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Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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MANAGEMENT INFORMATION SYSTEMS

Effy Oz The Pennsylvania State University, Great Valley

Kenneth J. Sousa Bryant University

sevent h

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Australia • Brazil • Mexico • Singapore • United Kingdom • United States

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Management Information Systems, Seventh Edition

Kenneth J. Sousa and Effy Oz

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Library of Congress Control Number: 2013950990

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WCN: 02-200-203

To my father, Henry, and in memory of my mother, Virginia, and my sister, Karen.

—Kenneth J. Sousa

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

In Memoriam: Dr. Effy Oz

Dr. Oz was a passionate and beloved teacher at The Pennsylvania State University, Great Valley. He wrote several books, including six previous editions of this popular textbook on management information systems. He touched the lives of many students at Boston University, Boston College, Wayne State University, and Penn State. With this revision, we honor his legacy and careful thought about MIS education.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

CONTENTSbrief

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PART ONE THE INFORMATION AGE 1

Chapter 1 Business Information Systems: An Overview 4

Chapter 2 Strategic Uses of Information Systems 34

Chapter 3 Business Functions and Supply Chains 66

PART TWO INFORMATION TECHNOLOGY 107

Chapter 4 Business Hardware 108

Chapter 5 Business Software 148

Chapter 6 Business Networks and Telecommunications 183

Chapter 7 Databases and Data Warehouses 220

PART THREE WEB-ENABLED COMMERCE 253

Chapter 8 The Web-Enabled Enterprise 254

Chapter 9 Challenges of Global Information Systems 298

PART FOUR DECISION SUPPORT AND BUSINESS INTELLIGENCE 323

Chapter 10 Decision Support and Expert Systems 324

Chapter 11 Business Intelligence and Knowledge Management 358

PART FIVE PLANNING, ACQUISITION, AND CONTROLS 385

Chapter 12 Systems Planning and Development 386

Chapter 13 Choices in Systems Acquisition 420

Chapter 14 Risks, Security, and Disaster Recovery 450

v Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

CONTENTSdetailed

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PART ONE THE INFORMATION AGE 1 Textbook Case: Kimball’s Restaurant 1

Chapter 1 Business Information Systems: An Overview 4

Kimball’s Restaurant: Business Systems and Information 5

Does Information Technology Matter? 6

The Power of Digital Systems 6

The Purpose of Information Systems 7

Why You Should Be Well-Versed in Information Systems 8

Data, Information, and Information Systems 8

Data vs. Information 8

Data Manipulation 8

Generating Information 9

Information in Context 9

What Is a System? 10

Information and Managers 12

Information Systems in Organizations 13

The Four Stages of Processing 14

Computer Equipment for Information Systems 15

From Recording Transactions to Providing Expertise: Types of Information Systems 15

Transaction Processing Systems 16

Supply Chain Management Systems 16

Customer Relationship Management Systems 17

Business Intelligence Systems 18

Decision Support and Expert Systems 18

Geographic Information Systems 18

Information Systems in Business Functions 19

Accounting 20

Finance 20

Marketing 20

Human Resources 21

Web-Empowered Enterprises 21

Ethical & Societal Issues: The Downside 22

Careers in Information Systems 23

Systems Analyst 23

Database Administrator 24

Network Administrator 24

vi Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

System Administrator 25

Mobile Applications Developer 25

Webmaster 25

Chief Security Officer 25

Chief Information Officer and Chief Technology Officer 26

Summary 27

Kimball’s Revisited 28

Key Terms 28

Review Questions 29

Discussion Questions 29

Applying Concepts 30

Hands-On Activities 30

Team Activities 30

From Ideas to Application: Real Cases 31

References 33

Chapter 2 Strategic Uses of Information Systems 34

Kimball’s Restaurant: Using Information Strategically 35

Strategy and Strategic Moves 36

Achieving a Competitive Advantage 38

Initiative #1: Reduce Costs 39

Why You Should Understand the Notion of Strategic Information Systems 40

Initiative #2: Raise Barriers to Market Entrants 40

Initiative #3: Establish High Switching Costs 41

Initiative #4: Create New Products or Services 41

Initiative #5: Differentiate Products or Services 44

Initiative #6: Enhance Products or Services 44

Initiative #7: Establish Alliances 45

Initiative #8: Lock in Suppliers or Buyers 47

Creating and Maintaining Strategic Information Systems 48

Creating an SIS 49

Reengineering and Organizational Change 50

Competitive Advantage as a Moving Target 51

JetBlue: A Success Story 52

Massive Automation 52

Away from Tradition 53

Enhanced Service 53

Late Mover Advantage 54

Ethical & Societal Issues: Size Matters 55

Ford on the Web: A Failure Story 56

The Ideas 56

Hitting the Wall 57

The Retreat 57

The Bleeding Edge 57

Summary 59

Kimball’s Revisited 60

Key Terms 60

Detailed Contents vii Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Review Questions 61

Discussion Questions 61

Applying Concepts 62

Hands-On Activities 63

Team Activities 63

From Ideas to Application: Real Cases 64

References 65

Chapter 3 Business Functions and Supply Chains 66

Kimball’s Restaurant: The New Location 67

Effectiveness and Efficiency 67

Accounting 70

Why You Should Know About Business Functions and Supply Chains 71

Finance 71

Cash Management 72

Investment Analysis and Service 72

Engineering 73

Supply Chain Management 75

Material Requirements Planning and Purchasing 76

Manufacturing Resource Planning 77

Monitoring and Control 78

Shipping 78

RFID in SCM 80

Customer Relationship Management 82

Market Research 83

Targeted Marketing 84

Location-Based Services 85

Customer Service 86

Salesforce Automation 87

Human Resource Management 88

Employee Record Management 88

Promotion and Recruitment 89

Training 89

Evaluation 90

Compensation and Benefits Management 90

Ethical & Societal Issues: Consumer Privacy 92

Supply Chain Management Systems 93

The Importance of Trust 94

Continuous Attention to Inventory 95

Collaborative Logistics 96

Enterprise Resource Planning 97

Challenges and Disadvantages of ERP Systems 97

Providing the Missing Reengineering 98

Summary 99

Kimball’s Revisited 100

Key Terms 100

Review Questions 101

Discussion Questions 101 viii Detailed Contents

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Applying Concepts 102

Hands-On Activity 102

Team Activities 103

From Ideas to Application: Real Cases 104

References 106

PART TWO INFORMATION TECHNOLOGY 107

Chapter 4 Business Hardware 108

Kimball’s Restaurant: Hardware for the Appetite 109

Computer Hardware Components 109

Why You Should Understand Information Systems Hardware 111

Classification of Computers 111

Supercomputers 111

Mainframe Computers 112

Servers 113

Personal Computers 113

Computers on the Go: Notebooks, Tablets, and Smartphones 113

Converging Technologies 114

A Peek Inside the Computer 115

The Central Processing Unit 115

Computer Power 117

Input Devices 118

Keyboard 118

Mouse, Trackball, and Trackpad 118

Touch Screen 119

Source Data Input Devices 120

Imaging 122

Speech Recognition 123

Output Devices 124

Monitors 124

Printers 125

Storage 126

Modes of Access 126

Magnetic Tapes 127

Magnetic Disks 127

Optical Discs 128

Solid-State Storage 129

DAS, NAS, and SAN 130

Cloud Storage 131

Ethical & Societal Issues: Computers May Be Hazardous to Your Health 132

Business Considerations in Evaluating Storage Media 132

Considerations in Purchasing Hardware 135

Scalability and Updating Hardware 138

Summary 139

Detailed Contents ix Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Kimball’s Revisited 140

Key Terms 140

Review Questions 141

Discussion Questions 141

Applying Concepts 142

Hands-On Activities 143

Team Activities 144

From Ideas to Application: Real Cases 145

References 147

Chapter 5 Business Software 148

Kimball’s Restaurant: Software Added to the Bill 149

Software: Instructions to the Hardware 149

Programming Languages and Software Development Tools 150

Why You Should Be Software Savvy 152

Visual Programming 153

Object-Oriented Programming 154

Language Translation: Compilers and Interpreters 156

Application Software 157

Office Productivity Applications 158

Hypermedia and Multimedia 160

Website Design Tools 162

Groupware 163

3-D Geographic Software 163

System Software 164

Operating Systems 165

Other System Software 169

Open Source Software 169

Software Licensing 171

Software Licensing Models 171

Software as a Service 172

Ethical & Societal Issues: Software Piracy 173

Considerations for Packaged Software 173

Summary 175

Kimball’s Revisited 176

Key Terms 176

Review Questions 177

Discussion Questions 177

Applying Concepts 178

Hands-On Activities 178

Team Activities 179

From Ideas to Application: Real Cases 180

References 182

Chapter 6 Business Networks and Telecommunications 183

Kimball’s Restaurant: A New Look at Customer Service and Technology 184

Telecommunications in Business 185

x Detailed Contents Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Telecommunications in Daily Use 186

Cellular Phones 186

Videoconferencing 187

Wireless Payments and Warehousing 187

Why You Should Understand Telecommunications 188

Peer-to-Peer File Sharing 188

Web-Empowered Commerce 188

Bandwidth and Media 189

Bandwidth 189

Media 189

Networks 192

Types of Networks 193

PANs 194

Networking Hardware 195

Virtual Private Networks 195

Protocols 196

TCP/IP 196

Ethernet 197

Wireless Protocols 197

Generations in Mobile Communications 201

Internet Networking Services 201

Cable 202

Digital Subscriber Line (DSL) 203

T1 and T3 Lines 203

Satellite 204

Fixed Wireless 204

Fiber to the Premises 204

Optical Carrier 204

Ethical & Societal Issues: Telecommuting: Pros and Cons 205

Broadband Over Power Lines (BPL) 206

The Impact of Networking Technologies 206

Broadband Telephony 206

Radio Frequency Identification 208

Converging Technologies 210

Summary 212

Kimball’s Revisited 213

Key Terms 214

Review Questions 214

Discussion Questions 215

Applying Concepts 215

Hands-On Activities 216

Team Activities 216

From Ideas to Application: Real Cases 217

References 219

Chapter 7 Databases and Data Warehouses 220

Kimball’s Restaurant: An Appetite for Data 221

Managing Digital Data 221

Detailed Contents xi Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Why You Should Know About Databases 222

