft en violate policies and undermine procedures. As a result, GRC must focus on many key areas: information secu- rity, privacy, threat and risk analysis, compliance with government regulations and industry requirements, enforcement strategies, internal audits, and others.

Let’s look at some examples of organizations that are making progress with their GRC obligations: ● Sallie Mae (www.salliemae.com), the world’s leading provider of student plan-

ning and loans, manages more than 10 million student loans valued at $268 billion. Altogether, about 10,000 employees and contractors handle documents and oversee business processes. Consequently, Sallie Mae must monitor 162 different compliance rules and regulations, including SOX, Federal Information Security Management Act (FISMA), Federal Financial Institutions Examination Council (FFIEC), Gramm- Leach-Bliley Act (GLBA), PCI DSS, and Fair and Accurate Credit Transactions Act (FACTA).

Building an automated compliance model was critically important to Sallie Mae. In the past, the company stored records in a variety of systems and fi les, including mas- sive spreadsheets. Today, the company uses SailPoint IdentityIQ (www.sailpoint.com) to oversee a role-based access management framework. The system provides visibility into user-access privileges and provides complete oversight into identity data. Managers work with a fi nite set of defi ned roles rather than a huge number of individual users. All the information is visible via a dashboard.

This approach has yielded benefi ts, particularly as employees use laptops, smart- phones, tablets, and other mobile tools to exchange data. IdentityIQ manages virtual private networks (VPNs), tokens, and other authentication tools. The system also allows the company to provide access to social networking sites for authorized employees on an exception basis.

The results have been impressive. Although the number of controls increased from 800 to 2,500 from 2009 to 2011, Sallie Mae was able to cut overall GRC expenses by 40 percent.

THE PROBLEM >>>

SOLUTIONS >>>

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Closing Case 1: Compliance 263

● Tognum America (www.tognumamerica.com) manufactures engines used in boats, military systems, and off-highway equipment. The fi rm ships products to dozens of countries and must cope with numerous regulations and restrictions, including U.S. Customs requirements, export controls, sanctions, and embargo lists that change on a regular basis. A breach could result in fi nes or loss of business.

In the past, the company relied on spreadsheets and manual processes to keep track of compliance issues related to incoming and outgoing shipments. These manual processes contained a huge risk of human error. The company now relies on SAP BusinessObjects’ Global Trade Services (GTS) (www.sap.com) system to automate its GRC processes. The system checks the latest restriction lists, which sometimes change between the receipt of an order and shipment of that order.

However, Tognum faces additional challenges. Orders stream in via a number of networks and systems. In some cases, customers call the company directly. In other in- stances, distributors enter orders, or employees place an order from a computer located in the offi ce or from a mobile device in the fi eld. The GTS system tracks all the orders and provides a real-time view of any issues or problems. It simplifi es the process of achieving the highest level of compliance.

Since implementing the GTS system, Tognum America has boosted compliance rat- ings by more than 15 percent to the current level of more than 95 percent. The company has also achieved the added benefi t of reducing invoicing discrepancies by 80 percent.

● CardSmith (www.card-smith.com) provides electronic payment and transaction pro- cessing systems used primarily by colleges and universities. The fi rm manages cashless payment cards for nearly 150 schools. Students rely on the cards to purchase meals, sup- plies, and other campus goods. Parents transfer money into the accounts as necessary, making it essential that they have the highest level of trust in the system.

The payment cards—in many cases multiuse smartcards that also provide access control for dorms and other areas—require tight oversight and adherence to a number of regulatory and compliance issues, including PCI DSS, GLBA, the Patriot Act, and the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.

As a result, CardSmith turned to Hosting.com (www.hosting.com), a hosted secu- rity solution that provides a variety of protection and reporting tools that meet the PCI Council’s Data Security Standard. The system handles host intrusion detection, vulner- ability management, monitoring and testing, and PCI DSS security scanning.

CardSmith has to secure computers, point-of-sale terminals, and mobile payment terminals; use encryption, and protect logs from tampering. For example, the Hosting system maintains snapshots of logs, which are written and recorded in real time.

CardSmith controls and manages data fl owing to and from smartphones, tablet de- vices, and other mobile tools. As a result, students can securely check their account bal- ances using these devices, as data travels across wireless networks in an encrypted state.

CardSmith is also pushing for tamper-proof terminals at universities and health care provider locations, and the use of tokens as a substitute for sending actual card numbers. The result is that the company sees very little fraud and has achieved very high levels of compliance.

● The Northern Ireland Civil Service (NICS) takes a broad approach to GRC. The govern- ment organization has more than 25,000 civil servants delivering key services and eco- nomic and social policy data to government ministers and citizens throughout the coun- try. Protecting sensitive data and records while adhering to regulatory requirements, including the United Kingdom’s Data Protection and Freedom of Information Acts, is vital for NICS.

NICS data resides in documents and systems that span 11 government depart- ments in more than 250 locations. Using Hewlett-Packard (www.hp.com) TRIM re- cords management software, NICS has built a single virtual data repository known as Records Northern Ireland (NI). The system contains both structured and unstructured data, including more than 9 million documents and information about e-mail accounts, network devices, and hard disks. It allows the agency to control who may access the in- formation; the system also tracks documents and how they are used and shared.

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264 7 l Information Security

The Records NI system makes it easier to fi nd needed information. The system has helped NICS achieve a much higher level of compliance while improving workfl ows.

Companies and application vendors are increasingly focusing on merging the information technology and business aspects of GRC. Although authentication, passwords, robust reporting, monitoring, and other controls are an important part of GRC, systems must integrate technology, process controls, and risk management. Th ese are the three corner- stones of eff ective GRC.

An eff ective GRC framework fi nds ways to capture and establish ownership of infor- mation. GRC also cuts across multiple entities, including shareholders, stakeholders, inves- tors, and insurers. Balancing productivity with protection is essential. Ultimately, eff ective GRC revolves around well-defi ned processes, the right tools and technologies; it also ensures that employees and partners are trustworthy and educated about the risks inherent in today’s business environment.

Unfortunately, technology, by its nature, advances faster than the ability to provide an appropriate framework. As a result, organizations today face enormous, continuing GRC challenges as fi rms try to keep abreast of advances in technology. Sources: Compiled from J. Goodchild, “12 Tips for Implementing GRC,” CIO, February 23, 2012; E. Savitz, “Managing Cloud Risks,” Forbes, October 25, 2011; S. Greengard, “Navigating the GRC Maze,” Baseline Magazine, September 30, 2011; J. Buchanan, “Cloud Computing: 4 Tips for Regulatory Compliance,” CIO, August 8, 2011; D. Woods, “Compliance in the Best-of-Breed Cloud,” Forbes, July 20, 2010; C. Dunlap, “Trends in Identity and Access Management,” Forbes, April 27, 2010; www.salliemae.com, www.tognumamerica.com, www. card-smith.com, accessed March 5, 2012.

Questions 1. Describe the GRC problem that all organizations face. What is the relation-

ship between information technology and the GRC problem? Provide specifi c examples of this relationship.

2. In the examples in this case, all the organizations used external vendors to help them achieve GRC compliance. Why did these organizations use external vendors? Why didn’t they manage the GRC problem in-house? Support your answer with examples.

RESULTS >>>

CLOSING CASE 2 > Computer Espionage

At an American oil company, hackers obtained a network administrator password, inter- cepted help-desk queries, and infi ltrated private accounts. With that high-level network access, the hackers copied thousands of confi dential e-mails—including those of top executives—and transmitted them to China in massive fi les late at night.

By the time the FBI informed the company of suspicious network traffi c, Chinese fi rms had outbid the oil company on several acquisitions by just a few thousand dollars. It could have been far worse. For months, malicious soft ware had been penetrating further into the company’s information systems and had accessed computers that controlled oil-drilling and pipeline operations. Simply put, the hackers could have completely disabled the oil company.

Security analysts state that this is just one incident in an ongoing, aggressive campaign of electronic espionage that costs U.S. fi rms billions of dollars, endangers U.S. military secrets, and threatens to erode our technological edge. Electronic espionage combines ele- ments of white-collar crime, international spying, and even acts of war. Such attacks are called advanced persistent threats (APTs).

Well-fi nanced teams of hackers that U.S. intelligence agencies believe are backed by foreign governments now constitute a major national security risk. Th e hackers use tactics

THE PROBLEM >>>

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Closing Case 2: Computer Espionage 265

that are diffi cult to trace and choose targets within U.S. infrastructure, government, and military. News sources have identifi ed APT victims that include Google, Morgan Stanley, Dow Chemical, Symantec, Northrop Grumman, and Lockheed Martin.

In February 2011, a security fi rm called McAfee (www.mcafee.com) released a report describing a series of network infi ltrations originating from locations in China and aimed at six global oil, gas, and petrochemical companies (ExxonMobil, Royal Dutch Shell, British Petroleum, Marathon Oil, Conoco Phillips, and Baker Hughes). Instead of trying to iden- tify vulnerabilities in these fi rms’ security systems, the APTs focused on exploiting the one area that is impossible to control—the vulnerabilities of company employees. Th e hackers found personal information about the oil companies’ executives on social networking Web sites. Th ey then created e-mails aimed at enticing the executives to click on a poisoned link. (Th is attack technique is called “spear phishing.”) When victims clicked on these links, they were redirected to a Web site where malicious soft ware loaded onto their computers.

In spring 2011, secret U.S. State Department cables obtained by WikiLeaks and made public by Reuters detailed a widespread digital spying operation linked to China’s People’s Liberation Army. According to the cables, the operation targeted not only U.S. government and private industry, but also high-level European offi cials. Th e Chinese hackers even man- aged to remotely activate the computer microphones and Web cameras of French offi cials so they could listen to and look at everything from offi ce gossip to high-level diplomatic planning sessions.

In August 2011, a report from McAfee detailed hacks into 72 public and private com- puter networks in 14 countries. McAfee warned of “the biggest transfer of wealth in terms of intellectual property in history.” Th ese fi ndings establish that hacking is a major interna- tional security problem.

Th e best approach once an intrusion is detected is for companies and individuals not to tip their hands until they are ready to respond with a serious defense. Countermeasures usu- ally involve fi rst identifying as many infected computers as possible by looking for suspi- cious soft ware on hard drives and then tracking which computers have been contacting suspicious host servers. Th e response team then attempts to immediately pull as many infected computers as possible off the network by any means necessary. In some cases, this process involves literally pulling a cable out of the computer. Oft en it is impossible to know whether all the malicious soft ware has been successfully removed.

In 2009 the Obama administration created the U.S. Cyber Command, which are execu- tive orders signed by President Obama that give the U.S. military the all-clear to use weapons that can perform tasks ranging from espionage to the crippling of an enemy’s electrical grid.

Despite this measure, the government can unfortunately go only so far to protect the networks of private companies. In 2011, the Department of Defense launched a pilot pro- gram with the defense industrial base that helps contractors improve security and share information about emerging forms of malicious soft ware.

Plausible deniability is precisely what makes digital espionage such an eff ective tool. Digital espionage is diffi cult to detect and impossible to prove, and therefore cannot be used to justify retaliation. Digital security experts call this the attribution problem. At most, secu- rity personnel might know the immediate computer involved in hacking a company or government agency, but most oft en they do not even know that. Even if security personnel know that a particular computer is involved in an attack, security personnel do not know who controls that computer. It could be another hacked computer somewhere that some- one else is controlling.

Private industry and government agencies are understandably reluctant to reveal any information about breaches. Most U.S. companies, however, remain vulnerable to security breaches and are naïve about the extent of the problem. Even with countermeasures, most security experts believe that keeping capable and determined attackers out of a system is impossible. One expert says, “If you want to talk about really confi dential stuff in e-mail, you’ve got to understand that if you’ve got a real sophisticated adversary, they’re reading it. It’s not only that you’re only as secure as the weakest link in your network. In an intercon- nected world, you’re only as secure as the weakest link in the global chain of information.”

<<< POSSIBLE SOLUTIONS

<<< THE RESULTS

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266 7 l Information Security

Sources: Compiled from S. Gorman, “Chinese Hackers Suspected in Long Term Nortel Breach,” Th e Wall Street Journal, February 14, 2012; M. Riley and S. Pearson, “China-Based Hackers Target Law Firms to Get Secret Deal Data,” Bloomberg, January 31, 2012; A. Piore, “Th e Secret War,” Popular Mechanics, January, 2012; S. Gorman, “China Hackers Hit U.S. Chamber,” Th e Wall Street Journal, December 21, 2011; S. Martin, “Federal Panel Warns that China’s Accounting, Computer Espionage Bear Watching,” Emerging Money, November 16, 2011; M. Riley and A. Vance, “Th e Code War,” Bloomberg BusinessWeek, July 25–31, 2011; F. Rashid, “Northrup Grumman, L-3 Communications Hacked Via Cloned RSA SecureID Tokens,” eWeek, June 2, 2011; S. Gorman, “Cyber Combat: Act of War,” Th e Wall Street Journal, May 31, 2011; J. Markoff and D. Barboza, “Researchers Trace Data Th eft to Intruders in China,” Th e New York Times, April 5, 2010; L. Whitney, “U.S. Cyber Command Prepped to Launch,” CNET News, March 23, 2010; D. Gelernter, “Welcome to Cold War II,” Forbes, April 3, 2009.

Questions 1. If the security experts are correct and organizations have no way to fully

protect their information assets, then what should an organization do to protect those assets?

2. Go to Wikipedia (www.wikipedia.org) and look up “mutually assured destruc- tion.” Apply what you learn there to this case. That is, does cyberwarfare fi t in the “mutually assured destruction” category? Why or why not?

Ruben and Lisa have decided to go with a third party to handle their e-commerce transactions. They do not want to store any customer payment information on their Web site. Although they realize they are losing some money on each transaction in fees to the e-commerce provider, they consider this fee cost-effective “risk transfer” for them.

Specifi cally, they are considering the Google Checkout, Amazon Stores, eBay Stores, Yahoo Business, and PayPal as viable options. They feel that their customers would recognize these companies and feel confi dent in their transactions by associating with them.

As their intern, they want you to research these fi ve options and provide them feedback on each. Which provides

the easiest method of integrating e-commerce into their own new Web site? Which currently has largest customer base? Which one are customers most comfortable with? Have they had any recent security breaches? If so, how did they handle them and what were the ramifi cations to their customer (the company they provided the e-commerce tools to and the customers of that company)?

After you do your research, write Ruben and Lisa a letter (in business format) and make a suggestion as to the one you feel would best suit their needs.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

Objective: This activity will bring together the ideas of security and formula writing in a spreadsheet. Upon completion, you will be able to take data presented in written form, translate it into numbers, create formulas, and then rank security issues based on the spreadsheet you create.

Chapter Connection: Security issues are not all created equal. Some are frequent and inexpensive to overcome; others are rare and costly. Intentional and unintentional threats must be dealt with. But as a network manager, how do you know what deserves the most resources? Given that you never know where

SPREADSHEET ACTIVITY: RISK ANALYSIS WITH A SPREADSHEET

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Spreadsheet Activity 267

the next threat will come from, how will you allocate resources? This activity will bring this discussion to a spreadsheet and help you apply your math and spreadsheet skills to this very “real-world” situation.

Activity: Consider the following situation. You are the network manager at a local bank. A number of security issues must be dealt with. However, like everyone else, you have limited resources. You only have $10,000 in your budget to allocate to security. This money can be spent on hardware, software, training, or anything else you deem worthy of this money. Here is a list of potential threats. • Malware: If malware ends up installed on a

computer in the system, it could easily spread to the other machines without anyone knowing it is there. The expense of repairing the machines and restoring data are minimal when compared to the cost of rebuilding trust in the consumer. Estimated total cost of marketing and repairing customer trust: $25,000. Probability of occurring: 35 percent. Cost of preventative maintenance and training: $3,500.

• Careless employees: Judy has to run to the restroom. Because she trusts everyone she works with, she walks away from her computer without locking it. When she is away from her desk and her computer is unlocked, Johnny walks in. No one thinks anything about Johnny on Judy’s computer because he is the local “computer guru” even though he is a janitor. While Judy is away and Johnny is on her computer, he transfers a total of $7,500 from over 150 total accounts by running a script in the computer system. When Judy returns, she sees Johnny on the computer and thanks him for watching it, laughing about how she accidentally left it unlocked. Probability of occurring: 5 percent. Cost of preventative maintenance and training: $2,000.

• Cloud computing: Banks rely on many software packages to accomplish their goals. Not the least of these are the many packages run by the home offi ce. These are accessed over the Internet, and private data are transferred back and forth. A hacker who is able to hack into the local system would by default have access to the cloud. The cost of this is monumental. Customer data from across the nation would be compromised. Having a backup of all data is imperative. Keeping employees trained on using the system, avoiding social engineering, changing passwords, and other issues are paramount to help protect the home offi ce and the local offi ce. Total potential loss: $2.5 million. Probability of occurrence: 2.5 percent. Cost of preventative maintenance and training: $7,000.

• Fire: This is always a threat. If a fi re breaks out, it could be devastating. Loss of technology equipment

alone would run close to $20,000. Loss of records would be almost unrecoverable. However, the chance of fi re is relatively low. At a 2 percent chance of fi re, this is a minimal concern. The cost of preventative maintenance is not cheap. Sprinklers have to be inspected, fi re retardant material must be tested, and fi re extinguishers must be replaced. Total preventative maintenance cost is $1,500. However, the total potential loss is a devastating $250,000.

Given that most people agree that risk (R) is equal to the consequence (C) multiplied by the probability of occurrence (P):

R 5 C*P

Create a spreadsheet that calculates this formula. Then use your estimated risk to fi gure the return on security investment (ROSI) that most consider to be equal to risk avoided (R; hopefully it will be avoided by the investment) divided by the cost of preventative maintenance (PM).

ROSI 5 R/PM

This number represents the “impact” of an investment and can be used to help determine how to create a budget so that the return is maximized. The higher the number, the more of the risk is covered by the investment. Use this number to prioritize where to make security investments. Because your budget is only $10,000, you will need to determine where to spend your money. According to this scenario, total coverage would cost $14,000. Use the ROSI to recommend a budget. Also provide your spreadsheet for justifi cation of the budget.

Deliverable: The fi nal product will be a spreadsheet formula, ranking, and presentation of a suggested budget.

Discussion Questions:

1. Discuss the advantages and disadvantages of building a formula once and copying it to multiple rows or columns.

2. Discuss the importance of taking verbal or written clues and being able to build a spreadsheet. Is a spreadsheet the ultimate combination of math and business?

3. Given that no one has unlimited resources, is it possible to ever cover all the bases and ensure security? What type of agreement must there be between the business and the consumer for this situation to exist and be acceptable?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

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268 7 l Information Security

DATABASE ACT IV ITY: TABLES II Objective Information systems need checks to catch errors in the entry of data. Errors can lead to bad decisions, producing the wrong products, ordering too much or too little, sending one group messages meant for another, and more. If you develop a database for yourself or your team, you should check for as many errors as you can. When you use a database, you can form an opinion of its reliability by seeing how it checks its inputs. Not all errors can be caught, of course. If a street address is entered as 63 instead of 36 Elm, a database cannot tell it is wrong. Many errors can be caught, however. You will learn a few of the methods here using the following features of Microsoft Access:

• Default values • Range checks • Value checks against a list

CHAPTER CONNECTION Security includes keeping bad data out of databases. Checking data as entered can prevent many errors and some mischief. Here, you will see how Access checks data as it is entered. Other database management systems work in much the same way.

PREREQUISITES Before you begin this activity, you will need to familiarize yourself with and practice three concepts in this activity: default values, validation checks based on a range of valid data, and validation checks against a list. The following sections introduce these concepts and provide practice in dealing with them. Read these sections and complete the brief practice items before moving to the larger activity.

DEFAULT VALUES A default value is the value of a data item if no other value is entered. Say an Ohio college attracts primarily students from the Dayton area. Most of its applicants have home phones in area code 937. A database could pre-enter 937 as the area code of new applicants. The work-study student who enters applicant information into a database can change it for those with different home phone area codes, but having it saves time and reduces errors.

To enter a default value for a fi eld in an Access table:

1. Open the table in Design view. 2. Select the fi eld for which you want to specify a

default value. 3. Find the Default Value row in the Field Properties

pane, under the General tab. 4. Click on the right side of this row and key in the

desired value, as shown in Figure 7A.1.

Usage Hint: You can also assign default values and perform validation checks on fi elds in forms instead of in tables. In the form’s Layout or Design view, open its Property Sheet, select a fi eld, select the Data or All tab on the Property Sheet, and continue as above. The check will be applied only to data entered via that form. Checks entered in table defi nitions are applied to all data entered in any way. 5. Go to Datasheet view to confi rm that the default

value was entered correctly. You should see the value in the bottom (New) row of the table. If you enter a default value in a form, you will not see it in the table’s Datasheet view, but you will see it if you enter a new record via the form.

Figure 7A.1

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RANGE CHECKS Database designers often need to make sure data are in an allowable range. For example, the quantity of something in an order must be greater than zero, or the year of birth of a pupil entering kindergarten in September 2012 might have to be 2007. This, by the way, shows one reason for putting checking in a form rather than in the table on which the form is based. Suppose an occasional student born outside the usual year enters kindergarten. The school principal might have a different form, in which a new student’s year of birth can be 2006, 2007 or 2008. Supervisors can often override data checks that apply to the workers they supervise.

To enter a range check for a fi eld in an Access table:

1. Open the table in Design view. 2. Select the fi eld for which you want to enter a range

check. 3. In the Field Properties pane below the list of fi elds,

under the General tab, fi nd the Validation Rule row. 4. In the right side of this row, enter an expression

that will evaluate to True or False, and is True for valid data. For example, the expression “�5” (without quotation marks) means the value entered in the fi eld must be greater than 5. The data the user enters is implied to the left of the “�.”

These comparison operators are used in validation expressions:

5 (equal to) Seldom useful by itself. If a database designer knows what a value must be, why require a user to enter it? . (greater than) , (less than) .5 (greater than or equal to) ,5 (less than or equal to) ,. (less than or greater than; that is, not equal to)

In addition, these are often useful in validation and other expressions:

AND requires both the condition on its left and the condition on its right to be met. “.5 0 AND ,510” requires a value of at least zero but not over ten.

OR requires either the condition on its left or the one on its right, possibly both, to be met. “,5 OR .50” excludes numbers from 5 to 50 but allows all others. (Be sure you understand why the expression means this.)

BETWEEN . . . AND . . . means just what you would think. “BETWEEN 0 AND 10” is another way to write the condition that was used as an example for AND.

IS NULL lets you leave a fi eld blank. Some versions of Access will not let you leave one blank if it has a validation rule, because blank data does not satisfy the rule. If you want to allow the fi eld to be left empty, write “IS NULL OR . . .” where the rest of the rule is whatever you want as validation if anything at all is entered.

If you want to use a date in a condition, enclose it between #s. “.5#1/1/2010#” (without quotation marks) will accept any date in 2010 or later.

Instead of an actual date, you can write “DATE()” to mean today’s date. “.DATE()” will accept any date in the future. This can be useful, for example, for delivery date estimates. It does not guarantee that the order will arrive then, but it prevents a company from promising to deliver something last week.

There is more. For example, you could make sure an account number consists of a letter followed by fi ve digits, the last of which is even. Once you understand how validation rules work, you can read up on the rest if you need to.

5. Optionally, but a good practice, enter an error message in the right side of the Validation Text row. Access will display it to the user if the test fails. A few suggestions:

• Make messages informative. Say “Quantity must be greater than zero,” not “Quantity error.”

• Do not try to be funny. It is nearly impossible to do this well. Even a genuinely funny message loses its humor after someone has seen it fi ve (or fi fty) times.

• Do not insult the user. (The user might be your boss.)

• Do not end the message with an exclamation point. “Must be from 1 to 5” is fi ne. “Must be from 1 to 5!” is scolding. Nobody likes to be scolded.

If you do not provide a message, Access will display the rule that the data did not satisfy in a standard message format. Some users will be able to fi gure out the problem from this, but many nontechnical people will fi nd it confusing.

6. Test your work by going to Datasheet view, entering sample data values, and confi rming that valid ones are accepted but invalid ones are not. Pick values that provide good tests. Try values at the limits: if a number is supposed to be less than 10, not less than or equal to 10, make sure 10 is rejected.

Usage Hint: Access does not apply validation checks to default values. This can lead to problems when a user changes a default, realizes that the change was

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in error, and tries to change it back. If there are both a default and a validation rule for the same fi eld, be sure the validation rule allows the default value. That way, users can restore the default value if they change it by mistake.

CHECKING VALUES AGAINST A LIST Sometimes there is no simple formula to defi ne valid data, but there is a list of valid values. For example, you might require a state code in a U.S. postal address to be one of the 501 two-letter codes that the U.S. Postal Service recognizes or you might require a department name to match one of the departments in your company. The simplest way to handle this is to list them in the rule. The expression “IN (a, b, c, . . .)” does this. This evaluates as True if the entered value is a, b, c, up to as many as you have. (Replace a, b, c, and so on with the valid values.) If items are text, put them in quotation marks. A rule to see if a location is one of your fi rm’s offi ces might look like this:

IN (“Boston”, “Paris”, “Sydney”, “Santiago”)

Usage Hint: If you are in North America, you were taught that commas go inside quotation marks in English writing. That does not apply to Access functions! Longer lists should be in tables. (This is a fl exible concept that can do more than reduce data entry errors.) To get a pull-down list with all valid values:

1. Create a new table with one fi eld. Give it the same data type as the fi eld whose data you want to validate. Enter all valid data values into this column. Save the table, giving it a suitable name, and close it. You can change it whenever the list of valid data values changes.

2. Open the table that contains the fi eld you want to check against this list. In Design view, select that fi eld. Select its Data Type column and change its data type to “Lookup Wizard …”

3. On the fi rst page of the wizard, tell it you want to look up values in a table or query.

4. On the next page, select the table you just created. 5. On the next page, select the only column this table

has and move it to the right-hand pane by clicking the “�“ symbol. Click “Next” a few times until the wizard exits Figure 7A.2.

6. A value list created this way lets the user select values from a pull-down list. It also lets the user enter a value that is not in the list. If you want to prevent that, while this fi eld is still selected, click the Lookup tab in the Field Properties pane. Change “Limit to list” to Yes via the down arrow at the right of the row. (If you do not do this now, you can do it later.)

Usage Hint: If you do this with a table that already contains data, you may have to re-enter the data in the column you were working with. In that case, make sure to keep a record of it, or have some other way to re-create it, before you confi rm all the steps in closing the wizard. 7. Switch to Datasheet view to confi rm that the fi eld

behaves correctly. 8. You can click the Database Tools ribbon tab and

look at the relationship map. If it does not show the new table, click Show Table and add it to the map. You will see a link between the new table and the table that contains the data to be validated against it.

Activity

1. Download the Ch 07 CustOrder database from http://www.wiley.com/rainer/go/database and open it. It has tables for customers, orders, line items and products. Its structure resembles the example in Section 3.3 of the book. The Ordered Parts table there corresponds to the line item table here.

2. Open the Line Item table and specify a default value of 1 for Quantity.

3. Open the Customer table and enter a default value of 0 for customer discount. Also, for the same fi eld, add a rule to limit the discount to a range of 0 to 25. (If this column was formatted as a percentage, you would have to enter the upper limit as 0.25, not 25. Access can display fractions as percentages, but that is just for display. It treats them as fractions internally and validates them that way. Here, however, because the column is not formatted as a percentage, use 25.) Enter an error message to display if a user tries to enter a value outside this range.

4. In the Order table, add a validation rule to the order date: it must be no later than today. (The limiting value, today, is allowable.)

Figure 7A.2

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Database Activity 271

5. Create a table CountryList with one column: countries from which you expect orders. Enter ten countries into it, including your home country, the other countries in the sample data, and enough others of your choice to make ten. Link the table to the Country fi eld in the Customer table. The user should be allowed to enter a new country in the Customer table if a customer’s country is not in the list. (Because you are doing this to a table that already has data in it, you will have to re-enter the country names when you are done. If you cannot fi gure them out from the city names, write them down fi rst.)

Deliverable Your completed database, with the above changes.

Quiz Questions

1. True or false: A person entering data into an Access database can change a fi eld from its default value to a different value.

2. In which of the following places can you specify a default value for a data element?

2.1. In a table, in Datasheet view 2.2. In a table, in Design view 2.3. In a report 2.4. In a form Choose one of the following four answers, (a)

through (d): (a) 2.2 (b) 2.2 and 2.4

(c) 2.1 and 2.4 (d) 2.2 and 2.3

3. Which of the following validation rules will allow only dates between July 13 and December 16, 2011 (including both endpoints)? (a) .#7/12/2011# AND ,#12/17/2011# (b) BETWEEN #7/13/2011 AND #12/16/2011# (c) .5#7/13/2011# AND ,5#12/16/2011# (d) All of the above

4. If a validation rule has no validation text, which of the following will happen? (a) The rule will not be applied. Any data can be

entered without checking. (b) The rule will be applied to Number and Date

data, but not to Text data. (c) The rule will be applied, but the error message

may not be informative. (d) The rule will be applied to new data, but not to

data that someone changes later.

Discussion Questions

1. How would you write a validation rule to permit a data value to be either 0 or any number from 5 through 10?

2. What is the purpose of Validation Text in an Access table defi nition?

3. How would you write a validation rule that requires a data value to be one of the six letters A, B, C, D, F or I?

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8 CHAPTER OUTLINE

8.1 Web 2.0 8.2 Fundamentals of Social

Computing in Business 8.3 Social Computing in Business:

Shopping 8.4 Social Computing in Business:

Marketing 8.5 Social Computing in Business:

Customer Relationship Management

8.6 Social Computing in Business: Human Resource Management

8.7 Crowdsourcing

Social Computing

LEARNING OBJECTIVES >>>

1. Describe six Web 2.0 tools and the two major types of Web 2.0 sites. 2. Describe the benefi ts and risks of social commerce to companies. 3. Identify the methods used for shopping socially. 4. Discuss innovative ways to use social networking sites for advertising and

market research. 5. Describe how social computing improves customer service. 6. Discuss diff erent ways in which human resource managers make use of social

computing. 7. Discuss the advantages and disadvantages of crowdsourcing to organizations.

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Lisa Keiling owns a tanning salon in Wedowee, Alabama, that does very well from January to May. Unfortunately, during the rest of the year the demand for tanning beds is extremely low. In fact, the demand is so low that Lisa decided to try some new strategies. She tried a small hunting/fi shing shop in a room where a tanning bed had been. Even though Wedowee is a small town with lots of hunting and fi shing, that idea did not work well. Th en, Lisa decided to sublease part of her space to add a hairdressing room in the back. Th is idea generated a lot of extra revenue and became a very important part of her business.

During the months where tanning was minimal, Lisa’s main income was revenue that came from the leased space to the hairdresser, but she still needed help to make it through the slow times. Aft er searching around for small business ideas, she found a machine that would cut out vinyl designs that could be placed on cups, purses, bowls, plates, frames, or any hard surface. With this machine, she could customize just about anything that she could imagine! She purchased it and began learning to use it.

Once she became good at producing vinyl designs, she wondered how to get the word out. She knew she needed to use the Internet, but she did not feel comfortable building a Web site herself. Th en, Lisa realized that she was very familiar with Facebook. Because she had lived in this area for a long time and already had many “friends” on Facebook, the site was a natural fi t to advertise for her new business. Lisa fi rst created an account for her company. As she designed each new product, she simply posted a picture of it on Facebook, “liked” it herself from her personal page, and other people did the same. Her new creations were going viral and getting the word out in small-town Wedowee, and she was getting new business!

For Lisa, the vinyl designs business and Facebook saved her business in the winter months. You can visit her Facebook page and see that she is very active online every day. Her page has given her customers a place to contact her and it has > > >

OPENING CASE > Tiger Tans and Gifts

Ruby’s Club introduced their Web site only fi ve years ago. Since then, it has been a very basic Web 1.0 site, containing static information that has changed very little over the course of the years. Now, with the rise of Web 2.0 technology and the growing skills of Internet users, it seems natural that Ruben and Lisa can use this technology to reach their customers.

Although they are aware of this technology, neither of them is very experienced with it. Ruben only joined Facebook last year because he was trying to learn more about a band that was coming to perform at the club. He has not explored it much from a business standpoint and really does not know what is possible. And Twitter is not even on their radar yet.

In addition, they want to explore options such as blogs, wikis, and other Web 2.0 material. But where do they go? What should they hope to accomplish?

© Courtney Keating/iStockphoto

RUBY’S CLUB

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274 8 l Social Computing

Questions 1. What other actions could Lisa take on Facebook to

“get the word out” about her custom gifts? 2. Does Lisa really need a Web site for her business, or is

her Facebook page suffi cient? Hint: Can she take orders via her Facebook page?

given her a way to sell her product without people having to come to her store.

Currently, she is exploring the addition of a Web site to streamline the ordering process. Th is Web site would be synced with her Facebook page, and serve to give customers a single place for orders. She hopes that all of her eff orts will continue to make her business a success, with the custom gift shop as her main source of income and the tanning salon providing only supplemental income.

Sources: Compiled from authors’ personal interviews with Lisa Keiling.

Introduction

Humans are social individuals, and thus human behavior is innately social. Humans, there- fore, typically orient their behavior around other members of their community. As a result, people are sensitive to the behavior of those around them and many of their decisions are infl uenced by their social context.

Traditional information systems support organizational activities and business pro- cesses and concentrate on cost reduction and increases in productivity. In a variation of this traditional model, social computing is a type of IT that combines social behavior and information systems to create value. Social computing concentrates on improving collabo- ration and interaction among people and on user-generated content. In social computing, social information is not anonymous, but is signifi cant precisely because it is linked to par- ticular individuals, who are in turn linked to their own networks of individuals.

Social computing makes socially produced information available to all. Th is informa- tion may be provided directly, as when users rate a movie (for example, at Rotten Toma- toes), or provided indirectly, as with Google’s PageRank algorithm, which sequences search results.

In social computing, users, rather than organizations, produce, control, use, and man- age content via interactive communications and collaboration. As a result, social comput- ing is transforming power relationships in organizations. Employees and customers are empowered by their ability to use social computing to organize themselves. Th us, social computing can infl uence those in power to listen to the concerns and issues of ordinary people. Organizational customers and employees are joining this social computing phe- nomenon, with serious consequences for most organizations.

Most governments and companies in modern developed societies are not prepared for the new social power of the masses. Today, managers, executives, and government offi cials can no longer control the conversation around policies, products, and other issues.

In the new world of business and government, organizational leaders will have to dem- onstrate authenticity, even-handedness, transparency, good faith, and humility. If they do not, customers and employees may distrust them, to potentially disastrous eff ect. For exam- ple, customers who do not like a product or service can quickly broadcast their disapproval. Another example is that prospective employees do not have to take their employers at their word for what life is like at their companies—they can fi nd out from people who already work there. A fi nal example is that employees now have many more options to start their own companies, which could compete with their former companies.

As you see from these examples, the world is becoming more democratic and reflective of the will of ordinary people, enabled by the power of social computing. On the one hand, social power can help keep a company vital and can enable customers and employee activists to become a source of creativity, innovation, and new ideas that

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Web 2.0 275

will move a company forward. On the other hand, companies that show insensitivity toward customers or employees quickly find themselves on a downward slide. Consider the following examples:

• Hershey faced public relations problems in August 2011 when 400 college students revolted, walking off their jobs. Th ese students were hired through a U.S. State Department-sponsored foreign-exchange program, and they did not like the stress of working in a candy-packing factory, sometimes on all-night shift s. Th e students, who came from China, Nigeria, Turkey, and Ukraine, were excellent communicators and used YouTube, Facebook, and other tools to bring attention to their plight.

• Adidas came under attack in New Zealand when fans of the country’s hugely popular national rugby team were outraged to learn that Adidas team jerseys were being sold for signifi cantly more at home than in other countries. Fans found this information by researching product prices in New Zealand and the United States online. Armed with this information, fans organized protests. Soon, national news programs picked up coverage of the protest and of Adidas’s slow response to the consumer outrage. Customers started returning Adidas clothing to stores in disgust, and employees felt so threatened by the populace that they removed Adidas’s logos from their company vehicles.

• In the Netherlands in 2011, a social media campaign against bankers’ bonuses focused on the Amsterdam-based company ING. Bank customers began threatening en masse to withdraw deposits. In response, CEO Jan Hommen voluntarily waived his own upcoming $1.8 million bonus and then ordered all company directors to do the same.

Organizations today are using social computing in a variety of innovative ways, including marketing, customer relationship management, human resource management, and others. In fact, so many organizations are competing to use social computing in as many new ways as possible that an inclusive term for the use of social computing in business has emerged: social commerce. Because social computing is facilitated by Web 2.0 tools and sites, you begin this chapter by examining these technologies. You then turn your attention to a diverse number of social commerce activities, including shopping, advertising, market research, customer relationship management, human resource management, and crowd- sourcing. You conclude the chapter by studying the risks and concerns associated with social computing.

When you complete this chapter, you will have a thorough understanding of social computing and the ways in which modern organizations use it. You will be familiar with the advantages and disadvantages of social computing and the risks and rewards it can bring to your organization. For example, most of you already have pages on social net- working sites, so you are familiar with the benefi ts and drawbacks of such sites. Th is chap- ter will enable you to apply this knowledge to your organization’s eff orts in the social com- puting arena. You will be in a position to contribute to your organization’s policies on social computing. You will also be able to help your organization design its own strategy for social computing.

Signifi cantly, social computing can help you start your own business. For example, many entrepreneurs have developed successful businesses on Facebook (see this chapter’s opening case).

As we noted earlier, social computing is facilitated by Web 2.0 tools and sites. In the next section, you will learn about Web 2.0 tools such as AJAX, tagging, really simple syndi- cation, blogs, microblogs, and wikis. You will also learn about two major types of Web 2.0 sites, social networking sites and mashups.