The Traditional File Approach 223

The Database Approach 223

Database Models 228

The Relational Model 228

The Object-Oriented Model 231

Relational Operations 232

Structured Query Language 233

The Schema and Metadata 233

Data Modeling 235

Databases on the Web 236

Data Warehousing 238

From Database to Data Warehouse 238

Ethical & Societal Issues: Every Move You Make 239

Phases in Data Warehousing 242

Data Warehousing and Big Data 243

Summary 244

Kimball’s Revisited 245

Key Terms 245

Review Questions 246

Discussion Questions 246

Applying Concepts 247

Hands-On Activities 247

Team Activities 248

From Ideas to Application: Real Cases 249

References 252

PART THREE WEB-ENABLED COMMERCE 253

Chapter 8 The Web-Enabled Enterprise 254

Kimball’s Restaurant: Using the Internet 255

Web Business: Growing and Changing 255

Web Technologies: A Review 256

HTTP 256

Why You Should Know More About Web-Enabled Business 257

HTML and XML 257

File Transfer 258

Blogs 258

Wikis 259

Podcasting 260

Interactive Communication Technology 261

Cookies 262

Proprietary Technologies 263

Web-Enabled Business 264

B2B Trading 264

B2C Trading 269

xii Detailed Contents Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Ethical & Societal Issues: Online Annoyances and Worse 276

Social Media on the Web 279

Supply Chains on the Web 280

Options in Establishing a Website 282

Owning and Maintaining a Server 282

Using a Hosting Service 283

Considerations in Selecting a Web Host 285

More than Meets the Eye 287

Rules for Successful Web-Based Business 287

Target the Right Customers 287

Capture the Customer’s Total Experience 288

Personalize the Service 288

Shorten the Business Cycle 288

Let Customers Help Themselves 288

Be Proactive and De-Commoditize 289

E-Commerce Is Every Commerce 289

Summary 290

Kimball’s Revisited 291

Key Terms 291

Review Questions 292

Discussion Questions 292

Applying Concepts 293

Hands-On Activities 294

Team Activities 294

From Ideas to Application: Real Cases 295

References 297

Chapter 9 Challenges of Global Information Systems 298

Kimball’s Restaurant: Long Distance Recipes 299

Multinational Organizations 299

The Web and International Commerce 300

Think Globally, Act Locally 303

Why You Should Learn About Challenges of Global ISs 303

Challenges of Global Information Systems 303

Technological Challenges 304

Regulations and Tariffs 305

Differences in Payment Mechanisms 306

Language Differences 307

Cultural Differences 308

Conflicting Economic, Scientific, and Security Interests 308

Political Challenges 309

Different Standards 310

Ethical & Societal Issues: Legal Jurisdictions in Cyberspace 311

Legal Barriers 312

Different Time Zones 313

Summary 315

Kimball’s Revisited 315

Key Terms 315 Detailed Contents xiii

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Review Questions 316

Discussion Questions 316

Applying Concepts 317

Hands-On Activities 317

Team Activities 318

From Ideas to Application: Real Cases 319

References 321

PART FOUR DECISION SUPPORT AND BUSINESS INTELLIGENCE 323

Chapter 10 Decision Support and Expert Systems 324

Kimball’s Restaurant: Preparing to Serve 325

Decision Support 325

The Decision-Making Process 326

Structured and Unstructured Problems 327

Why You Should Be Familiar with Decision Aids 329

Decision Support Systems 329

The Data Management Module 330

The Model Management Module 331

The Dialog Module 333

Sensitivity Analysis 334

Decision Support Systems in Action 335

Ethical & Societal Issues: Decisions by Machines 339

Expert Systems 340

Expert Systems in Action 343

Group Decision Support Systems 346

Geographic Information Systems 347

Summary 350

Kimball’s Revisited 351

Key Terms 351

Review Questions 352

Discussion Questions 352

Applying Concepts 353

Hands-On Activities 353

Team Activities 354

From Ideas to Application: Real Cases 355

References 357

Chapter 11 Business Intelligence and Knowledge Management 358

Kimball’s Restaurant: Building and Developing Loyality 359

Data Mining and Online Analysis 359

Data Mining 360

Why You Should Learn About BI and KM Tools 361

Online Analytical Processing 364

More Customer Intelligence 369

Dashboards 371

xiv Detailed Contents Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Knowledge Management 372

Capturing and Sorting Organizational Knowledge 373

Employee Knowledge Networks 373

Ethical & Societal Issues: Knowledge and Globalization 375

Knowledge from the Web 375

Autocategorization 377

Summary 378

Kimball’s Revisited 378

Key Terms 379

Review Questions 379

Discussion Questions 379

Applying Concepts 380

Hands-On Activities 380

Team Activities 381

From Ideas to Application: Real Cases 382

References 384

PART FIVE PLANNING, ACQUISITION, AND CONTROLS 385

Chapter 12 Systems Planning and Development 386

Kimball’s Restaurant: Planning Loyalty 387

Planning Information Systems 387

Steps in Planning Information Systems 387

Why You Should Understand the Principles of Systems Development 390

The Benefits of Standardization in Planning 390

From Planning to Development 391

The Systems Development Life Cycle 391

Analysis 392

Design 397

Implementation 400

Support 402

Agile Methods 403

When to Use Agile Methods 405

When Not to Use Agile Methods 405

Outsourcing 406

Project Planning and Management Tools 407

Systems Integration 408

Ethical & Societal Issues: Should IS Professionals Be Certified? 410

Summary 412

Kimball’s Revisited 413

Key Terms 413

Review Questions 414

Discussion Questions 414

Applying Concepts 415

Hands-On Activities 415

Team Activities 416

Detailed Contents xv Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

From Ideas to Application: Real Cases 417

References 419

Chapter 13 Choices in Systems Acquisition 420

Kimball’s Restaurant: Technology for Customer Loyalty 421

Options and Priorities 421

Outsourcing 422

Outsourcing Custom-Designed Applications 423

Why You Should Understand Alternative Avenues for the Acquisition of Information Systems 423

Outsourcing IT Services 425

Advantages of Outsourcing IT Services 428

Risks of Outsourcing IT Services 429

Considering Outsourcing IT Services 430

Licensing Applications 431

Software Licensing Benefits 432

Software Licensing Risks 433

Steps in Licensing Ready-Made Software 433

Software as a Service 435

Caveat Emptor: Buyer Beware 437

User Application Development 438

Managing User-Developed Applications 439

Advantages and Risks 439

Ethical & Societal Issues: Computer Use Policies for Employees 441

Summary 442

Kimball’s Revisited 443

Key Terms 443

Review Questions 444

Discussion Questions 444

Applying Concepts 445

Hands-On Activities 445

Team Activities 446

From Ideas to Application: Real Cases 447

References 449

Chapter 14 Risks, Security, and Disaster Recovery 450

Kimball’s Restaurant: Plating the Opening 451

Goals of Information Security 451

Why You Should Understand Risks, Security, and Disaster Recovery Planning 452

Risks to Information Systems 452

Risks to Hardware 453

Risks to Data and Applications 454

Risks to Online Operations 459

Denial of Service 459

Computer Hijacking 460

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Controls 461

Application Reliability and Data Entry Controls 461

Backup 461

Access Controls 462

Atomic Transactions 464

Audit Trail 465

Security Measures 466

Firewalls and Proxy Servers 466

Authentication and Encryption 468

The Downside of Security Measures 475

Recovery Measures 475

Ethical & Societal Issues: Terrorism and PATRIOTism 476

The Business Recovery Plan 476

Recovery Planning and Hot Site Providers 478

The Economics of Information Security 479

How Much Security Is Enough Security? 479

Calculating Downtime 480

Summary 482

Kimball’s Revisited 483

Key Terms 483

Review Questions 484

Discussion Questions 484

Applying Concepts 485

Hands-On Activities 486

Team Activities 486

From Ideas to Application: Real Cases 487

References 489

Glossary 490

Subject Index 504

Name & Company Index 524

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preface

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The goal of Management Information Systems, Seventh Edition is to provide a real-world understand- ing of information systems (ISs) for business and computer science students. Like its predecessor, this Seventh Edition provides students with a firm foundation in business-related information technology (IT) on which they can build successful careers regardless of the particular fields they choose. They may find themselves formulating strategic plans in executive suites, optimizing operations in businesses or on factory floors, fine-tuning plans for their own entrepreneurial ven- tures, designing ISs to optimize their organization’s operations, working as consultants, augment- ing business activities on the web, or creating valuable new information products in any number of industries. Ultimately, the integration of technology into the strategy and operations of a busi- ness is an important factor in its success.

This Seventh Edition is organized in 14 chapters that contain the most important topics for business students. The fundamental principle guiding this book is that ISs are everywhere in business. Information systems are pervasive because information is the single most powerful resource in every business function in every industry. Knowledge of IT is not always explicitly stated as a job requirement. However, a solid understanding has become an essential element of success in virtually any position. Not everyone in business needs to have all the technical skills of an IT professional, but everyone needs a working knowledge and exposure of the subject to know how to use IT in his or her profession. These skills are imperative in the increasingly digital and networked business world.

Management Information Systems provides students with the proper balance of technical infor- mation and real-world applications. No matter what field they undertake, students will enter the business world knowing how to get information to work for them. They will know enough about IT to work productively with IT specialists, and they will know enough about business applications to get information systems to support their work in the best way possible.

Approach

Ongoing Business Case Shows IS Principles in Action

In this edition, one business example is used as the foundation to integrate business case material for each Part and each Chapter. Part One introduces the textbook case, Kimball’s Restaurant. The restaurant case provides a practical, “real world” example of a business scenario. In the succeeding chapters, material is added to the case to communicate a scenario tailored to each chapter’s content. Each chapter case provides a narrative similar to the challenges and opportunities a business professional or entrepreneur would encounter in a company. Ultimately, the case scenario gives students the opportunity to integrate business IT principles, view IS issues in action, and to solve business problems related to IT just as they arise in the real world. The running case approach shows students how the full range of business functions operate while gaining an in-depth knowledge of a specific business. The textbook case is integrated into the text in several ways:

● The Case: Each chapter begins with a case based on the textbook running case, Kimball’s Restaurant. The case is structured to be sequential in nature, beginning as a small restaurant then expanding to a new location at the Lakeside. In each chapter, a new “episode” of the restaurant’s expansion is framed with new strategic and operational issues. Students are

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encouraged to “embed” themselves as a consultant to the business by (1) identifying the pro- blems and opportunities, (2) applying general business and information technology concepts, (3) analyzing the alternatives to resolve the issues, and (4) recommending a suitable solution to focus on the success of the business.

● The Business Challenge: At the beginning of each Part in the textbook, a series of statements introduces the restaurant’s challenges, which are outlined in more detail in each chapter case.

● Kimball’s Revisited: At the end of each chapter, the textbook revisits issues framed in the chapter opening case and sets the environment for students to analyze the specific challenges facing Kimball’s in two sections. Students can assume the role of consultants, providing advice to the restaurant’s owners.

● What Is Your Advice?: This section communicates the various strategic and operational pro- blems and issues confronting the restaurant. Students should carefully read the discussion points, analyze the issues, and integrate the technology concepts to provide specific advice.

● New Perspectives: In this section, students have an opportunity to answer questions that introduce a wide variety of “what ifs,” reaching beyond the original scope of the case and ask- ing students to think creatively and assume various different roles to meet business challenges.

Emphasis on the Real World

Management Information Systems is not afraid to warn about the limitations and challenges of ISs. The text also explains the great potential of many information technologies, which many organizations have not yet unleashed. Of course, this book includes chapters and features that provide a thorough, concise—and refreshingly clear—focusing on the technology of information systems, because all professionals in successful organizations are actively involved in making decisions about hardware, software, and telecommunications. But, through current, detail-rich, real-world case studies throughout the book, and a dedication to qualifying each presentation with the real-world factors that may affect business, this book provides issues and topics that are directly related to the business workplace in its presentation. It is important to understand the basic issues and concepts associated with information systems. However, business organizations continue to require its professionals to reinvent, integrate, and create a competitive advantage using information systems.

Attention to New Business Practices and Trends

Large parts of the text are devoted to discussing innovative uses of information technology and its benefits and risks. Contemporary concepts such as supply chain management systems, Big Data and data warehousing, business intelligence systems, knowledge management, social media, web-based electronic data interchange, and software as a service are explained in plain, easy-to-understand language.

Illustration of the Importance of Each Subject to One’s Career

Business students often do not understand why they have to learn about information technology. The reason many students are frustrated with introductory MIS courses is that they do not fully understand how information technology works or why it is important for them to understand it. One of the primary goals of this book is for its entire presentation to make the answers to these questions apparent. First, all subjects are explained clearly that even the least technically oriented student can understand them. Technology is never explained for technology’s sake, but to immediately demonstrate how it supports successful business strategies and operations. For instance, networking, database management, and web technologies (Chapters 6 through 8), which are often confusing topics, are presented with clear, concise, and vivid descriptions to paint a picture of technology at work. In addition, each chapter includes a feature titled Why You Should, which explains to students how being well-versed in that chapter’s aspect of IT is important to their careers.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Emphasis on Ethical Thinking

The book puts a great emphasis on some of the questionable and controversial uses of information technology, with special treatment provided in the Ethical & Societal Issues boxes. The students are required to weigh the positive and negative impacts of technology and to convincingly argue their own positions on important issues such as privacy, free speech, and professional conduct. Successful businesses focus not only on profit and revenue, but also on ethical and transparent interaction with their stakeholders.

Emphasis on Critical Thinking

Critical thinking is used throughout the text as well as in the book’s many features. For instance, the students are put in the midst of a business dilemma relating to the running case of each chapter and required to answer What Is Your Advice? questions. The questions motivate students to evaluate many aspects of each situation and to repeatedly consider how quickly IT evolves. Similarly, many of the Discussion Questions at the end of chapters call for their evaluation and judgment.

Additional Emphases in the Seventh Edition

Building on the success of the Sixth Edition, Management Information Systems, Seventh Edition includes a uniquely effective combination of features.

Updated Textbook Running Case Study

This Seventh Edition introduces a modified and dynamic pedagogical tool: one running case focusing on a business entity that incorporates a wide array of real-world events and challenges that dramatize how information technology is integrated into everyday business. The integration of one business example, rather than several different cases across chapters, focuses the attention of students on gaining an intimate and up-close perspective on one business. As students progress through the textbook, their analysis and insights will expand as they leverage the previous knowledge and information on Kimball’s Restaurant. Additionally, the one case example helps students develop a distinct perspective on the maturation and development of one business as it wades through a variety of obstacles and challenges.

Strong Foundation in Strategic ISs in Business Functions

In addition to a complete chapter on strategic uses of ISs (Chapter 2), strategic thinking is an underlying theme throughout the book. Current examples are used to illustrate how information systems can help give businesses build and sustain a strategic competitive advantage.

Up-to-date Coverage of Web-Enabled and Mobile Commerce

Reflecting the use of web technologies in so many business activities, the book integrates the topic seamlessly throughout the text, just as it has become integrated into business in general. But the text goes beyond the well-worn discussions of the topic (and the handful of sites everyone knows about) to tell the students what works about e-commerce and what doesn’t work. In addition, the rapid adoption of mobile technology through the use of tablets and smartphone technology is integrated throughout the textbook.

xx Preface Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Current Real-world Examples Reflect a Wide Variety of Businesses

The textbook incorporates more applications, cases, and projects in the full range of business functions and industries throughout the book. The cases at the end of the chapter, in the From Ideas to Application: Real Cases sections, have been carefully selected to include critical thinking questions to guide students to apply what they have learned. Most of these cases are new to this edition and others have been updated and reflect current technology and trends. In addition, for strong pedagogical reinforcement, examples are embedded throughout the book.

Coverage of Global Issues

Globalization has become an important issue both economically and technologically. An entire chapter, Chapter 9, is devoted to discussing challenges to global information systems, from legal discrepancies through cultural issues to time zone issues. The chapter also discusses how the challenges can be met successfully. This topic receives little coverage in similar textbooks. The breadth and depth of coverage of challenges to global uses of IT in this book has been enthusiastically received by adopters.

New Aspects of Ethical and Societal Issues

The coverage of Ethical & Societal Issues in Management Information Systems builds on the strong foundation started in the first six editions. However, new issues have emerged, such as data security, Big Data and privacy, and offshoring, which are discussed in this edition.

New Student Assignments for Reinforcement of Material

This Seventh Edition continues to provide an updated selection of assignments at the ends of chapters, mainly assignments that require the use of relevant software and the web. Many of these assignments, including Applying Concepts, Hands-On Activities, and Team Activities, have been updated for this Edition. Responding to instructors’ recommendations, more assignments require research involving the web. In addition to the hands-on exercises in each chapter, students and instructors will find a host of additional new hands-on work available at the student companion website, which is discussed later in this Preface.

More Points of Interest

Responding to instructors’ enthusiastic reception of Points of Interest, a wealth of updated sidebar statistics, anecdotes, and short stories were added to this edition which add an interesting and entertaining aspect to the main chapter text. Except for a few entries believed to have remained accurate, all points of interest are updated in this edition.

Instructor’s Package

Management Information Systems, Seventh Edition, includes teaching tools to support instructors in the classroom. The ancillaries that accompany the textbook include an Instructor’s Manual, Solutions, Test Banks and Test Engine, PowerPoint presentations, and Figure Files. This textbook is one of the few accompanied by an Instructor’s Manual written by the text author, ensuring compatibility with the textbook in content, pedagogy, and philosophy. All teaching tools available with this book are available on Cengage.com.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

The Instructor’s Manual

The text author has created this manual to provide materials to help instructors make their classes informative and interesting. The manual offers several approaches to teaching the material, with sample syllabi and comments on different components. It also suggests alternative course outlines and ideas for term projects. For each chapter, the manual includes teaching tips, useful websites, and answers to the Review Questions, Discussion Questions, and Thinking about the Case questions. Having an Instructor’s Manual created by the text author is particularly valuable, as the author is most familiar with the topical and pedagogical approach of the text.

Solutions

We provide instructors with solutions to Review Questions and Discussion Questions as well as for quantitative hands-on work in each chapter. If appropriate, we will also provide solution files for various activities.

Cengage Learning Testing Powered by Cognero

A flexible, online system that allows you to:

● author, edit, and manage test bank content from multiple Cengage Learning solutions ● create multiple test versions in an instant ● deliver tests from your LMS, your classroom, or wherever you want

PowerPoint Presentations

Microsoft PowerPoint slides are included for each chapter. Instructors might use the slides in a variety of ways, including as teaching aids during classroom presentations or as printed handouts for classroom distribution. Instructors can add their own slides for additional topics introduced to the class.

Figure Files

Figure files allow instructors to create their own presentations using figures taken directly from the text.

Organization

Management Information Systems, Seventh Edition is organized into five parts, followed by a glossary and an index. It includes the following major elements.

Part One: The Information Age

Part One of the book includes three chapters. Chapter 1, “Business Information Systems: An Overview,” provides an overview of information technology (IT) and information systems (ISs) and a framework for discussions in subsequent chapters. Chapter 2, “Strategic Uses of Information Systems,” discusses organizational strategy and ways in which ISs can be used to meet strategic goals. Chapter 3, “Business Functions and Supply Chains,” provides a detailed discussion of business functions, supply chains, and the systems that support management of supply chains in various industries. Together, these three chapters address the essence of all overarching ideas that are discussed at greater depth in subsequent chapters.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Part Two: Information Technology

To understand how ISs enhance managerial practices, one must be well versed in the technical principles of information technology, which are covered in Part Two. Chapters 4, “Business Hardware,” 5, “Business Software,” and 6, “Business Networks and Telecommunications,” provide a concise treatment of state-of-the-art hardware, software, and networking technologies in business. Chapter 7, “Databases and Data Warehouses,” covers database management systems and data warehousing, which provide the technical foundation leading to an expanded discussion of business intelligence and knowledge management in Chapter 11.

Part Three: Web-Enabled Commerce

Part Three is devoted to networked businesses and their use of the Internet. Chapter 8, “The Web-enabled Enterprise,” is fully devoted to a thorough discussion of relevant web technologies for business operations. All chapters were updated to include mobile computing, tablets, and social media. Chapter 9, “Challenges of Global Information Systems,” highlights cultural and other challenges organizations face in planning and using the web and international information systems.

Part Four: Decision Support and Business Intelligence

Part Four provides a view of state-of-the-art decision support and expert systems in Chapter 10 and business intelligence in Chapter 11. Electronic decision aids have been integrated into other systems in recent years, but understanding of their fundamentals is important. Business intelligence applications, such as data mining, Big Data, and online analytical processing, are essential tools in a growing number of businesses. Ample examples have been provided to demonstrate their power and benefits for businesses.

Part Five: Planning, Acquisition, and Controls

Part Five is devoted to planning, acquisition, and controls of information systems to ensure their successful and timely development and implementation, as well as their security. Chapter 12, “Systems Planning and Development,” discusses how professionals plan information systems. It details traditional and agile methods of software development. Chapter 13, “Choices in Systems Acquisition,” presents alternative acquisition methods to in-house development: outsourcing, purchased applications, end-user systems development, and software as a service. Additional material and recent trends in outsourcing and offshoring have been integrated as alternatives in systems acquisition. Chapter 14, “Risks, Security, and Disaster Recovery,” discusses the risks that information systems face and ways to minimize them, as well as approaches to recovering from disasters.

New Features of this Edition

We listened carefully to our adopters, potential adopters, and reviewers in planning and writing this Seventh Edition of Management Information Systems. We kept the number and organization of chapters the same as in the previous edition to suit optimal coverage, pedagogy, and allow for flexibile term management. The major changes and improvements in this edition are:

● Complete update to integrate a running case into all 14 chapters ● Updated and extended coverage of the latest technologies and trends in MIS, including infor-

mation security, mobile computing, social media, cloud computing, and Software as a Service ● New Point of Interest boxes throughout each chapter ● All end-of-chapter case studies were updated with recent examples ● New or revised end-of-chapter exercises

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Some instructors would like students to consider careers in IT. Therefore, the discussion of IT careers was moved to Chapter 1, “Business Information Systems: An Overview.” This allows the students to learn what IT professionals do early on.