8.1 Web 2.0 Th e World Wide Web, which you learned about in Chapter 4, fi rst appeared in 1990. Web 1.0 was the fi rst generation of the Web. We did not use this term in Chapter 4 because there was no need to say “Web 1.0” until Web 2.0 emerged.

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276 8 l Social Computing

Th e key developments of Web 1.0 were the creation of Web sites and the commercial- ization of the Web. Users typically had minimal interaction with Web 1.0 sites. Rather, they passively receive information from those sites.

Web 2.0 is a popular term that has proved diffi cult to defi ne. According to Tim O’Reilly, a noted blogger, Web 2.0 is a loose collection of information technologies and applications, plus the Web sites that use them. Th ese Web sites enrich the user experience by encouraging user participation, social interaction, and collaboration. Unlike Web 1.0 sites, Web 2.0 sites are not so much online places to visit as Web locations that facilitate information sharing, user-centered design, and collaboration. Web 2.0 sites oft en harness collective intelligence (for example, wikis); deliver functionality as services, rather than packaged soft ware (for example, Web services); and feature remixable applications and data (for example, mashups). Web 2.0 has also been defi ned as a new digital ecosystem, with characteristics of creativity, connectivity, collaboration, convergence, and community.

AJAX Most Web 2.0 applications have rich, user-friendly interfaces based on AJAX. AJAX is a Web development technique that enables portions of Web pages to reload with fresh data instead of requiring the entire Web page to reload. Th is process speeds up response time and increases user satisfaction.

Tagging A tag is a keyword or term that describes a piece of information—for example, a blog, a picture, an article, or a video clip. Users typically choose tags that are meaningful to them. Tagging allows users to place information in multiple, overlapping associations rather than in rigid categories. For example, a photo of a car might be tagged with “Corvette,” “sports car,” and “Chevrolet.” Tagging is the basis of folksonomies, which are user-generated classifi cations that use tags to categorize and retrieve Web pages, photos, videos, and other Web content.

One specifi c form of tagging, known as geo-tagging, refers to tagging information on maps. For example, Google Maps allows users to add pictures and information, such as restaurant or hotel ratings, to maps. Th erefore, when users access Google Maps, their expe- rience is enriched because they can see pictures of attractions, reviews, and things to do, all related to the map location they are viewing.

Really Simple Syndication (RSS) Really Simple Syndication (RSS) allows you to receive the information you want (custom- ized information), when you want it, without having to surf thousands of Web sites. RSS allows anyone to syndicate (publish) his or her blog, or any other content, to anyone who has an interest in subscribing. When changes to the content are made, subscribers receive a notifi cation of the changes and an idea of what the new content contains. Subscribers can then click on a link that will take them to the full text of the new content.

For example, CNN.com provides RSS feeds for each of its main topic areas, such as world news, sports news, technology news, and entertainment news. NBC uses RSS feeds to allow viewers to download the most current version of shows such as Meet the Press and NBC Nightly News.

You can fi nd thousands of Web sites that off er RSS feeds at Syndic8 (www.syndic8. com) and NewsIsFree (www.newsisfree.com). Figure 8.1 illustrates how an RSS can be searched and how RSS feeds can be located.

To use RSS, you can utilize a special news reader that displays RSS content feeds from Web sites you select. Many such readers are available, several of them for free. Examples are AmphetaDesk (www.disobey.com/amphetadesk) and Pluck (www.pluck.com). In addi- tion, most browsers have built-in RSS readers. For an excellent RSS tutorial, visit www. mnot.net/rss/tutorial.

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Blogs A weblog (blog for short) is a personal Web site, open to the public, in which the site creator expresses his or her feelings or opinions via a series of chronological entries. Bloggers— people who create and maintain blogs—write stories, convey news, and provide links to other articles and Web sites that are of interest to them. Th e simplest method of creating a blog is to sign up with a blogging service provider, such as www.blogger.com (now owned by Google), www.xanga.com (see Figure 8.2), and www.sixapart.com. Th e blogosphere is the term for the millions of blogs on the Web.

Many companies listen to consumers in the blogosphere who express their views on the companies’ products. In marketing, these views are called consumer-generated media. For example, Nielsen (www.nielsen-online.com) “mines” the blogosphere to provide infor- mation for its clients in several areas. Nielsen helps clients fi nd ways to serve potential markets, ranging from broad-based to niche markets. Th e company also helps clients detect false rumors before these rumors appear in the mainstream press and gauges the potency of a marketing push or the popularity of a new product.

Although blogs can be very useful, they also have shortcomings. Perhaps the primary value of blogs is their ability to bring current, breaking news to the public in the fastest time possible. Unfortunately, in doing so, bloggers sometimes cut corners and their blogs can be inaccurate. Regardless of their various problems, blogs have transformed the ways in which people gather and consume information.

Microblogging Microblogging is a form of blogging that allows users to write short messages (or capture an image or embedded video) and publish them. Th ese messages can be submitted via text messaging from mobile phones, instant messaging, e-mail, or just over the Web. Th e

Figure 8.1 The Web site of National Public Radio (NPR) with RSS toolbar aggregator and search function. (Courtesy of NPR. Used with permission.)

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content of a microblog diff ers from that of a blog because of the limited space per message (usually up to 140 characters). Th e most popular microblogging service is Twitter.

Twitter is a free microblogging service that allows its users to send messages and read other users’ messages and updates, known as tweets. Tweets are displayed on the user’s profi le page and delivered to other users who have signed up to receive them.

Twitter is becoming a very useful business tool. It allows companies to quickly share information with people interested in their products, thereby creating deeper relation- ships with their customers. Businesses also use Twitter to gather real-time market intel- ligence and customer feedback. As an individual user, you can use Twitter to tell compa- nies about your experience with their business, off er product ideas, and learn about great off ers.

For a great example of a company using Twitter to get closer to customers, look ahead to IT’s About Business 12.1.

Wikis A wiki is a Web site made up entirely of content posted by users. Wikis have an “edit” link on each page that allows any user to add, change, or delete material, fostering easy collaboration.

Wikis take advantage of the combined input of many individuals. Consider Wikipedia (www.wikipedia.org), an online encyclopedia which is the largest wiki in existence. Wiki- pedia contains more than 3.4 million articles in English, which get a combined total of nearly 500 million views every day. Wikipedia relies on volunteer administrators who enforce a neutral point of view and encourage users to delete copy displaying clear bias.

Nevertheless, there are still major debates over the reliability and accuracy of Wikipedia articles. Many educators will not allow students to cite references from Wikipedia because Wiki- pedia content is of uncertain origin. Moreover, Wikipedia does not provide any quality assessment or fact checking by experts. Th erefore, academics and others still have major concerns about the accuracy of user-provided content.

Organizations use wikis in several ways. In project management, for example, wikis provide a central repository for capturing constantly updated product features and specifi cations, tracking issues, resolving

problems, and maintaining project histories. In addition, wikis enable companies to collaborate with customers, suppliers, and other business partners on projects. Wikis are also valuable in knowledge management. For example, companies use wikis to keep enterprisewide documents, such as guidelines and fre- quently asked questions, accurate and current.

Figure 8.2 Xanga organizes blogs by common content (dating, beauty, food, and more) to help readers fi nd multiple blogs on one website.

© esolla/iStockphoto

A wiki allows open contribution to a document.

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Social Networking Web Sites A social network is a social structure composed of individuals, groups, or organizations linked by values, visions, ideas, fi nan- cial exchange, friendship, kinship, confl ict, or trade. Social networking refers to activities performed using social soft ware tools (e.g., blogging) or social networking features (e.g., media sharing).

A social network can be described as a map of all relevant links or connections among the network’s members. Such a map of all relevant links or connections for one member is that per- son’s social graph. Mark Zuckerberg of Facebook originally coined this term to refer to the social network of relationships among users of Facebook. Th e idea was that Facebook would take advantage of relationships among individuals to off er a richer online experience.

Social networks can also be used to determine the social capital of individual participants. Social capital refers to the number of connections a person has within and between social networks.

Participants congregate on social networking Web sites where they can create their own profi le page for free and on which they can write blogs and wikis; post pictures, videos, or music; share ideas; and link to other Web locations they fi nd interesting. Social networkers chat using instant messaging and Twitter and tag posted content with their own key words, mak- ing content searchable and facilitating interactions and transactions. Social networkers converse, collaborate, and share opinions, experiences, knowledge, insights, and percep- tions with each other. Th rough these sites, users are able to fi nd like-minded people online, either to pursue an interest or a goal or just to establish a sense of community among people who may never meet in the real world.

Table 8.1 shows the variety of online social networking platforms. Social networking web sites allow users to upload their content to the Web in the form of text, voice, images, and videos.

© Logorilla/iStockphoto

Social networking allows convenient connections to those of similar interest.

Web 2.0 279

TABLE 8.1 Categories of Social Networking Web Sites

Socially oriented: Socially focused public sites, open to anyone • Facebook (www.facebook.com) • Google Orkut (www.orkut.com) • Google1 (https://plus.google.com) • Hi5 (www.hi5.com)

Professional networking: Focused on networking for business professionals • LinkedIn (www.linkedin.com)

Media sharing • Netcasting includes podcasting (audio) and videocasting (audio and video). For example,

educational institutions use netcasts to provide students with access to lectures, lab demonstrations, and sports events. In 2007, Apple launched iTunes U, which off ers free content provided by major U.S. universities such as Stanford and MIT.

• Web 2.0 media sites allow people to come together and share user-generated digital media, such as pictures, audio, and video. ° Video (Amazon Video on Demand, YouTube, Hulu, Facebook) ° Music (Amazon MP3, Last.fm, Rhapsody, Pandora, Facebook, iTunes) ° Photographs (Photobucket, Flickr, Shutterfl y, Picasa, Facebook)

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Enterprise Social Networks Business-oriented social networks can be public, such as LinkedIn.com. As such, they are owned and managed by an independent company.

However, an increasing number of companies have created their own in-house, private social networks for their employees, former employees, business partners, and/or customers. Such networks are considered to be “behind the fi rewall” and are oft en referred to as corporate social networks. By establishing these networks, companies enable connec- tions among employees that allow them to establish virtual teams, bring new employees up to speed, improve collaboration, and increase employee retention by creating a sense of

Communication • Blogs: Blogger, LiveJournal, Open Diary, TypePad, WordPress, Vox, Expression Engine,

Xanga • Microblogging/Presence applications: Twitter, Plurk, Tumblr, Yammer, Qaiku

Collaboration: Wikis (Wikimedia, PBworks, Wetpaint)

Social bookmarking (or social tagging): Focused on helping users store, organize, search, and manage bookmarks of Web pages on the Internet

• Delicious (www.delicious.com) • StumbleUpon (www.stumbleupon.com) • Google Reader (http://reader.google.com) • CiteULike (www.citeulike.com)

Social news: Focused on user-posted news stories that are ranked by popularity based on user voting

• Digg (www.digg.com) • Chime.in (http://chime.in) • Reddit (www.reddit.com)

Events: Focused on alerts for relevant events, people you know nearby, etc. • Eventful (www.eventful.com) • Meetup (www.meetup.com) • Foursquare (www.foursquare.com)

Virtual meeting place: Sites that are essentially three-dimensional worlds, built and owned by the residents (the users)

• Second Life (www.secondlife.com)

Interesting New Social Networks • Empire Avenue (www.empireavenue.com) is a social exchange network where members

invest virtual currency in people and brands that interest them. • Color (www.color.com) is a free mobile app that creates an instant social network based on

users’ locations and proximity to others. Users can instantly share images, videos, and text conversations with others nearby.

• Foursquare (http://foursquare.com) is a location-based mobile service that enables participants to share their location with friends by checking in via a smartphone app.

• Hunch (www.hunch.com) maps people’s interests by asking them a series of questions. Th e site creates a “taste graph,” which tracks everything that a user likes and dislikes.

Online Marketplaces for Microjobs • For example, TaskRabbit (www.taskrabbit.com) and Zaarly (www.zaarly.com) enable

people to farm out chores to a growing number of temporary personal assistants. Th ousands of unemployed or under-employed workers use these sites. Th e part-time or full-time tasks are especially popular with stay-at-home moms, retirees, and students. Workers choose their jobs and negotiate their own rates.

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Web 2.0 281

community. Employees are able to interact with their coworkers on a level that is typically absent in large organizations or when people work remotely.

Corporate social networks are used for many processes, including

• Networking and community building, both inside and outside an organization • Crowdsourcing: gathering ideas, insights, and feedback from crowds • Social collaboration: collaborative work and problem solving using wikis, blogs,

instant messaging, collaborative offi ce, and other special-purpose Web-based collaboration platforms; for example, see Laboranova (www.laboranova.com)

• Social publishing: employees and others creating either individually or collaboratively, and posting contents—photos, videos, presentation slides, and documents—into a member’s or a community’s accessible-content repository such as YouTube, Flickr, SlideShare, and DocStoc

• Social views and feedback • Social intelligence and social analytics: monitoring, analyzing, and interpreting

conversations, interactions, and associations among people, topics, and ideas to gain insights. Social intelligence is useful for examining relationships and work patterns of individuals and groups and for discovering people and expertise

Th ink about IBM. With more than 426,000 employees across 170 countries, more than 100,000 contractors, and a broad range of business partners and customers, IBM has no choice but to be a social business. In fact, IBM has become the largest corporate consumer of social technologies. On any given day, 50 percent of IBMers regularly work away from traditional IBM offi ces. About 12 percent work at home and another 20 percent are mobile workers.

To enable its social networking, IBM has deployed Social Blue (formerly Beehive), an internal social networking site that gives IBM employees a rich connection to the people they work with on both a personal and a professional level. Social Blue helps employees make new connections, track current friends and coworkers, and renew contacts with peo- ple they have worked with in the past. When employees join Social Blue, they get a profi le page. Th ey can use the status message fi eld and the free-form “About Me” section of their profi le page to let other people at IBM know where they are and what they are doing.

Employees can also use Social Blue to post photos, create lists, and organize events. If users are hosting an event, they can create an event page in Social Blue and invite people to attend.

Users can create top-fi ve lists, called “hive fi ves,” to share their thoughts on any topic they are passionate about. Social Blue also comes in handy when preparing for conference calls. If users do not know the other people on the call, they can check out the participants’ Social Blue profi les before the call and fi nd out if they have current interests, either work related or recreational, or if they have colleagues in common.

In addition to social goals, the Social Blue team created the site to help IBM employ- ees meet the challenge of building relationships that are vital to working in large, distrib- uted enterprises. Social Blue helps project leaders fi nd people with the right skills for their project.

Mashups A mashup is a Web site that takes diff erent content from a number of other Web sites and mixes them together to create a new kind of content. Th e launch of Google Maps is credited with providing the start for mashups. A user can take a map from Google, add his or her own data, and then display a map mashup on his or her Web site that plots crime scenes, cars for sale, or anything else. (See Figure 8.3.)

Th ere are many examples of mashups (for a complete list of mashups, see www. programmableweb.com):

• Craigslist developed a dynamic map of all available apartments in the United States that are listed on Craigslist (www.housingmaps.com).

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282 8 l Social Computing

• Everyblock.com is a mashup of Web services that integrates content from newspapers, blogs, and government databases to enable citizens of cities such as Chicago, New York, and Seattle to fi nd out what is happening in their neighborhoods. Available information includes crime information, restaurant inspections, and local photos posted on Flickr.

Figure 8.3 GoogleMaps (www. googlemaps.com) is a classic example of a Mashup. In this case, GoogleMaps is pulling in information from public transportation web sites to provide the customer with transit directions.

BEFORE YOU GO ON . . . 1. Differentiate among blogs, microblogs,

and wikis. 2. What are the differences between public

and private social networking sites?

Apply the Concept 8.1

Background Th is section diff erentiates Web 1.0 and Web 2.0 by describing them as (1.0) places to visit versus (2.0) places to interact and share information. Whether

you have thought of it in these terms or not, you are familiar with these diff erences. No doubt you are much more accustomed to Web 2.0 now, and businesses have begun integrat- ing information sharing on their public sites. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link for Apply the Concept 8.1. Th is video will give you a good explanation of Web 2.0 technologies. Take notes of the diff erent things that Web 2.0 makes available and then click on the second link provided. It will take you to a CNN Money Web page that provides a rank order list of the Fortune 500. Look at the Web sites of the top 10 and identify the Web 2.0 technologies that they employ on their site.

Deliverable

Prepare a table similar to the one shown below that identifi es the following about the Fortune 10 (or 20):

• Th e company’s name • Th e company’s rank • Th e type of company (e.g., retail, consulting services, communications, etc.) • A list of the Web 2.0 technologies/applications that are being used by each company

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Fundamentals of Social Computing in Business 283

Submit your work to your professor with a note about any trends you fi nd in your analysis.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

Company Web 2.0 Technologies Name Company Rank Industry Used

• A brief description of the ways that each of the Web 2.0 technologies/applications is being used by the company

8.2 Fundamentals of Social Computing in Business Social computing in business, or social commerce, refers to the delivery of electronic com- merce activities and transactions through social computing. Social commerce also supports social interactions and user contributions, allowing customers to participate actively in the marketing and selling of products and services in online marketplaces and communities. With social commerce, individuals can collaborate online, get advice from trusted individ- uals, fi nd goods and services, and then purchase them. Here are a few examples of social commerce:

• Disney allows people to book tickets on Facebook without leaving the social network. • PepsiCo gives a live notifi cation when its customers are close to physical stores

(grocery, restaurants, gas stations) that sell Pepsi products. Th en PepsiCo sends them coupons and discount information using Foursquare.

• Mountain Dew attracts video game lovers and sport enthusiasts via Dewmocracy contests. Th e company also uses the most dedicated community members to contribute ideas.

1. Search for RSS feeds and see how most people use them. Are they for advertising? Newsletters? Articles? New products? Promotions?

2. Are there any bars or clubs in your area that use RSS feeds? What seems to be their purpose?

3. Blogs allow for posts and comments. Although it creates a space for interaction, comments and praise, it also allows for negative comments. Is a blog something Ruby’s could benefi t from? Can you fi nd other bars/clubs that use blogs? How do they seem to be incorporated into their strategy?

Q U E S T I O N SRUBY’S CLUB

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284 8 l Social Computing

• Levi’s advertises on Facebook by enabling consumers to populate a “shopping cart” based on what their friends think they would like.

• Wendy’s uses Facebook and Twitter to award $50 gift cards to those who have the funniest and quirkiest responses to various challenges.

Th ere are many potential benefi ts of social commerce. Table 8.2 shows potential benefi ts to customers and to vendors.

Using social computing does have risks. It is risky to allow a product, brand, or com- pany to appear on social computing Web sites where content is user generated and not edited or fi ltered. In this process, companies must be willing to accept negative reviews and feedback. In fact, negative reviews and feedback can be some of the most valuable informa- tion that a company receives.

Companies using social computing are always concerned with negative posts. For example, when a company creates a Facebook business page, by default the site allows other members of the Web site—potentially including disgruntled customers or unethical competitors—to post notes on the fi rm’s Facebook wall or comment on what the fi rm has posted.

But, if the company turns off the feature that lets others write on its Wall, people may wonder what the company is afraid of. Th e company will also be eliminating its opportu- nity to have great customer conversations take place, perhaps marketing the fi rm’s products and services better than it could do. Further, the company could delete posts, but that only encourages the post author to scream louder about being censored.

Another risk is the 20–80 rule of thumb, which posits that a minority of individuals (20 percent) contribute most of the content (80 percent) to blogs, wikis, social computing Web sites, etc. For example, in an analysis of thousands of submissions over a three-week time frame to news voting site Digg, the Wall Street Journal reported that one-third of the stories that made it to Digg’s homepage were submitted by 30 contributors (out of 900,000 registered members). Other risks of social computing include the following:

• Information security concerns • Invasion of privacy • Violation of intellectual property and copyright • Employees’ reluctance to participate • Data leakage of personal information or corporate strategic information

TABLE 8.2 Potential Benefi ts of Social Commerce

Benefi ts to Customers • Better and faster vendor responses to complaints, because customers can air their complaints

in public (on Twitter, Facebook, and YouTube) and because of crowdsourcing complaints • Customers can assist other customers (e.g., in online forums) • Customers’ expectations can be met more fully and quickly • Customers can easily search, link, chat, and buy while staying on a social network’s page

Benefi ts to Businesses • Can test new products and ideas quickly and inexpensively • Learn a lot about their customers • Identify problems quickly and alleviate customer anger • Learn about customers’ experiences via rapid feedback • Increase sales when customers discuss products positively on social network site • Create better marketing campaigns and brand awareness • Use low-cost user-generated content, for example, in marketing campaigns • Get free advertising through viral marketing • Identify infl uential brand advocates and reward them

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Fundamentals of Social Computing in Business 285

• Poor or biased quality of users’ generated content • Cyberbullying/cyberstalking and employee harassment

Consider Rosetta Stone (www.rosettastone.com), which produces soft ware for language translation. To get the most mileage possible out of social computing, Rosetta Stone has a strategy to control its customer interaction on Facebook. Th e strategy involves both human intervention and soft ware to help monitor the fi rm’s Facebook presence. Specifi cally, the soft ware helps to monitor Wall posts and respond to them constructively.

Fans of facebook.com/RosettaStone who post questions on its Wall are likely to get a prompt answer because the Facebook page is integrated with customer service soft ware from Parature (www.parature. com). Th e soft ware scans Wall posts and fl ags those that require a company response, as opposed to those that repre- sent fans of the company talking among themselves. Rosetta Stone customer service representatives are also able to post responses to the Wall that are logged in the Parature issue tracking database.

Companies are engaged in many types of social com- merce activities, which include shopping, advertising, mar- ket research, customer relationship management, human resource management, and crowdsourcing. In the next sec- tions of this chapter, you will learn about each social com- merce activity.

BEFORE YOU GO ON . . . 1. Differentiate between electronic commerce

and social commerce. 2. Describe the potential benefi ts of social

commerce to customers and vendors. 3. Why are companies so worried about

negative posts on social networking sites? Link your answer to the capabilities of social computing.

4. Describe several risks associated with social computing.

Apply the Concept 8.2

Background Th is section has described many concerns about social computing. Among these concerns are privacy, security, copyright (and other intellectual

property right issues), poor quality content, etc. However, social computing is also too valu- able to ignore! It truly is a double-edged sword.

Th en again, social computing did not create negative customer opinions; it just gave them a platform to share from (right next to the positive opinions). It is creating a world where things are more transparent. Companies must truly seek the customers’ good or they will be “outed” by social computing as greedy.

Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 8.2. Th is will take you to a blog article about a negative video that was published on YouTube about Nestle. It went viral and their legal team asked for the video to be removed. Th e article goes on to discuss diff erent methods for dealing with this negative publicity on social networks.

Also click on the second link provided for Apply the Concept 8.2. Th is is a story of a FedEx driver who threw a fragile package over a fence. Th is video also went viral, but FedEx did not ask for it to be removed.

Consider the two approaches to handling the risks involved in social computing. Which do you think is better?

Deliverable

Write a paragraph summarizing what you have learned from these videos. Write three rules for dealing with negative publicity in your summary. Submit your work to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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286 8 l Social Computing

8.3 Social Computing in Business: Shopping Social shopping is a method of electronic commerce that takes all of the key aspects of social networks—friends, groups, voting, comments, discussions, reviews, etc.—and focuses them on shopping. Social shopping helps shoppers connect with each other based on tastes, location, age, gender, and so forth.

Th e nature of shopping is changing, especially for brand-name clothes and related items. For example, popular brands such as Gap, Shopbop, InStyle, and Lisa Klein are join- ing communities on Stylehive (www.stylehive.com) to help promote the season’s latest fashion collections. Shoppers are using sites like Th isNext (www.thisnext.com) to create profi les and blog about their favorite products in social communities. By tagging each item, everything becomes searchable. Th is process means that your search within these Web sites can yield results targeted to you.

Th ere are several methods to shop socially. You will learn about each of them in the next section.

Ratings, Reviews, and Recommendations Prior to a purchase, customers typically collect information such as what brand to buy, from which vendor, and at what price. Online customers do this by using shopping aids such as comparison agents and looking at Web sites such as Epinions (www.epinions.com). Today, customers also use social networking to guide them in purchase decisions. Th ey resort to rat- ings, reviews, and recommendations from friends, fans, followers, and experienced customers.

Ratings, reviews, and recommendations are usually available in social shopping. In addi- tion to seeing what is already posted, shoppers also have an opportunity to contribute their own ratings and reviews and discuss those from others. (See Figure 8.4.) Th e ratings and reviews come from the following:

• Customer ratings and reviews: either integrated into the vendor’s Web page, a social network page, a customer review site, or in customer feeds (e.g., Amazon, iTunes, Buzzillions, Epinions).

• Expert ratings and reviews: views from an independent authority (e.g., see Metacritic). • Sponsored reviews: paid-for reviews (e.g., SponsoredReviews, PayPerPost). • Conversational marketing: individuals converse via e-mail, blog, live chat, discussion

groups, and tweets. Monitoring these conversations yields rich data for market research and customer service. For example, Maui Jim (www.mauijim.com), the sunglass company, used favorable

word-of-mouth marketing as a key driver of sales for the company. Recently, the company

1. Would it be reasonable for Ruby’s to allow their patrons to easily post comments about bands, drinks, food, etc., on their Web site? What if someone said something negative?

2. Social computing comes with many risks as noted here in the text. What additional risks would be associated with alcohol sales and social media?

3. What if one of Ruby’s customers tagged a photo (on Ruby’s social media page) of someone else who appeared extremely intoxicated? On the drive home, the intoxicated customer was in an accident but the breath test indicated a blood alcohol level within the legal limit. Should the content on Ruby’s social site be available for use in court against the consumer who caused the accident? The business didn’t tag the photo or authorize the “tag.” Is Ruby’s liable?

Q U E S T I O N SRUBY’S CLUB

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Social Computing in Business: Shopping 287

used Bazaarvoice’s Ratings & Reviews to allow customers to contribute 5-point ratings and authentic product reviews on the company’s entire line of sunglasses and accessories. In eff ect, Maui Jim wanted to extend customers’ word-of-mouth reviews across the Web.

Maui Jim wants its customers to share their candid opinions on the style, fi t, and per- formance of all sunglass models. Th e reviews are integrated into its Web site search function to ensure that customers searching for a particular product will see that product’s rating in the search results. Th e company has seen a huge positive response to its ratings eff orts.

Social recommendation Web sites such as ShopSocially (www.shopsocially.com), Blippy (www.blippy.com), and Swipely (www.swipely.com) encourage conversations about purchases. Th e product recommendations come from users’ friends and acquaintances and arguably are more trustworthy than reviews by strangers.

Th isNext (www.thisnext.com) is a Web site where people recommend their favorite products to others. Th e site blends two powerful elements of real-world shopping: word-of- mouth recommendations from trusted sources and the ability to browse products in a way that naturally leads to discovery. IT’s About Business 8.1 discusses another Web site of this type, Pinterest (www.pinterest.com) in detail.

Figure 8.4 Epinions (www. epinions.com) is a web site that allows customers to rate anything from cars to music. In this screenshot, customers review a popular children’s fi lm.

Pinterest

Social networks originated with blogging tools such as Blogger and WordPress, where users had to write an entire blog post to express themselves. Then Twitter and Facebook emerged, and a simple status update was all that was required to share a thought on the

Web. These Web sites then discovered even simpler ways to share—for example, retweeting the updates of others and “liking” Web pages on Facebook. Tumblr, now one of the largest blogging platforms, also fi ts the trend. Not only is the site largely used to share images, but realigning the posts of others is a primary activity on the site.

ABOUT BUSINESS 8.1i Pi t T’S

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288 8 l Social Computing

Social sharing itself now involves less effort and is more visual; “people-centric” recommendations are being augmented by “topic-centric” networks. This means that while Facebook lets you explore the Web through information shared by friends, newer social networks organize content by topics of interest.

Flipboard (http://fl ipboard.com), 2011’s hit news app, is an example of these trends, organizing content by both topics and the “stuff” your friends enjoy. Flip- board turns the news into a more visual experience on your iPad, personalizing your experience by highlight- ing links shared by your online connections and topics that you fi nd interesting.

Pinterest (www.pinterest.com) is 2012’s hottest new app. The Web site is a visual social network that orga- nizes images by topic and lets you reshare with just one click. Pinterest lets users create online scrapbooks to share images of projects or coveted products. The site is a kind of visual bulletin—or inspiration—board. Users, who currently must request an invitation to join Pinter- est, create boards with categories like “Books I Love” or “Beautiful Places” or “Products That Save Me Time.” Users can then link images from Web sites (using a Pinterest browser bookmark) or upload images from their computers and “pin” the images to the boards. As with Twitter, users can follow other users, and Pinterest images can be repinned and shared.

Pinterest has a devoted base of users—most of them female—who enjoy “pinning” items they fi nd around the Web. Although clothing, home décor, and recipes domi- nate the site, inspirational quotes and humor are also popular topics for users to add to their pinboards.

According to comScore, unique visitors to Pinterest increased 400 percent from September 2011 to December 2011. In January 2012, Pinterest attracted 11 million visitors, who spent nearly 100 minutes on the site in that month. And in February 2012, analysts noted that Pinterest drove more visitors to third-party Web sites than Google1, YouTube, and LinkedIn combined.

Pinterest’s problem, however, is that the site in not sure how it is going to make money. This situation is not unusual for an Internet startup. After watching the growth of Facebook and Twitter—both of which grew quickly at fi rst without a traditional business model—Pinterest cofounder Ben Silbermann is following the same path and plans to worry about money-making details later.

Generating revenue from social networking sites, which are usually free to users, has historically been a challenge. Options for Pinterest include selling targeted

advertising and data on users’ interests. Unfortunately, neither option is original and both run the risk of alien- ating Pinterest users.

Retailers are looking to piggyback off the popular- ity of Pinterest. Bergdorf Goodman, a unit of the Nei- man Marcus Group, has begun actively trying to devel- op a following for its high-end clothing and accessories on Pinterest. Lands’ End Canvas added a widget to its product pages, making it easier for users to immedi- ately pin or repost images to their Pinterest profi les.

Etsy.com, an online crafts marketplace with over 50,000 Pinterest followers, is using Pinterest’s price dis- play feature. This means that when Pinterest users “pin” for example, an Etsy chair on a board for their followers to see, the image of the chair will automati- cally include the chair’s title and a banner showing the price.

Pinterest has also been helpful to small businesses. Consider The Wedding Chicks (www.weddingchicks. com). The four-year-old online retailer of wedding-party gifts said Pinterest brings its Web site more than dou- ble the traffi c that Facebook and Twitter do. In addi- tion, Warby-Parker (www.warbyparker.com), an eyewear brand sold online, has seen a 400 percent increase from October 2011 to February 2012 in the number of visitors to its Web site that come directly from Pinter- est. Finally in October 2011, UncommonGoods (www. uncommongoods.com), an online gift retailer, began noticing traffi c coming to its Web site from Pinterest. In March 2012, traffi c from Pinterest to the Uncommon- Goods Web site has rivaled traffi c from Facebook.

Sources: Compiled from K. Bischoff, “Winning the Mommy Market—Our StumbleUpon vs. Pinterest vs. Facebook Experiment,” Forbes, March 8, 2012; D. Donston-Miller, “Pinterest: Why Your Company Should Take An Interest,” InformationWeek, March 6, 2012; T. Watson, “Pinterest and the Hype Factor,” Forbes, February 24, 2012; S. Needleman, “Start-Ups Follow Pinterest’s Lead,” The Wall Street Journal, February 23, 2012; S. Needleman and P. Tam, “The Rite of Web Passage—Huge Traffi c, No Revenue,” The Wall Street Journal, February 16, 2012; P. Cashmore, “Why Pinterest Is 2012’s Hottest Website,” CNN Tech, February 6, 2012; www. pinterest.com, accessed March 7, 2012.

Questions 1. Describe two other ways in which Pinterest could

generate revenue without alienating its users.

2. Are Facebook and Pinterest competitors? Why or why not? Support your answer.

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Figure 8.5 LivingSocial (www. livingsocial.com) is a popular example of a group shopping web site.

Group Shopping Group-shopping Web sites such as Groupon (www.groupon.com) and LivingSocial (www. livingsocial.com, see Figure 8.5) off er major discounts or special deals during a short time frame. Group buying is closely associated with special deals (fl ash sales).

For example, LivingSocial asks people to sign up for a deal at a restaurant, spa, or an event in a given city. You can click on “today’s deal” or on “past deal” (some past deals can still be active). Th e deals are e-mailed to anyone who signs up with LivingSocial. If you like it, you click on an icon and receive the deal the next day. Aft er you buy the deal, you get a unique link to share with your friends. If you fi nd three or more people willing to buy that specifi c deal using your link, then your deal is free.

Vinobest is a French wine merchant that uses Facebook for group buying/fl ash deals. Th e company off ers expert oenologist opinions and sommelier selections for group-buying deals on wine. Vinobest off ers active pricing—the more people who buy, the cheaper the wine.

Individuals can also shop together virtually in real time. In this process, shoppers log on to a Web site, contact their friends and family, and then they all shop online together at the same time. Some real-time shopping providers, such as DoTogether (www.dotogether. com) and Wet Seal (www.wetseal.com), have integrated their shopping service right into Facebook. You log in to Facebook, install the fi rm’s app, and invite your friends to join you on your virtual retail shopping experience.

Shopping Communities and Clubs Shopping clubs host sales for their members that last just a few days and usually feature luxury brands at heavily discounted prices. Club organizers host three to seven sales per day, usually via e-mail messages that entice club members to shop at more than 70 percent off retail—but quickly, before the product runs out.

Luxury brands eff ectively partner with online shopping clubs, as they off er a means to dispose of special-run, sample, overstock, or liquidation goods, while the relative exclusiv- ity of the clubs avoids diminishing a brand’s image. Other examples include Beyond the Rack (www.beyondtherack.com), Gilt Groupe (www.gilt.com), Rue La La (www.ruelala. com), and One King’s Lane (www.onekingslane.com).

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Kaboodle (www.kaboodle.com) is another example of a shopping community. Kaboodle is a free service that lets users collect information from the Web and store it on a Kaboodle list that can be shared with others. Kaboodle simplifi es shopping by making it easier for people to fi nd items they want in a catalog and by allowing users to share recommenda- tions with one another using Kaboodle lists and groups. Kaboodle lists can also be used for planning vacations, sharing research for work and school, sharing your favorite bands with friends, and basically everything else you might want to collect and share information about.

Th e “Our Add” Kaboodle button simplifi es the online shopping experience because once you have it, you simply click on it whenever you see a product anywhere online and you will automatically upload a snapshot of the item, its price and other product informa- tion, and a link that sends you to where to buy it to one of your Kaboodle lists. Th en, you can fi nd it again any time you want.

Social Marketplaces and Direct Sales Social marketplaces act as online intermediaries that harness the power of social networks for introducing, buying, and selling products and services. A social marketplace should enable the marketing of members’ own creations (see Etsy in Figure 8.6). Other examples include

• Craigslist (www.craigslist.com) provides online classifi eds in addition to supporting social activities such as meetings and events

• Fotolia (www.fotolia.com) is a social marketplace for the community of creative people who enjoy sharing, learning, and expressing themselves through images, forums, and blogs; members provide royalty-free stock images that other individuals and professionals can legally buy and share

• Flipsy (www.fl ipsy.com) can be used by anyone to list, buy, and sell books, music, movies, and games

Peer-to-peer Shopping Models Peer-to-peer shopping models are the high-tech version of old-fashioned bazaars and barter- ing systems. Individuals use these models to sell, buy, rent, or barter online. For example, many Web sites have emerged to facilitate online sharing. SnapGoods created a community of

Figure 8.6 Etsy (www.etsy.com) is a social marketplace for all handmade or vintage items.

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EXAMPLE Collaborative Consumption An entirely new generation of businesses is emerging, created by the intersection of the economic crisis, environmental concerns, and the maturation of the social computing. These fi rms facilitate the sharing of cars, clothing, couches, apartments, tools, meals, and even skills. The basic characteristic of these sharing marketplaces is that they extract value out of the “stuff” we already have. The premise of collaborative consumption is simple: Access to goods and skills is more important than ownership of them. There are three types of collaborative consumption:

• Product-service systems that facilitate the sharing or renting of a product (e.g., car sharing)

• Redistribution markets, which enable the reownership of a product (e.g., Craigslist)

• Collaborative lifestyles in which assets and skills can be shared (e.g., coworking spaces)

Consider our second most expensive asset, our cars. Across the United States, Canada, and Western Europe, the average person uses his or her car only 8 percent of the time. In fact, cars are the ultimate expensive, underutilized commodity. In 2000, Zipcar started convincing city dwellers that they could enjoy the perks of access without the expense of actually owning a car. Zipcar, however, is hampered by the cost of expanding and maintaining its fl eet, a cost (in mid-2012) of some $90 million per year. Competitors are emerging with business models that might be more effi cient than Zipcar’s. Companies like RelayRides (http://relayrides.com), Zimride (www.zimride.com), Spride (www.spride.com), and Getaround (www. getaround.com) do not own any cars—they simply enable the sharing of autos owned by individuals. For example, the average person who allows his or her car to be rented at RelayRides makes $250 per month. Some users are making enough on RelayRides to make their entire car payment. And because RelayRides has a $1 million insurance policy covering both sides during each reservation, it is low risk. There are environmental benefi ts to car sharing as well. When people’s mobility costs shift from being fi xed (ownership) to variable (renting), they make more effi cient decisions about when they actually need to drive. Research has shown that the average car sharer drives 40 percent less than the average owner. German car manufacturer Daimler is taking car sharing seriously. Its Car2Go (www.car2go.com) service is similar to Zipcar’s, except that it does not require a reservation or a two-way trip. Car2Go’s mobile app allows a person walking down the street in a city to locate a Smart car on that block, access it immediately via a windshield card reader and PIN number, drive it anywhere

people who rent goods to people in need, usually for the short term. SnapGoods helps these people connect over the Internet.