Supply chain management (SCM) systems and customer relationship management (CRM) systems have become important staples in businesses. Therefore, they are now introduced early in Chapter 1, thoroughly explained in Chapter 3, “Business Functions and Supply Chains,” and discussed widely throughout the text in various contexts. While we still discuss information systems by business function in Chapter 3, a large part of the chapter is devoted to enterprise applications such as SCM, CRM, and ERP systems.

Chapter 4, “Business Hardware,” now includes shorter discussions of the innards of computers and extensive discussions on external memory devices and networked storage technologies such as SAN, NAS, and cloud storage.

In Chapter 5, “Business Software,” the discussion of programming language generations was significantly cut to make room for more important discussions of software that all students will encounter in most organizations. The growing trend of using open source software is extensively discussed and students are exposed to a plethora of open source applications.

Chapter 6, “Business Networks and Telecommunications,” focuses on the use of various networking technologies in business. A new section covers the latest wireless technologies, as this is the future of networking in communities, businesses, and homes. A detailed discussion of RFID technologies is included to provide the technical foundation for further discussion of current and future application of this technology in business.

The major web technologies are discussed and demonstrated in Chapter 8, “The Web- Enabled Enterprise.” The chapter reflects the latest technologies. The section on alternatives in establishing commercial websites reflects the latest array of hosting options. Chapter 9, “Challenges of Global Information Systems,” is devoted to illuminating the challenges and efficiencies of managing business information systems on a global scale.

Many current examples of decision support systems and artificial intelligence are provided in Chapter 10, “Decision Support and Expert Systems.” Chapter 11, “Business Intelligence and Knowledge Management,” combines discussions that were included in different chapters in earlier editions. The concept of employee knowledge networks is explained and demonstrated in examples.

Chapter 12, “Systems Planning and Development,” discusses the traditional “waterfall” approaches such as the systems development life cycle, but also devotes a thorough discussion to agile methods, which have become so popular among software developers.

Chapter 13, “Choices in Systems Acquisition,” discusses alternatives to in-house software development, such as Software as a Service.

Security and disaster recovery are discussed in Chapter 14, “Risks, Security, and Disaster Recovery,” with more attention to increasingly severe risks, such as phishing. The discussion of threats to privacy were updated to address new technologies such as RFID tags and location- based services.

Except for very few entries, all the Point of Interest box features are new. All Ethical & Societal Issues discussions have been updated.

Nearly all of the end-of-chapter Real Cases are new. As in previous editions, all are real-world examples reported in a wide range of major business and technology journals.

Acknowledgments

I am honored to have been selected to revise the successful textbook that Effy Oz created. Dr. Oz was an exceptional educator and author, and my first and primary acknowledgment is to him. It is my hope that my efforts will continue his legacy and his great work.

xxiv Preface Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Revising a textbook is a challenging process that requires commitment and unwavering disci- pline. However, as in any long, challenging initiative, a project such as this could not be successful without the contribution of many people. I would first like to thank my colleagues in the business, consulting, IT, and academic organizations whose ideas, efforts, and opinions over all these years have helped me understand the educational needs of our students and the marketplace. Without them, it would be impossible to have attained the experience and knowledge required to compile this textbook. I also must recognize the indirect but important contribution of the many students I have taught. Their comments (and criticism) helped me refine and sharpen my teaching. Over 20 years of teaching, they have helped me to comprehend the points that needed extra emphasis, a different presentation, or an experiential assignment to make topics that may be overwhelming clearer and more interesting. I have learned that teaching only prepares students for today, but educating builds skilled and mature professionals for life.

Many thanks go to Kate Mason for being so enthusiastic about this project. She was always there for me with advice, encouragement, and patience as a new author. Kate demonstrated and exerted unbounded energy while leading this project. Her active guidance and constant involve- ment made an immense contribution to this edition. Kate also handled the smooth coordination of the instructor’s package, web materials, and more. Arul Joseph Raj, the Content Product Man- ager, guided the textbook through its production while managing the process in a very orderly and timely manner. The design and art managers at PreMediaGlobal ensured the textbook and photos were visually appealing, and the team of artists skillfully rendered our ideas. I extend both my personal and professional gratitude to these talented professionals.

Deb Kaufmann, the developmental editor, has demonstrated again her excellent skills and high integrity. I was very fortunate to have Deb on the team because of her involvement with Dr. Oz for the sixth edition. It was wonderful to work with an editor who excels not only in improving style and organization but who is also so knowledgeable in the subject matter. She is a consummate professional who helped me tremendously through her broad perspective while always attending to the details that were essential ingredients supporting my work.

Reviewers are the most important aides to any writer, especially when preparing a college text- book. I would like to thank the reviewers who carefully reviewed each chapter for this edition:

Merlin Amirtharaj, Stanley Community College Don Danner, San Francisco State University John Delalla, University of Arizona South Lewis Todd, Belhaven University Patricia Wallace, The College of New Jersey

A special thanks goes to Charles McCormick, who retired from Cengage in 2012, for support- ing me to author this textbook.

This textbook would not be possible without the contribution of my research assistant. Jerry Theiler, a senior accounting student, assisted with the research and compilation of updates for this edition. Jerry is a diligent, intelligent, and mature young man who provided me with quality work throughout this revision.

Lastly, I would like to thank my mother Virginia, who recently passed away, and my father Henry. They have provided me with the work ethic, integrity, and loyalty that that has been the bedrock of my achievements. This textbook and other accomplishments in my life could not have been gained without their exceptional influence and support. Additionally, I would like to acknowledge my many friends and former students as well as my colleagues at Bryant University for their constant encouragement and support. As Kingman Brewster said, “There is no greater challenge than to have someone relying upon you, no greater satisfaction than to vindicate their expecta- tions.” It is my hope that I have fulfilled your expectations.

I welcome suggestions and comments from our adopters and their students to continue developing a quality textbook as well as to continue Dr. Oz’s legacy and contributing to the edu- cation of students that this textbook will provide.

Kenneth J. Sousa [email protected]

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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PART 1

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THE INFORMATION AGE CHAPTER 1 Business Information Systems 4

CHAPTER 2 Strategic Uses of Information Systems 34 CHAPTER 3 Business Functions and Supply Chains 66

Textbook Case: KIMBALL’S RESTAURANT

Liz and Michael Kimball dreamed about opening

their own restaurant. They believed that they could

use their talents and experience to operate a suc-

cessful restaurant. Liz was a great cook and had

accumulated many family recipes for appetizers,

entrees, and bakery desserts. Michael had a degree

in business and several years of experience in busi-

ness management. They believed that it was the

right time to think about new careers and realize

their dream.

Michael began his career in the human

resources department of a local manufacturing busi-

ness. Over the course of his 20 years in human

resources, he was responsible for recruiting, com-

pensation evaluation, and employee orientation. He

also managed employees’ performance evaluations

for the production departments. While he has some

accounting and budgeting experience, it was specific

only to human resources, not for an entire business

organization.

Liz started work as a customer service rep for a

financial services company right after high school.

Her 15 years of customer service experience has

given her some ability to manage people. She does

not have a formal culinary education, but she has an

excellent sense of food preparation, ingredient selec-

tion, and meal planning. These skills should provide

a foundation for the menu development and food

preparation that a restaurant will require. However,

her lack of a formal culinary education and experience

in commercial kitchen operations might require some

additional training.

The Kimballs live in Lakeside Heights, a suburb

of a metropolitan city. Their community and the

adjacent towns consist of primarily middle-income

households. Many of the adults in the community

are college-educated and have professional jobs in

business and manufacturing. The population of the

town and surrounding communities is approxi-

mately 40,000 people. The city, about 12 miles from

Lakeside Heights, has a population of 110,000.

Michael and Liz believe that a restaurant serving

Liz’s specialties of “home style” American, Italian,

and seafood dishes would be a good choice for

their location. They are excited about the possibility

of providing quality food at a reasonable cost. The

same family and friends that enjoy Liz’s cooking

would match their expected customers. They want

to offer a quiet, relaxed dining environment offering

mid-priced meals.

n Researching the Business As they talked about the details, their dream gath-

ered momentum. However, they both knew that

they couldn’t build their business on dreams alone.

They would need additional business advice and

perspective to ensure that their business concept

was realistic. First, they checked out the numbers.

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1 PART

Liz and Michael, along with their advisors and

friends, assessed the capital required for starting a

restaurant. They agreed that Liz and Michael had suf-

ficient funds to use as start-up capital for the new

venture.

Tom, a family friend employed as a marketing

consultant, felt that their business model would be

well suited for their location. They had their eye on

a strip mall location that was vacant and could be

suitable for a small family restaurant. They con-

tacted the local real estate agent, Anne Marie Sim-

mons, to ask about its rental cost, availability, and

size. Liz and Michael visited the location with Anne

Marie. The agent said that the store housed a diner

for three years before it closed. She speculated that

the diner might not have been able to compete

against the fast-food franchises in the area. The

agent also believed that the owners did not have

the proper financial and marketing plan to be

successful.

Liz studied the store’s floor plan and dimen-

sions. The store had floor space to accommodate

about 50 diners as well as a full kitchen operation

and storage areas. The strip mall location had plenty

of parking as well as access on a major road. The

gas, plumbing, and electrical infrastructure were in

good working order. The décor and kitchen appli-

ances need to be purchased as well as all restaurant

fixtures (pans, dishes, flatware, etc.) if they signed a

lease to occupy the restaurant.

In order to be efficient and leverage their individ-

ual skills, Liz and Michael segregated the various

research tasks necessary to compile business pro-

jections and forecasts. Michael focused his attention

on the front-house operations, sales, and marketing

plan while Liz analyzed the kitchen operations,

inventory, and menu planning. Each of them com-

piled forecasts for the startup and operational costs

in their areas of specialty. These costs included the

labor, materials, food, utilities, rent, and other neces-

sary costs. These forecasts would be the foundation

of their business, financial, and operations plan.

n Creating the Business Plan Michael continued to work with Tom on the market-

ing and promotion of the restaurant. Their first

thought was to gather sales, customer, and meal

data from the previous owner. To protect the ano-

nymity of the new owners, Michael asked Anne

Marie to contact the previous owner. She provided

three years of weekly data on the number of meals

and tables served. Unfortunately, the previous

owner could not or did not want to provide any

sales data. Michael entered 164 weeks of data into

a simple Excel spreadsheet to review. The spread-

sheet contained three data points: week ending

date (Sunday), total checks, and total meals served.

Michael and Tom reviewed the spreadsheet to

attempt to find some relevant information for their

marketing and forecasting projections.

The diner had been open seven days a week.

However, the data Michael received was not broken

down by the day of the week. Therefore, the data

could not be used to analyze daily traffic and sales,

but only to analyze weekly trends without informa-

tion on daily traffic and sales.

Tom coached Michael on how to analyze the

data through a “rough” first glance. He separated

the data into three spreadsheet tabs by year, where

the first row of weekly data was the first week in the

calendar year. He added a column that calculated the

average meals per check. Then, to gain an under-

standing of the restaurant’s customer load, he

ranked both the number of meals and checks within

the year. These values provided a basic sense of the

high and low weeks for the previous restaurant. He

then sorted each of the three calendar years by the

meal count (descending with the highest ranking

first).

The lack of daily data limited the depth of analy-

sis that could be completed. Tom looked at the hard-

copy of three years of data side by side. After

reviewing the three years of data, Tom pointed out

that their weekly data showed only one clear trend:

Some weeks showed lower sales than the other per-

iods. Upon further analysis, it appeared that they

were holiday periods (Thanksgiving and Christmas

weeks) as well as some summer weeks. Without

the daily data, it was impossible to determine the

distribution or trending of customer sales.

Liz completed another tour of the restaurant

location. The kitchen was equipped with an opera-

tional walk-in refrigerator, exhaust fan, several

tables, and shelving units. She assembled a tentative

new floor plan for the kitchen and food preparation

area. From the floor plan, she compiled a cost esti-

mate listing the appliances and fixtures still needed

for the kitchen.

In addition to seating about 50 people comfort-

ably with 15 tables, Michael believes that a bar can

be built to seat an additional 10 patrons. He created

estimates for dining room and bar equipment, furni-

ture and fixtures, including all labor installation

costs.

Tom helped them create a spreadsheet using

various factors to estimate the weekly sales. They

used some of the previous owner’s data to calculate

the seasonal and weekly trends. With the menu that

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

Liz compiled, they estimated the weekly sales for the

restaurant for the first year. The entire spreadsheet cal-

culated the variable costs (labor, food) based on the

number of meals served. The list of fixed overhead

costs (like utilities, taxes, and rent) then helped to gen-

erate the monthly cash flow and profit estimates. The

spreadsheet calculated three scenarios: aggressive,

reasonable, and conservative. The most conservative

estimate resulted in a small loss for most months.

They felt comfortable with the range of projections

they had compiled. Tom believed that Liz and Michael

could present these forecasts and a business plan to a

bank for a loan for the startup costs.

n Launching the Dream Kimball’s Restaurant opened in the strip mall location.

As with any new business, the restaurant started out

slowly with sales closer to the conservative estimates.

However, as their reputation for quality, reasonably

priced meals developed, Liz and Michael knew their

dream had become a reality.

Three years later, Kimball’s was operating suc-

cessfully and profitably. Their dining room was often

at capacity with both new and returning customers.

They often had a small waiting line on weekend

nights. Liz and Michael were very satisfied with

their dream. What would be next?

BUSINESS CHALLENGES

In the next three chapters, you will learn what Michael

and Liz need to get started in harnessing the power

of information systems to help build and grow their

restaurant. They will need to understand how informa-

tion systems can help with a restaurant’s short-term

(operational) needs as well as plan for long-term initia-

tives (strategic) to expand the business.

● In Chapter 1, “Business Information Systems: An

Overview,” you learn the various types of

information systems businesses use and why

familiarity with information technology is

important for your career. You also are

introduced to some of the major ethical and

societal concerns about acquiring, storing, and

reporting potentially sensitive information.

● In Chapter 2, “Strategic Uses of Information

Systems,” you learn how to use information

strategically, and how to harness information

technology for competitive advantage.

● In Chapter 3, “Business Functions and Supply

Chains,” you learn how you might best use

information technology to help manage a business,

whether you need to order inventory and track

sales, generate financial statements, or automate

payroll systems. You also learn how supply chain

management systems serve whole enterprises.

The Information Age 3 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

CHAPT ER

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1 PART

one

BUSINESS INFORMATION SYSTEMS An Overview

Learning Objectives It is likely that you are carrying or using an information system. This is so if you have a smartphone, a tablet, or a laptop computer. Information systems pervade almost every aspect of our lives. Whether you are withdrawing money from a bank’s automatic teller machine, surfing the web, or making a hotel reservation on your cell phone, hardly a day goes by without our feeding data into, or using information generated by, an information system. In business especially, digital information systems generate most of the information we use. Information systems receive and process data from various sources. These systems have become essential to successful business operations.

When you finish this chapter, you will be able to:

● Explain why information technology matters.

● Define digital information and explain why digital systems are so powerful and useful.

● Explain why information systems are essential to business.

● Describe how computers process data into useful information for problem solving and decision making.

● Identify the functions of different types of information systems in business.

● Describe careers in information technology.

● Identify major ethical and societal concerns created by widespread use of information technology.

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PART 1

KIMBALL’S RESTAURANT: Business Systems and Information

The restaurant has been operating successfully for

three years. Although they experienced challenges, Liz

and Michael believe that they developed a great dining

establishment. Sales forecasts have steadily increased

over the last three years. Thankfully, the growth was

not so fast as to cause any “growing pains” or problems

with their business. Michael found that during most

weeks, they had reservations for 50 to 100 percent of

their dining capacity.

Processing Orders and Payments Michael believed his analysis was fairly accurate, but it

took a lot of effort to compile his information. The ser-

vers wrote the customer orders on multipart paper

checks. One copy of these checks went to the kitchen

for preparation. The server tabulated totals on the origi-

nal copy and gave it to the customer when the meal was

complete. At that point, the customer paid the cashier

directly with cash or a credit card and the hardcopy of

the check was saved. Several times a week, Michael

used the paper checks to enter the sales and table infor-

mation in an Excel spreadsheet for analysis. Because he

was so busy with other operational priorities, the

spreadsheet data entry and subsequent analysis was

often delayed.

The restaurant processed its payroll through a local

service. Employees maintained their timecards manu-

ally. Each week, the timecard data was validated by

Michael and sent to the payroll service for processing

and check printing. Michael was not comfortable with

the manual entry of employee time punches, but he

did not have a simple, cost effective alternative.

Michael used a small business accounting package

to track the restaurant’s expenses, process payable

checks to suppliers, and record deposits. The software

was easy to use and provided the balance sheet and

income statement needed for the business. It also gen-

erated the required tax information for his accountant to

file the appropriate tax forms. However, it did not track a

level of information needed for analyzing the business

operations and forecasting sales. From his experience

in human resources, Michael understood the need for

quality data and business information. At his former

employer, the information technology department pro-

vided that expertise and assistance. Unfortunately,

those skills were not available at the restaurant.

Michael knew that his time was limited and that he

needed to focus more on the operations rather than data

entry, but he also wanted to collect and analyze data

about his business to manage it and plan effectively.

Their son, Tyler, finished his education to complete

a business degree, specializing in marketing and

management. He had worked in the restaurant during

the summers and semester breaks as a busboy and

server so he had some familiarity with the business.

He was also anxious to gain more experience to try

out some of the skills he had learned in business school.

Liz and Michael decided it was a good time for Tyler to

join the business.

Defining the Problems Michael told Tyler that he would like to streamline the

front- and back-house operations and gather more infor-

mation for analysis without relying on manual data

entry. Tyler understood the challenges because some

of the problems in these areas were directly related to

issues that Tyler encountered while he was a server at

the restaurant. The issues could be categorized into two

areas: completeness and accuracy of guest check infor-

mation, and check payment.

Because the guests’ orders were handwritten,

sometimes parts of the orders were not legible. In addi-

tion, especially with new servers, some of the informa-

tion needed to complete a meal was either inaccurate or

incomplete for that meal choice (cooking preferences,

toppings, special preparation). This issue added time

for the server and cooking staff as well as reduced cus-

tomer satisfaction. Check payment was another prob-

lem. Often, it was not clear to the customers whether

they should pay the server or the cashier. Michael

wanted to control the cash and credit-card processing

at a central location, but was willing to review this

policy.

Tyler talked to the servers and kitchen personnel to

gain perspective on the guest check and payment pro-

blems. The staff was pleased to be asked for input. They

confirmed that guest check accuracy and payment were

issues, but additional issues were uncovered. As in

many restaurants, at Kimball’s the servers were respon-

sible for any checks not paid by the customer. However,

it was impossible for the server to know if the customer

paid the cashier or left without paying. The servers

would prefer that customers settle their payment

directly with the server so that they could know if a cus-

tomer has paid. Servers also conveyed that even when

they wrote out the order legibly and completely, meals

sometimes were not prepared properly. The kitchen

staff said that changes to guest orders are often

“rushed” and disrupted the completion of other meals

in progress. On many occasions, servers submitted

changes after the order was ready to deliver to the

table. Kitchen staff said a new process was needed to

communicate order changes before the table’s meals

were cooked. Unfortunately, it was impossible to tell

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1 PART

from the current checks which orders required changes.

Therefore, no data was available to objectively assess

the magnitude of the problem.

Collecting Data to Address Problems and Make Decisions Tyler then focused his attention on the data analysis.

He asked his parents to define two lists of questions:

(1) What do you know from the information you cur-

rently maintain? and (2) What answers would you like

to know that would help you operate the business

more efficiently and profitably? They responded that

they knew how many tables were seated by day as

well as the total check amounts. The checks separated

the liquor and food totals for tax purposes, but the

daily totals for these categories did not provide any

details about the individual customers’ orders. Michael

would also like to know more details, such as … What

meals did they order? Did they order appetizers? How

many patrons were at the table (adults and children)?

Did the customer take advantage of any of the specials?

Liz wanted to know, how much food do I need to order

based on past sales?

Tyler said that these questions were a great start.

He categorized their questions into two areas: market-

ing/promotion and operational. He knew that additional

marketing information was needed to determine menu

planning, promotions, and customer satisfaction. He

wondered how many people were returning or new cus-

tomers. How did they learn about the restaurant? For

operational issues, was there any monitoring of the

operations as issues occurred?

Does Information Technology Matter?

The Denver-based hamburger chain Smashburger developed more than a secret recipe for its hamburgers. It used social media giants, Facebook and Twitter, by inviting bloggers to promote the opening of new locations in their area. Instead of relying solely on paid media promotion, Smashburger engaged their consumers directly through the use of social media.

A survey compiled by Boston-based Aite Group of 1,000 consumers demonstrated their adoption of mobile devices to complete banking transactions. Approximately one-third of the consumers conveyed that they have increased their use of mobile banking applications to check their account balances; an increase of 10 times within one year (Cerny, 2011).

These examples, as well as many other observations, show that IT can no longer be the sole domain of IT professionals. Business professionals can no longer count solely on IT specialists to make decisions on development, purchasing, and deployment of information systems. Social media and mobile computing clearly rely on a well-developed strategy across all functions of business organizations. Today’s business professionals are expected to know how to develop and use IT significantly more than just a few years ago. Regardless of their major field of expertise, those who have the proper IT knowledge and skills stand a better chance of receiving more lucrative job offers and faster promotions.