All of the sites encourage collaborative consumption— that is, peer-to-peer sharing or renting. Th is trend is the result of the recession, but it has a green aspect as well. One of col- laborative consumption’s most surprising benefi ts, however, turns out to be social. In an era when we may not know our neighbors that well, sharing things—even with strangers we have just met online—allows us to make meaningful connec- tions. Some people share cars and others invite travelers to stay in their homes for free. Th e following example shows the ben- efi ts of collaborative consumption.

BEFORE YOU GO ON . . . 1. Why are ratings, reviews, and

recommendations so important in social shopping?

2. Why do companies selling on shopping clubs have to pay attention to protecting their brands?

3. How is peer-to-peer shopping related to sustainability (i.e., the green movement)?

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locally, and leave it there for someone else to use. The fuel-effi cient Smart car has a 100-watt solar roof, which powers the car’s telematics and its battery. Daimler is also developing an app called Car2Gether (www.car2gether.com), which matches local drivers with people looking for a ride. Riders submit a request to a driver of any type of car, and both profi les are linked to their Facebook pages and Twitter feeds. After the ride, both driver and rider rate each other. The challenge that worries everyone in the sharing space is trust. Sharing only really works when there is reputation involved. Most sharing platforms try to combat this issue by building a self-policing community. Almost all platforms require profi les for both parties and feature community rating systems. Startups like TrustCloud (http://trustcloud.com) would like to become the portable reputation system for the Web. The company has built an algorithm to collect (if you choose to opt in) your online “data exhaust”—the trail you leave as you engage with others on Facebook, LinkedIn, Twitter, commentary-fi lled sites like TripAdvisor, and others—and calculate your reliability, consistency, and responsiveness. The result is a contextual badge that you carry to any Web site, a trust rating similar to the credit rating you have in the “offl ine” world. Of course, Facebook is already collecting a huge amount of your data exhaust on its own site. As a result, Facebook has the potential to become the arbiter of online trust. Collaborative consumption has the potential to be extremely disruptive to existing organizations. For example, if “the people formerly known as “consumers” began consuming 10 percent less and sharing 10 percent more, the effect on the margins of traditional corporations is going to be disproportionately greater.

Sources: Compiled from D. Sacks, “The Sharing Economy,” Fast Company, May, 2011; www.car2go.com, http://trustcloud.com, accessed March 30, 2012.

Questions 1. What are some potential disadvantages of car sharing? 2. Describe how collaborative consumption can be disruptive to traditional

organizations.

Apply the Concept 8.3

Background Social shopping is nothing new. Th is section defi nes it as taking the key aspects of social networks (groups, reviews, discussions, etc.) and focusing these

aspects on shopping. People have done this for years offl ine just through general conversation. Today, most consumers do a lot of research before they make a purchase by reading the

reviews other customers have purchase. Recently, however, the validity of reviews has been questioned. While you learn about social shopping, you should also be aware of the poten- tial fraud that takes place online. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link for Apply the Concept 8.3. Th is will take you to an article from the New York Times that was published on January 26th, 2012, titled “For $2 a Star, an Online Retailer Gets 5-star Product Reviews.”

Talk to fi ve of your friends about this and get their feedback. How did they respond to the fact that product ratings may not be legitimate? Ask them the following questions:

• What star rating do you require to consider a product? • Do you read reviews or just look at stars? • If you read reviews, do you read only the good, only the bad, or a mixture? • Do you rely on reviews more than a third-party company such as Consumer Reports?

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Social Computing in Business: Marketing 293

Deliverable

Summarize your conversations in a couple of paragraphs and present it to your professor. Keep these thoughts in mind as you progress through the rest of this chapter.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

8.4 Social Computing in Business: Marketing Marketing may be defi ned as the process of building profi table customer relationships by creating value for customers and capturing value in return. Advertising and market research are two marketing processes where social computing is particularly useful. In this section, you learn about social computing in advertising and market research.

Advertising Social advertising represents advertising formats that make use of the social context of the user viewing the ad. Social advertising is the fi rst form of advertising to leverage user dynamics such as peer pressure, friend recommendations and likes, and other forms of social infl uence.

Advertising is considered by many to be the answer to the challenge of making money off social networking sites and social commerce sites. Advertisers have long noted the large number of visitors on social networks and the amount of time they spend there. As a result, they are willing to pay to place ads and run promotions on social networks. Advertisers now place ads on all major social networking Web sites.

Most ads in social commerce are branded content paid by advertisers. Th ese ads come in two major categories: social ads and social apps. Social advertisements are ads placed in paid-for media space on social media networks.

Social apps are branded online applications that support social interactions and user contributions (e.g., Nike1).

Viral marketing (word of mouth) is especially eff ective with social networking. For example, Stormhoek Vineyards (www.stormhoek.com) fi rst off ered a free bottle of wine to bloggers. About 100 of them posted voluntary comments about the winery on their own blogs within six months. Most had positive comments that were read by their readers and by other bloggers.

Other innovative ways to advertise in social media: • Use a company Facebook page, including a store that attracts fans and lets them

“meet” other customers. Th en advertise in your Facebook store. • Tweet business success stories to your customers. • Integrate ads into YouTube videos. • Add a Facebook “Like” button with its sponsored story to your product (e.g., Gatorade

brand scored 1.2 million conversations in six months using their “Mission Control” campaign).

• Mercedes-Benz launched a “Tweet Race,” which challenged four teams to drive across the country to Dallas, Texas, where the 2011 Super Bowl was played in February 2011. Each team collected Twitter followers with the help of a celebrity coach. Each tweet or retweet earned the team points, as did other activities, such as photographing other Mercedes cars during the road trip. Whichever team had the most points by the end of the trip was declared the winner.

• Facebook has a feature called the “sponsored story.” When a member chats with friends and one of them indicates that he or she “checked into” a place or “like it,” say at Starbucks, a boxed “sponsored story” will appear with the logo of Starbucks (fee paid to Facebook). Furthermore, the name Starbucks will also appear in the user’s news feed (another fee paid to Facebook). Th e users have the option to delete the boxed advertisement. For an interesting example of aggressive social advertising, you need look no further

than YouTube. IT’s About Business 8.2 illustrates how YouTube is increasing its ad revenue in an incredible number of areas.

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YouTube Is Redefi ning the Entertainment Business

When cable television emerged, it provided special- interest channels that the existing, traditional televi- sion networks (ABC, CBS, and NBC) did not offer. In addition, new cable channels such as CNN and ESPN were underestimated when they debuted. On cable today, special-interest channels such as kitesurfi ng channels, snow skiing channels, piano channels, etc., are no longer offered. Business model limitations mean that those channels are not going to appear in traditional media, either television networks or cable networks.

YouTube is exploiting this gap. It is utilizing its vast customer base (some 500 million viewers per month) to help defi ne a new way for content creators to reach an audience. The concept is intriguing, but actually implementing the idea proved to be challenging for YouTube.

When it was fi rst created, YouTube suffered from a reputation problem. Advertisers worried that their brands might end up next to a lowbrow home video. Therefore, YouTube needed to create a business model that was unique to video. The site built a mul- titude of ad products crafted around the way people actually used their Web site. With the help of these new ad products, many of the activities regularly performed by YouTube users—starting their experi- ence at the home page, searching for a video, visiting a channel, watching a movie trailer, or watching a music video—were translated into appropriate advertising opportunities. Google has predicted that by 2015, 50 percent of display ads on YouTube will include video, while 75 percent will have a social component.

The new ad products have begun to attract major brand advertisers to the Web site. Consider the Phila- delphia Cream Cheese product at Kraft Foods. The brand manager of the product learned that YouTube is a haven for how-to videos about cooking. He came up with the “Real Women of Philadelphia” competition and hired Food Network star Paula Deen to be the master of ceremonies. On the launch day of the eight- month campaign, Kraft bought all of the advertising

space on YouTube’s home page, which cost more than $375,000. In a video embedded in the ad, Deen invited women to invent Philly cream cheese recipes and cast themselves in their own videos as TV professionals. The goal was to drive viewers to Philly’s Real Women community, which included Kraft’s YouTube channel. The launch video was seen by 51 million people. Ten million of those people watched the entire video to the end, and almost 100,000 clicked through to the Philly cream cheese Web site. In addition to the recipe views, Real Women helped boost Philly’s revenue by 5 percent, the fi rst increase in fi ve years.

Promoted videos, which are video ads featured prominently on YouTube’s search-results page, share prime space with the types of content that a particular user has searched for in the past. However, research studies have shown that these ads triple brand aware- ness, even without further action or follow-up on the part of the viewer.

YouTube has also found a method to overhaul the way ads are consumed and sold on its site. This process, called TrueView, gives viewers the option to skip an ad entirely, but charges advertisers a premium if their content is chosen and watched the entire way through.

YouTube started its Partner program in 2007 to encourage audience-attracting producers to create more and better content. Under this program, YouTube sells ads against its videos and gives audience- attracting producers more than half the revenue gained. In mid-2012, YouTube had recruited more than 10,000 partners to the program. Analysts estimate that the top 300 to 400 partners earned their living from content they produced for YouTube.

In December 2011, YouTube released Personal- ized Channels, which tries to replicate for video the predictive experience that Pandora creates for music.

ABOUT BUSINESS 8.2i Y T b T’S

© Alex Gumerov/iStockphoto

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Social Computing in Business: Marketing 295

YouTube has had great success with glob- ally broadcast live concerts that the North America-only sites Hulu and Netfl ix cannot match. In November 2010, just before the

release of Bon Jovi’s greatest-hits album and interna- tional tour, the band gave an intimate concert in a

2,100-person venue in New York’s Times Square and streamed it live via YouTube around the world. The YouTube team globally marketed

the show and let Bon Jovi use YouTube’s new moderator tool to give fans an opportunity to interact by helping to pick the concert’s song list. After this YouTube marketing campaign, Bon Jovi’s greatest-hits album debuted in the top fi ve in more than 20 markets around the world.

Google acquired YouTube (www.youtube.com) in 2006 for $1.65 billion, less than 20 months after the Web site was founded. Since that time, YouTube has often been referred to as “Google’s folly.” Despite this moniker, in mid-2012 Google is the world’s largest vid- eo platform. YouTube’s success is largely from its strat- egy of cultivating its vibrant community.

Google believes that YouTube is emerging as the fi rst global TV station. Video delivered via the Internet is creat- ing a world with hundreds of thousands of “TV channels,” and YouTube is helping people build these next-genera- tion networks. Not only has YouTube created the largest online video community in the world, it is shaping the way video is produced, distributed, and monetized.

YouTube is realizing increasing amounts of reve- nue. Google does not break out specifi c numbers for YouTube, but fi nancial analysts who cover the company estimate that YouTube’s revenue has increased from somewhere between $100 million and $250 million in 2008 to approximately $1 billion in 2010.

Skeptics of YouTube’s business model persist. They believe that YouTube still needs Hollywood content if it is to compete with Hulu and Netfl ix—services that You- Tube dwarfs in size and global scope. Hollywood pro- ducers, however, still view YouTube primarily as a great promotion platform rather than a home for their content.

Take a look at YouTube’s initiatives to expand pro- gramming and ad formats.

YouTube Content

Original Content: YouTube shares ad revenue with top content creators.

Examples: The Annoying Orange, Next New Net- works, Machinma, Nigahiga, The Young Turks

Concerts: Live streaming concerts have drawn between 5 and 10 million live views. YouTube teamed up with Vevo and American Express in 2010 for its Unstaged series.

Examples: Bon Jovi, U2, The National, Alicia Keys, Arcade Fire, John Legend & The Roots

Sports: IPL, a cricket league in India, pulled in 55 mil- lion views during its fi rst season on YouTube.

Examples: IPL and Major League Baseball

How To: YouTube has given rise to a generation of teach- ing stars. Michelle Phan’s tutorial on Lady Gaga’s “Poker Face” look has received 24 million views and paved the way for Phan’s deals with Colgate, Lancome, and others.

Examples: Michelle Phan (makeup), Sal Khan (Khan Academy), ViewDo (guitar)

Movies/TV: YouTube tries to offer longer-form content not available elsewhere. World Wrestling Entertainment (WWE; www.wwe.com) posts full episodes of Friday Night Smackdown to YouTube 24 hours after airing them on TV. WWE’s executive vice-president of digital media says that WWE is making six fi gures per month in ad revenue.

Examples: Striker, Sundance Film Festival, BBC Channels 4 and 5

Advertising as Content: To promote its Trivial Pursuit: Bet You Know It edition, Hasbro ads pit users against YouTube stars, generating more than 250 million views.

Examples: Kraft (Paula Deen), Hasbro, The Last Exorcism

YouTube’s Sources of Revenue

Home Page: The YouTube Homepage Roadblock allows brands to own the homepage for 24 hours with a 100 percent share. The homepage averages 50 mil- lion impressions and over 18 million unique daily visi- tors. Therefore, the home page enables brands to have a big impact on a concentrated audience.

Examples: Verizon, Hasbro, Kraft, Dreamworks, Fox

Promoted Videos: Like sponsored ads on Google, pro- moted videos pop up around search results.

Advertisers pay only when users click “Play.”

Examples: Evian, Panasonic, Stouffer’s, Wrigley, Maybelline

Content ID: To prevent hosting illegally posted videos, YouTube learned how to identify them, a process called Content ID. YouTube then alerts copyright owners— including early adopter CBS—and they decide whether to take down the video or sell ads against it.

Examples: CBS, Lionsgate (Mad Men), Sony

Click-to-Buy: Call-to-action spots with videos can trans- form viewers into consumers. For example, Monty

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Market Research Traditionally, marketing professionals used demographics compiled by market research fi rms as one of their main tools to identify and target potential customers. Obtaining this information was time-consuming and costly, as marketing professionals had to ask potential customers to provide it. Today, however, members of social networks provide this informa- tion voluntarily on their pages! (Th ink about all the information that you provide on your favorite social networking Web sites.) Because of the open nature of social networking, mer- chants can easily fi nd their customers, see what they do online, and see who their friends are.

Th is information provides a new opportunity to assess markets in near real time. Word of mouth has always been one of the most powerful marketing methods—more oft en than not, people use products that their friends like and recommend. Social media sites can pro- vide this type of data on numerous products and services.

Companies are utilizing social computing tools to get feedback from customers. Th is trend is referred to as conversational marketing. Th ese tools enable customers to supply feedback via blogs, wikis, online forums, and social networking sites. Again, customers are providing much of this feedback to companies voluntarily and for free.

Social computing not only generates faster and cheaper results than traditional focus groups, but also fosters closer customer relationships. For example, Dell Computer operates a feedback Web site called IdeaStorm, where it allows customers to suggest and vote on improvements in its off erings (see Figure 8.7).

Retailers know that customers, especially the younger ones, want to be heard, and they also want to know whether others agree with them. Retailers are opening up their Web sites to customers, letting them post product reviews, ratings, and in some cases photos and videos.

Th e result is that customer reviews are emerging as a prime place for online shoppers to visit. Approximately one-half of consumers consult reviews before making an online purchase, and almost two-thirds of consumers are more likely to purchase from a site if it has ratings and reviews.

For example, Del Monte (www.delmonte.com), through its “I Love My Dog” program, gathers data from pet owners that can help shape its marketing decisions. Its private social

Python videos directed viewers to the troupe’s DVDs on Amazon, increasing sales by 23,000 percent.

Examples: Cee Lo Green (iTunes), Monty Python (Amazon)

Branded Channels: YouTube gives brands a lot of latitude. The CEO of the Visionaire Group says that YouTube gives his company the fl exibility to engage the user in a way that no other outlet does.

Examples: Lionsgate (The Expendables), Samsung, Tipp-Ex

Display: Google predicts that digital billboards will add more video and become more social in the next few years, turning into a $50 billion industry.

Examples: Blizzard Entertainment, HTC, Absolut, Volvo

Sources: Compiled from A. Knapp, “Indie Hip-Hop Star Destorm Power on YouTube and the Future of Music,” Forbes, March 1, 2012; H. Shaughnessy, “YouTube Creators and the Rise of Social Entertainment,” Forbes, February 21, 2012; A. Knapp, “Meredith

Valiando Is Bringing YouTube to Concert Halls,” Forbes, February 18, 2012; H. Shaughnessy, “Where Is the Big Time Headed? RockStar, Comic, Actor, and the Story of the Social Brand,” Forbes, February 1, 2012; J. Perez, “YouTube to Boost Original, Professional Programming,” CIO, October 29, 2011; D. Jeffrey, “Viacom Tells Court YouTube Deliberately Violated Copyrights,” Bloomberg BusinessWeek, October 18, 2011; A. Efrati, “YouTube Goes Professional,” The Wall Street Journal, October 4, 2011; D. Sacks, “Blown Away,” Fast Company, February 2011; F. Gillette, “On YouTube, Seven-Figure Views, Six-Figure Paychecks,” Bloomberg BusinessWeek, September 23, 2010; T. Claburn, “YouTube Promises 15 Minutes of Fame,” InformationWeek, July 29, 2010; E. Williams, “The YouTube Dilemma,” Bloomberg BusinessWeek, March 18, 2009; www.youtube.com, accessed March 8, 2012.

Questions 1. Describe YouTube’s basic model for revenue

generation.

2. If you were the CEO of a television network, how would you combat YouTube?

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Social Computing in Business: Marketing 297

Figure 8.7 Customers share their ideas and feedback with Dell via IdeaStorm (www. ideastorm.com).

network helps Del Monte make decisions about products, test-market campaigns, under- stand buying preferences, and generate discussions about new items and product changes.

Using social computing for market research is not only a tool for businesses. Custom- ers enjoy the capabilities that social computing off ers when they are shopping as well. In IT’s About Business 8.3, you see how social computing helps shoppers perform market research to fi nd the car they want on Cars.com.

Buying a Vehicle Takes Work!

Cars.com, a business unit of Classifi ed Ventures (www. classifi edventures.com), serves approximately 10 million car shoppers per month. The company knows that comparing features on automobiles can be confusing to buyers. To make a wise buying decision, customers must compare many different types of information, including performance specifi cations, a variety of high- tech systems, and numerous safety features. As a result, the Web site of Cars.com (www.cars.com) integrates dif- ferent types of data from different sources and presents it in a way that customers can use to shop for vehicles, compare features, read reviews, and obtain price quotes directly from dealerships.

To help customers understand and use all the infor- mation on its Web site, the company is integrating

Web 2.0 technology wherever it adds value and streamlines customer interactions. Cars.com is turning Web 2.0 into a competitive advantage. The company provides sophisticated Web capabilities and mobile tools that make it easier for customers to fi nd, view, and extract the information they need to make a buy- ing decision. Cars.com recognizes that a seamless experience on its Web site equals clicks, which equals revenue. The company earns revenue from online clas- sifi ed ads place by automakers, dealers, and private- party sellers. It also sells banner advertisements and provides lead-generation services.

Cars.com offers comprehensive pricing informa- tion, photo galleries, buying guides, side-by-side com- parison tools, original editorial content, expert car reviews, and other relevant content from auto manu- facturers, user-generated content from customers

ABOUT BUSINESS 8.3i B i T’S

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themselves such as ratings of cars, and others. The company’s Web site contains online portals for dealers, employees, and customers.

The company’s Web site contains many useful Web 2.0 tools. A few examples include the following:

• A tool focused on helping dealers list used vehicles at an optimal price when they place a classifi ed ad.

• A tool that provides information about inventory levels, buying trends, and other factors.

• A tool offers customers live data about incentives. When a potential buyer visits the Cars.com con- fi guration tool and clicks through various automo- biles and options, he or she sees the specifi c manufacturer and dealer incentives and rebates that currently exist—matched to the specifi c vehicle and exact confi guration. This capability eliminates the problems associated with clicking to a different part of the Web site and manually searching for the information. The company notes that this feature increases the “stickiness” factor of the Web site. (Stickiness refers to the amount of time spent on a Web site by a visitor.)

Cars.com is also using social media such as Face- book and Twitter to further integrate content and

offerings. The company wants to increase its visibility, while making information more accessible and useful to a larger audience.

The company also offers iPhone, Android, and BlackBerry mobile apps, and it has implemented a mobile Web site that is optimized for mobile phone browsers. Approximately 25 percent of the fi rm’s total online traffi c arrives through mobile devices.

Sources: Compiled from B. Upbin, “Forbes Panel Tracks Footprints of the Elusive Customer,” Forbes, February 7, 2012; S. Greengard, “Cars.com Drives Performance,” Baseline Magazine, June 14, 2011; H. Elliot, “Common Car-Buying Mistakes,” Forbes, May 9, 2011; www.cars.com, accessed February 22, 2012.

Questions 1. Is it possible for the Cars.com Web site to provide

too much information to its customers? If so, how could providing too much information hurt the company?

2. What other Web 2.0 functionality could Cars.com include on its Web site to provide additional information for visitors to the company’s Web site?

Conducting Market Research Using Social Networks Customer sentiment expressed on Twitter, Facebook, and other such sites represent an incredibly valuable source of information for companies. Customer activities on social net- working sites generate huge amounts of data that must be analyzed, so that management can conduct better marketing campaigns, product design, and service off erings. Th e moni- toring, collection, and analysis of socially generated data, and the resultant strategic deci- sions are combined in a process known as social intelligence.

For example, Wendy’s International (www.wendys.com) uses soft ware to sift through over 500,000 customer messages the fast-food chain collects each year. Using Clarabridge (www.clarabridge.com) text analytics soft ware, Wendy’s analyzes comments from its online notes, e-mails, receipt-based surveys, and social media. Before, the company used a combi- nation of spreadsheets and keyword searches to review comments in what it describes as a slow and expensive manual approach. Th e new soft ware enables Wendy’s to track customer experiences at the store level within minutes.

Social networks provide excellent sources of valuable information for market research. Here you see illustrative examples of how to use Facebook, Twitter, and LinkedIn for mar- ket research. Using Facebook for Market Research. Th ere are several ways to use Facebook for market research. See the following examples:

• Get feedback from your Facebook fans (and their friends if possible) on advertising campaigns, market research, etc. It is like having a free focus group.

• Test market your messages. Provide two or three options and ask fans which one they prefer and why.

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Social Computing in Business: Marketing 299

• Use Facebook for survey invitations (i.e., to recruit participants). Essentially, turn Facebook into a giant panel and ask Facebook users to participate in a survey. Facebook off ers a self-service model for displaying ads, and ads can be invitations to take a survey. Facebook also allows you to target your audience very specifi cally based on traditional demographic models (age, gender, etc.).

Using Twitter for Market Research. Your customers, your prospects, and indus- try thought leaders all use Twitter, making it a rich source of instantly updated information. See the following examples:

• Visit Twitter Search (www.twitter.com/search). Enter a company’s Twitter name. Not only can you follow what companies are saying, you can also follow what everyone is saying to them. Monitoring@ replies to your competitors and their employees will help you develop your own Twitter strategy by allowing you to see (a) what they are doing and more importantly (b) what people think about it. You can also see the company’s response.

• Take advantage of the tools that enable you to fi nd people in the industries they operate in. Use search.twitter.com to monitor industry-specifi c keywords. Check out Twellow (www.twellow.com). Th is site automatically categorizes a Twitter user into one to three industries based on that person’s bio and tweets.

• Want to see what topic is on most people’s minds today? Look at the chart on TweetStats (www.tweetstats.com). It will show you the most frequently used words so you can be a part of those conversations.

• An increasing number of companies are utilizing Twitter to solicit information from customers and interact with them. Examples include Dell (connecting with customers), JetBlue (learning about customers), Teusner Wines (gathering feedback, sharing information), and Pepsi (fast response time in dealing with complaints).

Using LinkedIn for Market Research. Post a question (e.g., solicit advice) regarding the topic or issue you are interested in. You may get a better result if you go to a specifi c LinkedIn group.

For example, let’s take a look at how Mountain Dew uses social computing for market research. Th e company has always appealed to consumers who were looking for high-caff eine beverages. However, the brand wanted to unite all of its customers into one community with its Dewmocracy contests, which let consumers pick the newest fl avor.

Several brands have used social networks to help them choose new fl avors, but Mountain Dew is expanding its scale from the most dedicated fans to the public at large. Th e fi rst step of its market research involved sending seven fl avors of soda to 50 Dew fanatics, who were also given cameras and told to debate and show their like or dislike for the brand on a video. Th e cameras were a great idea because it made the social media eff ort more personable. Rather than just looking at static images or tweets, Dew fans could see like-minded Dew fanatics in action. Aft er narrowing the seven fl avors to three, based in part on the videos, Mountain Dew turned to its Dew Labs Community, a 4,000-person group of passionate soda fans. Th ose fans then created nearly every element of the three sodas, including color, name, packaging, and market- ing campaigns. Aft er that process was complete, the three fl avors were made available in stores for a limited time, with the general public electing a winner via online voting. Th e Dewmocracy campaign used Facebook, Twitter, and You- Tube to unite consumers through a common interest.

BEFORE YOU GO ON . . . 1. What is social advertising? 2. Describe several ways to advertise in social

media. 3. Why are the social aspects of market

research so valuable to market researchers? 4. Defi ne social intelligence. 5. Describe several ways to conduct market

research on social networking sites.

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Apply the Concept 8.4

Background Th is section focused on the ways that some businesses use social advertising to create a competitive advantage. Th ey allow customers to share prod- uct information and make purchases right in the social network. You have proba-

bly received some note on a social network that asked you to share with fi ve of your friends. Th is type of social commerce is here to stay, but just how many people can you really reach with this type of virtual word-of-mouth marketing?

For example, imagine you want to know how many users could be reached at the third level of friends away from the initial group when the initial group consists of 100 people and each person shares the message with 3 people. For this example, assume that each person shares with another unique individual. Level 1 is the initial 300 people. Level 2 is the initial 300 multiplied by 300. Th is equals 900 customers. Th is group of 900 customers shares with 3 more people. So at the third level, there is the potential to reach 2700 customers. Th e table below demonstrates this concept.

100 Share 100 Share 200 Share 200 Share Level with 2 with 3 with 4 with 5

1 200 300 800 2 400 900 3 800 2,700

Activity Build and complete your own table just to see how quickly social commerce can help sell products. Label your columns as shown in the table above. Finally, use the table you build to determine how many initial contacts a company has to make to reach over 12,000 people at the third level assuming that each user shares with 4 people.

Deliverable

Complete your table down to the fi ft h level for all four columns and submit this to your instructor. Include a paragraph answering the question above about determining how many initial contacts are needed to reach the 12,000 mark at the third level.

Submit your table and paragraph to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. Social advertising would be easy to get going. Are there any clubs in your area that engage in social advertising? How do they do it? Does it work?

2. If Ruben and Lisa post a survey after a big night to learn more about who was there and what they thought about it, how could they ensure that they only received comments from people who were actually there?

3. Should survey results be posted for the public to see or kept private?

Q U E S T I O N SRUBY’S CLUB

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Social Computing in Business: Customer Relationship Management 301

8.5 Social Computing in Business: Customer Relationship Management Th e customer service profession has undergone a signifi cant transformation, both in the way that customer service professionals do business and the way that customers adapt to interacting with companies in a newly connected environment. Social computing has vast- ly altered both the expectations of customers and the capabilities of corporations in the area of customer relationship management.

How Social Computing Improves Customer Service Customers are now incredibly empowered. Companies are closely monitoring social computing because they are mindful of the negative comments posted by social network members, but also because they see an opportunity to involve customers proactively to reduce problems by improved customer service.

Empowered customers know how to use the wisdom and power of crowds and com- munities to their benefi t. Th ese customers choose how they interact with companies and brands, and they have elevated expectations. Th ese customers are participatory and have active involvement with businesses, not just as purchasers, but also as advocates and infl u- encers as well. As a result, businesses must respond to customers quickly and accurately. Fortunately, social computing provides many opportunities for businesses to do just that, thereby giving businesses the opportunity to turn disgruntled customers into champions for the fi rm. Consider the following examples:

• Qantas airlines (www.qantas.com.au) had a policy that required large musical instruments to be stored in the cargo hold, sometimes causing damage to the instruments. Aft er suff ering $1,200 in damage to his saxophone, Jamie Oehlers of Australia organized a Facebook campaign to persuade the airline to reverse the policy. When one person complains, he or she typically gets a nice letter, but company policy will most likely not change. But when more than 8,700 people joined forces on Facebook (including members of national symphony orchestras), posting stories and pictures of instruments that had been damaged in the cargo hold and saying they would boycott the airline, Qantas had to listen carefully. Th e airline announced that they had listened to their customers and changed the policy. Th e new policy allows small musical instruments as carry-on baggage.

Figure 8.8 Salesforce.com is a powerful customer relationship management tool that allows companies to track business opportunities. This is an example of different customer reports that can be pulled from Salesforce in the version used by John Wiley & Sons.

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• Safeway, a large grocery chain, has a customer club. Members can receive in-store discounts. Members also receive e-mails with coupons and a description of what is on sale as well as an online newsletter with health news and recipes, shopping tips, etc. To extend this service, Safeway invites you to become a Facebook fan and follow the company on Twitter. Th is way you will be the fi rst to know about exclusive promotions and savings. Plus, you are able to connect and share with other Safeway shoppers.

You can also visit the company’s blog, “Today at Safeway!” Team members post items from the fl oral department, the bakery department, and other departments throughout the stores. You can hear from Safeway’s experts on nutrition, environmental sustainability, and more. Th e Safeway blog is a free way to promote active discussion among the Safeway community. All comments are moderated by Safeway and will not be posted if they contain off ensive language, private or personal information, hateful or violent content, personal attacks, self-serving or promotion of goods, Web sites, or services. Members are asked to post only original content.

• Best Buy is a large appliances retailer that wanted to be a source for customers beyond their experience in stores. Th e company developed a unique way to connect with customers through their Twitter’s @twelpforce account to provide real-time customer service.

Best Buy empowered the “blue shirt” members of its Geek Squad tech support service and corporate employees to staff its @twelpforce, and any Best Buy employee working on company time can provide answers by using an @ reply to the customer. About 4,000 employees signed up to answer questions. By tagging their tweets with Twelpforce, the answer is sent through the @twelpforce account, allowing anyone to search the feed for topics they are researching. Between December 15, 2010, and February 1, 2011, @twelpforce provided over 38,000 answers to customer inquiries.

• In December 2010, Groupon featured a discount to a restaurant delivery service in Tokyo for the New Year. Th e promotion was wildly successful as more than 500 “Groupons” were sold. Unfortunately, the restaurant was not prepared for the success and was unable to accommodate all the orders. Deliveries were late and many of them were in terrible condition.

Andrew Mason, the CEO of Groupon, took on the respon- sibility. He acknowledged that he contracted to an organization that was not prepared to deal with the volume of the Groupon promotion. Groupon refunded money back to the customers who bought the coupons and gave away vouchers for future business. Groupon also created a video that featured a public apology about the incident. It was sincere and informative, explaining exactly what happened and holding nothing back.

BEFORE YOU GO ON . . . 1. Describe how social computing has changed

customer service. 2. How do empowered customers change the

power relationships in an organization? Hint: Refer to this chapter’s Introduction.

Apply the Concept 8.5

Background Social Customer Relationship Management is about using social networks to maintain loyal relationships. One company that is very good at doing

that is ZAGG (Zealous About Great Gadgets). ZAGG makes and sells accessories for mobile devices such as smartphones and tablets. To help sell its products, the company has devel- oped one of the best social customer relationship management plans around.

When ZAGG develops a new product, the company not only posts notes about this product on its social networking page, but also involves customers. For example, when ZAGG was releasing its ZAGGFolio for the iPad, the company allowed fans to vote on the colors of the new product.

ZAGG is also good at monitoring the social network to watch for product issues. It is not uncommon for someone to complain and then receive feedback from a ZAGG employee regarding this issue. Not only does the company maintain that customer, but it

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Social Computing in Business: Human Resource Management 303

also develops a sense of trust with all its customers who feel they would be given the same treatment. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link to ZAGG’s Web site. Near the top of the page, you see a link to their Facebook page. Visit this and review their timeline. Look for customer complaints and see how the company deals with them. Do you fi nd a customer representative present on the social networking site? Are there any competitions? Polls? Give-aways? Can you reverse engineer the company’s social customer relationship management methodology?

Now imagine that you are a marketing manager and have been asked to help develop a strategy for using Facebook to help manage customer relationships. Is there anything you can use from the text and what you have seen here?

Deliverable

Create a list of the top 10 ideas you have for ways to engage in social customer relationship management. If they are not your own ideas, reference the source. However, it will be better for you to synthesize both the chapter material and what you have seen at ZAGG’s Web site and to develop your own ideas.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

8.6 Social Computing in Business: Human Resource Management Human resources (HR) departments in many organizations use social computing appli- cations mainly in the areas of recruiting and training. For example, Deloite Touche Tohmatsu set up a social network to assist its HR managers in downsizing and regrouping teams.

Recruiting Both recruiters and job seekers are moving to online social networks as new recruiting plat- forms. Enterprise recruiters are scanning online social networks, blogs, and other social resources to identify and fi nd information about potential employees. If job seekers are online and active, there is a good chance that they will be seen by recruiters. In addition, on social networks there are many passive job seekers—people who are employed but would take a better job if it appeared. So, it is important that both active and passive job seekers maintain profi les online that truly refl ect them. IT’s About Business 8.4 takes a look at the diffi culties of the online recruiting process and provides some tips when you are looking for a job yourself.

1. Ruben and Lisa feel a deep sense of responsibility in taking care of their customers even if their customers do not take care of themselves. A dead customer is not profi table! How might they employ tools in social networks to help their customers make good decisions regarding alcohol consumption, driving, etc.?

2. How might customers feel about a club recommending that they not drive home based on comments their friends made on a social network?

Q U E S T I O N SRUBY’S CLUB

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304 8 l Social Computing

So You Want to Find a Job

The Problem

Let’s say you want to fi nd a job. Like the majority of job hunters, you will probably conduct your search almost exclusively online. Together, the most popular employ- ment Web sites, such as Monster (www.monster.com) and CareerBuilder (www.careerbuilder.com), now list some 5.2 million openings in the United States and 1 million in the United Kingdom. Approximately 88 per- cent of entry-level positions in the United States are now listed only online.

Using a job site has clear advantages for you: It is the cheapest, fastest, and most effi cient way to connect employers and potential employees. Unfortunately, the clear advantages of these sites have led to a runaway success that the sites are sometimes unequipped to handle. Luckily for you, there are new competitors poised to fi x those problems.

The key issue for the companies that own the job sites is that the sites are neither as cheap nor as effi cient as they once were. Job hunters such as your- self send these companies too many resumes for them to process effectively. Combined with the eco- nomic downturn, this inundation of resumes may lead you to feel that your applications are ending up in a “black hole.” For example, Starbucks attracted 7.6 million job applicants in 2011 for 65,000 corpo- rate and retail job openings, and Procter & Gamble received nearly 1 million applications in 2011 for 2,000 available positions.

To add to your diffi culty in fi nding a job, many employers have downsized their recruiting staffs in recent years, so they cannot keep up with the fl ood of applications produced by the job sites’ sorting applica- tions. Even if they try to replace human recruiters with software to sift applications, that has serious down sides as well. If their sorting algorithm is too rigid, it can yield irrelevant results that waste time and money. Not only that, but less-qualifi ed candidates can game the system by loading their resumes with the correct key- words. Finally, sorting applications removes any human interaction (e.g., actual human job interviews) that can signal a good fi t between candidate and position.

ABOUT BUSINESS 8.4i S Y T’S

A Variety of Solutions

In response to these problems,

a number of new job-search startups are moving beyond traditional job sites. These companies are trying to create better-targeted matching systems that reduce the possibility of gaming the system and that leverage social networking trends.

Beyond Credentials (www.beyondcredentials.com) is using specialized algorithms to shrink the applicant pool to a more manageable, higher-quality size, look- ing for young professionals with good grades from good schools. The fi rm also works only with employers offering a minimum $30,000 starting salary, room for advancement, and working environments that Beyond Credentials staffers say that they would want for them- selves. Invited applicants have a personal pitch page that can even include video.

Beyond Credentials eases the problem of high volume of resumes (detrimental to both yourself and recruiters) and improves the quality and appropriate- ness of candidates. Northwestern Mutual and other fi rms are willing to pay to use the site. Beyond Creden- tials charges $5,000 annually for one recruiter to use the site and $1,000 more per additional recruiter. The company added 3,500 employers during the last six months of 2011.

Older, experienced workers, who are more choosy, want job sites to work better. Therefore, many compa- nies are working on job sites that aim for greater respon- siveness, even if the feedback is computer generated. Recruitment-technology consultants Taleo (www.taleo. com) and Kenexa (www.kenexa.com) offer software plat- forms that can track the entire hiring process and notify applicants at “touchpoints”: when an application is received, for example, or passed on to a manager.

In perhaps the most dramatic shift in the online employment business, job searchers are turning away from traditional sites and turning toward social networks

© Alex Slobodkin/iStockphoto

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Social Computing in Business: Human Resource Management 305

such as LinkedIn and Facebook, where many feel more comfortable and in control. Applicants such as yourself have helped LinkedIn raise its market share in job search from 4.7 percent in 2010 to a projected 12.2 percent by 2013. That shift is why, in 2011, Simply Hired (www.simplyhired.com) integrated social network- ing into its search process to allow job seekers to inte- grate their networks with Simply Hired’s job listings, making contacts and referrals to target companies easier. Jobvite (www.jobvite.com) helps client compa- nies by integrating social networking with the personal referrals that employers prefer. Clients’ employees are allowed to send their online “friends” a “jobvite” to apply for an opening.

Fortune 500 companies are also using social net- working in their hiring. Forty-two percent of them now have a Facebook or LinkedIn page. Further, Jobvite’s annual survey found that the percentage of recruiters who plan to hire through social media increased to 89 percent in 2011.

So, how are Monster and CareerBuilder respond- ing? They are trying to imitate and surpass their com- petitors. Both claim that they are not just job sites any- more but instead offer an array of products, some with social-networking features. In June 2011, Monster introduced an application to let Facebook users create separate professional networks, which eventually can be used by client employers—imitating and competing with BranchOut (www.branchout.com). Both Monster and CareerBuilder have moved quickly to transfer their apps to mobile, which is particularly important in Asia, where job hunting is done on mobile phones rather than desktop computers.

The job search industry is extremely competitive, with the lines between company offerings blurring. For example, in September 2011 Taleo announced a link- age with LinkedIn, allowing LinkedIn users to fi ll out online applications with their LinkedIn data and giving recruiters access to LinkedIn profi les, all with a single click of a mouse. In another example, CareerBuilder is offering new software and products, including one that looks much like Jobvite.

The Results

The bottom line for all job sites is that they do not want to produce 2,000 candidates, but rather 20 great candi- dates. However, there is enormous overlap in what dif- ferent sites offer, with each borrowing from the others. In mid-2012, innovative technologies had increased job sites’ revenues. Questions remain as to whether or not the job sites are making the process more effective

for job seekers. However, career coaches offer valuable tips to help you fi nd a job.

The most important secret to making online job search sites work for you: Use them sparingly. When looking for a job, it is too easy to spend all day on your keyboard, combing through listings, trying endless search fi lters, and sending your résumé into black holes. Job coaches say to spend your time this way: 80 percent of your day networking and directly contacting the people in charge of jobs you want. Ten percent of your time should go to headhunters. Spend only the remaining 10 percent of your time online.

Here is how to make your time online count. To start with, you should be on LinkedIn. LinkedIn is an incredibly powerful job search tool.

Next, access the Google-like job aggregators, Indeed (www.indeed.com) and SimplyHired (www. simplyhired.com). Both list millions of jobs. Both sites also make it easy to narrow your search using fi lters. These fi lters include title, company name, location, and many others. Indeed allows you to search within a specifi c salary range. SimplyHired lets you sort for friendly, socially responsible, and even dog-friendly workplaces.

Spend a little time playing with search commands. Both sites have advanced search options. Try plug- ging in the name of a company you might want to work for or an advanced degree that qualifi es you for specialized work. For example, you could enter “CFA” if you are a certifi ed fi nancial analyst or “LEED” if you are a building engineer with expertise in environmen- tal effi ciency.

SimplyHired has a useful tool called “Who do I know.” If you are on LinkedIn, this tool will instantly dis- play your LinkedIn contacts with connections to various job listings. Who do I know also syncs with Facebook.

One more trick to using the aggregators: Have them deliver listings to your inbox. Set up an e-mail alert that delivers new job postings to you via e-mail each day.

Also look for niche sites that are specifi c to your fi eld. For technology-related jobs, for instance, www. dice.com has a strong reputation. For nonprofi t jobs, try www.idealist.org. For government jobs, the U.S. govern- ment’s site is an excellent resource: www.usajobs.com.

One more great online resource: Craigslist. It is one site the aggregators do not tap. Craigslist’s focus is local listings, and it is especially useful for entry-level jobs and would-be interns.

Beyond locating listings for specifi c jobs, career coaches say job sites can be a resource for key words and phrases that you can pull from job descriptions and

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306 8 l Social Computing

include in your résumé, letters, and e-mails. Use the language from a job description in your cover letter.

Web sites like Vault (www.vault.com), Monster. com, and CareerBuilder.com are useful, but you have only so much time. These sites do offer some helpful career tips. Vault, in particular, offers very useful career guides.

The bottom line: It is critically important to extend most of your efforts beyond online search. There is just too much competition online.

Sources: Compiled from T. Team, “LinkedIn Looks to Hitch Ride from Mobile Ads,” Forbes, February 14, 2012; R. Silverman, “No More Resumes, Say Some Firms,” The Wall Street Journal, January 24, 2012; L. Weber, “Your Resume vs. Oblivion,” The Wall Street Journal, January 24, 2012; S. Adams, “Secrets of Making the Most of Job Search Websites,” Forbes, January 18, 2012; G. Anders, “The Rare Find,” Bloomberg BusinessWeek, October 17–23, 2011;

J. Francis, “Facebook Joins Labor Department in Online Job-Search Project,” Bloomberg BusinessWeek, October 20, 2011;, F. Russo “The New Online Job Hunt,” Time, October 3, 2011; S. Adams, “Unemployment: The Good News, the Bad News, and What to Do About It,” Forbes, April 1, 2011; K. Jones, “Online Job Searches Rise as Economy Slides,” InformationWeek, January 26, 2009; www.monster.com, www.careerbuilder.com, www.jobvite. com, www.simplyhired.com, www.beyondcredentials.com, accessed March 5, 2012.

Questions 1. What are the advantages of using online job sites

when you look for your fi rst job?

2. What are the disadvantages of using online job sites when you look for your fi rst job?

Training Several companies use virtual worlds for training purposes. For example, Cisco uses its virtual campus in Second Life for product training and executive briefi ngs. IBM runs manage- ment and customer interaction training sessions in Second Life as well.

BEFORE YOU GO ON . . . 1. Describe the impact of social computing on

the recruitment process. (Note: There are pros and cons in this process.)

2. Describe the impact of social computing on looking for a job. Again, there are pros and cons in this process.

Apply the Concept 8.6

Background Social human resource management is changing the way we search and apply for jobs and make hiring decisions. Going digital was a natural step but

it was an awkward step. When position announcements went from the bulletin board and local newspaper to Monster.com, the result was overwhelming. However, we are too con- nected today to go back. We live in a connected world and you will no doubt use social networks to fi nd and apply for jobs.

Th is section has already given a good description of how to get connected to profes- sional sites. Many of you are already on the personal social networks, but are unaware of how to use these to get a job. Activity Visit http://www.wiley.com/go/rainer/applytheconcept and click on the fi rst link provided for Apply the Concept 8.6. Th is will take you to LinkedIn, a professional social network. Create a profi le there that includes the college you currently attend. Con- nect to your classmates as they also complete this activity. You never know when you will need to call on one of these relationships.

Next, visit the other links provided (SimplyHired, Monster.com, and Indeed.com) and see which ones will allow you to connect your LinkedIn profi le. As you connect these pro- fessional sites, think of the diff erences in a professional social network and a personal social network.

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Crowdsourcing 307

Deliverable

Write a journal entry for today, the day you established yourself online in professional, social HR networks. In your journal entry, give yourself advice on the types of connections you should look for, whether or not you want personal friends connected to your profes- sional network, and how to keep your personal network separate.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

8.7 Crowdsourcing Suppose an organization has a problem it needs to solve. Why not off er the problem to a crowd to determine whether their collective knowledge and wisdom can come up with a solution? Th is process, called crowdsourcing, involves taking a job traditionally performed by an employee or a consultant and outsourcing it to an undefi ned group of people in the form of an open call. Crowdsourcing harnesses crowds to solve problems, innovate, and get work done. Crowdsourcing embraces freelancers, volunteers, customers, and low-paid amateurs to create content, solve problems, and perform research and development. Crowd- sourcing presumes that a large number of enthusiasts can outperform a small group of experienced professionals.

Crowdsourcing provides many potential benefi ts to organizations. First, problems can be explored at relatively low cost, and oft en very quickly. Second, many times crowds solve problems for free. Th ird, the organization can tap a wider range of talent than might be present in its own organization. Fourth, by listening to the crowd, organizations gain fi rst- hand insight on their customers’ desires. Finally, crowdsourcing taps into the global world of ideas, helping companies work through a rapid design process. Can crowds really outper- form experts employed by a company? (See Figure 8.9.) Let’s look at some examples where they have done so.

• Procter & Gamble (P&G) uses InnoCentive (www.innocentive.com), where company researchers post their problems. P&G off ers cash rewards to problem solvers.

• At defense contractor HCL Technologies (www.hcltech.com), crowdsourcing provides the foundation for strategic business planning. More than 8,000 employees review internal business plans to create transparency across business units and open up the strategic planning process across the company. Th e process has provided more honest assessments and better overall business analysis. As a result, HCL has changed its strategic focus from providing application support to providing strategic services to its clients.

1. Ruben will need some help with all of his new IT. Where should he look to post a job?

2. What tools are available to help sort through applicants? Ruben received over 300 applications and does not have time to go through all of them to fi nd the top 20 people.

Q U E S T I O N SRUBY’S CLUB

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• TrendHunter (www.trendhunter.com) provides the Trend Report, which focuses on insight, predictions, market research, fashion, design, pop culture, retail, and e-commerce. Th ese reports are used by CEOs, entrepreneurs, and the media. To create the 2011 annual Trend Report, TrendHunter crowdsourced the trends and fi ltered the response. According to the company, in preparing its report, it made use of the collective insights of 40,000 trend hunters, 92,000 crowdsourced articles, and 360,000 page views of data.

• Until a few years ago, book publishers had to rely on stock photography for many of the images used in their books. Th ese photos were taken by professional photographers and were quite expensive. Today, high-quality digital cameras cost less than $1,000 and, with available photo- editing soft ware, amateur photographers can create images that almost match those of the professionals. Th e amateurs can upload their pictures to image-sharing Web sites such as iStockphoto (www.istockphoto.com), where interested parties can license and download the images for $1 to $5 per image, which is a fraction of the price of a regular stock photo. Because overhead costs are extremely low, iStockphoto can make a profi t while still sharing part of the revenue with the pictures’ creators.

Th ere are many questions and concerns about crowdsourcing. Here are some of these concerns:

• How accurate is the content created by nonexperts in the crowd? How is accuracy maintained?

• How is crowd-created content being updated? How can companies be sure the content is relevant?

• Should the crowd be limited to only experts? How would a company go about doing that?

• Th e crowd may submit too many ideas, with most being worthless. If this happens, it can cost too much money to evaluate all of the ideas. For example, during the BP oil spill in 2010, there were over 20,000 suggestions submitted on how to stem the fl ow of oil. Th e problem was very technical, so there were many poor suggestions. Despite the fact that BP was under severe time constraints, it had to evaluate all of the ideas.

• Content contributors may violate copyrights, intentionally or unintentionally.

• Th e quality of decisions depends on the composition of the crowd. Th e best decisions may come if the crowd is made up of diverse opinions and ideas. But, in many cases, companies do not know the makeup of the crowd in advance.

Despite the many questions and concerns about crowd- sourcing, the process does have great value. IT’s About Busi- ness 8.5 shows an innovative use of crowdsourcing with online gamers.

Figure 8.9 Crowdsourcing.

BEFORE YOU GO ON . . . 1. Defi ne crowdsourcing. 2. Describe the potential benefi ts of

crowdsourcing. 3. Describe the concerns with crowdsourcing. When you work in a team on a class project, are you crowdsourcing? Why or why not?

© Dan Tero/iStockphoto

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Crowdsourcing 309

Scientifi c Discoveries via Crowdsourcing and Online Gamers

Players of the online game, Foldit (fold.it/portal), helped to discover an enzyme involved in the reproduction of AIDS in rhesus monkeys. In just three weeks, the gam- ers deciphered the structure of a retrovirus protein that has stumped scientists for over a decade. The discov- ery added to the understanding of the disease and raised hope that games could help in other research.

Scientists had been trying to understand the struc- ture of this enzyme for years, but had previously been unable to fi nd the right protein structure through other techniques, such as computer simulations. Proteins can be folded into many different shapes, and the Foldit game encourages players to try various combinations, guided by the kind of human intuition and reasoning that computers cannot yet match.

Foldit was developed by the Center for Game Sci- ence at the University of Washington. In addition to trying to solve problems directly, university researchers are collecting data on people’s pattern-recognition and puzzle-solving techniques, which the researchers will try to re-create in computer models. Other folding games under way include one to explore the H2N2 fl u virus.

Others have tried applying the game approach to scientifi c or business problems. InnoCentive (www. innocentive.com) organizes contests that it bills as “chal- lenges,” usually with a corporate sponsor that puts up prize money. The hard part is formulating the problem in a specifi c form with very clear rules. Players have to know what the rules are and what they are going to get if they succeed with the challenge.

InnoCentive runs a number of scientifi cally ori- ented challenges. For example, Life Technologies (www.

lifetechnologies.com), the manufacturer of a DNA sequencing machine that has been miniaturized to the size of a laser printer, has been working with Inno- Centive on a series of seven $1 million challenges for im- provements in the device’s speed and accuracy.

InnoCentive also hosts more business-oriented challenges. One example is a $5,000 prize for suggest- ing a “unique way to package and differentiate a new microbrew beer.” Other InnoCentive challenges have included helping NASA gather ideas related to astro- naut health and performance and soliciting ideas for the response to last year’s BP oil spill in the Gulf of Mexico.

Sources: Compiled from D. Mukherjee, “Could Collaboration Cure Cancer?” Forbes, December 16, 2011; D. Carr, “Online Gamers Crack AIDS Mystery,” InformationWeek, October 10, 2011; “U.S. Gamers Crack Puzzle in AIDS Research that Stumped Scientists for Years,” Fox News, September 19, 2011; F. Khatib et al. “Crystal Structure of a Monomeric Retroviral Protease Solved By Protein Folding Game Players,” Nature Structural and Molecular Biology, 2011; www.innocentive.com, accessed March 10, 2012.

Questions 1. Why is crowdsourcing so valuable in solving

diffi cult problems?

2. What are the disadvantages of crowdsourcing?

ABOUT BUSINESS 8.5i S i i T’S

Apply the Concept 8.7

Background Crowdsourcing is sort of like taking your problems, throwing them onto the mosh pit at a concert, and hoping they will stay on top for a perfect body

surf. Th e issue is that sometimes they get dropped and stomped on. While crowdsourcing

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FOR THE ACCOUNTING MAJOR Audit teams use social networking technologies internally to stay in touch with team members who are working on multiple projects. Th ese technologies serve

as a common channel of communications. For example, an audit team manager can cre- ate a group, include his or her team members as subscribers, and then push information regarding projects to all members at once. Externally, these technologies are useful in interfacing with clients and other third parties for whom the fi rm and its staff provide services.

FOR THE FINANCE MAJOR Many of the popular social networking sites have users who subscribe to fi nance-oriented subgroups. Among these groups are fi nance professionals

who collaborate and share knowledge as well as nonfi nancial professionals who are potential clients.

FOR THE MARKETING MAJOR Social computing tools and applications enable marketing professionals to become closer to their customers in a variety of ways, including blogs, wikis,

ratings, and recommendations. Marketing professionals now receive almost real-time feedback on products.

What’s in for ME?ffT

at times can be very profi table, the text brings up many excellent concerns about this meth- od of problem solving.

Th ese concerns are very much like the issues presented by open source soft ware. Open- Source systems are just that—open. You can modify, customize, change, improve, or do anything to the soft ware you want as long as you share it with the general community for someone else to build on. Closed systems, on the other hand (such as Microsoft ), are edit- able. You must wait on the developer to off er upgrades, patches, or fi xes.

Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided. It will take you to a Wikipedia article that discusses open versus closed source system development. Read this article as a close comparison to crowdsourcing. Many of the concerns will be the same.

Now imagine that you are the mayor of a large city that is going to make drastic changes to its public transportation. Bus routes will be redrawn, technology will be upgraded, pay- ment methodologies will be changed, policies rewritten, etc. Given the governmental nature of this project, it may seem best to handle it completely “in-house” and not allow the public to play any role in the decision making. But as it is a public transportation system, perhaps the “crowd” could make some good decisions.

Deliverable

Imagine the topics that would need to be addressed for this type of project and build a list of things you feel would be better crowdsourced and the ones you feel would be better kept “in-house.” Give a short explanation with each item on your list.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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Summary 311

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR Social computing tools and applications allow production personnel to “enlist” business partners and customers in product development activities.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR Social networks off er tremendous benefi ts to human resources professionals. HR personnel can perform a great deal of their recruiting activities by accessing such

sites as LinkedIn. Th ey can also check out potential new hires by accessing a large number of social networking sites. Internally, HR personnel can utilize private, internal social net- works for employee expertise and experience in order to fi nd the best person for a position or project team.

FOR THE MIS MAJOR Th e MIS department is responsible for two aspects of social computing usage: (1) monitoring employee usage of social computing applications while at work,

both time and content, and (2) developing private, internal social networks for company employees and then monitoring the content of these networks.

SUMMARY 1. Describe six Web 2.0 tools and two major types of

Web 2.0 sites. AJAX is a Web development technique that enables por- tions of Web pages to reload with fresh data instead of requiring the entire Web page to reload.

A tag is a key word or term that describes a piece of information (for example, a blog, a picture, an article, or a video clip). Really Simple Syndication (RSS) allows you to receive the information you want (customized information), when you want it, without having to surf thousands of Web sites.

A weblog (blog for short) is a personal Web site, open to the public, in which the site creator expresses his or her feelings or opinions with a series of chronological entries. Companies are using blogs in diff erent ways. Some com- panies listen to the blogosphere for marketing purposes. Others open themselves up to the public for input into their processes and products.

A wiki is a Web site on which anyone can post mate- rial and make changes to already posted material. Wikis

foster easy collaboration and they harness the collective intelligence of Internet users. Social networking Web sites allow users to upload their content to the Web in the form of text (for example, blogs), voice (for example, podcasts), images, and videos (for example, videocasts).

A mashup is a Web site that takes diff erent content from a number of other Web sites and mixes them together to create a new kind of content.

2. Describe the benefi ts and risks of social commerce to companies. Social commerce refers to the delivery of electronic commerce activities and transactions through social computing. Benefi ts of social commerce to customers include the follow- ing: better and faster vendors’ response to complaints; customers can assist other customers; customers’ expecta- tions can be met more fully and quickly; customers can easily search, link, chat, and buy while staying in the social network’s page.

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Benefi ts of social commerce to vendors include the follow- ing: can test new products and ideas quickly and inexpen- sively; learn much about their customers; identify prob- lems quickly and alleviate anger; learn from customers’ experiences with rapid feedback; increase sales when cus- tomers discuss products positively on social network site; create better marketing campaigns and brand awareness; use low-cost user-generated content, for example in mar- keting campaigns; get free advertising through viral mar- keting; identify infl uential brand advocates and reward them. Risks of social computing include information security concerns; invasion of privacy; violation of intellectual property and copyright; employees’ reluctance to partici- pate; data leakage of personal information or corporate strategic information; poor or biased quality of users’ gen- erated content; cyberbullying/cyberstalking and employee harassment.

3. Identify the methods used for shopping socially. Social shopping is a method of electronic commerce that takes all of the key aspects of social networks—friends, groups, voting, comments, discussions, reviews, etc.—and focuses them on shopping.

Methods for shopping socially include what other shoppers say; group shopping; shopping communities and clubs; social marketplaces and direct sales; and peer-to- peer shopping.

4. Discuss innovative ways to use social networking sites for advertising and market research. Social advertising represents advertising formats that employ the social context of the user viewing the ad.

Innovative ways to advertise in social media include the following: create a company Facebook page; tweet business success stories to your customers; integrate ads into YouTube videos; add a Facebook “Like” button with its sponsored story to your product; use sponsored stories. Using Facebook for market research: get feedback from your Facebook fans (and their friends if possible) on advertising campaigns, market research, etc.; test market your mes- sages; use Facebook for survey invitations. Using Twitter for market research: use Twitter Search; use Twellow; look at the chart on TweetStats. Using LinkedIn for market research: post a question (e.g., solicit advice) regarding the topic or issue you are inter- ested in.

5. Describe how social computing improves customer service. Customers are now incredibly empowered. Companies are closely monitoring social computing because they are mindful of the negative comments posted by social net- work members, but also because they see an opportunity

to involve customers proactively to reduce problems by improved customer service.

Empowered customers know how to use the wisdom and power of crowds and communities to their benefi t. Th ese customers choose how they interact with compa- nies and brands, and they have elevated expectations. Th ese customers are participatory and have active involve- ment with businesses, not just as purchasers, but also as advocates and infl uencers. As a result, businesses must respond to customers quickly and accurately. Fortunately, social computing provides many opportunities for busi- nesses to do just that, thereby giving businesses the oppor- tunity to turn disgruntled customers into champions for the fi rm.

6. Discuss diff erent ways in which human resource manag- ers make use of social computing. Recruiting: Both recruiters and job seekers are moving to online social networks as new recruiting platforms. Enter- prise recruiters are scanning online social networks, blogs, and other social resources to identify and fi nd information about potential employees. If job seekers are online and active, there is a good chance that they will be seen by recruiters. In addition, on social networks there are many passive job seekers—people who are employed but would take a better job if it appeared. So, it is important that both active and passive job seekers maintain profi les online that truly refl ect them. Training: Several companies use virtual worlds for training purposes. For example, Cisco uses its virtual campus in Second Life for product training and executive briefi ngs. IBM runs management and customer interaction training sessions in Second Life as well.

7. Discuss the advantages and disadvantages of crowd- sourcing to organizations. Crowdsourcing is the process of taking a job traditionally performed by an employee or a consultant and outsourc- ing it to an undefi ned group of people in the form of an open call. Crowdsourcing potential benefi ts to organizations: prob- lems can be explored at relatively low cost and oft en very quickly; many times crowds solve problems for free; the organization can tap a wider range of talent than it has in its own organization; organizations gain fi rsthand insight on their customers’ desires; crowdsourcing taps into the global world of ideas, helping companies work through a rapid design process. Concerns with crowdsourcing include the following: the accuracy of the results; the relevance of the results; the quality of the results; should the crowd be limited to only experts and how does a company do that; crowd may submit too many ideas, and it costs too much money to evaluate all of the ideas; content contributors may violate copyrights, intentionally or unintentionally.

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Discussion Questions 313

AJAX A Web development technique that allows portions of Web pages to reload with fresh data rather than requiring the entire Web page to reload.

blog (weblog) A personal Web site, open to the public, in which the site creator expresses his or her feelings or opinions with a series of chronological entries.

blogosphere Th e term for the millions of blogs on the Web.

collaborative consumption Peer-to-peer sharing or renting.

crowdsourcing Th e process of taking a job traditionally performed by an employee or consultant and outsourcing it to an undefi ned group of people in the form of an open call.

mashup Web site that takes diff erent content from a number of other Web sites and mixes them together to create a new kind of content.

microblogging A form of blogging that allows users to write short messages (or capture an image or embedded video) and publish them.

Really Simple Syndication (RSS) A technology that allows users to receive the information they want, when they want it, without having to surf thousands of Web sites.

social advertising Advertising formats that make use of the social context of the user viewing the ad.

social capital Th e number of connections a person has within and between social networks.

social commerce Th e delivery of electronic commerce activities and transactions through social computing.

social computing A type of information technology that combines social behavior and information systems to create value.

social graph A map of all relevant links or connections for one member of a social network.

social intelligence Th e monitoring, collection, and analysis of socially generated data and the resultant strategic decisions.

social marketplaces Th ese act as online intermediaries that harness the power of social networks for introducing, buying, and selling products and services.

social network A social structure composed of individuals, groups, or organizations linked by values, visions, ideas, fi nancial exchange, friendship, kinship, confl ict, or trade.

social networking Activities performed using social soft ware tools (e.g., blogging) or social networking features (e.g., media sharing).

social shopping A method of electronic commerce that takes all of the key aspects of social networks—friends, groups, voting, comments, discussions, reviews, etc.—and focuses them on shopping.

tag A keyword or term that describes a piece of information.

tweet Messages and updates posted by users on Twitter.

Twitter A free microblogging service that allows its users to send messages and read other users’ messages and updates.

Web 2.0 A loose collection of information technologies and applications, plus the Web sites that use them.

Web 2.0 media Any Web site that provides user-generated media content and promotes tagging, rating, commenting, and other interactions among users and their media contributions.

weblog (see blog)

wiki A Web site on which anyone can post material and make changes to other material.

>>> C H A P T E R G L O S S A R Y

1. How would you describe Web 2.0 to someone who has not taken a course in information systems?

2. If you were the CEO of a company, would you pay attention to blogs about your company? Why or why not? If yes, would you consider some blogs to be more important or more reliable than are others? If so, which ones? How would you fi nd blogs relating to your company?

3. Do you have a page on a social networking Web site? If yes, why? If no, what is keeping you from creating one? Is there any content that you defi nitely would not post on such a page?

4. How can an organization best employ social computing technologies and applications to benefi t its business processes?

5. What factors might cause an individual, an employee, or a company to be cautious in the use of social networks?

6. Why are advertisers so interested in social networks?

7. What sorts of restrictions or guidelines should fi rms place on the use of social networks by employees? Are social computing sites a threat to security? Can they tarnish a fi rm’s reputation? If so, how? Can they enhance a fi rm’s reputation? If so, how?

8. Why are marketers so interested in social networks?

9. Why are human resource managers so interested in social networks?

>>> D I S C U S S I O N Q U E S T I O N S

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314 8 l Social Computing

1. Enter www.programmableweb.com and study the various services that the Web site off ers. Learn how to create mashups and then propose a mashup of your own. Present your mashup to the class.

2. Go to Amazon’s Mechanical Turk Web site (www.mturk. com). View the available Human Intelligence Tasks (HITs). Are there any HITs that you would be interested in to make some extra money? Why or why not?

3. Access Pandora (www.pandora.com). Why is Pandora a social networking site?

4. Access ChatRoulette (www.chatroulette.com). What is interesting about this social networking site?

Background

Th is chapter has shown that there are many positives associated with social computing as well as many negatives. However, in spite of the negatives, it is something that you will have to deal with as a job applicant, employee, or business manager. In some cases, you will need to develop your own social tools. To give you some experience with this, this collabora- tion exercise will have you create a social network for a small business venture.

Activity

You are cofounder of a local bicycle shop and need some publicity. To help with this, you have decided to sponsor an annual bike race in your local area. Th ere is already a runner’s club and you hope to draw some athletes to the bike race from that group. You have a support team from all departments working with you. Your team (classmates) should consist of someone from marketing, logistics, fi nance, and legal.

5. Using a search engine, look up the following: • Most popular or most visited blogs. Pick two and follow

some of the posts. Why do you think these blogs are popular?

• Best blogs (try www.bloggerschoiceawards.com). Pick two and consider why they might be the “best blogs.”

6. Research how to be a successful blogger. What does it take to be a successful blogger? What time commitment might be needed? How frequently do successful bloggers post?

7. Design a mashup for your university. Include the purpose of the mashup, sources of data, and intended audience.

Visit http://www.wiley.com/go/rainer/collaboration and click on the link provided. It will take you to the home page for Ning, a company that allows you to create your own social network. Using the trial period, build a social commu- nity to promote your bike race. Be sure to mark your calendar and cancel your subscription if you want to before you are charged! Invite your friends to join the network and give you feedback on what your team has created. Have them ask questions about the plan, legal issues, pricing, organization, etc.

Deliverable

Send an invitation to your professor to join your social community. With the invitation, send an explanation of what your team has accomplished and how the diff erent areas have contributed.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

>>> C O L L A B O R AT I O N E X E R C I S E

CLOSING CASE 1 > Facebook Commerce

With almost 1 billion members, Facebook is a very desirable Web site on which to advertise, sell, and conduct other social commerce activities. Facebook’s size alone is enough to attract the attention of all companies. Clearly, Facebook off ers opportunities for companies to reach out to customers and conduct business transactions. However, what is the best way to take advantage of Facebook’s size (customers are already there) to do business?

Facebook commerce (or f-commerce) refers to commerce executed on, or infl uenced by, the Facebook platform. Two major types of F-commerce are emerging, commerce-on Face- book and commerce-off Facebook. Commerce-on Facebook is a type of electronic commerce

THE PROBLEM >>>

A VARIETY OF >>> SOLUTIONS

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Closing Case 1: Facebook Commerce 315

in which the transaction occurs inside Facebook, specifi cally the purchase of goods and/or services inside Facebook with a credit card or other valid monetary system. Commerce-off Facebook (which occurs on other Web sites) is a type of electronic commerce that takes advantage of Facebook’s Open Graph, allowing shoppers to sign in to Facebook from any online Web site with any computing device (e.g., laptop, netbook, phone). Commerce-on Facebook. Facebook Stores, Facebook Credits, and Complete Sell- ing Th rough Facebook are three types of commerce-on Facebook. FACEBOOK STORES. Facebook Stores occur in a variety of formats and are not limited to traditional retailers. Th ere are many examples. Th e P&G Pampers F-Store, powered by Amazon WebStore, sold 1,000 diapers packs direct to consumers in less than one hour aft er the store “went live.” ASOS became Europe’s fi rst fully integrated F-store allowing consum- ers to complete purchases without ever leaving Facebook. Delta Airlines launched Delta Ticket Counter, allowing consumers to book and pay for fl ights inside Facebook. FACEBOOK CREDITS. Facebook Credits are just like tokens at an arcade or amusement park. Credits are a secure way to play games and buy virtual and digital goods on Facebook. You can buy credits using your credit card, PayPal, mobile phone, or other payment meth- ods. Warner Brothers allows consumers to use Facebook credits to stream movies in Face- book for 30 Facebook credits ($3) Complete Selling through Facebook per movie. COMPLETE SELLING THROUGH FACEBOOK. 1-800-Flowers has pioneered a selling pro- cess that never takes the user away from Facebook. Shoppers can select products, options, see delivery dates, and even include a personal message without interrupting their Face- book experience. However, 1-800-Flowers does not take full advantage of the social envi- ronment. It does not, for example, provide an easy way to ask a relative what Mom’s favorite fl owers are or what her zip code is.

Delta Airlines has built a complete ticketing system into its Facebook page, and while the airline allows the user to promote Delta by posting a general message on his or her Wall, it does not do much to help the user share details with friends involved in the trip, some- thing that a Send Button could do nicely.

1-800-Flowers and Delta do their selling via Facebook apps. Th e primary advantage of using an app is screen real estate. iFrame content is restricted to the 520 pixel-wide middle page column, while an app can control the left most 760 pixels, a 46% increase in visible selling space. Th e disadvantage of apps is that they are more diffi cult to maintain and they may stress smaller budgets within businesses lacking Facebook development expertise. Commerce-off Facebook. Th ere are several examples of Commerce-off Facebook. Merchant integration with Facebook works in four ways: Facebook-enabled Web sites, Facebook in-store retail, Facebook-initiated selling, and Facebook check-in deals. FACEBOOK-ENABLED WEB SITES: Th ese are traditional Web sites and e-commerce sites that integrate with Facebook to off er customers a Facebook experience while shopping or researching purchases. Brands can bring the Facebook experience to their Web sites, tapping users’ connections and interests to support the purchasing process. Th e simplest examples involve using social plugins, which are short code snippets that ping Facebook’s network for information about the user visiting the brand’s site. Social plugins include the Like Button, Send Button, Subscribe Button, Recommendations, Login Button, and many others.

Th e Like Button is the most common plugin and is usually regarded as a content- sharing device. However, when it is used in conjunction with a product page, it can provide peer support by displaying the names and profi le images of people who have Liked the product. Most appealing for brands is the fact that it also highlights any of the user’s Facebook friends who have Liked the product.

A more sophisticated approach uses Facebook’s Open Graph application programmer interface to retrieve the Likes and interests of the user, as well as those of his or her friends. Th ere is a permission screen involved and every friend’s privacy settings are individually respected.

Amazon off ers a “Tap into Your Friends” option. Aft er the permission screen, the user is taken to an Amazon page showing the upcoming birthdays of Facebook friends and their Amazon Wish List if they have one. Amazon uses a user’s friends’ profi le data, which oft en includes favorite books and music, to make gift suggestions.

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Log in to www.TripAdvisor.com with Facebook Connect and users have a personalized experience that allows them to see their friends’ travel recommendations, thereby socializ- ing their travel planning and purchases. Th e Levi’s Friend Store allows shoppers to browse their friends’ “likes” by product category. FACEBOOK IN-STORE RETAIL. In this program, brick-and-mortar retailers integrate with Facebook to off er customers a Facebook experience while shopping in their stores. Macy’s Magic Fitting Room is a Facebook-connected fi tting room equipped with a camera- enhanced 72-inch mirror and an iPad that allows customers to try on clothes and then share the experience with their Facebook friends. FACEBOOK-INITIATED SELLING. Businesses can set up a storefront for free on their Facebook pages. Th ey start the shopping process on Facebook and then have the customer jump to their e-commerce pages at some point in the process to complete the purchase process.

For example, Lady Gaga’s Facebook store takes users on a rather abrupt transition. Users can browse products on her Facebook page, but any click takes them to the product page at www.bravadousa.com, a licensed merchandise marketer and fulfi llment service. Th e Face- book branding is gone, and the look and feel changes completely. A new window opens that makes any Facebook multitasking (e.g., chat) cumbersome. Apparently, a page with over 30 million Likes can get away with this. Justin Bieber has the exact same arrangement.

Best Buy keeps shoppers in the Facebook environment a bit longer and takes advantage of its social features while they are there. Best Buy’s store app is labeled “Shop 1 Share.” Users can search or browse for products. When they fi nd something that interests them, they have two options: Ask Friends or Shop Now. Ask Friends leads to a Wall post asking about the product. Interestingly, Best Buy makes Ask Friends much more noticeable than Shop Now, which takes the user to the product page at www.bestbuy.com for the shopping cart and checkout process. FACEBOOK “CHECK-IN DEALS.” Th is program allows local retailers to drive traffi c to their stores by off ering special discounts to consumers who check in to their location with Facebook Places on their mobile phones. In a promotion, Th e Gap leveraged check-in deals by off ering a free pair of blue jeans to the fi rst 10,000 consumers who checked in at Gap stores. Mazda U.K. off ered a 20 percent discount off the Mazda X5 for Check-in Deals when Facebook Places launched in the United Kingdom.

F-commerce is still in its infancy and barely survived its birth. In 2007, Facebook tried Project Beacon, which collected e-commerce activity on third-party sites and announced a user’s purchases on his or her friends’ news feed. Facebook quickly withdrew from that privacy nightmare but its poor reputation for freely dispersing user data still deters f-commerce. Many Facebook users have become so accustomed to Facebook’s aggressive data-sharing policies that they automatically assume the worst. A JWT study (www.jwt.com) found that some 75 percent of people have concerns about Facebook privacy and security.

Experienced e-commerce managers also see problems with Facebook itself. Facebook does have relatively slow page loads and smaller page size because of Facebook’s advertising and navigation. Analysts wonder why customers would bother shopping through Face- book when a faster and better experience is only a browser tab away, at the e-commerce Web site of a vendor. Facebook advertising is also an issue. No matter how you structure your f-commerce store, the user will still be served targeted Facebook ads during the buy- ing process.

Many web marketers question the social nature of shopping itself, and there is consid- erable opinion that people visit Facebook to catch up with their friends and not to be sold products. Aft er all, the average Facebook user is connected to 130 friends and 80 interest groups and makes his or her preferences known through rich profi les and by posting 90 pieces of content per month. Facebook users spend 700 billion minutes per month in an active, relaxed environment where word of mouth is built into every click. However, the good news for businesses on that front, from the JWT study, is that 48 percent of millenni- als (aged 20 to 33) would like to see the places where they shop give them the ability to buy directly on Facebook.

THE RESULTS >>>

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Closing Case 1: Facebook Commerce 317

In January 2012, P&G announced that the company was scaling back its $10 billion annual ad budget (mostly in traditional media) to take advantage of free impressions off ered by Facebook in the form of Likes and status updates. Th en in May 2012, General Motors canceled its entire $10 million Facebook ad budget. Th e two decisions were made for diff er- ent reasons: GM was not convinced that Facebook ads are eff ective and P&G was looking for free media advertising effi ciencies.

Some industry analysts are pointing out that advertising on Facebook is not as eff ective for some advertisers as advertising on search engine Web sites. Th e reason is that people searching for information on purchase decisions are better targets for ads than people checking out messages from friends. Further, these analysts have fundamental doubts about whether advertising on Facebook is a good idea because the process interrupts personal conversations with impersonal branding.

WordStream (www.wordstream.com), a search marketing management company, com- pared advertising on Google with advertising on Facebook. WordStream’s fi ndings suggest that Facebook is a much less eff ective ad medium than Google. Let’s take a look at the fi ndings.

Total Reach Facebook: 51 percent of all Internet users Google: 90 percent of all Internet users

First Quarter Revenues, 2012 Facebook: $1.06 billion, down 6.5 percent (compared with fi rst quarter, 2011) Google: $2.9 billion, up one percent (compared with fi rst quarter, 2011)

Click-Th rough Rates Facebook: 0.051 percent Google: 0.4 percent Average: 0.1 percent

Th e click-through rate of an advertisement is the number of clicks on an ad divided by the number of times the ad is shown, expressed as a percentage. Th e average click through rate for an ad on the Internet in general is 0.1 percent. Th at is, an ad that is shown 10,000 times on the Internet in general would be clicked on 10 times. If an ad is shown 10,000 times on Facebook, it would be clicked on 5 times. Correspondingly, an ad shown 10,000 times on Google would be clicked on 40 times. Google ads receive 8 times as many clicks as ads on Facebook, a defi nite competitive advantage.

Regardless of the pros and cons of f-commerce, there is one overwhelming fact. Face- book is where the customers are, and they should be able to buy wherever and whenever they like. Today, over two-thirds of companies use Facebook to drive customers to their e-commerce sites, 44 percent use Facebook apps for product launches and promotions, and 26 percent build e-commerce applications (e.g., a Web store) on Facebook itself. Sources: H. Elliott, “GM Retools: Goodbye Facebook, Hello Manchester United,” Forbes, May 31, 2012; J. Edwards, “Here’s the Real Reason GM Pulled $10 Million in Ads from Facebook,” Business Insider, May 29, 2012; J. Edwards, “Facebook’s Worst Nightmare: Aft er GM, Here’s How the Other Dominoes Could Fall,” Business Insider, May 15, 2012; J. Edwards, “Data: Google Totally Blows Away Facebook on Ad Performance,” Business Insider, May 15, 2012; J. Corpus, “F-Commerce for Hollywood: Turning Fans into Customers,” Forbes, September 19, 2011; J. Ente, “Th e Beginner’s Guide to Facebook Commerce,” Mashable, July 14, 2011; E. Savitz, “Attention Facebook Shoppers: Get Ready for F-Commerce,” Forbes, June 27, 2011; T. McMullen, “Attention Facebook Shop- pers: Get Ready for F-Commerce,” Forbes, June 27, 2011; J. Hird, “101 Examples of F-Commerce,” EConsultancy, May 19, 2011; J. Diner, “F-Commerce, the Arrival of the Facebook Consumer,” ClickZ.com, May 10, 2011; M. Lazerow, “Facebook Takes People-Centric Ads to the Next Level,” Ad Age Digital, January 27, 2011; www. facebook.com, accessed February 9, 2012.