The Power of Digital Systems

We are accustomed to using 10 digits to represent quantities. We call it the decimal counting system. However, we could also use a system consisting of only two digits, zero and one, to represent quantities. This is the binary counting system. Because computers and related devices use the binary system—a system that uses two digits—they are referred to as digital systems. However, digital systems are not used only to represent information that contains numbers, or quantities. They can also represent any information as combinations of zeroes and ones, or, more accurately, the two states that represent zeroes and ones.

Digital information consists of zeroes and ones representing two states. When you have a mechanism that can represent two states, such as electrically charged and uncharged elements, magnetized and non-magnetized areas, light and no light, you have a way to represent the zeroes and ones. Based on such signals, information can be represented, stored, communicated, and processed digitally.

6 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

Unlike analog systems (systems based on a continuous signal that varies in strength or quantity), digital systems are capable of delivering data and information—quantities, text, sound, pictures, video, and any other type of information—so that the original information can be re-created with complete accuracy. That is, a digital copy is an exact copy of the original. For example, an analog copy machine reproduces images by reflection or a similar technique. The copy may be good, but it is never as good as the original. And as you make a copy from the copy, the quality deteriorates. When you make a copy of a digital file, such as an image file or a musical file, the system you use first captures the combinations of signals (the digits, zeroes and ones) that make up the file. When processed by the proper hardware and software, the digits are transformed back into the image, or music, or whatever other information you copied. As long as your computer or other digital device can capture all the digits that make up the information, the original information can be re-created fully.

Digital information is stored and communicated by way of electromagnetic signals— electricity, magnetism, and light. These processes involve few or no moving parts. Therefore, storage, retrieval, processing, and communication of digital information are extremely fast. These capabilities—accuracy and speed—make digital systems powerful and therefore useful and important in so many fields: business, education, entertainment, and many others.

POINT OF INTEREST Tornadoes in Oklahoma City, Is Mom OK?

Social media technology can provide genuine benefits to its users. In 2012, The Weather Channel devel- oped a Facebook app that alerts users when severe weather is approaching their friends. Users can track severe weather in relation to their friends’ locations and post an alert on their friend’s Facebook timeline. The idea is that people may pay more attention to a personalized alert from a friend or family member than a generalized, local weather warning. Source: Honker, D. (2012). “Weather Channel Launches ‘My Friends’ Weather’ to Integrate Alerts with Social Media.” www.awareforum.org/2012/07/weather-channel-launches-my-friends-weather-to-integrate- alerts-with-social-media/

The Purpose of Information Systems

People require information for many reasons and in varied ways. For instance, you probably seek information for entertainment and enlightenment by viewing television, watching movies, browsing the Internet, listening to the radio, and reading newspapers, magazines, and books. In business, however, people and organizations seek and use information mainly to make sound decisions and to solve problems—two closely related practices that form the foundation of every successful company.

What is a problem? A problem is the root cause of an undesirable situation. When you are stuck in the middle of nowhere with a flat tire, you have a problem. If you know that some customers do not pay their debts on time, but you don’t know who or how much they owe, you have a problem. You can solve both problems with the aid of information. In the first case, you can call a towing company, which might use a computerized tracking system to send the tow truck closest to your location; in the second case, simple accounting software can help.

An organization or individual that identifies more than one way to solve a problem or a dilemma must make a decision. The problem “2+2=?” does not require decision making because it has only one solution. However, as a manager, you might face a dilemma such as “Which is the best way to promote the company’s new car?” There are many potential ways to promote the new car—television advertising, radio advertising, newspaper advertising, web advertising, auto shows, direct mail, social media, or any combination of these methods. This dilemma calls for decision making.

Both problem solving and decision making require information. Gathering the right information efficiently, storing it so that it can be used and manipulated as necessary, and using it to help an

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1 PART

organization achieve its business goals—all topics covered in this book—are the keys to success in business today. The purpose of information systems is to support these activities. In addition to solving problems and making decisions, businesses use information systems to support daily operations, such as electronic commerce, making airline reservations, and many other activities. As a professional, you need to understand and apply information fundamentals to succeed.

WHY YOU SHOULD Be Well-Versed in Information Systems

You might be surprised at how much information technology (IT) knowledge your prospective employer will expect of you when you interview for your next job, even if the position you seek is not in the IT area. Today’s corporations look for IT- savvy professionals, and with good reason. Information is the lifeblood of any organization, commercial or nonprofit; it is essential to sound problem solving and decision making, upon which business success is built. In fact, the main factor limiting the services and information that computers can pro- vide within an organization is the budget.

Because of rapid changes in technology, information systems, unlike many other business components, are quickly changing in form and content. A computer considered fast and powerful today will be an outdated machine in 18–24 months. In 12–24 months, a better application or technology model will surpass one that is considered innovative right now. The dynamic nature of information technology is like a moving target. Your new idea or product concept using information technology will be replaced by someone else’s new idea or product concept.

A professional who does not stay informed is of diminishing value to an organization. All knowledge workers—profes- sionals, scientists, managers, and others who create new information and knowledge in their work—must be familiar with IT. Moreover, they must know which IT is relevant for their work and what information they can obtain with a certain technology or networked resource.

Professionals must at all times maintain a clear picture of their organizations and the outside business environment. They must know what resources are available to them and to their competitors. Information technology provides excellent tools for collecting, storing, and presenting facts. But to be truly effective, those facts must be manipulated into useful informa- tion that indicates the best allocation of various resources, including personnel, time, money, equipment, and other assets. Regardless of the operations being managed, information sys- tems (ISs) are important tools. Successful professionals must know which ISs are available to their organizations and what systems might be developed in the future.

Data, Information, and Information Systems

We use the words “data,” “information,” and “system” almost daily. Understanding what these terms mean, both generally and in the business context, is necessary if you are to use information effectively in your career.

Data vs. Information

The terms “data” and “information” do not mean the same thing. The word data is derived from the Latin datum, literally a given or fact, which might take the form of a number, a statement, or a picture. Data is the raw material in the production of information. Information, on the other hand, is facts or conclusions that have meaning within a context. Raw data is rarely meaningful or useful as information. To become information, data is manipulated through tabulation, statistical analysis, or any other operation that leads to greater understanding of a situation.

Data Manipulation

Here’s a simple example that demonstrates the difference between data and information. Assume that you work for a car manufacturer. Last year, the company introduced a new vehicle to the market. Because management realizes that keeping a loyal customer base requires continuously improving products and services, it periodically surveys large samples of buyers. It sends out questionnaires that include 30 questions in several categories, including demographic data (such

8 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 1

as gender, age, and annual income); complaints about different performance areas (such as ease of handling, braking, and the quality of the sound system); features that satisfy buyers most; and courtesy of the dealer’s personnel.

Reading through all this data would be extremely time consuming and not very helpful. However, if the data is manipulated, it might provide highly useful information. For example, by categorizing complaints by topic and totaling the number of complaints for each type of dissatisfaction and each car model, the company might be able to pinpoint a car’s weaknesses. The marketing analysts then can pass the resulting information along to the appropriate engineering or manufacturing unit.

Also, the company might already have sufficient data on dealers who sold cars to the customers surveyed, the car models they sold, and the financing method for each purchase. But with the survey results, the company can generate new information to improve its marketing. For instance, by calculating the average age and income of current buyers and categorizing them by the car they purchased, marketing executives can better target advertising to groups most likely to purchase each car. If the majority of buyers of a particular type of car do not ask for financing, the company might wish to drop this service option for that car and divert more loan money to finance purchases of other cars. In this way, the company generates useful information from data.

Generating Information

In the examples just cited, calculating totals and averages of different complaints or purchasers’ ages may reveal trends in buying habits. These calculations are processes. A process is any manipulation of data, usually with the goal of producing information. Hence, while data is essentially raw materials, information is output. Just as raw materials are processed in manufacturing to create useful end products, so raw data is processed in information systems to create useful information (see Figure 1.1). Some processes, however, produce yet another set of data.

F I G U R E 1.1

Input-process-output

Data Process Information

Raw Material Process Product

Input Process Output

Sometimes, data in one context is considered information in another context. For example, if an organization needs to know the age of every person attending a basketball game, then a list of that data is actually information. But if that same organization wants to know the average price of tickets each age group purchases, the list of ages is only data, which the organization must process to generate information.

Information in Context

Information is an extremely important resource for both individuals and organizations, but not all information is useful. Consider the following story. Two people touring in a hot-air balloon

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encountered unexpected wind that soon blew them off course. When they managed to lower their balloon, they shouted to a farmer on the ground, “Where are we?” The farmer answered, “You are right above a cornfield!” The balloonists looked at each other, and one groaned, “Some information! Highly accurate and totally useless!” To be useful, information must be relevant, complete, accurate, and current. And in business, information must also be obtained economically, that is, cost effectively. Figure 1.2 lists characteristics of useful information.

F I G U R E 1.2

Characteristics of useful information Relevant

Information must pertain to the problem at hand. For example, the total number of years of education might not be relevant to a person’s qualifications for a new job. Relevant information might be that the person has so many years of education in mechanical engineering and so many years of experience. The information must also be presented in a way that helps a person understand it in a specific context.

Complete

Accurate

Current

Economical

Partial information is often worse than no information. For example, marketing data about household incomes might lead to bad decisions if not accompanied by vital information on the consumption habits of the targeted population.

Decisions are often based on the latest information available, but what was a fact yesterday might no longer be one today. For example, a short-term investment decision to purchase a stock today based on yesterday’s stock prices might be a costly mistake if the stock’s price has risen in the interim.

In a business setting, the cost of obtaining information must be considered as one cost element involved in any decision. For example, demand for a new product must be researched to reduce risk of marketing failure, but if market research is too expensive, the cost of obtaining the information might diminish profit from sales.

Erroneous information might lead to disastrous decisions. For example, an inaccurate record of a patient’s reaction to penicillin might lead a doctor to harm the patient while believing that she is helping him.

What Is a System?

Simply put, a system is an array of components that work together to achieve a common goal, or multiple goals, by accepting input, processing it, and producing output in an organized manner. Consider the following examples:

● A sound system consists of many electronic and mechanical parts, such as a laser head, an amplifier, an equalizer, and so on. This system uses input in the form of electrical power and sound recorded on a medium such as a CD or DVD, and processes the input to reproduce music and other sounds. The components work together to achieve this goal.

● Consider the times you have heard the phrase “to beat the system.” Here, the term “system” refers to an organization of human beings—a government agency, a commercial company, or any other bureaucracy. Organizations, too, are systems; they consist of components—people organized into departments and divisions—that work together to achieve common goals.