Questions 1. What are the advantages for a business conducting commerce on Facebook?

The disadvantages? 2. What are the advantages for customers conducting commerce on Face-

book? The disadvantages?

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318 8 l Social Computing

CLOSING CASE 2 > Social Computing at Starbucks

Starbucks is the world’s largest coff ee house with over 16,000 stores in 50 countries. In addi- tion, Starbucks sells coff ee in its online store (www.starbucksstore.com).

Starting in 2007, the company’s operating income declined sharply, from over $1 bil- lion in 2007, to $504 million in 2008, and $560 million in 2009. Th ese decreases were not only the result of the economic slowdown, but were also the result of increased competition (for example, from Green Mountain Coff ee Roasters).

To increase its revenue, Starbucks decided to emphasize its social computing strategies. Th e company focused on the needs, wants, and likes of existing customers and building on those relationships in order to gain new customers.

Starbucks’s major social computing activities centered on its private site, My Starbucks Idea, and on Facebook. Th e company further launched a presence on all of the other major social networks as well. My Starbucks Idea is a forum for consumers to make suggestions, ask questions, and vent their frustrations. Th is community of about 200,000 registered members can discuss ideas and collaborate on creating new ones. Th e consumer-generated ideas range from thoughts on rewards cards, eliminating paper cups, ways to foster com- munity within the brick-and-mortar Starbucks locations, and requests to revive drink fl a- vors. Th e brand keeps the community in the loop with its “Ideas in Action” blog, where staff ers write about new developments and announce community contest winners. Th e blog also provides statistics on ideas generated by category (over 105,000 by January 2012). Th e company may provide incentives for idea generation. For example, in June 2010, Starbucks off ered $20,000 for ideas on the reuse of its cups. Facebook. Over 19 million people like Starbucks on Facebook. Th e company off ers an excellent online purchasing experience on Facebook and also off ers mobile commerce as well.

Fully integrated into Facebook, Starbucks practices social commerce, known as f-commerce. Users can reload their (virtual) Starbucks mobile card with a payment card in order to pay for drinks with their cell phones or load cash onto the Starbucks plastic pay- ment card. Users can also surprise their Facebook friends by reloading their friends’ cards.

Starbucks started using social commerce on Facebook in 2007 and since then has actively used Facebook events, discussions, and notes in conjunction with well-coordinated ad campaigns to drive traffi c both to its physical and online stores.

Starbucks has been active in the conversational aspects of social marketing through posts on its Wall and information for fans via news feeds—whether it is content, questions, or updates aimed at stimulating discussion about the brand. Also, Starbucks has invested in advertising in engagement ads on Facebook’s homepage and elsewhere on Facebook to drive traffi c to its page. LinkedIn. Starbucks has a profi le on the site with almost 40,000 followers. It provides business data about the company, shows new hires (managerial positions), and advertises open managerial positions. Twitter. In January 2011, there were over 1 million followers (Follow@starbucks) on Twitter organized in some 18,000 lists. Each “list” has its own followers and tweets. When- ever the company has some new update or campaign, it ignites a conversation on Twitter. Th erefore, the news appears on Twitter before anywhere else. YouTube and Flickr. Starbucks runs campaigns and has a presence on both sites (www.youtube.com/starbucks and www.fl ickr.com/starbucks). Th e sites off er a selection of videos and photos for view. Starbucks Digital Network. Starbucks Digital Network off ers exclusive content to all of its in-store customers. It is designed for all major mobile devices. Th e network’s con- tent features news, entertainment, business, health, and even local neighborhood informa- tion channels. Foursquare and LinkedIn have already signed partnership deals with the network, along with the New York Times, iTunes, and WSJ.com.

THE PROBLEM >>>

THE SOLUTION >>>

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Spreadsheet Activity 319

Starbucks turned revenue around by eff ectively bridging the digital and physical worlds. In 2010, their operating income almost tripled (to $1.437 billion) and so did the stock price. Earnings are projected to double by 2013. In addition, the company’s social computing initiatives were rewarded in 2008 by Forrester Research with a Groundswell Award, recog- nizing it as an excellent example of using social computing to embrace customers. Sources: Compiled from R. Stickney, “Starbucks Warns of Facebook Gift Card Scam,” NBC San Diego, October 18, 2011; M. Walsh, “Starbucks Surpasses 10 Million Fans, Closing in on Lady Gaga,” Media Post, July 15, 2010; M. Stelzner, “How Starbucks Engages Millions of Facebook Fans,” Social Media Examiner, May 20, 2010; P. Marsden, “Starbucks F-Commerce 1 M-Commerce 5 New Gold Standard,” Social Commerce Today, May 7, 2010; E. York, “Starbucks Gets Its Business Brewing Again with Social Media,” Advertising Age, February 22, 2010; www.starbucks.com, www.facebook.com/#!/Starbucks, accessed May 20, 2012.

Questions 1. Compare and contrast Starbucks’ marketing strategies across the various

social networking sites. 2. Describe possible disadvantages of Starbucks’ use of social computing in

its marketing eff orts. Provide specifi c examples to support your answer. (Hint: See “Starbucks Warns of Facebook Gift Card Scam.”)

<<< THE RESULTS

SPREADSHEET ACTIVITY Objective: When someone uses the phrase “social

network,” we generally think of MySpace or Facebook. However, many online tools allow people to collaborate and work together on projects. Google Docs is one of these. This activity will introduce the Google Spreadsheet Survey tool.

Chapter Connection: Although Google Spreadsheets are not social networks like Facebook and MySpace, they are defi nitely examples of Web 2.0. They allow multiple people to work together and collaborate on many projects. The Google Spreadsheet Survey tool

is no exception. It allows for the easy collection and sharing of data.

Activity: Consider the following scenario. You are the marketing offi cer for “Students for Better Campus Lunches” and have been charged with a campuswide survey to fi nd out how people feel about the current food offerings and their desires for future possibilities. You decide to use a Google Form because the data are automatically saved in a Google Spreadsheet and will be easy for you to analyze. The following questions have been

The end-of-section discussion questions have already asked you to consider many facets of Web 2.0 and social media. RSS feeds, Facebook, Twitter, blogs, etc., provide multiple ways for businesses to connect with their customers. How are other bars/clubs using these tools? If you have not searched this to answer the section questions, search now and see what you can fi nd.

Remember that Ruby’s strategy is to create a relaxing “community” environment where customers come for nice music and good drinks. Can these social outlets help them

create this? Will there be more privacy issues brought up than this is worth?

Finally, write a letter to Ruben and Lisa explaining the different social outlets and how they may use them in their grand reopening to help promote their club. Do not take for granted that they are familiar with each social network and how it works. Remember: Ruben is a “newbie” when it comes to Facebook and does not even have a Twitter account! Submit this letter to Ruben and Lisa via your professor.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

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320 8 l Social Computing

DATABASE ACT IV ITY: FORMS I

recommended. You will likely need to reword some of these so they will fi t a multiple-choice question format. You also may want to have a couple of open- ended questions to allow for comments.

1. How often do you eat on campus? 2. Which meals do you eat? 3. Are you satisfi ed with the current choices? 4. What cuisines would you like to see more of? 5. What do you think we could do without? 6. Is eating on campus too expensive? 7. Do you have any general recommendations for

food on campus?

To complete this exercise, you will need to create a Google account if you do not already have one. Then log in to http://docs.google.com and create a new form. Go to the Google Docs Web site and watch the tutorials on how to create Google Forms. Or simply search Google for “Google Form Videos” and have a look at the tutorials. Once you have created your form, have some friends complete your survey and have a look at the

data in your spreadsheet. Export this spreadsheet as a Microsoft Excel fi le and submit it to your professor. Deliverables: The fi nal product will be a workable

survey/form built in Google Docs and the spreadsheet that it creates.

Discussion Questions:

1. Discuss the advantages and disadvantages of using this type of tool. For example, how do you know how many times someone completes the survey? Given this lack of control, in how many situations would this truly be useful?

2. If you were to embed a Google Form into another Web page, do you think you should tell people that your form was created on a Google site? Should you explain the security levels available? How much do you want them to know about how easily they could take and retake the survey?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

Objective In this activity, you will learn how to use forms that select columns of interest from one or more related tables, to view or to enter new data. So far we have entered all our data directly into our tables and looked at them that way too (or in reports). We opened tables in Datasheet view, selected a row, and keyed in the data or examined it. In this activity, you will learn a better way to enter or view data. Working with one table at a time is not ideal for two main reasons:

1. Understanding information in a meaningful way often means looking at more than one table. Registering for a new course may involve a registration table, a student table, a course table, and perhaps others.

2. Looking at a table shows all its columns. A real table may have hundreds of columns. Most database uses do not need all, or even most, of them. Grouping those needed for one purpose will not be ideal for a different one.

Using forms solves both of these problems. In this activity, you will see how.

CHAPTER CONNECTION The unifying characteristic of social network applications is that users, not site owners, provide the content. For this to work, the interfaces they use must hide the underlying complexity of the database. Forms can do this.

PREREQUISITES None.

Activity In this activity, which you will fi nd online, you will learn about creating forms with the Form tool and the Form Wizard. You will create complex forms, using up to three tables.

1. Download and open the Ch 08 PhotoNet database from http://www.wiley.com/go/rainer/database. It contains three tables: members, photos, and comments. Each comment is by a member, about a photo posted by a member. (They may be the same—that is, a member may comment on his or her own photo.) Open the relationship map, under the Database Tools ribbon tab, to see how they are related.

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Database Activity 321

2. We will start with a one-table form to provide a user-friendly data entry environment. To create a form based on the Member table, open it and make sure it is in front so Access will know which table to base the form on. Then click the “Create” ribbon tab, fi nd the Forms section, and click “Form.” A simple form based on MemberTbl will show up.

3. The form will be in Layout view. In the Chapter 9 activity you will learn to modify a form in this view. Here, just close the form. When prompted, name it NewMemberFrm.

4. Open it again. It will be in Form view, showing data for Member 1. Use the navigation tools at the bottom to move through the rows of MemberTbl. Tool tips on each symbol tell what it does. You can also enter a record number in the fi eld that says “n of m,” where n is the number of the current record (table row) and m is the number of records in the table.

5. Enter a new record by fi rst clicking the far right icon in the navigation area at the bottom of the form. Enter yourself as a new member, with today’s date as your joining date. Fill the other fi elds with data of your choice.

6. Suppose we want to see all of a member’s photos. PhotoTbl lists them by MemberID. People do not know members by their IDs. We use names in the real world, handles on most Web sites. These are in MemberTbl. So, a form to show a member’s handle and photos must use two tables. To create this form, again click the “Create” ribbon tab. This time, select the Form Wizard. If your window is not wide enough for Access to display its label, it is the icon in that section with the wizard’s wand sprinkling magic dust.

7. The Wizard asks you to select tables and columns for this form. First, select MemberTbl from the Tables/Queries pull-down list. When its fi elds are showing, move MemberHandle to the right panel (“Selected Fields”) by selecting it and clicking “..” Then select PhotoTbl from the pull-down list, and move PhotoTitle and PhotoLink into the form. Then click “Next.”

8. Because we want to list each member with his or her photos, view it by MemberTbl. (If we view by photo, the form will treat member data as an extension of photo data.) Click “Next.”

9. A Datasheet view of the subform means that, within each member form, the member’s photos will be listed in an embedded datasheet. Select this option, and click “Next.”

10. Title the main form “Photos by Member” and the subform “Photo List.” Select “Open the form to view or enter information,” and click “Finish” to see the form you created.

11. You will see a form with Member 1’s photos. The navigation tools at the bottom of the subform go through them. Those at the bottom of the entire window go through members. As you change members, the subform changes to show each one’s photos. To enter a new photo, fi nd the desired member and add it to the subform. Access will enter the correct MemberID in PhotoTbl. Confi rm this: Enter a new photo for the fi rst user, then open PhotoTbl. Your new item will be at the end, with that user’s MemberID.

12. If a member forgets to add a photo link, the post should display a photo of the founder’s dog. To make this happen, do either (a) or (b) in the following list. Method a, using the table, will enter this link whenever a new member is added in any way. Method b, using the form, will enter it only when a new member is added via this form.

(a) Open PhotoTbl in Design view. Select the PhotoLink row. Enter “http://www.wiley.com/ go/rainer/database” (with the quotation marks) in the Default Value row as shown in the following screen shot. Close the table.

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322 8 l Social Computing

(b) Open the Photos by Member form in either Design or Layout view. (Layout view is shown in the following screen shot, but either one works as well as the other.) In either view, click the “Design” tab. Then click the “Property Sheet” icon at the far right. On that sheet, select its “Data” tab. Enter “http:// www.wiley.com/go/rainer/database” (with the quotation marks) in the Default Value row. Then return to Form view. The property sheet will vanish, because it is not usable in Form view. This URL will be in the “New” row of the table. Because it is a default, not a fi xed value, a user can replace it with a real link.

Usage Hint: An Access object’s property sheet describes it in full. It is the “go-to place” for when all other attempts to change something about an object fail, to set precise dimensions that cannot be set as accurately by dragging on the screen, or to change some object characteristics that are not visible anywhere else.

13. The third form, to show members, photos, and comments, is more complex. Because both PhotoTbl and CommentTbl link to MemberTbl (the fi rst for who posted a photo, the second for who commented on it) and to each other (as each comment is about a photo), the Form Wizard cannot fi gure out their connections. We must do this form in stages. First, we will create a subform to show photos and their comments. Then, we will put it into a form with member information. For the subform, use the Form Wizard as before using all three tables, organizing it by PhotoTbl. You will see member data treated as part of the comment data. This time, in what was step 9 (above), choose the “Tabular” format. Save this as PhotoSubform.

14. Again using Form Wizard, create a form from only MemberTbl, with MemberName and MemberHandle. Go to Design view. With the mouse, grab the Form Footer (bottom of the form) by its top edge and drag it down to make as much space as possible for the subform.

15. Select the Design ribbon, and click “Subform” in the Controls section. (It is probably at the bottom of the left column of three small icons, but Access will sometimes rearrange ribbons to fi t the window. Mouse around until you get a Subform/ Subreport tool tip.) The mouse pointer will become a 1 when you move it to the form design area. Drag it over the space you created when you

expanded the form to create a rectangle where the subform will go.

16. Click the “Property Sheet” icon at the right of the ribbon, or double-click the edge of the rectangle you just drew. (Hitting the edge takes precise positioning.) The fi rst row under the Data tab reads “Source Object.” Pull down the menu of possible source objects via the down arrow at the right of that row, and select “PhotoSubform.” It will appear in the rectangle.

17. Switch to Form view and see what you created. You probably feel that you can improve its layout. In a real situation, you would. In the Chapter 9 activity, you will learn how. For now, close your database, saving it if prompted.

Deliverables Your three forms, as described in the problem.

Quiz Questions 1. Consider the following four statements: i. You can edit the relationships among database

tables. ii. You can see the contents of more than one

table at a time. iii. You can set a default value for a data fi eld. iv. You are not distracted by data fi elds you do not

need for what you are doing. Which of the preceding statements describe(s) the

advantages of using Access forms over using a table directly? (a) Only (ii) (b) Both (ii) and (iv) (c) Both (ii) and (iii) (d) All of the listed items are advantages of Access

forms over using a table directly. 2. True or False? When table relationships are simple,

the Form Wizard can fi gure out which rows of one table are associated with a row in another table.

3. True or False? The Form button in the Access Create ribbon can create a form that uses data from more than one table.

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Database Activity 323

4. Which of the following cannot be done in the Form Wizard? (a) Selecting tables on which to base the form

being designed (b) Selecting a design theme/color scheme for the

form being designed (c) Selecting totals to be placed in the form being

designed (d) None of the above (All three can be done in

the Form Wizard.)

Discussion Questions:

1. Consider the on-screen grade report you get at the end of each term. It is a form, although your school’s course information system probably does not use Access. It is based on tables that contain student information such as your name, course information such as full course titles, and a table with grades that connects your record in the student table to the records of your courses in the course table.

Suppose you were designing this form in the Form Wizard. Describe, in words, the steps you would go through. Invent table names and column names as necessary.

2. Go to http://www.wiley.com/go/rainer/database (Digital Photography Review). At the top, click “Forums.” Select any camera type forum from the menu that drops down. In the list of threads for that forum, select any thread with at least ten messages (in the rightmost column of the thread listing). You will see that replies to other messages are listed, indented, under the message to which they reply. A long thread can have many levels of indentation.

What additional information must be added to the CommentTbl of this activity’s database to make this possible? (Ignore the complexities of actually displaying things this way, whether in an Access form or anywhere else. It takes a lot of programming to make it work. Just discuss the information a program would need in order to do this at all.)

3. A city tax department has a table of real estate properties and a table of property owners. A property belongs to only one owner. An owner may own more than one property. Using paper and pencil (or other tools that your instructor may specify), draw a form it could use to show all of one owner’s properties. Make reasonable assumptions about the columns in both tables.

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9

CHAPTER OUTLINE

9.1 Overview of E-Business and E-Commerce

9.2 Business-to-Consumer (B2C) Electronic Commerce

9.3 Business-to-Business (B2B) Electronic Commerce

9.4 Ethical and Legal Issues in E-Business

E-Business and E-Commerce

LEARNING OBJECTIVES >>>

1. Describe the six common types of electronic commerce. 2. Describe the various online services of business-to-consumer (B2C) commerce,

providing specifi c examples of each. 3. Describe the three business models for business-to-business electronic

commerce. 4. Identify the ethical and legal issues related to electronic commerce,

providing examples.

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When Matt Lauzon was a senior at Babson College in Wellesley, Massachusetts, he created an interesting business plan. He developed a Web site, Gemvara (www.gemvara.com), which makes it possible for consumers to design custom, high-end jewelry without ever having to visit a jewelry store.

To fi nd varied opinions and advice about his business plan, Lauzon signed 50 brick-and-mortar jewelers to a network that let their clients customize items both in their stores and online. He discovered that customers were very excited about the experience of customizing from home, because they had more control over the design process. Lauzon’s business plan concentrated on the concept of electronic commerce for what Lauzon calls “Generation Me.”

Gemvara’s 1,500 products can be customized into more than 1 billion variations. Each design is made to order by integrating the customer’s vision with gemstones, precious metals, and processes.

Lauzon launched Gemvara in February 2011. Since that time, the Web site has experienced double-digit monthly revenue growth, received more than 1 million page views per month, and enjoyed an average order price of approximately $1,000.

Lauzon attributes much of his company’s success to its Zappos-like customer service, which is available 24/7 via phone, e-mail, or live chat. He notes that establish- ing trust between his company and customers, especially for expensive purchases like fi ne jewelry, is essential. Approxi- mately 45 percent of Gemvara’s customers have never purchased a piece of jewelry online before, and 24/7 customer service goes a long way toward overcoming the trust barrier. > > >

OPENING CASE > Gemvara

Ruben and Lisa are ready to implement e-business on their Website. They intend to sell hats, shirts, bracelets, necklaces, shot glasses, tumblers, coffee mugs, special event T-shirts, and other paraphernalia. They do not need a complicated site because they will only sell around 20 items.

They have decided to use PayPal as the payment mechanism. It appears that PayPal provides a nice set of e-commerce tools that they can integrate into their site. Additionally, many people already have a PayPal account. This will allow them to tap into an exiting set of customers without having to develop their own platform. It will also give them instant credibility in the online marketplace.

Given their decision, they want you to learn about the e-commerce market. Use this chapter’s material to help them understand how they can use these tools to create an online retail store. By the end, they hope you can give them an idea of the concerns they may face as they move to this system. Also, they want some specifi c directions on implementing PayPal on their site.

© Antagin/iStockphoto

RUBY’S CLUB

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326 9 l E-Business and E-Commerce

2. Search out other Web sites who are Gemvara competitors. Discuss each site’s strengths and weaknesses. In light of your fi ndings, do you think Gemvara will ultimately be successful long term? Why or why not?

3. How would a traditional brick-and-mortar jewelry store compete against Gemvara and other similar Web sites?

Sources: “America’s Most Promising Companies: Gemvara,” Forbes, November 30, 2011; L. Indvik, “How Gemvara Is Changing the Way Fine Jewelry Is Bought Online,” Mashable, March 27, 2011; J. Holland, “Th e Bling King,” Entrepreneur, March, 2011; www.gemvara.com, accessed March 2, 2012.

Questions 1. Access the Gemvara Web site. What are its strengths? Its

weaknesses? Would you design and purchase jewelry on the site? Why or why not?

Introduction

One of the most profound changes in the modern world of business is the emergence of elec- tronic commerce, also known as e-commerce (EC). E-commerce is transforming all business functional areas and their fundamental tasks, from advertising to paying bills. Its impact is so widespread that it is aff ecting almost every organization. Th is means that, regardless of where you land a job, your organization likely will be practicing electronic commerce.

Electronic commerce infl uences organizations in many signifi cant ways. First, it increases an organization’s reach, defi ned as the number of potential customers to whom the com- pany can market its products. In fact, e-commerce provides unparalleled opportunities for companies to expand worldwide at a small cost, to increase market share, and to reduce costs. By utilizing electronic commerce, many small businesses can now operate and com- pete in market spaces once dominated by larger companies.

Another major impact of electronic commerce has been to remove many of the barriers that previously impeded entrepreneurs seeking to start their own businesses. E-commerce off ers amazing opportunities for you to open your own business by develop- ing an e-commerce Web site. IT’s About Business 9.1 shows you how one person used e-commerce to start an extremely successful business.

Finding a Doctor Right Now

ZocDoc (www.zocdoc.com) is a Web site that allows patients to make doctors’ appointments, much in the same way that Open Table (www.opentable.com) allows customers to make dinner reservations. ZocDoc allows patients to read verifi ed reviews written by real patients, fi nd doctors in their vicinity who accept their insurance,

and instantly book appointments with local medical pro- fessionals online or via the free iPhone or Android app.

ZocDoc is free for patients, but

ABOUT BUSINESS 9.1i Fi di T’S

© Sean Locke/iStockphoto

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Introduction 327

Electronic commerce is also drastically changing the nature of competition, because of the development of new online companies, new business models, and the diversity of EC-related products and services. Recall your study of competitive strategies in Chapter 2, particularly the impact of the Internet on Porter’s fi ve forces. You learned that the Internet can both endanger and enhance a company’s position in a given industry.

Th is chapter’s Closing Case 1 shows you that e-commerce has fundamentally altered the nature of competition in the futures markets and stock markets. Despite all the advan- tages of e-commerce, the Flash Crash demonstrates that the reliance on computers (and thus on e-commerce) can lead to disaster if the process is not properly monitored by humans.

It is important for you to have a working knowledge of electronic commerce because your organization almost certainly will be employing e-commerce applications that aff ect the fi rm’s strategy and business model. Th is knowledge will make you more valuable to your organization and will enable you to quickly contribute to e-commerce applications in your functional area. As you read What’s In IT For Me? at the end of the chapter, envision your- self performing the activities discussed in your functional area.

Going further, you may decide to become an entrepreneur and start your own busi- ness. In this case, it is even more essential for you to understand electronic commerce, because e-commerce, with its broad reach, will probably be critical for your business to survive and thrive.

In this chapter, you will discover the major applications of e-business and will be able to identify the services necessary for its support. You then study the major types of elec- tronic commerce: business-to-consumer (B2C), business-to-business (B2B), consumer- to-consumer (C2C), business-to employee (B2E), and government-to-citizen (G2C). You conclude by examining several legal and ethical issues that have arisen as a result of the rapid growth of e-commerce.

doctors pay a $250 monthly fee to be in their database. ZocDoc’s software catalogs each physician’s insurance plans and appointment calendars. It also sends checkup reminders to patients. On their 50th birthdays, ZocDoc members receive an e-mail that reads: “There was recently a 13% drop in new cases [of colon cancer] . . . because more people are getting colonoscopies.”

In addition to driving patients to the doctor more frequently, ZocDoc helps patients select the doctor that is right for them. Patients are asked to rate their experience, and most do so via comments and one-to- fi ve star ratings in three categories—overall recom- mendation, bedside manner, and wait time.

It was diffi cult to get ZocDoc off the ground. Days before debuting ZocDoc at a technology conference in San Francisco, the Web site’s founder had only three names in his database of doctors. In desperation, he staked out the waiting room of a practice with fi ve doc- tors. The doctors fi nally agreed to join his list, giving him enough names to fi ll out a scroll-down menu. He also dug into his savings to pay for salespeople to recruit doctors and for computer programmers to write code to integrate ZocDoc software with the myriad of different back-offi ce systems in doctors’ offi ces.

ZocDoc is now in 15 cities, including New York, San Francisco, and Dallas. In 2011, available appoint- ments posted on ZocDoc.com increased by 120 percent to 6.6 million, while unique visits to the Web site increased by 500 percent to 1 million per month. For example, the New York Eye & Ear Infi rmary estimates that the practice’s 120 doctors who have signed up with ZocDoc have gained 9,000 new patients in just over 2 years.

Sources: V. Barret, “What the Patient Ordered,” Forbes, February 27, 2012; S. Lohr, “Lessons from ZocDoc, a Health Tech Start-up That Works,” New York Times, January 30, 2012; Z. Moukheiber, “Is ZocDoc the Fastest Growing Health Information Technology Company?” Forbes, August 8, 2011; C. Meyers, “ZocDoc Sweeps the Nation, Revolutionizing Doctor-Patient Relationships,” TheNextWeb, June 2, 2011; www.zocdoc.com, accessed February 11, 2012.

Questions 1. Describe ZocDoc’s business model.

2. What are the disadvantages of ZocDoc’s business model for the company? For the patients?

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328 9 l E-Business and E-Commerce

9.1 Overview of E-Business and E-Commerce Any entrepreneur or company that decides to practice electronic commerce must develop a strategy to do so eff ectively. Th e fi rst step is to determine exactly why you want to do business over the Internet using a Web site. Th ere are several reasons for employing Web sites:

• To sell goods and services • To induce people to visit a physical location • To reduce operational and transaction costs • To enhance your reputation

A Web site can accomplish any of these goals. Unless a company (or you) has substan- tial resources, however, it is diffi cult to accomplish all of them at the same time. Th e appro- priate Web site for achieving each goal will be somewhat diff erent. As you set up your Web site, you must consider how the site will generate and retain traffi c, as well as a host of other issues. Th e point here is that, when you are studying the various aspects of electronic com- merce, keep the strategy of the organization or entrepreneur in mind and you will have a good idea as to the type of Web site to use.

Th is section examines the basics of e-business and e-commerce. First, you defi ne these two concepts and then become familiar with pure and partial electronic commerce. You then take a look at the various types of electronic commerce. Next, you focus on e-commerce mechanisms, which are the ways that businesses and people buy and sell over the Internet. You conclude this section by considering the benefi ts and limitations of e-commerce.

Defi nitions and Concepts Electronic commerce (EC or e-commerce) describes the process of buying, selling, trans- ferring, or exchanging products, services, or information via computer networks, including the Internet. Electronic business (e-business) is a somewhat broader concept. In addition to the buying and selling of goods and services, e-business refers to servicing customers, collaborating with business partners, and performing electronic transactions within an organization.

Electronic commerce can take several forms depending on the degree of digitization involved. Th e degree of digitization is the extent to which the commerce has been trans- formed from physical to digital. Th is concept can relate to both the product or service being sold and the delivery agent or intermediary. In other words, the product can be either phys- ical or digital, and the delivery agent can be either physical or digital.

In traditional commerce, both dimensions are physical. Purely physical organiza- tions are referred to as brick-and-mortar organizations. (You may also see the term bricks-and-mortar.) In contrast, in pure EC all dimensions are digital. Companies engaged only in EC are considered virtual (or pure-play) organizations. All other combinations that include a mix of digital and physical dimensions are considered par- tial EC (but not pure EC). Clicks-and-mortar organizations conduct some e-commerce activities, yet their primary business is carried out in the physical world. A common alternative to the term clicks-and-mortar is clicks-and-bricks. You will encounter both terms. Th erefore, clicks-and-mortar organizations are examples of partial EC. E-commerce is now so well established that people generally expect companies to off er this service in some form.

Purchasing a shirt at Walmart Online or a book from Amazon.com is partial EC because the merchandise, although bought and paid for digitally, is physically delivered by FedEx or UPS. In contrast, buying an e-book from Amazon.com or a soft ware product from Buy.com is pure EC because the product itself as well as its delivery, payment, and transfer are digital. To avoid confusion, we use the term electronic commerce to denote both pure and partial EC.

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Overview of E-Business and E-Commerce 329

Types of E-Commerce E-commerce can be conducted between and among various parties. In this section, you will identify the six common types of e-commerce and learn about three of them—C2C, B2E, and e-government—in detail. You then consider B2C and B2B in separate sections because they are very complex.

• Business-to-consumer electronic commerce (B2C). In B2C, the sellers are organizations and the buyers are individuals. You learn about B2C electronic commerce in Section 9.2.

• Business-to-business electronic commerce (B2B). In B2B transactions, both the sellers and the buyers are business organizations. Th e vast majority of EC volume is of this type. You will learn more about B2B electronic commerce in Section 9.3. Figure 1.5 also illustrates B2B electronic commerce.

• Consumer-to-consumer electronic commerce (C2C). In C2C (also called customer- to-customer), an individual sells products or services to other individuals. Th e major strategies for conducting C2C on the Internet are auctions and classifi ed ads.

In dozens of countries, C2C selling and buying on auction sites are exploding. Most auctions are conducted by intermediaries such as eBay (www.ebay.com). Consumers can also select general sites such as www.auctionanything.com, a company that sells soft ware and services that help individuals and organizations conduct their own auctions. In addi- tion, many individuals are conducting their own auctions.

Th e major categories of online classifi ed ads are similar to those found in print ads: vehicles, real estate, employment, pets, tickets, and travel. Classifi ed ads are available through most Internet service providers (AOL, MSN, etc.), at some portals (Yahoo!, etc.), and from Internet directories and online newspapers. Many of these sites contain search engines that help shoppers narrow their searches. Craigslist (www.craigslist.org) is the largest online classifi ed ad provider.

Internet-based classifi ed ads have one big advantage over traditional types of classifi ed ads: Th ey provide access to an international, rather than a local, audience. Th is wider audi- ence greatly increases both the supply of goods and services and the number of potential buyers. It is important to note that the value of expanded geographic reach depends greatly on what is being bought or sold. For example, you might buy soft ware from a company located 1,000 miles away from you, but you would not buy fi rewood from someone at such a distance.

• Business-to-employee (B2E). In B2E, an organization uses EC internally to provide information and services to its employees. For example, companies allow employees to manage their benefi ts and to take training classes electronically. In addition, employees can buy discounted insurance, travel packages, and tickets to events on the corporate intranet. Th ey also can order supplies and materials electronically. Finally, many companies have electronic corporate stores that sell the company’s products to its employees, usually at a discount.

• E-government. E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens (called government-to-citizen or G2C EC) and to business partners and suppliers (called government-to-business or G2B EC). G2B EC is much like B2B EC, usually with an overlay of government procurement regulations. Th at is, G2B EC and B2B EC are similar conceptually. However, the functions of G2C EC are conceptually diff erent from anything that exists in the private sector (e.g., B2C EC).

• E-government is also an effi cient way of conducting business transactions with citizens and businesses and within the governments themselves. E-government makes government more effi cient and eff ective, especially in the delivery of public services. An example of G2C electronic commerce is electronic benefi ts transfer, in which governments transfer benefi ts, such as Social Security and pension payments, directly to recipients’ bank accounts.

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330 9 l E-Business and E-Commerce

• Mobile commerce (m-commerce). Th e term m-commerce refers to e-commerce that is conducted entirely in a wireless environment. An example is using cell phones to shop over the Internet. You will learn about m-commerce in Chapter 10.

Each type of EC is executed in one or more business models. A business model is the method by which a company generates revenue to sustain itself. Table 9.1 summarizes the major EC business models.

TABLE 9.1 E-Commerce Business Models

Online direct marketing Manufacturers or retailers sell directly to customers. Very effi cient for digital products and services. Can allow for product or service customization. (www.dell.com)

Electronic tendering system Businesses request quotes from suppliers. Uses B2B with a reverse auction mechanism.

Name-your-own-price Customers decide how much they are willing to pay. An intermediary tries to match a provider. (www.priceline. com)

Find-the-best-price Customers specify a need; an intermediary compares providers and shows the lowest price. Customers must accept the off er in a short time or may lose the deal. (www.hotwire. com)

Affi liate marketing Vendors ask partners to place logos (or banners) on partner’s site. If customers click on logo, go to vendor’s site, and buy, then vendor pays commissions to partners.

Viral marketing Receivers send information about your product to their friends.

Group purchasing (e-coops) Small buyers aggregate demand to get a large volume; then the group conducts tendering or negotiates a low price.

Online auctions Companies run auctions of various types on the Internet. Very popular in C2C, but gaining ground in other types of EC. (www.ebay.com)

Product customization Customers use the Internet to self-confi gure products or services. Sellers then price them and fulfi ll them quickly (build-to-order). (www.jaguar.com)

Electronic marketplaces Transactions are conducted effi ciently (more information and exchanges to buyers and sellers, lower transaction costs) in electronic

marketplaces (private or public).

Bartering online Intermediary administers online exchange of surplus products and/or company receives “points” for its contribution, and the points can be used to purchase other needed items. (www.bbu.com)

Deep discounters Company off ers deep price discounts. Appeals to customers who consider only price in their purchasing decisions. (www.half.com)

Membership Only members can use the services provided, including access to certain information, conducting trades, etc. (www.egreetings.com)

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Overview of E-Business and E-Commerce 331

Major E-Commerce Mechanisms Businesses and customers can buy and sell on the Internet through a number of mecha- nisms. Th e most widely used are electronic catalogs, electronic auctions, e-storefronts, e-malls, and e-marketplaces.

Catalogs have been printed on paper for generations. Today, however, they are avail- able on CD-ROM and the Internet. Electronic catalogs consist of a product database, direc- tory and search capabilities, and a presentation function. Th ey are the backbone of most e-commerce sites.

An auction is a competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits bids from sellers. Th e primary characteristic of auctions is that prices are determined dynamically by competitive bidding. Electronic auctions (e-auctions) generally increase revenues for sellers by broadening the customer base and shortening the cycle time of the auction. Buyers generally benefi t from e-auctions because they can bargain for lower prices. In addition, they do not have to travel to an auction at a physical location.

Th e Internet provides an effi cient infrastructure for conducting auctions at lower administrative costs and with many more involved sellers and buyers. Individual consumers and corporations alike can participate in auctions. Th e two major types of auctions are forward and reverse.

Forward auctions are auctions that sellers use as a channel to many potential buyers. Usually, sellers place items at sites for auction and buyers bid continuously for them. Th e highest bidder wins the items. Both sellers and buyers can be individuals or businesses. Th e popular auction site eBay.com is a forward auction.

In reverse auctions, one buyer, usually an organization, wants to buy a product or a service. Th e buyer posts a request for quotation (RFQ) on its Web site or on a third-party site. Th e RFQ provides detailed information on the desired purchase. Th e suppliers study the RFQ and then submit bids electronically. Everything else being equal, the lowest-price bidder wins the auction. Th e reverse auction is the most common auction model for large purchases (in terms of either quantities or price). Governments and large corporations frequently use this approach, which may provide considerable savings for the buyer.

Auctions can be conducted from the seller’s site, the buyer’s site, or a third party’s site. For example, eBay, the best-known third-party site, off ers hundreds of thousands of diff er- ent items in several types of auctions. Overall, more than 300 major companies, including Amazon.com and Dellauction.com, off er online auctions.

An electronic storefront is a Web site that represents a single store. An electronic mall, also known as a cybermall or e-mall, is a collection of individual shops under one Internet address. Electronic storefronts and electronic malls are closely associated with B2C elec- tronic commerce. You study each one in more detail in Section 9.2.

An electronic marketplace (e-marketplace) is a central, virtual market space on the Web where many buyers and many sellers can conduct e-commerce and e-business activi- ties. Electronic marketplaces are associated with B2B electronic commerce. You learn about electronic marketplaces in Section 9.3.

Electronic Payment Mechanisms Implementing EC typically requires electronic payments. Electronic payment systems enable buyers to pay for goods and services electronically, rather than writing a check or using cash. Payments are an integral part of doing business, whether in the traditional man- ner or online. Traditional payment systems have typically involved cash and/or checks.

In most cases, traditional payment systems are not eff ective for EC, especially for B2B. Cash cannot be used because there is no face-to-face contact between buyer and seller. Not everyone accepts credit cards or checks, and some buyers do not have credit cards or check- ing accounts. Finally, contrary to what many people believe, it may be less secure for the buyer to use the telephone or mail to arrange or send payments, especially from another country, than to complete a secured transaction on a computer. For all of these reasons, a better way is needed to pay for goods and services in cyberspace. Th is better method is electronic payment systems. Let’s now take a closer look at four types of electronic payment: electronic checks, electronic credit cards, purchasing cards, and electronic cash.

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332 9 l E-Business and E-Commerce

Electronic Checks Electronic checks (e-checks) are similar to regular paper checks. Th ey are used primarily in B2B. A customer who wishes to use e-checks must fi rst establish a checking account with a bank. Th en, when the customer buys a product or a service, he or she e-mails an encrypted electronic check to the seller. Th e seller deposits the check in a bank account and funds are transferred from the buyer’s account into the seller’s account.

Like regular checks, e-checks carry a signature (in digital form) that can be verifi ed (see www.authorize.net). Properly signed and endorsed e-checks are exchanged between fi nancial institutions through electronic clearinghouses. (See www.eccho.org and www.troygroup. com for details.)

Electronic Cards Th ere are a variety of electronic cards. Th ese cards are used for diff erent purposes, and include electronic credit cards, virtual credit cards, purchasing cards, stored-value money cards, and smart cards.

Electronic credit cards allow customers to charge online payments to their credit card account. Th ese cards are used primarily in B2C and in shopping by small-to-medium enter- prises (SMEs). Here is how e-credit cards work (see Figure 9.1).

• Step 1: When you buy a book from Amazon, for example, your credit card information and purchase amount are encrypted in your browser. Th is way the information is safe while it is “traveling” on the Internet to Amazon.

• Step 2: When your information arrives at Amazon, it is not opened. Rather, it is transferred automatically (in encrypted form) to a clearinghouse, where it is decrypted for verifi cation and authorization.

• Step 3: Th e clearinghouse asks the bank that issued you your credit card (the card issuer bank) to verify your credit card information.

• Step 4: Your card issuer bank verifi es your credit card information and reports this to the clearinghouse.

• Step 5: Th e clearinghouse reports the result of the verifi cation of your credit card to Amazon.

• Step 6: Amazon reports a successful purchase and amount to you. • Step 7: Your card issuer bank sends funds in the amount of the purchase to Amazon’s

bank.

Merchant’s BankCard Issuer Bank (Server)

Clearing House

Figure 9.1 How e-credit cards work. (The numbers 1-9 indicate the sequence of activities.)

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Overview of E-Business and E-Commerce 333

• Step 8: Your card issuer bank notifi es you (either electronically or in your monthly statement) of the debit on your credit card.

• Step 9: Amazon’s bank notifi es Amazon of the funds credited to its account.

Virtual credit cards allow customers to shop online (see Figure 9.2). Th ese cards are for a single use. Th e goal is to thwart criminals by using a diff erent, random card number every time you shop online. A virtual number is good only on the Web site where you make your purchase. An online purchase made with a virtual card number shows up on your bill just like any other purchase.

Purchasing cards are the B2B equivalent of electronic credit cards (see Figure 9.3). In some countries, purchasing cards are the primary form of payment between companies. Unlike credit cards, where credit is provided for 30 to 60 days (for free) before payment is made to the merchant, payments made with purchasing cards are settled within a week.

Stored-value money cards allow you to store a fi xed amount of prepaid money and then spend it as necessary. Th ese cards are used to pay for photocopies in your library, for transportation, and for telephone calls. Each time you use the card, the amount is reduced by the amount you spent. Figure 9.4 shows a New York City Metro (subway and bus) card.

Smart cards contain a chip that can store a considerable amount of information— more than a hundred times that of a stored-value money card (see Figure 9.5). Smart cards are frequently multipurpose—that is, you can use them as a credit card, a debit card, a

Pay Pal

4000 000 000 000 VESA

Figure 9.2 Example of virtual credit card.

Mike Clarke/AFP/Getty Images/NewsCom

Figure 9.3 Example of purchasing card.

© Clarence Holmes Photography/Alamy Limited

Figure 9.4 The New York City Metro Card.

© MARKA/Alamy Limited

Figure 9.5 Smart cards are frequently multipurpose.

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334 9 l E-Business and E-Commerce

stored-value money card, or a loyalty card. Smart cards are ideal for micropayments, which are small payments of a few dollars or less.

Person-to-Person Payments Person-to-person payments enable two individuals, or an individual and a business, to transfer funds without using a credit card. One of the fi rst companies to off er this service was PayPal (an eBay company). An attractive security feature of PayPal is that you have to put only enough money in the account to cover any upcoming transactions. Th erefore, if anyone should gain access to your account, that person will not have access to all of your money.

Person-to-person payment services work this way. First, you select a service and open up an account. Basically, this process entails creating a user name, selecting a password, and providing the service with a credit card or bank account number. Next, you transfer funds from your credit card or bank account to your new account. Now you are ready to send money to someone over the Internet. You access the service—for example, PayPal—with your user name and password, and you specify the e-mail address of the person to receive the money, along with the dollar amount that you want to send. Th e service then sends an e-mail to the payee’s e-mail address. Th e e-mail contains a link back to the service’s Web site. When the recipient clicks on the link, he or she is taken to the service. Th ere, the recipient is asked to set up an account to which the money that you sent will be credited. Th e recipi- ent can then credit the money from this account to either a credit card or a bank account. Th e service charges the payer a small amount, roughly $1 per transaction.

Benefi ts and Limitations of E-Commerce Few innovations in human history have provided as many benefi ts to organizations, individu- als, and society as e-commerce has. E-commerce benefi ts organizations by making national and international markets more accessible and by lowering the costs of processing, distribut- ing, and retrieving information. Customers benefi t by being able to access a vast number of products and services, around the clock. Th e major benefi t to society is the ability to easily and

conveniently deliver information, services, and products to people in cities, rural areas, and developing countries.

Despite all these benefi ts, EC has some limita- tions, both technological and nontechnological, that have restricted its growth and acceptance. One major technological limitation is the lack of uni-

versally accepted security standards. Also, in less-developed countries, telecommunications bandwidth oft en is insuffi cient and accessing the Web is expensive. Nontechnological limitations include the perceptions that EC is insecure, has unresolved legal issues, and lacks a critical mass of sellers and buyers. As time passes, the limitations, especially the techno- logical ones, will diminish or be overcome.

BEFORE YOU GO ON . . . 1. Defi ne e-commerce and distinguish it from

e-business. 2. Differentiate among B2C, B2B, C2C, and

B2E electronic commerce. 3. Defi ne e-government. 4. Discuss forward and reverse auctions. 5. Identify some benefi ts and limitations of

e-commerce.

Apply the Concept 9.1

Background Today there are many companies who specialize in making e- commerce a reality for small businesses. Amazon, Yahoo, PayPal, and others off er

services that provide all a small business needs to sell product and accept payment over the Internet. In fact, it seems that many consumers prefer for their transactions to go through these larger global companies because they trust these companies’ security. Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 9.1. Th is will take you to PayPal’s Web site. Click on the business tab at the top of the page. At the time of this writing there were lots of links at the

p

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Business-to-Consumer (B2C) Electronic Commerce 335

bottom of that page that described the services they off ered. Review the payment options described in the text and see how many of them PayPal off ers to its customers.

Deliverable

Build a table that lists in one column the payment mechanism discussed in this section, the PayPal equivalent in a second column, and a discussion of how it is similar or why PayPal does not off er this type of payment in a third. Your table will look something like this:

1. Ruby’s Club is defi nitely not a pure e-commerce business. Its main product is entertainment, and the owners simply want to sell their brand via hats, t-shirts, and other paraphernalia. To what degree can they digitize the entertainment aspect of their product?

2. In what ways might Ruby’s utilize B2B or B2C E-commerce?

Q U E S T I O N SRUBY’S CLUB

Payment Types PayPal Equivalent Description

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

9.2 Business-to-Consumer (B2C) Electronic Commerce B2B EC is much larger than B2C EC by volume, but B2C EC is more complex. Th e reason is that B2C involves a large number of buyers making millions of diverse transactions per day with a relatively small number of sellers. As an illustration, consider Amazon, an online retailer that off ers thousands of products to its customers. Each customer purchase is rela- tively small, but Amazon must manage that transaction as if that customer were its most important one. Each order must be processed quickly and effi ciently, and the products must be shipped to the customer in a timely manner. In addition, returns must be managed. Multiply this simple example by millions, and you get an idea of the complexity of B2C EC. Overall, B2B complexities tend to be more business related, whereas B2C complexities tend to be more technical and volume related.

Th is section addresses the primary issues in B2C EC. We begin by studying the two basic mechanisms that customers utilize to access companies on the Web: electronic storefronts and electronic malls. In addition to purchasing products over the Web, cus- tomers also access online services. Th erefore, the next section covers several online ser- vices, such as banking, securities trading, job searching, and travel. Th e complexity of B2C EC creates two major challenges for sellers: channel confl ict and order fulfi llment.

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We examine these two topics in detail. Finally, companies engaged in B2C EC must “get the word out” to prospective customers. Th is section concludes with a look at online advertising.

Electronic Storefronts and Malls For several generations, home shopping from catalogs, and later from television shopping channels, has attracted millions of customers. Today, shopping online off ers an alternative to catalog and television shopping. Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalog format and/or auctions.

Like any mail-order shopping experience, e-commerce enables you to buy from home and to do so 24 hours a day, 7 days a week. However, EC off ers a wider variety of products and services, including the most unique items, oft en at lower prices. Furthermore, within seconds, shoppers can access very detailed supplementary product information. In addi- tion, they can easily locate and compare competitors’ products and prices. Finally, buyers can fi nd hundreds of thousands of sellers. Two popular online shopping mechanisms are electronic storefronts and electronic malls. Electronic Storefronts. As noted earlier, an electronic storefront is a Web site that represents a single store. Hundreds of thousands of electronic storefronts can be found on the Internet. Each one has its own uniform resource locator (URL), or Internet address, at which buyers can place orders. Some electronic storefronts are extensions of physical stores such as Hermes, Th e Sharper Image, and Walmart. Others are new busi- nesses started by entrepreneurs who discovered a niche on the Web (e.g., Restaurant.com and Alloy.com). Manufacturers (e.g., www.dell.com) and retailers (e.g., www.offi cedepot. com) also use storefronts. IT’s About Business 9.2 illustrates how Macy’s is expanding its online presence.

Macy’s Increases Its Online Presence

Macy’s has more than 800 store locations in 45 states and is rapidly growing its online business. Its e-commerce business has become increasingly important and con- tinues to expand. In fi scal years 2008, 2009, and 2010, Macy’s online sales increased by 30 percent, 20 percent, and 29 percent, respectively. Macy’s e-commerce group oversees Web sites such as www.macys.com and www.bloomingdales.com. The overall goals of the group are to make Macy’s Web sites the main contact inter- face for all of their Internet-using customers and to drive customer traffi c into their physical stores.

In January 2011, Macy’s announced that it was adding more than 700 new positions over the next two years to support the growth of its online business. The company’s strategy for its online business is to provide a multichannel opportunity for its customers that enables them to shop seamlessly in stores, online, and via mobile devices. The company is also building an

online fulfi llment center in West Virginia and expand- ing its existing fulfi llment center in Tennessee.

Macy’s is using Splunk (www.splunk.com) to sup- port its e-commerce initia- tives. Splunk is a company founded to make machine data directly accessible to business users without their having to go through their information technol- ogy department as inter- mediaries. Splunk’s software enables Macy’s to monitor, report, and analyze its historical data and its live click- stream data from the Web.

Macy’s also uses Splunk software to proactively identify network and systems issues that could lead to its Web site crashing, which would prevent customers

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Electronic Malls Whereas an electronic storefront represents a single store, an electronic mall, also known as a cybermall or an e-mall, is a collection of individual shops grouped under a single Inter- net address. Th e basic idea of an electronic mall is the same as that of a regular shopping mall: to provide a one-stop shopping place that off ers a wide range of products and services. A cybermall may include thousands of vendors. For example, Microsoft Shopping (now Bing shopping, www.bing.com/shopping) includes tens of thousands of products from thousands of vendors.

Th ere are two types of cybermalls. In the fi rst type, known as referral malls (for exam- ple, www.hawaii.com), you cannot buy anything. Instead, you are transferred from the mall to a participating storefront. In the second type of mall (for example, http://shopping. google.com), you can actually make a purchase (see Figure 9.6). At this type of mall, you might shop from several stores, but you make only one purchase transaction at the end. You use an electronic shopping cart to gather items from various vendors and then pay for them all together in a single transaction. Th e mall organizer, such as Google!, takes a commission from the sellers for this service.

Online Service Industries In addition to purchasing products, customers can also access needed services via the Web. Selling books, toys, computers, and most other products on the Internet can reduce ven- dors’ selling costs by 20 to 40 percent. Further reduction is diffi cult to achieve because the products must be delivered physically. Only a few products, such as soft ware or music, can be digitized and then delivered online for additional savings. In contrast, services, such as

from researching products or buying online. For exam- ple, late in 2010, Splunk alerted Macy’s technicians to a problem that would have been catastrophic to online operations if it had not been addressed quickly. The technicians solved the problem within 30 minutes with- out any downtime for the Web site. This would not have been possible before Macy’s starting using Splunk,

as its technicians formerly used a manual process to react to problems once they had already occurred. It often took Macy’s technicians 48 hours to resolve a problem. These long delays in restoring Web site

connectivity resulted in dollar losses and damage to the company’s brand.

In addition to proactively preventing downtimes, another key benefi t of the Splunk software is that it enables Macy’s to gather a variety of data that execu- tives and analysts can use to determine how Macy’s Web sites are being utilized by customers. The soft- ware is useful throughout the year and is especially valuable during the Christmas shopping season.

Macy’s uses other tools to help keep its online operations operating smoothly. One tool, DynaTrace Software, enables the store to test the performance of new e-commerce applications that they deploy. Macy’s integrates DynaTrace with an application from Coradi- ant called TruSight. These integrated applications allow company analysts to examine Web site performance

from the perspective of users by providing real-time visibility into the performance and availability of Web applications. The applications do this by capturing and measuring information on user transactions as they happen. Macy’s integrated software has helped it iden- tify user problems not being reported to the company’s customer service department. For example, during the 2010 holiday shopping season, DynaTrace and Tru- Sight enabled analysts to fi nd a sign-in issue during the online checkout process that could have potentially had a major negative impact on online operations and customer satisfaction.

Sources: Compiled from T. Henschen, “Splunk Answers Business Demand for Big Data Analysis,” InformationWeek, January 12, 2012; T. Groenfeldt, “Security Data is Big Data and a Business Advantage,” Forbes, December 14, 2011; T. Taulli, “Splunk: Patience Can Make Billions,” Forbes, April 12, 2011; B. Violino, “Macy’s Ramps Up Online Operations,” Baseline Magazine, January 27, 2011; www.macys.com, www.splunk.com, www.dynatrace.com accessed February 24, 2012.

Questions 1. Why is it so important that the Macy’s Web sites

function as optimally as possible?

2. What is the relationship between Macy’s Web sites and increasing customer traffi c in their physical stores?

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buying an airline ticket and purchasing stocks or insurance, can be delivered entirely through e-commerce, oft en with considerable cost reduction. Not surprisingly, then, online delivery of services is growing very rapidly, with millions of new customers being added each year.

One of the most pressing EC issues relating to online services (as well as in marketing tangible products) is disintermediation. Intermediaries, also known as middlemen, have two functions: (1) Th ey provide information and (2) they perform value-added services such as consulting. Th e fi rst function can be fully automated and most likely will be assumed by e-marketplaces and portals that provide information for free. When this occurs, the intermediaries who perform only (or primarily) this function are likely to be eliminated. Th is process is called disintermediation.

In contrast, performing value-added services requires expertise. Unlike the informa- tion function, then, this function can be only partially automated. Th us, intermediaries who provide value-added services not only are likely to survive, but they may actually prosper. Th e Web helps these employees in two situations: (1) when the number of participants is enormous, as with job searches, and (2) when the information that must be exchanged is complex.

In this section, you will examine some leading online service industries: banking, trad- ing of securities (stocks, bonds), job matching, travel services, and online advertising. Cyberbanking. Electronic banking, also known as cyberbanking, involves conducting various banking activities from home, at a place of business, or on the road instead of at a physical bank location. Electronic banking has capabilities ranging from paying bills to applying for a loan. For customers, it saves time and is convenient. For banks, it off ers an inexpensive alternative to branch banking—for example, about 2 cents cost per transaction versus $1.07 at a physical branch. It also enables banks to attract remote customers. In addi- tion to regular banks with added online services, virtual banks, which are dedicated solely to Internet transactions, are emerging. An example of a virtual bank is First Internet Bank of Indiana (www.fi rstib.com) (see Figure 9.7).

Figure 9.6 Electronic malls include products from many vendors.

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International banking and the ability to handle trading in multiple currencies are criti- cal for international trade. Transfers of electronic funds and electronic letters of credit are important services in international banking. An example of support for EC global trade is provided by TradeCard, in conjunction with MasterCard. TradeCard is an international company that provides a secure method for buyers and sellers to make digital payments anywhere on the globe (see the demo at www.tradecard.com). In another example, banks and companies such as Oanda (www.oanda.com) provide conversions of more than 160 currencies. Online Securities Trading. Emarketer.com estimates that some 40 million people in the United States use computers to trade stocks, bonds, and other fi nancial instruments. In fact, several well-known securities companies, including E*Trade, Ameritrade, and Charles Schwab, off er only online trading. In Korea, more than half of stock traders are already using the Internet for that purpose. Why? Because it is cheaper than is a full-service or dis- count broker. On the Web, investors can fi nd a considerable amount of information regard- ing specifi c companies or mutual funds in which to invest (for example, http://money.cnn. com and www.bloomberg.com).

For example, let’s say you have an account with Scottrade. You access Scottrade’s Web site (www.scottrade.com) from your personal computer or your Internet-enabled mobile device, enter your account number and password to access your personalized Web page, and then click on “stock trading.” Using a menu, you enter the details of your order—buy or sell, margin or cash, price limit, market order, and so on. Th e computer informs you of the current “ask” and “bid” prices, much as a broker would do over the telephone. You can then approve or reject the transaction. The Online Job Market. Th e Internet off ers a promising new environment for job seekers and for companies searching for hard-to-fi nd employees. Th ousands of companies and government agencies advertise available positions, accept resumes, and take applica- tions via the Internet.

Job seekers use the online job market to reply online to employment ads, to place resumes on various sites, and to use recruiting fi rms (for example, www.monster.com, www.simplyhired.com, www.linkedin.com, and www.truecareers.com). Companies that have jobs to off er advertise these openings on their Web sites, and they search the bulletin boards of recruiting fi rms. In many countries, governments must advertise job openings on the Internet. Travel Services. Th e Internet is an ideal place to plan, explore, and arrange almost any trip economically. Online travel services allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Most sites also off er a fare-tracker feature that sends you e-mail

Figure 9.7 First Internet Bank of Indiana.

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messages about low-cost fl ights. Examples of comprehensive online travel services are Expedia.com, Travelocity.com, and Orbitz.com. Online services are also provided by all major airline vacation services, large conventional travel agencies, car rental agencies, hotels (e.g., www.hotels.com), and tour companies. In a variation of this process, Priceline.com allows you to set a price you are willing to pay for an airline ticket or hotel accommodations. It then attempts to fi nd a vendor that will match your price.

One costly problem that e-commerce can cause is “mistake fares” in the airline indus- try. For example, over the weekend of May 4–6, 2007, United Airlines off ered a $1,221 fare for a U.S.-to-New Zealand round-trip in business class. Th is price was incorrect; the actual price was higher. By the time United noticed the mistake and pulled the fare, however, hun- dreds of tickets had been sold, thanks in part to online travel discussion groups. Online Advertising. Advertising is the practice of disseminating information in an attempt to infl uence a buyer–seller transaction. Traditional advertising on TV or in news- papers is impersonal, one-way mass communication. In contrast, direct-response market- ing, or telemarketing, contacts individuals by direct mail or telephone and requires them to respond in order to make a purchase. Th e direct-response approach personalizes advertis- ing and marketing. At the same time, however, it can be expensive, slow, and ineff ective. It can also be extremely annoying to the consumer.

Internet advertising redefi nes the advertising process, making it media rich, dynamic, and interactive. It improves on traditional forms of advertising in a number of ways. First, Internet ads can be updated any time at minimal cost and therefore can be kept current. In addition, these ads can reach very large numbers of potential buyers all over the world. Further, they are generally cheaper than radio, television, and print ads. Finally, Internet ads can be interactive and targeted to specifi c interest groups and/or individuals. Advertising Methods. Th e most common online advertising methods are banners, pop-ups, and e-mail. Banners are simply electronic billboards. Typically, a banner contains a short text or graphical message to promote a product or a vendor. It may even contain video clips and sound. When customers click on a banner, they are transferred to the adver- tiser’s home page. Banner advertising is the most commonly used form of advertising on the Internet (see Figure 9.8).

A major advantage of banners is that they can be customized to the target audience. If the computer system knows who you are or what your profi le is, it might send you a banner that is supposed to match your interests. A major disadvantage of banners is that they can convey only limited information because of their small size. Another drawback is that many viewers simply ignore them.

Pop-up and pop-under ads are contained in a new browser window that is automati- cally launched when you enter or exit a Web site. A pop-up ad appears in front of the current browser window. A pop-under ad appears underneath the active window; when users close the active window, they see the ad. Many users strongly object to these ads, which they con- sider intrusive. Modern browsers let users block pop-up ads, but this feature must be used with caution because some Web sites depend on pop-up capabilities to present content other than advertising. For example, when you log on to your Verizon e-mail page, you also see a brief (one line each) summary of recent news stories. If you hover your mouse over one of them, you get a pop-up window with an extended summary (a few paragraphs) of that story. Another example is the WebCT Vista soft ware for online instruction, where discussion group posts appear in pop-up windows. Blocking pop-ups would make the fi rst of these two examples less useful and would eliminate important functionality from the second example.

E-mail is emerging as an Internet advertising and marketing channel. It is generally cost-eff ective to implement and provides a better and quicker response rate than other

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Figure 9.8 When customers click on a banner ad, they are transferred to the vendor’s home page.

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advertising channels. Marketers develop or purchase a list of e-mail addresses, place them in a customer database, and then send advertisements via e-mail. A list of e-mail addresses can be a very powerful tool because the marketer can target a group of people or even individuals.

As you have probably concluded by now, there is a potential for misuse of e-mail adver- tising. In fact, some consumers receive a fl ood of unsolicited e-mail, or spam. Spamming is the indiscriminate distribution of electronic ads without the permission of the receiver. Unfortunately, spamming is becoming worse over time.

Two important responses to spamming are permission marketing and viral marketing. Permission marketing asks consumers to give their permission to voluntarily accept online advertising and e-mail. Typically, consumers are asked to complete an electronic form that asks what they are interested in and requests permission to send related marketing informa- tion. Sometimes, consumers are off ered incentives to receive advertising.

Permission marketing is the basis of many Internet marketing strategies. For example, millions of users periodically receive e-mails from airlines such as American and South- west. Users of this marketing service can ask to be notifi ed of low fares from their home- town or to their favorite destinations. Signifi cantly, they can easily unsubscribe at any time. Permission marketing is also extremely important for market research (for example, search for “Media Metrix” at www.comscore.com).

In one particularly interesting form of permission marketing, companies such as Clickdough.com, ExpressPaidSurveys.com, and CashSurfers.com have built customer lists of millions of people who are happy to receive advertising messages whenever they are on the Web. Th ese customers are paid $0.25 to $0.50 an hour to view messages while they do their normal surfi ng.

Viral marketing refers to online word-of-mouth marketing. Th e strategy behind viral marketing is to have people forward messages to friends, family members, and other acquaintances suggesting they “check this out.” For example, a marketer can distribute a small game program embedded with a sponsor’s e-mail that is easy to forward. Th e mar- keter releases only a few thousand copies, with the expectation that the recipients in turn will forward the program to many more thousands of potential customers. In this way, viral marketing enables companies to build brand awareness at a minimal cost without having to spam millions of uninterested users.

Issues in E-Tailing Despite e-tailing’s increasing popularity, many e-tailers continue to face serious issues that can restrict their growth. Perhaps the two major issues are channel confl ict and order fulfi llment.

Clicks-and-mortar companies may face a confl ict with their regular distributors when they sell directly to customers online. Th is situation, known as channel conflict, can alien- ate the distributors. Channel confl ict has forced some companies to avoid direct online sales. For example, Walmart, Lowe’s, and Home Depot would rather have customers come to their stores. Th erefore, although all three companies maintain e-commerce Web sites, their sites place more emphasis on providing information—products, prices, specials, and store locations—than on online sales.

Channel confl ict can arise in areas such as pricing and resource allocation—for example, how much money to spend on advertising. Another potential source of confl ict involves the logistics services provided by the offl ine activities to the online activities. For example, how should a company handle returns of items purchased online? Some companies have com- pletely separated the “clicks” (the online portion of the organization) from the “mortar” or “bricks” (the traditional bricks-and-mortar part of the organization). However, this approach can increase expenses and reduce the synergy between the two organizational channels. As a result, many companies are integrating their online and offl ine channels, a process known as multichanneling. IT’s About Business 9.3 shows how the online channel is causing problems for brick-and-mortar retailers. On the other hand, eBay sees great potential in the hybrid online/offl ine shopping experience, as you see in IT’s About Business 9.4.

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What To Do About Showrooming?

A Pew Research (www.pewresearch.org) survey showed that during the 2011 holiday season, 52 percent of shoppers with smartphones walked into brick-and- mortar retail stores, saw products that interested them, and did at least some research on their phones. Nineteen percent of them ultimately made their purchases online. This comparison process is called “showrooming.”

“Showrooming” occurs when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price. This process is pre- senting a worsening problem for brick-and-mortar retail- ers, including Target, Best Buy, Walmart, Barnes & Noble, and many others. At the same time, showrooming is an advantage for Amazon and other online retailers.

On December 10, 2011, Amazon released its Price Check app, which has served to make showrooming even more widespread. With the Price Check app, Amazon gives customers an additional 5 percent dis- count (up to $5) on up to three qualifying products if the customer has checked the price of those items while shopping in a physical retail store. Eligible cate- gories of products included electronics, toys, music, sporting goods, and DVDs. Using this new Amazon app, shoppers can price check in four ways: by scan- ning a bar code, by snapping a photo of the product, by saying the product’s name, or by typing in a search query.

Traditional retailers like Target and Walmart are playing catch-up in online retailing, which is becoming an increasingly important avenue for sales. Analysts estimate that Target and Walmart’s Web sites currently account for only a paltry 1 to 2 percent of their annual sales. To demonstrate the growing importance of hav- ing a strong online presence, in 2011, brick-and-mortar store sales increased 4.1 percent during the holiday shopping season, while online sales increased by 15 percent during the same period. Further, although online sales represent only 8 percent of total sales, that fi gure is up from just 2 percent in 2000. Therefore, it is crucially important for Target and Walmart to become more attractive to their customers online.

As a further example of revenue loss from a poor online presence, Target had a disappointing 2011 Christmas season, with sales at stores that had been

open one year or more increasing by only 1.7 percent, about half of what analysts expected. The company said sales were particularly disappointing in electron- ics, movies, books, and music—products whose sales have migrated most signifi cantly to the Internet.

In fall 2011, Target relaunched and upgraded its Web site, which had been operated by Amazon for the

last decade. In the past when Target’s site had been operated by Amazon, the site had crashed several times, most notably when shoppers rushed to buy a special

line of items made by Italian fashion house Missoni. Therefore, Target asked suppliers for help in limit-

ing showrooming. In January 2012, Target sent a letter to its vendors, suggesting that they create special products for Target so that they could set themselves apart from their competitors and shield themselves from the price comparisons that have become so easy for shoppers to perform on their computers and smart- phones. Where special products are not possible, Target asked its suppliers to help it match rivals’ prices. Target also said that it might create a subscription ser- vice that would give shoppers a discount on regularly purchased merchandise. Vendors are likely to try to meet Target’s requests because it is a very large retail chain.

Some analysts noted that Target’s new tactics are unlikely to reverse the showrooming trend, because the tactics will not address the root problems that they and other traditional retailers are facing. Online-only retailers have signifi cantly lower labor costs and, at least for the time being, do not collect sales tax in most states, which makes them very appealing to their cus- tomers. More importantly, sites such as Amazon are based on an entirely different business model than are traditional retailers. That is, Amazon can sell products so cheaply because it uses its other profi table business units—such as cloud data storage and fees it charges merchants to sell on its Web site—to subsidize the rest of its businesses. Traditional retailers that do not use this model are unable to match Amazon’s low prices, thereby putting them at a fundamental disadvantage. In addition, consumer preferences in general are moving to online venues.

As successful and unshakable as companies like Walmart and Target may seem today, it remains to be

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seen whether low price points at online retailers will spell ruin for their more traditional business models. Traditional retailers will have to offer customers a truly exceptional shopping and buying experience to have a hope of competing in the marketplace.

Sources: Compiled from N. Potter, “‘Showrooming’: People Shopping in Stores, Then Researching by Cell Phone, Says Pew Survey,” ABC News, January 31, 2012; A. Zimmerman, “Showdown Over ‘Showrooms’,” The Wall Street Journal, January 23, 2012; J. Milliot, “The Amazon Price Check App and the Battle Over ‘Showrooming’,” Publishers Weekly, December 9, 2011; T. Novellino, “The Amazon App Attack,” Portfolio.com, December 8, 2011; E. Straub, “Browse at a Bookstore, Buy at Amazon: The Evil of Showrooming,” Time, December 8, 2011; A. Chang, “Retail Groups Lash Out After Amazon Announces Price Check App Promotion,” The Los Angeles Times, December 7, 2011; A. Chang, “Amazon Giving Shoppers Up to $15 for Using Its Price Check App,” The Los Angeles Times, December 6, 2011; www.target.com, www. pewresearch.org, accessed February 28, 2012.

Questions 1. What else could Target and other brick-and-mortar

retailers do to combat showrooming? Provide examples of IT solutions and non-IT solutions that were not discussed in this case.

2. Do you practice showrooming? If so, why? Do you showroom only to compare prices? List other reasons why shoppers might practice showrooming.

3. Are there other categories of goods other than the ones mentioned in this case that might lend themselves to showrooming? Provide specifi c examples to support your answer.

The Future of Shopping

Once a retail pioneer, by late 2011 eBay (www.ebay.com) had become an auction wasteland with outdated tech- nology. In order to save the company, John Donahoe, eBay’s new CEO, completely remodeled the company’s business practices. He removed layers of bureaucracy between management and engineers, opened up Pay- Pal to outside developers, created a beta-lab Web site that consumers could experiment with and comment on, and invested in new electronic commerce technol- ogy. Donahoe also worked to reduce eBay’s depen- dence on auctions as source of revenue. By mid-2012, only 24 percent of revenue of eBay’s revenue came from auctions, down from 35 percent in previous years.

Donahoe also shifted eBay’s focus as a Web site. He saw that the increased use of mobile devices was blurring the lines between online and offl ine shopping and want- ed to put eBay at the center of the hybrid online/offl ine shopping experience. According to research fi rm For- rester Research, the fi nancial opportunity of this hybrid experience dwarfs the space of simple e-commerce (i.e., browsing and buying online), which represents just

9 percent of all retail sales. Donahoe’s vision for eBay’s future is for the company to deliver to its customers the ability to shop wherever they want, however they want, for the best price, and with the greatest convenience.

How did eBay go about accomplishing this goal and transitioning into a hybrid online/offl ine shop- ping experience? The retailer followed the pro- gression below:

Step 1: eBay bought RedLaser. RedLaser is a company whose technology allows consumers to scan bar codes, vehicle identifi cation numbers, gift cards, asset tags, and QR codes with their mobile devices.

Step 2: eBay bought Milo (www.milo.com), a company that makes the inventory of offl ine stores viewable online 24/7. While Milo had

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been able to land major retailers for its inventory network, the company was still a relatively small player. eBay had the designers and developers who could help Milo with its technical challenges. EBay also had more than 30 million sellers and merchants in its marketplace, many of whom had offl ine inventory that Milo could tap. As a result, Milo’s technology could help eBay list far more products than ever before possible.

Step 3: eBay bought GSI Commerce (www. gsicommerce.com). GSI commerce is a company that builds e-commerce platforms

for several hundred offl ine retailers. The company concentrates on customer care and interactive marketing for its clients. With this purchase, eBay was able to improve its online customer interac- tions, strengthen its customer relationships, and provide superior customer service.

Step 4: eBay bought Where (www.where.com). Where builds location-based mobile apps for every major mobile device platform, including Android, iPhone, and BlackBerry, and boasts some 4 million active users per month. Where shows local listings for restaurants, bars, merchants, and events, and suggests places and deals for you based on your location and past behavior. The absorption of Where into eBay allowed eBay customers to shop from any location. Further, Where enabled eBay to suggest additional products to customers based on their location.

Step 5: eBay bought Fig Card (http://fi gcard. com, bought by PayPal in 2011). Fig Card allows merchants to accept payments from

mobile devices in stores by using a simple USB device that plugs into the cash register or point-of- sale terminal. All the consumer needs to participate is the Fig app on their smartphone. Once consum- ers set up their payment information and designate PayPal as a payment option, Fig Card is also able to integrate with PayPal. This new functionality allowed eBay to expand the options that its customers could use to pay for purchases.

Step 6: eBay already owns PayPal (www.paypal.com). eBay wants every transaction to end with PayPal.

Consider these scenarios:

• Imagine that you have met your girlfriend for lunch and you are admiring her new handbag. You take a picture of her purse with your smart- phone. Your smartphone then uses an eBay app to reveal all of the boutiques within a 3-mile

radius that have the same color and style bag in stock right then. The app also tells you the prices of the bag you are looking for at each store. You then decide which store has your ideal combina- tion of price and location, and you order the bag via your phone. After lunch, you visit that store, and bypass the checkout lines because you show the salesperson your digital receipt on your phone.

• The local Starbucks “sees” you (i.e., senses your smartphone’s location) when you are two blocks away and wants to give you a dollar for your next Frappuccino. Starbucks puts the one dollar into your PayPal account, where it sits until it expires in one hour.

• What about that new Canon camera you are thinking about, but are not yet ready to pur- chase? Scan its bar code (or RFID tag or QR code) into your PayPal “wish list,” which PayPal is prototyping in early 2012. Then, when you walk by a retailer who has the camera in stock, that store can make you a special pricing offer that is better than you have found anywhere else.

Here is the model: eBay 1 RedLaser 1 Milo 1 GSI 1 PayPal 1 Fig Card 1 Where 5 Success!

Recall that eBay’s new CEO wants to establish a complete shopping experience for the company’s cus- tomers. With each piece of the puzzle, eBay has made it easier, faster, and more convenient for its customers to shop. Furthermore, the company’s customers have more choices than ever before and many of those choices are relevant to where the customer is located. eBay’s new model appears to be working. The company says that, although all the pieces are not yet integrated, it still facil- itated nearly $4 billion in mobile transactions in 2011.

Sources: Compiled from R. Kim, “With X.Commerce, eBay Eyes a Bigger Prize as Sales Enabler,” GigaOM, October 12, 2011; D. Sacks, “How Jack Abraham Is Reinventing eBay,” Fast Company, June 22, 2011; L. Rao, “eBay Closes $2.4 Billion Acquisition of GSI Commerce,” TechCrunch, June 20, 2011; S. Kirsner, “eBay Buys Mobile Payments Start-up Fig Card, Second Boston Acquisition in April,” Boston.com, April 28, 2011; www.milo.com, www.ebay.com, accessed March 20, 2012.

Questions 1. What are the advantages of eBay’s hybrid

shopping experience vision for the customer?

2. What are potential disadvantages of eBay’s hybrid shopping experience vision for the customer?

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Th e second major issue confronting e-commerce is order fulfi llment, which can cre- ate problems for e-tailers as well. Any time a company sells directly to customers, it is involved in various order fulfi llment activities. It must perform the following activities: quickly fi nd the products to be shipped; pack them; arrange for the packages to be deliv- ered speedily to the customer’s door; collect the money from every customer, either in advance, by COD, or by individual bill; and handle the return of unwanted or defective products.

It is very diffi cult to accomplish these activities both eff ectively and effi ciently in B2C, because a company has to ship small packages to many customers and do it quickly. For this reason, companies involved in B2C activities oft en experience diffi culties in their supply chains.

In addition to providing customers with the products they ordered and doing it on time, order fulfi llment provides all related customer services. For example, the customer must receive assembly and operation instructions for a new appli- ance. In addition, if the customer is not happy with a product, an exchange or return must be arranged. (Visit www.fedex.com to see how returns are handled via FedEx.)

In the late 1990s, e-tailers faced continuous problems in order fulfi llment, especially during the holiday season. Th ese problems included late deliveries, delivering wrong items, high delivery costs, and compensation to unhappy customers. For e-tailers, taking orders over the Internet is the easy part of B2C e-commerce. Delivering orders to cus- tomers’ doors is the hard part. In contrast, order fulfi llment is less complicated in B2B. Th ese transactions are much larger, but they are fewer in number. In addition, these com- panies have had order fulfi llment mechanisms in place for many years.

Apply the Concept 9.2

Background At this point in your “buying” career, you have probably bought something online, gone to an auction site and possibly won a bid, and engaged in some form of online banking. Your generation is very comfortable with the retail side of e-com- merce. In the midst of this, you have probably created an account with a few vendors and received some e-mail advertisements. No doubt you have also seen some pop-up ads pro- moting products when you search for certain items.

Another thing that has changed is that companies now want you to do their advertising for them. Th e text refers to this as viral marketing.

Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 9.2. It will take you to a video on viral marketing. Now imagine that you work for a BBQ restaurant that also has a catering business. Th e owner has never done much with e-mail and she is looking for you to help develop a viral marketing plan for the restaurant.

Deliverable

Write an e-mail that the business owner can ask her patrons to share with others. Be sure to develop an incentive for the customers to share and for those who receive the e-mail to share it with others. Put some thought into this based on your own experience. Try to create a “use and share” feeling in the e-mail. Submit the e-mail to your instructor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

Business-to-Consumer (B2C) Electronic Commerce 345

BEFORE YOU GO ON . . . 1. Describe electronic storefronts and malls. 2. Discuss various types of online services,

such as cyberbanking, securities trading, job searches, travel services, and so on.