Systems and Subsystems

Not every system has a single goal. Often, a system consists of several subsystems— components of a larger system—with subgoals, all contributing to meeting the main goal. Subsystems can receive input from, and transfer output to, other systems or subsystems.

Consider the different departments of a manufacturing business. The marketing department promotes sales of the organization’s products; the engineering department designs new products and improves existing ones; the finance department plans a budget and arranges for every unused penny to earn interest by the end of the day. Each department is a subsystem with its own goal, which is a subgoal of a larger system (the company), whose goal is to maximize profit.

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Now consider the goals of a manufacturing organization’s information system, which stores and processes operational data and produces information about all aspects of company operations. The purpose of its inventory control subsystem is to let managers know what quantities of which items are on hand and which may soon have to be reordered. The purpose of the production control subsystem is to track the status of manufactured parts. The assembly control subsystem presents the bill of material (a list of all parts that make up a product) and the status of assembled products. The entire system’s goal is to help deliver finished goods at the lowest possible cost within the shortest possible time.

Figure 1.3 shows an example of a system found in every business: an accounting system. An accounting system consists of several subsystems: accounts payable, records information about money that the organization owes to suppliers and service providers; accounts receivable, records sums owed to the organization and by whom; a general ledger, records current transactions; and a reporting mechanism, generates reports reflecting the company’s financial status. Each subsystem has a well-defined goal. Together, the subsystems make up the organization’s accounting system.

F I G U R E 1.3

Several subsystems make up this corporate accounting system

Sigma Co. Accounting System

General Ledger

Our assets and liabilities

Supp lier

Addre ss $

Owed

Address

Customer $ balance

Accounts Payable

Whom do we owe?

Accounts Receivable

Who owes us?

Report Generator

Status, problem areas

All professionals must understand systems, both organizational and physical. They need to understand their position in an organization so they can interact well with coworkers, employees of business partners, and customers. They need to understand information systems so that they can utilize them to support their work and interactions with other people.

Closed vs. Open Systems

Systems are closed or open, depending on the nature of the information flow in the system. A closed system stands alone, with no connection to another system: nothing flows in from another system; nothing flows out to another system. For example, a small check-producing system that prints and cuts checks when an employee enters data through a keyboard is a closed system. The system might be isolated for security purposes. An open system interfaces and interacts with other systems. For example, an accounting system that records accounts receivable, accounts payable, and cash flow is open if it receives its payroll figures from the payroll system. Subsystems, by definition, are always open, because as components of a bigger system, they must receive information from, and give information to, other subsystems.

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Increasingly, companies are implementing open—interfaced—information systems. Each system may then be referred to as a module of a larger system, and the modules are interconnected and exchange data and information. For better cooperation, many organizations have interconnected their information systems to those of their business partners, mainly suppliers and clients.

Information Systems

With an understanding of the terms “information” and “system,” the definition of an information system is almost intuitive: an information system (IS) consists of all the components that work together to process data and produce information. Almost all business information systems consist of many subsystems with subgoals, all contributing to the organization’s main goal.

Information and Managers

Thinking of an organization in terms of its suborganizations or subsystems—called systems thinking—is a powerful management approach because it creates a framework for excellent problem solving and decision making. To solve problems, managers need to identify them, which they do by recognizing the subsystems in which the problems occur and solving the problems within those subsystems’ constraints and strengths.

Systems thinking can also help keep managers focused on the overall goals and operations of a business. It encourages them to consider the entire system, not only their specific subsystem, when solving problems and making decisions. A satisfactory solution for one subsystem might be inadequate for the business as a whole. For example, when the sales department creates a web site to take online customer orders, it automates a formerly labor-intensive activity of the sales subsystem. This saves cost. However, increased orders may cause understocking of finished goods. With systems thinking, improving the sales process could also improve other company processes. Without systems thinking, managers from other departments aren’t involved in the decision, so they don’t benefit. In the case of the sales department, if other managers are involved in planning for automated online ordering, they could suggest that sales data recorded on a shared database—a large collection of electronic records—connected to the web also be accessible to other departments such as shipping and manufacturing. The shipping department could use the records to expedite packaging and shipping, thanks to the information that appears on a computer monitor rather than a sheet of paper. The manufacturing units could use the order records for planning resources such as laborers and inventory. Figuratively, by applying systems thinking, effective managers view their areas of responsibility as puzzle pieces. Each piece is important and should fit well with adjacent pieces, but the entire picture should always be kept in view.

One of an information system’s most important contributions to the sound workings of an organization is the automation of information exchange among systems. Redbox offers DVD and video game rentals through kiosks but there are other ways to rent. Customers can also reserve a DVD or video game on a mobile phone or through the web and pick it up at a selected Redbox kiosk. Redbox uses an inventory and reservation database to synchronize all three channels of reservation processing (Chipchase, 2011).

Innovation in sales systems can be the competitive advantage a company needs to survive in a harsh economic environment. For example, Redbox uses vending machines to distribute and collect DVDs that they rent for only $1 per night. Redbox strategically places kiosks in high-footfall areas and does not have the labor expenses that traditional retail video stores experience, thus creating financial advantage. Their location placement strategy has created rapid sales growth; 31.2 percent revenue growth in the first quarter of 2011 (Anonymous, 2011; Pruitt, 2007). A May 2011 research report indicated that consumers spent 8 percent more on movies rented at kiosks, mail or streaming while renting or purchasing a DVD at a retail store decreased 8 percent. (Gruenwedel, 2011).

The information map of a modern business—that is, the description of data and information flow within an organization—shows a network of information subsystems that exchange information with each other and with the world outside the system. In an ideal organization, no human would need to retrieve information from one IS and transfer it to another. The organization would capture only new raw data, usually from its operations or from

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outside the organization. Then, data captured at any point in the system would automatically become available to any other subsystem that needs it. Thus, systems thinking is served well by information technology (IT), a term that refers to all technologies that collectively facilitate construction and maintenance of information systems. Systems thinking is the basic reasoning behind equipping organizations with enterprise software applications. Enterprise software applications are systems that serve many parts of the organization by minimizing the need for human data entry and ensuring timely, useful information for the organization’s entire supply chain, including taking customer orders, receiving raw materials, manufacturing and shipping, and billing and collection. In the service sector, companies often use document management systems, enabling workers from many departments to add information and signatures to a document from request to approval, or from draft to a final document. You will learn about these systems throughout this book.

Information Systems in Organizations

In an organization, an information system consists of data, hardware, software, telecom- munications, people, and procedures, as summarized in Figure 1.4. An information system has become synonymous with a computer-based information system, a system with one or more computers at its center, and which is how the term is used in this book. In a computer-based information system, computers collect, store, and process data into information according to instructions people provide via computer programs.

F I G U R E 1.4

Components of an information system Input that the system takes to produce information

Hardware A computer and its peripheral equipment: input, output, and storage devices; hardware also includes data communication equipment

Software Sets of instructions that tell the computer how to take data in, how to process it, how to display information, and how to store data and information

Telecommunications Hardware and software that facilitate fast transmission and reception of text, pictures, sound, and animation in the form of electronic data

People Information systems professionals and users who analyze organizational information needs, design and construct information systems, write computer programs, operate the hardware, and maintain software

Procedures Rules for achieving optimal and secure operations in data processing; procedures include priorities in dispensing software applications and security measures

Data

Several trends have made the use of information systems (ISs) very important in business:

● The capacity of data storage devices has grown while their prices have decreased. ● The variety and ingenuity of software applications have increased. ● A “bring your technology with you” environment has become mainstream with the adoption

of mobile computing, tablets, and cloud computing. ● Quick and reliable communication lines and access to the Internet and the web have created

affordable software applications using Software as a Service (SaaS) implementation methodologies.

● The fast growth of the Internet has opened opportunities and encouraged competition in global markets.

● The convergence of technology innovations such as smart phones, mobile applications, orga- nizational systems, and cloud storage systems have expanded both technology adoption and functionality.

● An increasing proportion of the global workforce is computer literate.

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In this environment, organizations quickly lag behind if they do not use information systems and skills to meet their goals. Moreover, they must continuously upgrade the features of their information systems and the skills of their employees to stay competitive.

The Four Stages of Processing

All information systems operate in the same basic fashion whether they include a computer or not. However, the computer provides a convenient means to execute the four main operations of an information system:

● Entering data into the IS (input). ● Changing and manipulating the data in the IS (data processing). ● Getting information out of the IS (output). ● Storing data and information (storage).

A computer-based IS also uses a logical process to decide which data to capture and how to process it. This process will be discussed later.

Input

The first step in producing information is collecting and introducing data, known as input, into the IS. Most data an organization uses as input to its ISs are generated and collected within the organization. These data elements result from transactions undertaken in the course of doing business. A transaction is a business event: a sale, a purchase, a payment, the hiring of a new employee, and the like. These transactions can be recorded on paper and later entered into a computer system; directly recorded through a transaction processing systems (TPS), such as a point-of-sale (POS) machine, scanner, or camera; or captured online when someone transacts through the web. A TPS is any system that records transactions. Often, the same system also processes the transactions, summarizing and routing information to other systems; therefore, these systems are transaction processing systems, not just transaction recording systems.

Input devices (devices used to transfer data into an IS) include the keyboard, handheld devices that read and sense graphic codes, voice recognition systems, and touch screens. Chapter 4, “Business Hardware,” describes these and other means to input data. The trend has been to decrease the time and effort of input by using devices that allow scanning or auditory data entry.

Processing

The computer’s greatest contribution to ISs is efficient data processing. The computer’s speed and accuracy enable organizations to process millions of pieces of data in seconds. For example, managers of a national retail chain can receive up-to-date information on inventory levels of every item the chain carries and then order accordingly; in the past, obtaining such information would take days. The huge gains in the speed and affordability of computing have made information the essential ingredient for an organization’s success.

Output

Output is the information an IS produces and displays in the format most useful to an organization. The most widely used output device is the video display, or video monitor, which displays output visually. Another common output device is the printer, used to print hard copies of information on paper. However, computers can communicate output through speakers in the form of music or speech and also can transmit it to another computer or electronic device in computer-coded form, for later interpretation.

Storage

One of the greatest benefits of using IT is the ability to store vast amounts of data and information. Technically, storing a library of millions of volumes on magnetic or optical storage media is feasible. Publishers, libraries, and governments have done that. For example, YouTube

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estimates that 72 hours of video are uploaded to its site every minute. Based on this statistic, YouTube’s total storage would increase by approximately 21.6 billion bytes of storage per minute. As of 2011, Amazon stored 762 billion objects within its Simple Storage Service (S3). These statistics clearly illustrate our world’s growing appetite for data storage (Anonymous, 2012b).

Computer Equipment for Information Systems

To support the four data processing functions, different types of technologies are used. Figure 1.5 illustrates the five basic components of the computer system within an IS:

● Input devices introduce data into the IS. ● The computer processes data through the IS. ● Output devices display information. ● Storage devices store data and information. ● Networking devices and communications lines transfer data and information over various

distances.