3. Discuss online advertising, its methods, and its benefi ts.

4. Identify the major issues relating to e-tailing. 5. What are spamming, permission marketing,

and viral marketing?

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346 9 l E-Business and E-Commerce

9.3 Business-to-Business (B2B) Electronic Commerce In business to business (B2B) e-commerce, the buyers and sellers are business organizations. B2B comprises about 85 percent of EC volume. It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, sup- pliers, customers, and other partners. Organizations can use B2B to restructure their supply chains and their partner relationships.

B2B applications utilize any of several business models. Th e major models are sell-side marketplaces, buy-side marketplaces, and electronic exchanges.

Sell-Side Marketplaces In the sell-side marketplace model, organizations attempt to sell their products or ser- vices to other organizations electronically from their own private e-marketplace Web site and/or from a third-party Web site. Th is model is similar to the B2C model in which the buyer is expected to come to the seller’s site, view catalogs, and place an order. In the B2B sell-side marketplace, however, the buyer is an organization.

Th e key mechanisms in the sell-side model are electronic catalogs that can be customized for each large buyer and forward auctions. Sellers such as Dell Computer (www.dellauction.com) use auctions extensively. In addition to conducting auctions from their own Web sites, organizations can use third-party auction sites, such as eBay, to liquidate items. Companies such as Ariba (www.ariba.com) are helping organizations to auction old assets and inventories.

Th e sell-side model is used by hundreds of thousands of companies. It is especially pow- erful for companies with superb reputations. Th e seller can be either a manufacturer (for example, Dell or IBM), a distributor (for example, www.avnet.com), or a retailer (for exam- ple, www.bigboxx.com). Th e seller uses EC to increase sales, reduce selling and advertising expenditures, increase delivery speed, and lower administrative costs. Th e sell-side model is especially suitable to customization. Many companies allow their customers to confi gure their orders online. For example, at Dell (www.dell.com), you can determine the exact type of computer that you want. You can choose the type of chip (for example, Itanium 2), the size of the hard drive (for example, 1 terabyte), the type of monitor (for example, 22-inch fl at screen), and so on. Similarly, the Jaguar Web site (www.jaguar.com) allows you to customize the Jaguar you want. Self-customization greatly reduces any misunderstandings concerning what customers want and it encourages businesses to fi ll orders more quickly.

Buy-Side Marketplaces Th e buy-side marketplace is a model in which organizations attempt to buy needed prod- ucts or services from other organizations electronically. A major method of buying goods and services in the buy-side model is the reverse auction.

Th e buy-side model uses EC technology to streamline the purchasing process. Th e goal is to reduce both the costs of items purchased and the administrative expenses involved in purchasing them. In addition, EC technology can shorten the purchasing cycle time. Pro- curement includes purchasing goods and materials as well as sourcing (fi nding goods),

1. Would it make sense for Ruby’s Club to have a presence in an electronic mall? Why or why not?

2. How might Ruby’s use multichannelling as most of the club’s online customers would also be in the same geographical area?

Q U E S T I O N SRUBY’S CLUB

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Business-to-Business (B2B) Electronic Commerce 347

negotiating with suppliers, paying for goods, and making delivery arrangements. Organiza- tions now use the Internet to accomplish all of these functions.

Purchasing by using electronic support is referred to as e-procurement. E-procurement uses reverse auctions, particularly group purchasing. In group purchasing, multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention. In addition, when buyers place their combined orders on a reverse auction, they can negotiate a volume discount. Typically, the orders of small buyers are aggregated by a third- party vendor, such as the United Sourcing Alliance (www.usa-llc.com).

Electronic Exchanges Private exchanges have one buyer and many sellers. Electronic marketplaces (e-marketplaces), called public exchanges or just exchanges, are independently owned by a third party and connect many sellers and many buyers. Public exchanges are open to all business organiza- tions. Th ey frequently are owned and operated by a third party. Public exchange managers provide all the necessary information systems to the participants. Th us, buyers and sellers merely have to “plug in” in order to trade. B2B public exchanges are oft en the initial point for contacts between business partners. Once the partners make contact, they may move to a private exchange or to private trading rooms provided by many public exchanges to con- duct their subsequent trading activities.

Some electronic exchanges deal in direct materials and others in indirect materials. Direct materials are inputs to the manufacturing process, such as safety glass used in auto- mobile windshields and windows. Indirect materials are those items, such as offi ce supplies, that are needed for maintenance, operations, and repairs (MRO). Th ere are three basic types of public exchanges: vertical, horizontal, and functional. All three types off er diversi- fi ed support services, ranging from payments to logistics.

Vertical exchanges connect buyers and sellers in a given industry. Examples of vertical exchanges are www.plasticsnet.com in the plastics industry and www.papersite.com in the paper industry.

Vertical exchanges are frequently owned and managed by a consortium, a term for a group of major players in an industry. For example, Marriott and Hyatt own a procurement consortium for the hotel industry, and ChevronTexaco owns an energy e-marketplace. Th e vertical e-marketplaces off er services that are particularly suited to the community they serve.

Horizontal exchanges connect buyers and sellers across many industries and are used primarily for MRO materials. Examples of horizontal exchanges are TradersCity (www. traderscity.com), Globalsources (www.globalsources.com), and Alibaba (www.alibaba.com).

In functional exchanges, needed services such as tempo- rary help or extra offi ce space are traded on an “as-needed” basis. For example, Employease (www.employease.com) can fi nd temporary labor by searching employers in its Employease Network.

Apply the Concept 9.3

Background Many businesses today engage in both B2B and B2C. As is described in this text, in a B2B relationship the customer is another business, but

in B2C the customer is the end consumer. Th e methodologies for managing and engaging these two diff erent customers are very diff erent. Th erefore, the customer relationship man- agement (CRM) tools used must serve diff erent purposes on the B2C side (many custom- ers) than the B2B side (few large customers). Activity Go to http://www.wiley.com/go/rainer/applytheconcept and click on the link provided for Apply the Concept 9.3. It will take you to a Web site that discusses the diff er- ences between B2C and B2B. Also read over the second article linked on the Apply the Concept page of links. Once you feel like you have a good grasp on the diff erence, search the Web for some diff erent CRM tools that support B2C and B2B.

BEFORE YOU GO ON . . . 1. Briefl y differentiate between the sell-side

marketplace and the buy-side marketplace. 2. Briefl y differentiate among vertical exchanges,

horizontal exchanges, and functional exchanges.

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348 9 l E-Business and E-Commerce

9.4 Ethical and Legal Issues in E-Business Technological innovation oft en forces a society to reexamine and modify its ethical stan- dards. In many cases, the new standards are incorporated into law. In this section, you will learn about two important ethical considerations—privacy and job loss—as well as various legal issues arising from the practice of e-business.

Ethical Issues Many of the ethical and global issues related to IT also apply to e-business. Here you will learn about two basic issues: privacy and job loss.

By making it easier to store and transfer personal information, e-business presents some threats to privacy. First, most electronic payment systems know who the buyers are. It may be necessary, then, to protect the buyers’ identities. Businesses frequently use encryp- tion to provide this protection.

Another major privacy issue is tracking. For example, individuals’ activities on the Internet can be tracked by cookies (discussed in Chapter 7). Cookies store your tracking history on your personal computer’s hard drive, and any time you revisit a certain Web site, the server recognizes the cookie. In response, antivirus soft ware packages routinely search for potentially harmful cookies.

In addition to compromising individual privacy, the use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents. Th e manner in which these unneeded workers, especially employees, are treated can raise ethical issues: How should the company handle the layoff s? Should companies be required to retrain employees for new posi- tions? If not, how should the company compensate or otherwise assist the displaced workers?

Legal and Ethical Issues Specifi c to E-Commerce Many legal issues are related specifi cally to e-commerce. When buyers and sellers do not know one another and cannot even see one another, there is a chance that dishonest people will commit fraud and other crimes. During the fi rst few years of EC, the public witnessed

1. Ruby’s suppliers have offered electronic data processing (EDP) for years. However, Ruben and Lisa have always placed their orders via the telephone. How might EDP help them?

2. Should they continue with B2B business as usual or go ahead and upgrade now? What data might be available for them via EDP that they do not currently have access to?

Q U E S T I O N SRUBY’S CLUB

Deliverable

Imagine that your senior marketing manager has created a task force to select a CRM tool. You operate in a B2C environment, but the options the manager has given the task force to choose between are all B2B soft ware packages! Write an e-mail that delicately shows the manager the diff erence between these two and that explains that the products he/she has selected will not work for your company. Be careful how you say it—managers do not like to hear that they are wrong! Submit your e-mail to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

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Ethical and Legal Issues in E-Business 349

many such crimes. Th ese illegal actions ranged from creating a virtual bank that disap- peared along with the investors’ deposits to manipulating stock prices on the Internet. Unfortunately, fraudulent activities on the Internet are increasing. In the following section, you explore some of the major legal issues that are specifi c to e-commerce.

Fraud on the Internet. Internet fraud has grown even faster than Internet use itself. In one case, stock promoters falsely spread positive rumors about the prospects of the com- panies they touted in order to boost the stock price. In other cases, the information pro- vided might have been true, but the promoters did not disclose that they were paid to talk up the companies. Stock promoters specifi cally target small investors who are lured by the promise of fast profi ts.

Stocks are only one of many areas where swindlers are active. Auctions are especially conducive to fraud, by both sellers and buyers. Other types of fraud include selling bogus investments and setting up phantom business opportunities. Because of the growing use of e-mail, fi nancial criminals now have access to many more people. Th e U.S. Federal Trade Commission (FTC, www.ftc.gov) regularly publishes examples of scams that are most like- ly to be spread via e-mail or to be found on the Web. Later in this section, you will see some ways in which consumers and sellers can protect themselves from online fraud.

Domain Names. Another legal issue is competition over domain names. Domain names are assigned by central nonprofi t organizations that check for confl icts and possible infringement of trademarks. Obviously, companies that sell goods and services over the Internet want customers to be able to fi nd them easily. In general, the closer the domain name matches the company’s name, the easier the company is to locate.

A domain name is considered legal when the person or business who owns the name has operated a legitimate business under that name for some time. Companies such as Christian Dior, Nike, Deutsche Bank, and even Microsoft have had to fi ght or pay to get the domain name that corresponds to their company’s name. Consider the case of Delta Air Lines. Delta originally could not obtain the Internet domain name delta.com because Delta Faucet had purchased it fi rst. Delta Faucet had been in business under that name since 1954 and therefore had a legitimate business interest in the domain name. Delta Air Lines had to settle for delta-airlines.com until it bought the domain name from Delta Fau- cet. Delta Faucet is now at deltafaucet.com. Several cases of disputed domain names are already in court.

Cybersquatting. Cybersquatting refers to the practice of registering or using domain names for the purpose of profi ting from the goodwill or the trademark that belongs to someone else. Th e Anti-Cybersquatting Consumer Protection Act (1999) permits trademark owners in the United States to sue for damages in such cases.

However, some practices that could be considered cybersquatting are not illegal, although they may well be unethical. Per- haps the more common of these practices is “domain tasting.” Domain tasting lets registrars profi t from the complex money trail of pay-per-click advertising. Th e prac- tice can be traced back to the policies of the organization responsible for regulating Web names, the Internet Corporation for Assigned Names and Numbers (ICANN) (www.icann.org) (see Figure 9.9). In 2000, ICANN established the “create grace peri- od,” a fi ve-day period during which a com- pany or person can claim a domain name and then return it for a full refund of the $6 registry fee. ICANN implemented this pol- icy to allow someone who mistyped a

Figure 9.9 Internet Corporation for Assigned Names and Numbers (ICANN) Web site (Source: www.icann.org).

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350 9 l E-Business and E-Commerce

domain to return it without cost. In some cases, companies engage in cybersquatting by registering domain names that are very similar to their competitors’ domain names in order to generate traffi c from people who misspell Web addresses.

Domain tasters exploit this policy by claiming Internet domains for fi ve days at no cost. Th ese domain names frequently resemble those of prominent companies and organiza- tions. Th e tasters then jam these domains full of advertisements that come from Yahoo! and Google. Because this process involves zero risk and 100 percent profi t margins, domain tasters register millions of domain names every day—some of them over and over again. Experts estimate that registrants ultimately purchase less than 2 percent of the sites they sample. In the vast majority of cases, they use the domain names for only a few days to generate quick profi ts.

Taxes and Other Fees. In offl ine sales, most states and localities tax business trans- actions that are conducted within their jurisdiction. Th e most obvious example is sales taxes. Federal, state, and local authorities now are scrambling to create some type of taxa- tion policy for e-business. Th is problem is particularly complex for interstate and interna- tional e-commerce. For example, some people claim that the state in which the seller is located deserves the entire sales tax (in some countries, it is a value-added tax, or VAT). Others contend that the state in which the server is located also should receive some of the tax revenues.

In addition to the sales tax, there is a question about where—and in some cases, wheth- er—electronic sellers should pay business license taxes, franchise fees, gross-receipts taxes, excise taxes, privilege taxes, and utility taxes. Furthermore, how should tax collection be controlled? Legislative eff orts to impose taxes on e-commerce are opposed by an organiza- tion named the Internet Freedom Fighters. So far, their eff orts have been successful. As of mid-2011, the United States and several other countries had placed a ban on imposing a sales tax on business conducted on the Internet. In addition, buyers were exempt from any tax on Internet access.

Copyright. Recall from Chapter 6 that intellectual property is protected by copyright laws and cannot be used freely. Th is point is signifi cant because many people mistakenly believe that once they purchase a piece of soft ware, they have the right to share it with oth-

ers. In fact, what they have bought is the right to use the soft - ware, not the right to distribute it. Th at right remains with the copyright holder. Similarly, copying material from Web sites

without permission is a violation of copyright laws. Protecting intellectual property rights in e-com- merce is extremely diffi cult, however, because it involves hundreds of millions of people in some 200

countries with diff ering copyright laws who have access to bil- lions of Web pages.

Apply the Concept 9.4

Background Amazon.com is a well-known online retailer. In fact, it is one of a kind in many ways. It failed to turn a profi t for many years and now competes with Apple, Google, and Microsoft , some of the biggest names in the tech sector.

But did you know that there is a huge controversy surrounding Amazon? Th e retailer does not collect sales tax in all states. No big deal, right? Not exactly. A quick Web search for “Amazon Sales Tax” will no doubt bring you up to speed quickly on the issue. Of course, Amazon sees this as their competitive advantage and has used its power to infl uence state governments.

On the other side of the coin, if you purchase something online and do not pay sales tax, you are supposed to submit this on your income tax statement and pay taxes then. But do you? Activity Go ahead and search the Web to see if Amazon collects sales tax in your state. If the company doesn’t, it is likely that the issue has been raised. How do you feel if Amazon

BEFORE YOU GO ON . . . 1. List and explain some ethical issues in EC. 2. Discuss the major legal issues of EC. 3. Describe buyer protection and seller

protection in EC.

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What’s in IT for Me? 351

does have fulfi llment centers in your state (therefore it operates in your state and should collect sales tax) and it charges you tax when it doesn’t charge others? What if a business in your state uses Amazon’s fulfi llment services and does not collect sales tax? Should Ama- zon’s partnership with the company in your state require it to collect tax on every purchase in your state?

Deliverable

Th ink all of this over for a while. Taxes are an issue that will not go away soon and technol- ogy is only going to make this situation more and more diffi cult as we move forward. Ultimately, write a letter to your congressman on this issue. Submit your letter to your professor.

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/college/rainer.

1. What ethical and legal information can you fi nd on PayPal’s site?

2. If Ruby’s uses PayPal, who do you think would be responsible for any errors? What should Ruben and Lisa do if PayPal’s Code of Ethics is different from what they consider ethical?

Q U E S T I O N SRUBY’S CLUB

FOR THE ACCOUNTING MAJOR Accounting personnel are involved in several EC activities. Designing the ordering system and its relationship with inventory management requires accounting

attention. Billing and payments are also accounting activities, as are determining cost and profi t allocation. Replacing paper documents with electronic means will aff ect many of the accountant’s tasks, especially the auditing of EC activities and systems. Finally, building a cost-benefi t and cost-justifi cation system to determine which products/services to take online and creating a chargeback system are critical to the success of EC.

FOR THE FINANCE MAJOR Th e worlds of banking, securities and commodities markets, and other fi nancial services are being reengineered because of EC. Online securities trading and its

supporting infrastructure are growing more rapidly than any other EC activity. Many inno- vations already in place are changing the rules of economic and fi nancial incentives for fi nancial analysts and managers. Online banking, for example, does not recognize state boundaries, and it may create a new framework for fi nancing global trades. Public fi nancial information is now accessible in seconds. Th ese innovations will dramatically change the manner in which fi nance personnel operate.

FOR THE MARKETING MAJOR A major revolution in marketing and sales is taking place because of EC. Perhaps its most obvious feature is the transition from a physical to a virtual marketplace.

Equally important, however, is the radical transformation to one-on-one advertising and

What’s in for ME?ffT

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352 9 l E-Business and E-Commerce

sales and to customized and interactive marketing. Marketing channels are being combined, eliminated, or recreated. Th e EC revolution is creating new products and markets and sig- nifi cantly altering existing ones. Digitization of products and services also has implications for marketing and sales. Th e direct producer-to-consumer channel is expanding rapidly and is fundamentally changing the nature of customer service. As the battle for customers inten- sifi es, marketing and sales personnel are becoming the most critical success factor in many organizations. Online marketing can be a blessing to one company and a curse to another.

FOR THE

PRODUCTION/OPERATIONS MANAGEMENT MAJOR EC is changing the manufacturing system from product-push mass production to order-pull mass customization. Th is change requires a robust supply chain, infor-

mation support, and reengineering of processes that involve suppliers and other business partners. Suppliers can use extranets to monitor and replenish inventories without the need for constant reorders. In addition, the Internet and intranets help reduce cycle times. Many production/operations problems that have persisted for years, such as complex scheduling and excess inventories, are being solved rapidly with the use of Web technologies. Companies can now use external and internal networks to fi nd and manage manufacturing operations in other countries much more easily. Also, the Web is reengineering procurement by helping companies conduct electronic bids for parts and subassemblies, thus reducing cost. All in all, the job of the progressive production/operations manager is closely tied in with e-commerce.

FOR THE

HUMAN RESOURCES MANAGEMENT MAJOR HR majors need to understand the new labor markets and the impacts of EC on old labor markets. Also, the HR department may use EC tools for such functions

as procuring offi ce supplies. Moreover, becoming knowledgeable about new government online initiatives and online training is critical. In addition, HR personnel must be familiar with the major legal issues related to EC and employment.

FOR THE MIS MAJOR Th e MIS function is responsible for providing the information technology infra- structure necessary for electronic commerce to function. In particular, this infra-

structure includes the company’s networks, intranets, and extranets. Th e MIS function is also responsible for ensuring that electronic commerce transactions are secure.

SUMMARY 1. Describe the six common types of electronic commerce.

In business-to-consumer (B2C) electronic commerce, the sellers are organizations and the buyers are individuals. In business-to-business (B2B) electronic commerce, the sellers and the buyers are businesses. In consumer-to-consumer (C2C) electronic commerce, an individual sells products or services to other individuals. In business-to-employee (B2E) electronic commerce, an organization uses EC inter- nally to provide information and services to its employees. E-government is the use of Internet technology in general

and e-commerce in particular to deliver information and public services to citizens (called government-to-citizen or G2C EC) and business partners and suppliers (called government-to-business or G2B EC). Mobile commerce refers to e-commerce that is conducted entirely in a wire- less environment. We leave the examples of each type to you.

2. Describe the various online services of business- to-consumer (B2C) commerce, providing specifi c exam- ples of each.

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Chapter Glossary 353

Electronic banking, also known as cyberbanking, involves con- ducting various banking activities from home, at a place of business, or on the road instead of at a physical bank location. Online securities trading involves buying and selling secu- rities over the Web. Online job matching over the Web off ers a promising environment for job seekers and for companies searching for hard-to-fi nd employees. Th ousands of companies and government agencies advertise available positions, accept resumes, and take applications via the Internet. Online travel services allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Most sites also off er a fare-tracker feature that sends you e-mail messages about low-cost fl ights. Th e Internet is an ideal place to plan, explore, and arrange almost any trip economically. Online advertising over the Web makes the advertising process media-rich, dynamic, and interactive.

We leave the examples to you.

3. Describe the three business models for business-to- business electronic commerce. In the sell-side marketplace model, organizations attempt to sell their products or services to other organizations electronically from their own private e-marketplace Web site and/or from a third-party Web site. Sellers such as Dell Computer (www.dellauction.com) use sell-side auctions extensively. In addition to auctions from their own Web sites, organizations can use third-party auction sites, such as eBay, to liquidate items.

Th e buy-side marketplace is a model in which organi- zations attempt to buy needed products or services from other organizations electronically.

E-marketplaces, in which there are many sellers and many buyers, are called public exchanges, or just exchanges. Public exchanges are open to all business organizations. Th ey frequently are owned and operated by a third party. Th ere are three basic types of public exchanges: vertical, horizontal, and functional. Vertical exchanges connect buy- ers and sellers in a given industry. Horizontal exchanges connect buyers and sellers across many industries. In func- tional exchanges, needed services such as temporary help or extra offi ce space are traded on an “as-needed” basis.

4. Identify the ethical and legal issues related to electronic commerce, providing examples. E-business presents some threats to privacy. First, most elec- tronic payment systems know who the buyers are. It may be necessary, then, to protect the buyers’ identities with encryp- tion. Another major privacy issue is tracking, where indi- viduals’ activities on the Internet can be tracked by cookies.

Th e use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents. Th e manner in which these unneeded workers, especially employees, are treated can raise ethical issues: How should the company handle the layoff s? Should companies be required to retrain employees for new positions? If not, how should the company compensate or otherwise assist the displaced workers?

We leave the examples to you.

auction A competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits bids from sellers, and prices are determined dynamically by competitive bidding.

banner Electronic billboards, which typically contain a short text or graphical message to promote a product or a vendor.

brick-and-mortar organizations Organizations in which the product, the process, and the delivery agent are all physical.

business model Th e method by which a company generates revenue to sustain itself.

business-to-business electronic commerce (B2B) Electronic commerce in which both the sellers and the buyers are business organizations.

business-to-consumer electronic commerce (B2C) Electronic commerce in which the sellers are organizations and the buyers are individuals; also known as e-tailing.

business-to-employee electronic commerce (B2E) An organization using electronic commerce internally to provide information and services to its employees.

buy-side marketplace B2B model in which organizations buy needed products or services from other organizations electronically, oft en through a reverse auction.

channel conflict Th e alienation of existing distributors when a company decides to sell to customers directly online.

clicks-and-mortar organizations Organizations that do business in both the physical and digital dimensions.

consumer-to-consumer electronic commerce (C2C) Electronic commerce in which both the buyer and the seller are individuals (not businesses).

cyberbanking Various banking activities conducted electronically from home, a business, or on the road instead of at a physical bank location; also known as electronic banking.

cybersquatting Registering domain names in the hope of selling them later at a higher price.

disintermediation Elimination of intermediaries in electronic commerce.

>>> C H A P T E R G L O S S A R Y

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354 9 l E-Business and E-Commerce

e-government Th e use of electronic commerce to deliver informa- tion and public services to citizens, business partners, and suppliers of government entities, and those working in the public sector.

electronic business (e-business) A broader defi nition of electronic commerce, including buying and selling of goods and services, and servicing customers, collaborating with business partners, conducting e-learning, and conducting electronic transac- tions within an organization.

electronic commerce (EC or e-commerce) Th e process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

electronic mall A collection of individual shops under one Internet address; also known as a cybermall or an e-mall.

electronic marketplace A virtual market space on the Web where many buyers and many sellers conduct electronic business activities.

electronic payment systems Computer-based systems that allow customers to pay for goods and services electronically, rather than writing a check or using cash.

electronic retailing (e-tailing) Th e direct sale of products and services through storefronts or electronic malls, usually designed around an electronic catalog format and/or auctions.

electronic storefront Th e Web site of a single company, with its own Internet address, at which orders can be placed.

e-procurement Purchasing by using electronic support.

e-wallets Soft ware components in which a user stores secured personal and credit card information for one-click reuse.

exchanges (see public exchanges)

forward auctions Auctions that sellers use as a selling channel to many potential buyers; the highest bidder wins the items.

group purchasing Th e aggregation of purchasing orders from many buyers so that a volume discount can be obtained.

mobile commerce (m-commerce) Electronic commerce conducted in a wireless environment.

multichanneling A process in which a company integrates its online and offl ine channels.

permission marketing Method of marketing that asks consumers to give their permission to voluntarily accept online advertising and e-mail.

person-to-person payments A form of electronic cash that enables the transfer of funds between two individuals, or between an individual and a business, without the use of a credit card.

pop-under ad An advertisement that is automatically launched by some trigger and appears underneath the active window.

pop-up ad An advertisement that is automatically launched by some trigger and appears in front of the active window.

public exchanges (or exchanges) Electronic marketplaces in which there are many sellers and many buyers, and entry is open to all; frequently owned and operated by a third party.

reverse auctions Auctions in which one buyer, usually an organization, seeks to buy a product or a service, and suppliers submit bids; the lowest bidder wins.

sell-side marketplace B2B model in which organizations sell to other organizations from their own private e-marketplace and/or from a third-party site.

smart cards Cards that contains a microprocessor (chip) that enables the card to store a considerable amount of information (including stored funds) and to conduct processing.

spamming Indiscriminate distribution of e-mail without the receiver’s permission.

stored-value money cards A form of electronic cash on which a fi xed amount of prepaid money is stored; the amount is reduced each time the card is used.

viral marketing Online word-of-mouth marketing.

virtual banks Banking institutions dedicated solely to Internet transactions.

virtual (or pure play) organizations Organizations in which the product, the process, and the delivery agent are all digital.

1. Discuss the major limitations of e-commerce. Which of these limitations are likely to disappear? Why?

2. Discuss the reasons for having multiple EC business models.

3. Distinguish between business-to-business forward auctions and buyers’ bids for RFQs.

4. Discuss the benefi ts to sellers and buyers of a B2B exchange.

5. What are the major benefi ts of G2C electronic commerce?

6. Discuss the various ways to pay online in B2C. Which method(s) would you prefer and why?

7. Why is order fulfi llment in B2C considered diffi cult?

8. Discuss the reasons for EC failures.

9. Should Mr. Coff ee sell coff eemakers online? Hint: Take a look at the discussion of channel confl ict in this chapter.

10. In some cases, individuals engage in cybersquatting so that they can sell the domain names to companies expensively. In other cases, companies engage in cybersquatting by registering domain names that are very similar to their competitors’ domain names in order to generate traffi c from people who misspell Web addresses. Discuss each practice in terms of its ethical nature and legality. Is there a diff erence between the two practices? Support your answer.

>>> D I S C U S S I O N Q U E S T I O N S

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Problem-Solving Activities 355

1. Assume you are interested in buying a car. You can fi nd information about cars at numerous Web sites. Access fi ve Web sites for information about new and used cars, fi nancing, and insurance. Decide which car you want to buy. Confi gure your car by going to the car manufacturer’s Web site. Finally, try to fi nd the car from www.autobytel.com. What information is most supportive of your decision- making process? Write a report about your experience.

2. Compare the various electronic payment methods. Specifi cally, collect information from the vendors cited in this chapter and fi nd additional vendors using Google.com. Pay attention to security level, speed, cost, and convenience.

3. Conduct a study on selling diamonds and gems online. Access such sites as www.bluenile.com, www.diamond. com, www.thaigem.com, www.tiffany.com, and www. jewelryexchange.com.

a. What features do these sites use to educate buyers about gemstones?

b. How do these sites attract buyers? c. How do these sites increase customers’ trust in online

purchasing? d. What customer service features do these sites

provide?

4. Access www.nacha.org. What is NACHA? What is its role? What is the ACH? Who are the key participants in an ACH e-payment? Describe the “pilot” projects currently underway at ACH.

5. Access www.espn.com. Identify at least fi ve diff erent ways the site generates revenue.

6. Access www.queendom.com. Examine its off erings and try some of them. What type of electronic commerce is this? How does this Web site generate revenue?

7. Access www.ediets.com. Prepare a list of all the services the company provides. Identify its revenue model.

8. Access www.theknot.com. Identify the site’s revenue sources.

9. Access www.mint.com. Identify the site’s revenue model. What are the risks of giving this Web site your credit and debit card numbers, as well as your bank account number?

10. Research the case of www.nissan.com. Is Uzi Nissan cybersquatting? Why or why not? Support your answer. How is Nissan (the car company) reacting to the www. nissan.com Web site?

11. Enter www.alibaba.com. Identify the site’s capabilities. Look at the site’s private trading room. Write a report. How can such a site help a person who is making a purchase?

12. Enter www.grubhub.com. Explore the site. Why is the site so successful? Could you start a competing site? Why or why not?

13. Enter www.dell.com, go to “Desktops,” and confi gure a system. Register to “My Cart” (no obligation). What calculators are used there? What are the advantages of this process as compared with buying a computer in a physical store? What are the disadvantages?

14. Enter www.checkfree.com and www.lmlpayment.com to identify their services. Prepare a report.

15. Access various travel sites such as www.travelocity.com, www.orbitz.com, www.expedia.com, www.kayak.com, and www.pinpoint.com. Compare these Web sites for ease of use and usefulness. Note diff erences among the sites. If you ask each site for the itinerary, which one gives you the best information and the best deals?

16. Access www.outofservice.com, and answer the musical taste and personality survey. When you have fi nished, click on “Results” and see what your musical tastes say about your personality. How accurate are the fi ndings about you?

17. Tips for Safe Electronic Shopping • Look for reliable brand names at sites such as

Walmart Online, Disney Online, and Amazon. Before purchasing, make sure that the site is authentic by entering the site directly and not from an unverifi ed link.

• Search any unfamiliar selling site for the company’s address and phone and fax numbers. Call up and quiz the employees about the seller.

• Check out the vendor with the local Chamber of Commerce or Better Business Bureau (www.bbbonline. org). Look for seals of authenticity such as TRUSTe.

• Investigate how secure the seller’s site is by examining the security procedures and by reading the posted privacy policy.

• Examine the money-back guarantees, warranties, and service agreements.

• Compare prices with those in regular stores. Too-low prices are too good to be true and some catch is probably involved.

• Ask friends what they know. Find testimonials and endorsements on community Web sites and well- known bulletin boards.

>>> P R O B L E M - S O LV I N G A C T I V I T I E S

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356 9 l E-Business and E-Commerce

CLOSING CASE 1 > The Flash Crash

On May 6, 2010, the U.S. stock market experienced a crash in which the Dow Jones Indus- trial Average lost almost 9 percent of its total value, only to recover those losses within minutes. It was the second-largest point swing—1,010.14 points—and the biggest one-day point decline—998.5 points—on an intraday basis in the history of Dow Jones. Th is crash became known as the Flash Crash.

Th at day, the market was already under pressure as a result of a massive debt crisis in Greece. Th en, an automated sale of a large block of futures touched off a chain reaction of events. A futures contract is an agreement, traded on an exchange, to buy or sell assets— particularly commodities or shares of stock—at a fi xed price but to be delivered and paid for later. Aft er the automated sale, a mutual fund’s computer program began selling $4.1 billion of futures contracts.

Normally, a sale of this size would take place over as many as 5 hours. In this case, however, the sell algorithm installed on the mutual fund’s computer placed 75,000 con- tracts on the market in 20 minutes. Th e algorithm was programmed to execute the trade “without regard to price or time,” which meant that it continued to sell even as prices rap- idly dropped.

Many of the contracts sold by the algorithm were purchased by high-frequency trad- ers (HFTs). HFTs are computerized traders who buy and sell at high speed. Th ey account for a large percentage of overall trading in today’s markets. Th e HFT programs detected that they had amassed excessive “long” positions, meaning that they purchased a large amount of stock with the expectation that its price would rise. Th ey immediately began to

THE PROBLEM >>>

Background

Converting a business from bricks-and-mortar to e-business is a rather complicated task. At the turn of the 20th century (the early 1900s) Sears & Roebuck was the dominant force to deal with. Th is company’s business model (mailing out a catalog, receiving payment and orders, processing, fulfi ll- ment) was years ahead of the local “general store.” Search Wikipedia for more information on the history of Sears and to better understand the mail-order catalog model.

Activity

Divide your team into the following positions: consumer, order processing, accounts receivable, product fulfi llment, shipping, inventory, and sales. Now given your responsibil- ity, work through a catalog order that includes fi ve diff erent items. To make it easier, imagine that full payment is received. Begin with the consumer and have each person

write down on a piece of paper the information each needs at every stage. For example, the consumer will hand two pieces of paper to the order processing person: one will be the order and the other will be the payment. Th en the order processing person will notify others in the group by creating a new piece of paper with new information. Th ey will also keep a copy for themselves. As this order moves through the “company,” you will see how much paper and information is generated by traditional business.

Deliverable

As a team, write a summary of your experience that com- pares e-commerce to traditional commerce. Did anyone make a mistake when transferring the information? How could computer information systems (and therefore e-commerce) have helped make the process fl ow better? Submit your paper to your instructor.

>>> C O L L A B O R AT I O N E X E R C I S E

• Find out what your rights are in case of a dispute. Consult consumer protection agencies and the National Consumer League’s Fraud Center (www. fraud.org).

• Check Consumerworld (www.consumerworld.org) for a collection of useful resources.

• For many types of products, www.resellerratings.com is a useful resource.

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Closing Case 1: The Flash Crash 357

sell these stocks aggressively, which in turn caused the mutual fund’s algorithm to acceler- ate its selling. As the HFT and mutual fund programs traded contracts back and forth, they created a “hot potato” eff ect, where contracts changed hands 27,000 times in 14 seconds. Despite this frenzied trading, however, only 200 contracts were actually bought or sold. In most cases, the same contracts moved back and forth between the mutual funds and the HFTs in microseconds.

Th e only buy orders originated from automated systems, which were submitting orders known as “stub quotes.” Stub quotes are off ers to buy stocks at prices so low that the purchasers are unlikely to ever be the only buyers of that stock. However, during the fl ash crash, the stub quotes were the only off ers from buyers. When the only off er to buy available is a penny-priced stub quote, a market order, by defi nition, will buy the stock at that price. In this respect, automated trading systems will follow their algorithms regard- less of the outcome. Th is process caused shares of some prominent companies, such as Procter & Gamble and Accenture, to trade down as low as a penny per share. Signifi - cantly, human involvement probably would have prevented these orders from executing at absurdly low prices.

Th e U.S. Securities and Exchange Commission (SEC) responded to the crash by instituting circuit breakers on all stocks in the S&P 500 stock index. Circuit breakers halt trading in a stock for 5 minutes if the price moves by 10 percent or more in a 5-minute period. Aft er a short time, the SEC expanded the circuit breakers to include a broader range of stocks. However, no one knows for sure if the circuit breakers can prevent future “fl ash crashes.”

Lawmakers are also proposing another possible solution: enacting a small tax on each equity trade. Such a tax would likely discourage some high-frequency trading, slow the market’s overall pace, and raise billions of dollars in revenue for the federal government. Some of the tax revenues could be used to enhance the SEC’s monitoring eff orts.

Th e circuit breakers are now in place as a (hopeful) preventative measure for future market crashes. However, the Flash Crash raises a larger question about the stock market. In recent years, the market has grown exponentially faster and more diverse than it was before. Th e primary venue for stock trading is no longer the New York Stock Exchange, but rather com- puter servers run by companies around the world. Th is diversity has made stock trading cheaper, which benefi ts both institutional and individual investors. Unfortunately, it has also made it more diffi cult to ensure an orderly market.

One study says fl ash events actually happen routinely, at speeds so fast that they do not register on regular market records. Such fl ash events could have troubling consequences for market stability. Th e study analyzed 5 years of stock market trades between 2006 and 2011 that occurred faster than 950-milliseconds, and found 18,520 crashes and spikes. Th ese trades happened so quickly that human traders could not react. In addition, those trades fell into patterns that did not fi t market patterns observed at slower time scales. Th e study con- cluded that ultrahigh-frequency trading has created a new world, one where the usual rules do not apply and the computer algorithms that run the trading are only dimly understood by humans (even those humans who created the algorithms).

Circuit breakers or not, traders are still trying to fi nd ways to trade even faster. One new computer chip built specifi cally for high-frequency trading can make trades in .000000074 seconds, and a proposed $300 million transatlantic cable is being built just to shave .0006 seconds off transaction times between New York City and London.

A major danger for the fi nancial industry is that regulators, politicians, and industry leaders—already distracted by the major challenge of reforming Wall Street in the wake of the broader credit crisis of 2008—will shrug off the Flash Crash as an aberration requiring no fundamental rethinking of how human, machine, and market interact. Left unchecked, Wall Street’s computer models will remain susceptible to unpredictable disasters, and there is every possibility that fl ash crashes will happen again. Sources: Compiled from B. Keim, “Nanosecond Trading Could Make Markets Go Haywire,” Wired, February 16, 2012; M. Millar, “‘Lightning Fast Future Traders Working in Nanoseconds,” BBC News, November 17, 2011; L. Salamone, “On Wall Street, the Race to Zero Continues,” HPC Wire, September 27, 2011; “New $300 Million Transatlantic Cable Makes Stock Trades 6 Milliseconds Faster,” Public Intelligence, September 14, 2011;

<<< A STOPGAP SOLUTION

<<< THE RESULTS

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358 9 l E-Business and E-Commerce

CLOSING CASE 2 > Kickbucks to Shop!

Th e biggest challenge facing retailers in America is getting people to enter their stores. Con- version rates (converting shoppers into customers who make a purchase) in the virtual world (online shopping) are between 0.5 percent and 3 percent. Conversion rates in the physical world range from 20 percent to as high as 95 percent. So, if foot traffi c is so impor- tant, then why don’t companies reward people for visiting their stores? Th e answer is that they don’t even know that you came through the door.

To solve this disconnect, Cyriac Roeding built a smartphone-optimized rewards program that off ers customers discounts and promotions simply for entering retail stores—a model he describes as “the physical-world equivalent of an online click.” His company, Shopkick (www. shopkick.com), through its Shopkick mobile application, delivers “kickbucks” rewards to all registered iPhone and Android users who enter a participating retail location. Kickbucks can be collected and redeemed across any partner store and turned into gift cards, discounts, song downloads, movie tickets, Facebook Credits, or even charitable donations.

Shopkick does not rely on GPS triangulation. Instead, the company uses a patent- pending device located in each participating store. Th e box, which costs retailers less than $100 and is roughly the size of a paperback book, plugs into any power outlet. It emits an audio signal that is undetectable to the human ear, but is automatically picked up by a smartphone’s internal microphone, thereby qualifying the owner of that smartphone to earn kickbucks. Because the audio signal’s range is limited to the perimeter of the store, users must physically enter the location in order for their phones to pick up the signal. Fur- ther, because detection occurs via the mobile device, consumers retain control over the privacy of their presence information.

Retailers decide how many kickbucks a shopper receives for entering their businesses. Retailers can leverage the Shopkick app to deliver special off ers, such as discounts on spe- cifi c merchandise.

Shopkick also extends beyond retail. In partnership with brands including Kraft Foods and Procter & Gamble, Shopkick off ers smaller rewards for scanning product bar codes, which extends the network to about 230,000 additional stores nationwide.

THE PROBLEM >>>

E. Macbride, “Flash Crash Update: Why the Multi-Asset Meltdown Is a Real Possibility,” Forbes, March 2, 2011; T. McCabe, “When the Speed of Light Is Too Slow: Trading at the Edge,” Kurzweilai.net, November 11, 2010; Spicer, J. “Special Report: Globally, the Flash Crash Is No Flash in the Pan,” Reuters, October 15, 2010; E. Lambert, “Th e Truth About the Flash Crash,” Forbes, October 1, 2010; S. Schaefer, “Dissecting the Flash Crash,” Forbes, October 1, 2010; L. Mearian, “Regulators Blame Computer Algorithm for Stock Market ‘Flash Crash’,” Computerworld, October 1, 2010; G. Bowley, “Lone $4.1 Billion Sale Led to ‘Flash Crash’ in May,” New York Times, October 1, 2010; S. Patterson, “Letting the Machines Decide,” Wall Street Journal, July 13, 2010; N. Mehla, “Th e Machines Th at Ate the Market,” Bloomberg BusinessWeek, May 20, 2010; S. Patterson, “How the ‘Flash Crash’ Echoed Black Monday,” Wall Street Journal, May 17, 2010; L. Harris, “How to Prevent Another Trading Panic,” Wall Street Journal, May 12, 2010; E. Wyatt, “Regulators Vow to Find Way to Stop Rapid Dives,” New York Times, May 10, 2010; S. Patterson and T. Lauricella, “Did a Big Bet Help Trigger ‘Black Swan’ Stock Swoon?” Wall Street Journal, May 10, 2010; A. Lucchetti, “Exchanges Point Fingers Over Human Hands,” Wall Street Journal, May 9, 2010.

Questions 1. Do you think information technology has made it easier to do business? Or

has IT only raised the bar on what is required to be able to do business in the 21st century? Support your answer with specifi c examples.

2. With the rise of electronic commerce, what do you think will happen to those without computer skills, Internet access, computers, smart phones, and so on? Will they be able to survive and advance by hard work?

THE IT >>> SOLUTION

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Closing Case 2: Kickbucks to Shop! 359

Determine the type of e-commerce (pure vs. partial) Ruby’s Club will engage in. Then look at the tools that PayPal offers through its Business Payment Solutions. Give Ruben and Lisa some feedback on exactly what options they have for their Web site based on your decisions and research. Give examples of how other businesses in the same category (again pure vs. partial) conduct business. How can PayPal support this model? What benefi ts will Ruby and Lisa receive from using PayPal? What potential ethical and legal problems might they face?

Finally, provide instructions on how they can implement this payment mechanism. Determine which of the business solutions is the best for Ruben and Lisa’s needs and gather the instructions on how to implement this system. Finally, let them know the percentage PayPal will take from each transaction, but present it as an opportunity cost to quickly and safely provide e-commerce on their site. Be sure to reference any training materials payPal may offer.

I N T E R N S H I P A S S I G N M E N TRUBY’S CLUB

Shopkick receives a small commission fee for each kickbuck a customer earns. If a shopper makes a purchase aft er using the app, Shopkick claims a percentage of that transac- tion as well.

Aft er reading this case, it may appear to you that Shopkick is similar to Loopt (acquired by Green Dot, www.greendot.com), and Foursquare (https://foursquare.com). However, Shopkick diff ers from these sites in that it is not a social networking tool. Shopkick is an app built around the act of shopping, not around letting your friends know where you are.

Over 1,000 individual U.S. retail outlets and over 100 shopping centers now employ Shop- kick’s services. Shopkick has partnered with Best Buy, Macy’s, Target, Sports Authority, Crate & Barrel, and the mall operator company Simon Property Group. Retailers credit Shopkick with increasing their customer traffi c.

For example, sporting goods chain Sports Authority has deployed the app in more than 100 of its U.S. locations. In late 2010, the chain doubled, and sometimes tripled, kickbucks rewards to determine the potential eff ect on walk-ins. Th e promotion increased Shopkick user walk-in growth from 50 to 70 percent.

Shopkick is expanding the core capabilities of its model. As the app improves, retailer off ers will probably become more sophisticated as well, with kickbucks awards and promo- tions eventually targeting consumers according to age, gender, geography, shopping fre- quency, or purchase history. Sources: E. Lee and B. Evangelista, “Shopkick Rides Surge in Shopping with Cell Phones,” San Francisco Chroni- cle, February 1, 2012; T. Geron, “Shopkick Teams Up with Visa for In-Store Rewards,” Forbes, November 21, 2011; C. Miller, “Visa and Shopkick Give Rewards for Making Purchases,” Th e New York Times, November 21, 2011; T. Geron, “Why So Many Shopkick Users ‘Walk Around’ in Stores,” Forbes, August 4, 2011; J. Ankeny, “Th e Rebirth of Retail,” Entrepreneur, March, 2011; B. Stone and B. Sheridan, “Th e Retailer’s Clever Little Helper,” Bloomberg BusinessWeek, August 26, 2010; www.shopkick.com, accessed March 21, 2012.

Questions 1. If you were the CEO of Shopkick, in what direction would you expand your

service next? Provide specifi c examples to support your answer. 2. Do you see any potential disadvantages of Shopkick for the consumer? For

the retailer? Provide examples to support your answer. 3. As Shopkick’s app improves, what eff ects will tailored off ers from retailers

have on shopper habits and on the stores making the off ers?

<<< THE RESULTS

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360 9 l E-Business and E-Commerce

Objective: Graphs and charts are helpful tools within most spreadsheet applications. This activity will place you in a business scenario where graphs and charts are extremely helpful in determining customer patterns and preferences.

Chapter Connection: E-business and e-commerce are much more than simply buying and selling via the Internet. Amazon.com is a perfect example of a company that has leveraged the power of the Web to make product suggestions to customers and help them fi nd the right product. This activity builds on this concept and applies spreadsheet tools to help provide this type of business data and make it useful even in a traditional bricks-and-mortar scenario.

Activity: Go to Amazon.com (or go to http://www. wiley.com/go/rainer/spreadsheet and click on the link to Amazon there) and search for a Coleman Sundome 10 X 10 tent. At the time of this writing, customers are shown items that are frequently purchased with the tent, items that customers often buy with it (but not as frequently as the other group), and fi nally a list of related products. This type of information is very helpful to consumers, especially when combined with customer ratings.

Another type of feedback provided by Amazon .com is the list of items that are most frequently purchased after shopping for a particular item. This type of information is invaluable to consumers and can only be provided in an online environment. Walmart cannot tell customers what most people buy when they are standing in the aisle, so consumers are blind and have to make a choice based on either information they found before they arrived or what is said on the box. Imagine that you work for a small bookstore. You would like to post a chart next to a book showing that it is one of the more popular books purchased or possibly to direct someone to a more popular book (that you also sell). Search Amazon.com for three books (pick your own genre) and fi nd Amazon’s “Customers who bought this item also bought” section. You may have to search for more than three books to fi nd this section because it is not listed on every page. Collect the 5-star rating and total number of ratings (4.5/5 stars by 1135 reviewers) for the main book and for the 5 competing books and place it in a spreadsheet. You will use different columns for each of these as shown in the table below. Be sure to also include the data from your original book.

Once your data collection is complete, you will have data for each of the three books in a spreadsheet. The table above illustrates what the data may look like for one of these books. Use the tools provided in Microsoft Excel to create at least three different types of charts based on your data. Take each chart and copy and paste it in a Word document that you could place on the shelf in your bookstore to help drive customers to the right product. If you need some help with charts, watch the tutorials that are linked at http://www.wiley.com/go/rainer/spreadsheet. Deliverable: The fi nal product will be fi ve separate

Word documents that the owner of the small bookstore could place on the shelf in front of a product. The chart will show the percentage of Amazon.com customers who buy that product as well as what other books they purchase. The fi nal documents demonstrate how traditional businesses can leverage the power of e-business and e-commerce in their stores with public information.

Discussion Questions:

1. Given the complexity of e-business and e-commerce, is it something that everyone should engage in? Is the future of business to have a Web site and sell everything online? Will there always be a place for traditional brick-and-mortar stores?

2. Online shopping provides many advantages to consumers. Other than the example provided in this exercise, what other ways can you think of that will help traditional businesses leverage the power of online tools for their in-store customers?

Quiz questions are assignable in WileyPLUS, and available on the Book Companion Site at http://www.wiley.com/ college/rainer.

SPREADSHEET ACTIVITY: BUILDING CHARTS AND GRAPHS

5-Star Rating Total Ratings

Main book 1 4.5 568

Customers also bought 1 3.5 789

Customers also bought 2 4.0 156

Customers also bought 3 2.7 45

Customers also bought 4 4.5 9

Customers also bought 5 5 12

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Database Activity 361

DATABASE ACT IV ITY: FORMS II Objective In this activity, you will learn how to create a three- table form directly, using the Form Wizard, and how to improve the appearance of your forms. You were introduced to forms in the Chapter 8 activity. There, you created three forms: one based on a single table, one based on two tables, and one based on three tables where you had to create a subform yourself to deal with complex table relationships. Here, you will extend what you know to more complex form design issues.

CHAPTER CONNECTION This chapter of the book is about electronic commerce. E-commerce runs on forms. With the knowledge you will gain here, you will be able to develop forms that need only be connected to the Web and a database to be used in that area.

PREREQUISITES Chapter 8 activity (Forms I).

Activity In this activity, which you will fi nd online at http://www. wiley.com/go/rainer/database, you will work with a new database to create more advanced types of forms.

1. Download the Ch 09 ItemSales database from http://www.wiley.com/co/rainer/database and open it. A store might use a database like this. It has data on items it sells, their manufacturers, and the distributors from which it gets them. A distributor may supply items from several manufacturers. The relationship map, accessed via the Database Tools ribbon, shows the table relationships.

2. The fi rst form will show all three tables. Open the Form Wizard. From DistTbl, select the distributor’s name, city, and state. (You should not have any trouble fi guring out the correct column names for these.) From MfrTbl, select the manufacturer’s name and country. From ProdTbl, select the item number, name, shipping weight, and selling price. Organize the form by DistTbl and specify “Form with subform(s).”

3. Finish creating the form as you did in the previous activity. Save the form as DistForm. Save its subforms as MfrSubform and ProdSubform. Open it to enter data.

4. You will see that there are two subforms inside the main form here. This is how the Form Wizard creates a three-table form. Although the lower one is not nested physically within the upper one, it behaves as though it is. When you move through the manufacturers supplied by the fi rst distributor, in the upper subform, the lower subform changes to show each manufacturer’s products.

5. This form looks exactly as the wizard created it. Now we will change its appearance. Repeat the form creation process, this time naming your form DistForm2, its subforms MfrSubform2 and ProdSubform2. Open it in Layout view to make changes.

Usage Hint: You might wonder, Why not just make a copy of the form? You could. You would have to make copies of the subforms, too. Then, you would have to open the forms and change their source data to refer to the copies. It is easier to create a new set. 6. Let’s start with labels:

(a) The form header shows the form’s name in the database, DistForm2. Click on it to edit and change it to “Distributors with Manufacturers and Products” (without quotation marks). This may make its box several lines deep. If it does, drag its right edge with your mouse far enough to the right to fi t the header on one line. Then drag its bottom edge up as far as possible without covering any of the text.

(b) Click in the fi eld names in the top portion of the form and change them to “Distributor,” “City” and “State.” The original names were chosen for database developers. These names make more sense to the people who will use this form.

(c) Shrink those fi elds vertically to one line each. (d) If you are used to an earlier version of Access,

you may know that you cannot adjust one fi eld without changing the others unless you remove the layout controls. This is no longer necessary in Access 2010. You can adjust the fi elds now. So, shrink the State fi eld in width until it is about the right size for a few letters. Shrink the City fi eld until it is long enough for a long city name. Then select the State fi eld and its label (click one, then shift-click the other) together so they will move as a unit and position them to the right of the city fi eld.

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Usage Hint: It can be hard to get the City and State fi elds to line up precisely. Design view has a grid to make this easier, but most things are easier done in Layout view. In that view, you can open the form’s Property Sheet, under the Arrange ribbon tab. Click a fi eld whose position is OK—say, the City fi eld. Note the value of its Top attribute (under the Property Sheet’s Format tab). To align other fi elds with it, select them, and set their Top to that value. Another option is to use the alignment tools in the Arrange ribbon in Design view. They are fi ne, but their behavior can be nonintuitive. Try them if you want. There is an Undo button if you do not like the result.

(e) Edit the labels of the two subforms to read “Manufacturer” and “Product” in full. (This sometimes works better in Design view than in Layout view.) Using the Font tools under either the Format or the Home ribbon tab, make them bold and increase their size to 14 points.

(f) Shrink the fi elds ProdID and ProdPrice to reasonable widths for their contents. (You have to grab the column divider in the header row, not further down.) Then adjust the subform widths to what is now required. Also, move them up to use some of the space freed up when you put the distributor’s city and state on a single line. (Forms that are unnecessarily spread out are hard to use and can take up an annoyingly large amount of screen space when several windows are open.)

(g) Find a picture on the Web and download it. Click Logo in the Format ribbon, navigate to the picture, and select it. It will appear in your form’s header. Move it to the right of the text.

(h) Go to Design view if you are not already in it. Click the Rectangle tool in the Controls section of the Design ribbon. (You may have to scroll the set of icons down to see it.) You will see other tools that are not in Layout view, too. Draw a rectangle around all the distributor data at the top of the form.

(i) Switch back to Form view and admire your creation. At work, you might do more. You know about some of the tools you could use. Close the form, saving if prompted.

7. Your third form will be one that a fi rm could use to review customer orders. Download the Ch 09 DaffyDonuts database from http://www.wiley.com/ go/rainer/database. It has four tables: customers, products, orders, and line items. You can see their relationships in the relationship map of the database. (It resembles the example in Section 3.3 of the book, minus its supplier table. Its Line Item table is called Ordered Parts there.)

8. Open the Form Wizard and create a form using all four tables. Organize it by customer. Show all the customer information except CustomerID, order date and total, line item quantity, and product name and price. Use Tabular form for the Order subform (the fi rst one), Datasheet form for the line item/product subform (the second).

9. Open the form in Layout view and improve its arrangement as you did earlier.

10. This form could be used by customers. Customers need instructions. To put them on the form, go to Design view. (Layout view will not do this.) Choose either the Label or the Text Box tool from the Design ribbon, the second or third item from the left in the Controls section. The mouse pointer becomes crosshairs. Draw a rectangle in any free space on the form. (You can move form elements to free up space.) Enter any text in it—we are not practicing instruction writing. In Form view, confi rm that your “instructions” show up.

11. It can be hard to remember customer names or key them in without error. Access offers two ways to make it unnecessary. One, a list box, restricts selections to data in the list. We will use that here. The other, a combo box, lets users enter a new value in addition to those.

To begin, make room for the box where the CustName fi eld is now. In Design view, delete it and its label. If any other fi elds move up to fi ll its space, select them and move them back down.

12. To create a list box, go to Design view and the Design ribbon. Click the downward triangle with the line over it at the right of the Controls section to confi rm that Use Control Wizards is selected. If it is not, select it. Then click the List Box tool, shown in the fi gure, on the ribbon. (You may have to scroll the list up or down, or display the entire set via the same downward triangle with the line over it, to see this tool. You can also identify it by holding the mouse over it to see its tool tip.)

Draw a rectangle with the crosshairs where the customer name fi eld used to be. Make it wide enough for a couple of data fi elds, deep enough for a few rows.

13. In the fi rst step of the wizard, select “Find a record on my form based on the value I selected in my

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list box,” as this is what you want to do. Click Next.

14. Because you will pick a customer name, select CustTbl as the source of the values if it is not already selected. (This depends on your form design. Access may or may not have enough information to fi gure that out.) Click Next if necessary to advance to the next step.

15. Move CustID and CustName into the Selected Fields pane. You will need CustID to identify the correct record uniquely, CustName for people to read. Click Next.

16. Make sure the box to hide the key column is checked—your users do not need customer numbers—and expand the fi eld width to permit longer names in the future. Click Next.

17. Choose the label Customer Name. Click Finish. 18. Go to Form view. You will see customer names in

the list box, with scroll bar and arrows to move through the list. Select a customer name, and his or her orders will appear below it. Select one of that customer’s orders, and its line items will appear in the bottom subform.

19. If necessary, move other fi elds out of the way of your list box. Close this form, saving if prompted. Name it CustOrderForm.

Deliverable The two databases, ItemSales and DaffyDonuts, with their new forms.

Quiz Questions

1. True or false: In a list box, if you do not see the value you want, you can enter it.

2. To draw a new rectangle on a form, you would use (a) Form view (b) Layout view (c) Design view (d) Pivot chart view

3. True or false: In creating a form with subforms with the Form Wizard, all the data fi elds on the subforms must be in the tables that are chosen for the form.

4. In formatting data fi elds in Layout mode, the tools in the ribbon do all of the following except (a) Highlight text (b) Change text size (c) Change font (d) Put text in italics

Discussion Questions

1. The last form above was described as being used to review customer orders. Therefore, its users do not need to be able to change order data. A company’s order entry personnel, or customers directly, could use a similar form to enter new orders. They would fi rst enter information such as date about a new order, then its line items. Discuss where one or more additional list boxes and/or combo boxes might be helpful for this new purpose. (Do not add them to the data base. Just discuss where you would and what they would do.)

2. Search the Web for information on form usability. (The phrase “ease of use” can be useful in your search strings.) Find four guidelines for easy-to-use forms. For each guideline, state whether the forms you developed here follow it, do not follow it, or it does not apply. (Your answers can differ for the two forms.) If they do not follow it, say what would have to change to follow it. If they do not apply, explain why.

3. If you were a market analyst for DaffyDonuts and wanted to analyze which of your products sell best in different stores and at different times, what additional data might you want that is not in the second form you developed here? Suggest three items. Do not limit your thinking to what is in the tables of this database but not on the form. Think more broadly. Discuss how you might use each of the additional data fi elds.

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10

CHAPTER OUTLINE

10.1 Wireless Technologies 10.2 Wireless Computer

Networks and Internet Access

10.3 Mobile Computing and Mobile Commerce

10.4 Pervasive Computing 10.5 Wireless Security

Wireless, Mobile Computing, and Mobile Commerce

LEARNING OBJECTIVES >>>

1. Identify advantages and disadvantages of each of the four main types of wireless transmission media.

2. Explain how businesses can use technology employed by short-range, medium-range, and long-range networks, respectively.

3. Provide a specifi c example of how each of the fi ve major m-commerce applications can benefi t a business.

4. Describe technologies that underlie pervasive computing, providing examples of how businesses can utilize each one.

5. Explain how the four major threats to wireless networks can damage a business.

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Have you ever gone into a restaurant, had a great time, and enjoyed a wonderful meal, only to fi nd out that the restaurant does not accept credit cards? Naturally, you do not have enough cash on you and so you have to walk to the nearest ATM. Why, you ask yourself, would a business not accept credit cards? Some businesses do not accept credit cards simply because they do not want to pay fees to the credit card companies (fees start from at least 2.75 percent of the transaction price). For other businesses, they do not accept credit cards for technological and logistical reasons. Such was the case for Tony Adams.

Chef (and owner) Tony Adams runs a mobile restaurant in Orlando, Florida (see http://bigwheeltruckmenu.com and http://bigwheelprovisions.com). Tony prides himself on his original recipes based on fresh locally sourced foods, oft en from the local farmers market. His Web site proudly advertises that “Local Is Lovely.”

Tony sells his food from a food truck, and his location changes daily. He needed a mobile connection to accept credit card

payments. Tony fi rst tried a mobile app that allowed him to type in credit card numbers, but the app was cumbersome and did not allow him to customize his menus every day in the way that he needed. Also, he still had to total each order on paper or with a calculator and then use the app only for accepting a credit card. He needed a much quicker way to calculate total amounts and accept credit card payments.

Th en he heard about Square (http://squareup.com). Square off ers an iPad point-of-sale (POS) system that allows Tony to customize his menus daily. As he logs in his menu items, Tony creates his POS for the day. Each item gets its own button so he only has to tap the menu items to total each order. Square also off ers a small device (it looks like a square) that plugs into the headphone jack of the iPad (and will also work on an iPhone). About the size of a postage stamp, this little > > >

OPENING CASE > Big Wheel Mobile Truck & Square

Imagine this scenario. A customer arrives at Ruby’s Club and is catching up with some friends. Rather than leaving the conversation and going to the bar, he gets out his smart phone, goes to Ruby’s mobile site, and places a drink order. Payment is made on PayPal’s mobile site. The completed order information, including an order ID, is transmitted to the bartender and the customer at the same time. Customers also receive a reminder that they will have to show their ID when they pick up the order, or it will not be delivered and their money will not be refunded.

In just a few minutes, customers receive a text message that their drink is ready. They approach the “Web order” end of the bar, show their text message and their ID, and pick up their drink.

Is this feasible? What technology should Ruby’s use to deliver this wireless content? Ruben and Lisa have already discussed a Wi-Fi network, but they wonder what other alternatives might allow this type of interaction with their customers.

© B Christopher/Alamy Limited

RUBY’S CLUB

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Square users to connect app-to-app, complete a transaction, and not even have to swipe a credit card.

Sources: Compiled from http://squareup.com, http://squareup. com/register, http://bigwheelprovisions.com, http:// bigwheeltruckmenu.com, accessed March 20, 2012.

Questions 1. Other than effi ciency, what are additional advantages

for Tony in his use of Square? 2. Describe possible disadvantages of the Square app for

Tony.

gadget allows you to swipe the magnetic stripe of a credit card to enter the numbers into the POS. Th e result for Tony is a POS system that off ers a quicker transaction for himself and his customers.

Do not confuse what Tony is doing with mobile payments. Tony is using technology to accept credit cards in a mobile environ- ment. In fact, he is not alone in this. Th is technology has opened the door for many mobile vendors to begin accepting credit cards with their iPads and iPhones. Mobile payments (meaning that someone makes a payment with a mobile phone rather than a debit/credit card) are an option for Tony’s consumers who use Square’s app called “Square Card Case.” Th is app allows two

Introduction

Th e old, traditional working environment that required users to come to a wired computer was ineff ective and ineffi cient. Th e solution was to build computers that are small enough to carry or wear and can communicate via wireless networks. Th e ability to communicate anytime and anywhere provides organizations with a strategic advantage by increasing pro- ductivity and speed and improving customer service. Wireless is a term that is used to describe telecommunications in which electromagnetic waves, rather than some form of wire or cable, carry the signal between communicating devices such as computers, smart phones, and iPads.

Before you continue, it is important to distinguish between the terms wireless and mobile, because they can mean diff erent things. Th e term wireless means exactly what it says: without wires. In contrast, mobile refers to something that changes its location over time. Some wireless networks, such as MiFi (discussed later in this chapter), are also mobile. Others, however, are fi xed. For example, microwave towers form fi xed wireless networks.

Wireless technologies enable individuals and organizations to conduct mobile com- puting, mobile commerce, and pervasive computing. Th ese terms are defi ned here, and then each one is discussed in detail later in the chapter.

Mobile computing refers to a real-time, wireless connection between a mobile device and other computing environments, such as the Internet or an intranet. Mobile commerce— also known as m-commerce—refers to e-commerce (EC) transactions conducted with a mobile device. Pervasive computing, also called ubiquitous computing, means that virtu- ally every object has processing power with wireless or wired connections to a global network.

Wireless technologies and mobile commerce are spreading rapidly, replacing or sup- plementing wired computing. In fact, Cisco (www.cisco.com) predicts that the volume of mobile Web traffi c will double every year until 2013. As illustrated in this chapter’s fi rst closing case, there is a huge battle underway to provide you with a mobile, digital wallet and to enable you to get rid of your physical wallet altogether, including all of the credit and debit cards you have in it. Billions of dollars are at stake, further highlighting the impor- tance of wireless to you and your organizations.

Almost all (if not all) organizations utilize wireless computing. Th erefore, when you begin your career, you likely will be assigned a company smart phone and a wirelessly

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Wireless Technologies 367

enabled computer. Clearly, then, it is important for you to learn about wireless comput- ing not only because you will be using wireless applications but also because wireless computing will be so important to your organization. In your job, you will be involved with customers who conduct wireless transactions, with analyzing and developing mobile commerce applications, and with wireless security. And the list goes on.

Simply put, an understanding of wireless technology and mobile commerce applica- tions will make you more valuable to your organization. When you look at “What’s In IT For Me?” at the end of this chapter, envision yourself performing the activities discussed in your functional area. An understanding of wireless technology can also help you start and grow your own business, as illustrated in the chapter opening case.

The wireless infrastructure upon which mobile computing is built may reshape the entire IT field. The technologies, applications, and limitations of mobile computing and mobile commerce are the focus of this chapter. You begin the chapter by learning about wireless devices and wireless transmission media. You continue by examining wireless computer networks and wireless Internet access. You then look at mobile com- puting and mobile commerce, which are made possible by wireless technologies. Next, you turn your attention to pervasive computing and conclude the chapter by familiar- izing yourself with a critical component of the wireless environment—namely, wireless security.

10.1 Wireless Technologies Wireless technologies include both wireless devices, such as smart phones, and wireless transmission media, such as microwave, satellite, and radio. Th ese technologies are funda- mentally changing the ways organizations operate.

Individuals are fi nding wireless devices convenient and productive to use, for several reasons. First, they can make productive use of time that was formerly wasted—for exam- ple, while commuting to work on public transportation. Second, because they can take these devices with them, their work locations are becoming much more fl exible. Th ird, wireless technology enables them to schedule their working time around personal and professional obligations.

Wireless Devices Wireless devices provide three major advantages to users:

• Th ey are small enough to easily carry or wear. • Th ey have suffi cient computing power to perform productive tasks. • Th ey can communicate wirelessly with the Internet and other devices.

Modern smart phones provide capabilities that include cellular telephony, Bluetooth, Wi-Fi, a digital camera for images and video, global positioning system (GPS), an organizer, a scheduler, an address book, a calculator, access to e-mail and Short Message Service (SMS, sending and receiving short text messages up to 160 characters in length), instant messag- ing, text messaging, an MP3 music player, a video player, Internet access with a full-function browser, and a QWERTY keyboard.

One downside of smart phones is that people can use them to copy and pass on confi - dential information. For example, if you were an executive at Intel, would you want workers snapping pictures of their colleagues with your secret new technology in the background? Unfortunately, managers think of these devices as phones, not as digital cameras that can transmit wirelessly. New jamming devices are being developed to counter the threat. Some companies, such as Samsung (www.samsung.com), have recognized the danger and have banned the devices from their premises altogether. Regardless of any disadvantages, cell phones, and particularly smart phones, have far greater impact on human society than most of us realize, as you see in the following example.

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368 10 l Wireless, Mobile Computing, and Mobile Commerce

EXAMPLE The Power of Cell Phones The lack of banks in Africa has long constrained the fl ow of capital and economic growth on that continent. In the past, most banks considered the costs of expanding branch networks too high and the return from poorer customers too low. In addition, Africa seemed to represent a low number of potential bank customers relevant to its size, as the African Development Bank (ADB; www.afdb.org) estimated that only 20 percent of African families have bank accounts. However, in a new report, the ADB estimated that a consumer class—defi ned as those who have $2 to $10 a day to spend—has grown to about 300 million people across the African continent. At the same time, mobile phone subscriptions in Africa have increased from 90 million in 2005 to 333 million in 2010, according to the United Nations.

To give an example of the diffi culty caused by the lack of African banks, even in South Africa, the continent’s richest economy, rural residents rely on taxi drivers to transfer cash between towns. The drivers typically take a 10 percent cut of the total amount of cash that they ferry. South Africa’s largest bank, Standard Bank (www.standardbank. co.za), is now breaking away from its main business model of drawing customers to its branches and ATMs and moving toward a low-cost mobile phone banking model that is based on proximity to people. That is, rather than have a small number of banks located only in South Africa’s larger towns and cities, Standard Bank is opening bank shops in far more numerous locations.

In mid-2012, Standard Bank has opened 10,000 “bank shops,” mostly in predominately black townships. The sites range from street-side convenience stores to taverns. A bank shop offers minimal banking services at lower fees than a regular bank branch.

Consider Mavis Nonkongozelo, a preschool teacher who banks at the Five Sisters convenience store in Khayelitsha Township in South Africa. She walks up to the store with her mobile phone and her cash. With a few taps on her cell phone, Mavis connects to the Standard Bank’s network. The clerk accepts a 20-rand bill (about US $2.94) and then taps on her own cell phone. The money is credited to Ms. Nonkongozelo’s special no-fee account. Ms. Nonkongozelo was not able to save money before Standard arrived in her township. Now, she has 240 rand in her account. She says that it is safer for her to walk to the convenience store than to take a longer walk to the nearest ATM, where, in her high-crime neighborhood, she would run the risk of being mugged. In Kenya, Western Union teamed up with M-Pesa, a unit of Kenyan telecommunications fi rm Safaricom (www.safaricom.co.ke), to conduct money transfers with other parts of the world via mobile phones. In mid- 2012, M-Pesa has over 14 million customers. Consider Moses Githua, a Kenyan with no steady job and no access to a bank. Githua uses M-Pesa to deposit any money that he earns into a “digital wallet,” where it sits until he is ready to use it. This process allows him to keep his savings beyond the reach of thieves. In addition to helping Kenyans safely save money, M-Pesa also allows Kenyans who have left the country to send money back home.

Sources: Compiled from B. Greeley and E. Ombok, “In Kenya, Keeping Cash Safe on a Cell Phone,” Bloomberg BusinessWeek, September 12–18, 2011; P. Wonacott, “Banking Via a Cell- phone and a Shack,” The Wall Street Journal, June 13, 2011; www.afdb.org, www.standardbank. com.za, www.safaricom.com.ke, accessed March 22, 2012.

William Andrew/Photographer’s Choice/ Getty Images, Inc.

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Wireless Technologies 369

Yet the latest version of cell phones—smart phones—can cause problems despite all their advantages. Th e following example demonstrates how smart phones can disrupt the court system.

Questions 1. Discuss the importance of bank shops to lower-income people in Africa

(and anywhere else for that matter). 2. What are the disadvantages of bank shops to the bank? To the bank’s

customers?

EXAMPLE Smart Phones in Court Smart phones are now present in U.S. jury boxes, raising serious questions about juror impartiality and the ability of judges to control courtrooms. A Reuter’s legal analysis found that jurors’ forays onto the Internet via smart phones have resulted in dozens of mistrials, appeals, and overturned verdicts. For decades, courts have instructed jurors not to seek information about cases outside of the evidence introduced at trial, and jurors are routinely warned not to communicate about a case with anyone before they reach a verdict. Today, however, jurors can, with a few clicks on their smart phones, look up defi nitions of legal terms on Wikipedia, view crime scenes via Google Earth, and communicate on their Facebook pages. The consequences can be signifi cant. In September 2010, for example, a Florida court overturned the manslaughter conviction of a man charged with killing his neighbor, citing the jury foreman’s use of an iPhone to look up the defi nition of prudent in an online dictionary. That same month, the Nevada Supreme Court granted a new trial to a defendant convicted of sexually assaulting a minor, because the foreman had used his smart phone to search online for information about the types of physical injuries suffered by young victims of sexual assaults. Courts are exploring ways to keep jurors “unplugged.” Some judges now confi scate all smart phones from jurors when they enter a courtroom. In 2009, California updated its civil jury instructions to bar jurors from “all forms of electronic communication.” From a different perspective, some legal experts argue that rather than try to stifl e jurors from pursuing information on the Internet, courts need to fi gure out how to help them do so in a responsible way.

Sources: Compiled from S. Eder, “Jury Files: The Temptation of Twitter,” The Wall Street Journal, March 12, 2012; “Juries and the Internet: Justice Online,” The Guardian, January 3, 2011; “As Jurors Go Online, U.S. Trials Go Off Track,” Reuters, December 8, 2010.

Wireless Transmission Media Wireless media, or broadcast media, transmit signals without wires. Th e major types of wireless media are microwave, satellite, radio, and infrared. Table 10.1 lists the advantages and disadvantages of each type.

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370 10 l Wireless, Mobile Computing, and Mobile Commerce

Microwave. Microwave transmission systems transmit data via electromagnetic waves. Th ese systems are used for high-volume, long-distance, line-of-sight communica- tion. Line-of-sight means that the transmitter and receiver are in view of each other. Th is requirement creates problems because Earth’s surface is curved rather than fl at. For this reason, microwave towers usually cannot be spaced more than 30 miles apart.

Clearly, then, microwave transmissions off er only a limited solution to data commu- nications needs, especially over very long distances. In addition, microwave transmissions are susceptible to environmental interference during severe weather such as heavy rain and snowstorms. Although long-distance microwave data communications systems are still widely used, they are being replaced by satellite communications systems. Satellite. Satellite transmission systems make use of communication satellites. Cur- rently, there are three types of satellites circling Earth: geostationary (GEO), medium- earth-orbit (MEO), and low-earth-orbit (LEO). Each type has a diff erent orbit, with the GEO being farthest from Earth and the LEO the closest. In this section, you examine the three types of satellites and then discuss two major satellite applications: Global positioning systems and Internet transmission via satellites. Table 10.2 compares and contrasts the three types of satellites.

As with microwave transmission, satellites must receive and transmit data via line-of- sight. However, the enormous footprint—the area of Earth’s surface reached by a satellite’s transmission—overcomes the limitations of microwave data relay stations. Th e most basic rule governing footprint size is simple: Th e higher a satellite orbits, the larger its footprint. Th us, medium-earth-orbit satellites have a smaller footprint than geostationary satellites, and low-earth-orbit satellites have the smallest footprint of all. Figure 10.1 compares the footprints of the three types of satellite.

In contrast to line-of-sight transmission with microwave, satellites use broadcast trans- mission, which sends signals to many receivers at one time. So, even though satellites are line-of-sight like microwave, they are high enough for broadcast transmission, thus over- coming the limitations of microwave. TYPES OF ORBITS. Geostationary earth orbit (GEO) satellites orbit 22,300 miles directly above the equator. Th ese satellites maintain a fi xed position above Earth’s surface because, at their altitude, their orbital period matches the 24-hour rotational period of Earth. For this reason, receivers on Earth do not have to track GEO satellites. GEO satellites are excel- lent for sending television programs to cable operators and for broadcasting directly to homes.

TABLE 10.1 Advantages and Disadvantages of Wireless Media

Channel Advantages Disadvantages

Microwave High bandwidth Must have unobstructed line of sight Relatively inexpensive Susceptible to environmental interference

Satellite High bandwidth Expensive Large coverage area Must have unobstructed line of sight Signals experience propagation delay Must use encryption for security

Radio High bandwidth Creates electrical interference problems Signals pass through walls Susceptible to snooping unless encrypted Inexpensive and easy to install

Infrared Low to medium bandwidth Must have unobstructed line of sight Used only for short distances

GEO satellite

MEO satellite

EARTH

LEO satellite

Figure 10.1 Comparison of satellite footprints. (Courtesy of Kelly Rainer.)

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Wireless Technologies 371

One major limitation of GEO satellites is that their transmissions take a quarter of a second to send and return. Th is brief pause, one kind of propagation delay, makes two- way telephone conversations diffi cult. Also, GEO satellites are large and expensive, and they require substantial amounts of power to launch.

Medium-earth-orbit (MEO) satellites are located about 6,000 miles above Earth’s surface. MEO orbits require more satellites to cover Earth than GEO orbits because MEO footprints are smaller. MEO satellites have two advantages over GEO satellites: Th ey are less expensive and they do not have an appreciable propagation delay. However, because MEO satellites move with respect to a point on Earth’s surface, receivers must track these satellites. (Th ink of a satellite dish slowly turning to remain oriented to a MEO satellite).

Low-earth-orbit (LEO) satellites are located 400 to 700 miles above Earth’s surface. Because LEO satellites are much closer to Earth, they have little, if any, propagation delay. Like MEO satellites, however, LEO satellites move with respect to a point on Earth’s surface and therefore must be tracked by receivers. Tracking LEO satellites is more diffi cult than tracking MEO satellites because LEO satellites move much more quickly than MEO satel- lites relative to a point on Earth.

Unlike GEO and MEO satellites, LEO satellites can pick up signals from weak trans- mitters. Th is characteristic makes it possible for satellite telephones to operate via LEO satellites, because they can operate with less power and smaller batteries. Another advan- tage of LEO satellites is that they consume less power and cost less to launch than GEO and MEO satellites.