F I G U R E 1.5

Input, process, output, storage and networking devices

Storage Devices

Output Devices

Input Devices

Process Device (Computer)

Internet

In addition to communication that takes place between computer components, communication occurs between computers over distances (called telecommunications). The distance to communicate can be as small as a few feet for a Bluetooth mouse or Wi-Fi handheld scanning device, a few hundred yards for computers connected through a local area network (LAN) within the same building, or thousands of miles for global network systems between continents. Communications technology lets users access data and other electronic resources of many computers, all connected in a network. This way, the capabilities of a single computer might be augmented with the power of an entire network.

From Recording Transactions to Providing Expertise: Types of Information Systems

Different types of information systems serve different functions—for particular types of organizations, functions within organizations, business needs, and management levels of an organization. Business enterprises differ in their objectives, structure, interests, and approaches. However, ISs can be generally categorized based on the level of a system’s complexity and the

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type of functions it serves. ISs in business range from the basic transaction processing system that records events such as sales to sophisticated expert systems, which provide advice and reduce the need for the expensive services of a human expert. In recent years, the capabilities of many applications have been combined and merged. It is less likely that you will find any of the following applications as stand-alone systems with a single capability. Managers and other professionals plan, control, and make decisions. As long as a system supports one or more of these activities, it may be referred to as a management information system (MIS).

Transaction Processing Systems

Transaction processing systems (TPSs) are the most widely used information systems. The predominant function of TPSs is to record data collected at the boundaries of organizations, in other words, at the point where the organization transacts business with other parties. They also record many of the transactions that take place inside an organization. For example, they record the movement of parts from one phase of manufacturing to another, from raw materials to finished products. TPSs include POS machines, which record sales; automatic teller machines, which record cash withdrawals, deposits, and transfers; and purchase order systems, which record purchases. A typical example would be the purchase of gasoline at a pump, using a credit card. The purchase is recorded by the gasoline company and later at the credit-card-processing bank. After these data elements are collected, the IS can automatically process the data immediately and store it for later access on demand. Transaction processing systems provide most of the data in organizations for further processing by other ISs.

Supply Chain Management Systems

The term “supply chain” refers to the sequence of activities involved in producing and selling a product or service. In industries that produce goods, the activities include marketing, purchasing raw materials, manufacturing and assembly, packing and shipping, billing, collection, and after- the-sale services. In service industries, the sequence might include marketing, document management, and monitoring customer portfolios. Information systems that support these activities and are linked to become one large IS providing information on any stage of a business process are called supply chain management (SCM) systems.

Often, such systems are called enterprise resource planning (ERP) systems, because the information they provide supports the planning of shipping resources such as personnel, funds, raw materials, and vehicles. However, ERP is a misnomer for the systems, because they mainly serve managers in monitoring and modifying business processes as they occur, and not only for planning. The term “supply chain,” too, is somewhat misleading. Business processes do not always take the form of a sequence; some processes take place in parallel. This is true in manufacturing, where two or three teams work on different parts of a product, and in services, where two or three different people peruse a document online and add their input to it within a certain period of time rather than sequentially. In the production of goods and services, some modules of SCM systems provide support to the major processes. These components include human resources (HR) information systems and cost accounting systems.

SCM systems are the result of systems thinking and support systems thinking. They eliminate the need to reenter data that has already been captured somewhere else in the organization. An SCM is an enterprise application because the systems that support each business process are connected to each other to form one large IS. Technically, anyone with access to the system can know the status of every part of an order received by the business: whether the raw materials have been purchased, which subassemblies are ready, how many units of the finished product have been shipped, and how much money has been billed or collected for the order. HR managers can tell which workers are involved in any of the processes of the order. Accountants can use their module of the system to know how much money has been spent on the order and what the breakdown of the cost is in labor, materials, and overhead expenditures. The figure shown below combines several performance metrics into one screen called a dashboard. This dashboard from

Point-of-sale (POS) machines are a uni- versal type of transaction processing system

©iStockphoto.com/LuminaStock

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iNetSoft shows the various sales, inventory, and quota metrics to monitor organizational performance based on data processed by various transaction processing systems.

With enterprise applications, many units of the organization can access the same data and share information for their own management tasks or further processing

Customer Relationship Management Systems

Customer relationship management (CRM) systems help manage an organization’s relationships with its customers. The term refers to a large variety of information systems, from simple ones that help maintain customer records to sophisticated systems that dynamically analyze and detect buying patterns and predict when a specific customer is about to switch to a competitor. Many CRM systems are used by service representatives in combination with a telephone. When a customer telephones, the representative can view the entire history of the customer’s relationship with the company: anything that the customer has purchased, deliveries made, unfulfilled orders, and other information that can help resolve a problem or help the customer find the desired product or service. The convergence of various technologies has provided innovative methods of

providing customer service with online chat and callback services. Some companies offer a “call back” feature where customers place their requests in a queue, which allows customers to do other tasks while awaiting a phone call. Businesses have adopted online chat customer service through their websites to reduce telephony costs and increase customer service personnel productivity. The main goals of CRM systems are to increase the quality of customer service, reduce the amount of labor involved in serving customers, and learn as much as possible about the buying habits and service preferences of individual customers.

CRM systems are often linked to web applications that track online shopping and process online transactions. Using sophisticated applications, a company can learn what makes a customer balk just before submitting an online order, or what a customer prefers to see displayed on webpages. Online retailers such as Amazon.com, Buy.com, and Target.com use applications that construct different webpages for different customers, even when they search on the same keywords. The pages are

constructed to optimally suit the individual customer’s interests as inferred from previous visits and purchases. CRM systems provide important data that can be accumulated in large databases and processed into business intelligence.

Co ur te sy

of in et so ft

Customer relationship management sys- tems help support customers and glean business intelligence

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Effective CRM systems are accessible to both sales and service people. They enable continuous and smooth interaction with everyone from prospective customers to buyers who need after-the-sale service. Both salespeople and service crews can view the entire record of a customer and the product purchased and fit the service according to the product service schedule. Because retaining loyal customers is significantly less expensive than acquiring new ones, CRM systems may increase an organization’s profitability.

Business Intelligence Systems

ISs whose purpose is to glean from raw data relationships and trends that might help organizations compete better are called business intelligence (BI) systems. Usually, these applications consist of sophisticated statistical models, sometimes general and sometimes tailored for an industry or an organization. The applications access large pools of data, usually transactional records stored in large databases called data warehouses. With proper analysis models, BI systems might discover particular buying patterns of consumers, such as combinations of products purchased by a certain demographic group or on certain days; products that are sold at faster cycles than others; reasons for customers’ churns, that is, customers leaving a service provider for a competitor; and other valuable business intelligence that helps managers quickly decide on changing a strategy.

Decision Support and Expert Systems

Professionals often need to select one course of action from many alternatives. Because they have neither the time nor the resources to study and absorb long, detailed reports of data and information, organizations often build information systems specifically designed to help make decisions. These systems are called decision support systems (DSSs). While DSSs rely on models and formulas to produce concise tables or a single number that determines a decision, expert systems (ESs) rely on artificial intelligence techniques to support knowledge-intensive decision-making processes.

Decision support systems help find the optimal course of action and answer “What if?” questions. “What if we purchase raw materials overseas? What if we merge our warehouses? How many first-time buyers were gained from our social media sites?” These questions seek answers like, “This is how this action will impact our revenue, or our market share, or our costs.” DSSs are programmed to process raw data, make comparisons, and generate information to help professionals glean the best alternatives for financial investment, marketing strategy, credit approval, and the like. However, it is important to understand that a DSS is only a decision aid, not an absolute alternative to human decision making.

Many environments are not sufficiently structured to let an IS use data to provide the one best answer. For instance, stock portfolio management takes place in a highly uncertain environment. No single method exists to determine which securities portfolio is best, that is, which one will yield the highest return. Medical care is another unstructured environment. There might be many methods of diagnosing a patient on the basis of his or her symptoms. Indeed, a patient with a particular set of symptoms might receive as many different diagnoses as the number of doctors he or she visits.

Using ESs preserves the knowledge of retiring experts and saves a company the high cost of employing human experts. After gathering expertise from experts and building a program, the program can be distributed and used repeatedly. The expertise resides in the program in the form of a knowledge base consisting of facts and relationships among the facts. You will learn about DSS and ES in detail in Chapter 10, “Decision Support and Expert Systems.”

Geographic Information Systems

In some cases, the information decision makers need is related to a map or floor plan. In such cases, special ISs called geographic information systems (GISs) can be used to tie data to physical locations. A GIS application accesses a database that contains data about a building,

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PART 1

neighborhood, city, county, state, country, or even the entire world. By representing data on a map in different graphical forms, a user is able to understand promptly a situation taking place in that part of the world and act upon it. Examples of such information include flood-prone regions, population levels, the number of police officers deployed, probabilities of finding minerals, transportation routes, and vehicle allocation for transportation or distribution systems. Thus, when a supermarket chain considers locations for expansion, executives look at a map that reflects not only geographic attributes but also demographic information such as population growth by age and income groups. GISs are often used to manage daily operations as well as for planning and decision making. They also have been used to provide service via the web, such as helping residents find locations of different services on a city map or plan travel routes. Many GISs that support operations use information from global positioning system (GPS) satellites, especially to show the current location of a vehicle or person on a map or to provide directions or information on traffic congestion, alternate routes, or various services along a route. This mobile type of GIS has become popular, preinstalled in vehicles, sold as a portable device, or integrated into a smartphone.

Geographic information systems, such as Google Maps, help associate information with locations and regions. This map identifies ATM locations

Commonly used GISs on the web are Google Earth and Mapquest. They combine maps with street addresses, points of interest, directions, distances, and travel time calculations. Other web- based GISs provide real estate information. One such popular system is Zillow (www.zillow.com), which provides maps and information about homes for sale, recent sales, and price estimates. Many businesses, such as hotels, integrate external GIS systems within their web-based systems to provide more information to consumers. The figure shows an example of Google Maps that identifies automated teller machines in a geographic area.

Information Systems in Business Functions

ISs serve various purposes throughout an organization in what are known as functional business areas—in-house services that support an organization’s main business. Functional business areas include, but are not limited to, accounting, finance, marketing, and human resources. As previously mentioned, in a growing number of organizations these systems are modules of a larger enterprise system, an SCM, or ERP system. Chapter 3, “Business Functions and Supply Chains,” discusses business functions and their systems in detail.

Co ur te sy

of G oo gl e, In c.

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1 PART

Accounting

In accounting, information systems help record business transactions, produce periodic financial statements, and create reports required by law, such as balance sheets and profit-and-loss statements. In the United States, the Sarbanes-Oxley Act of 2002 has forced companies to modify their ISs or install new systems to comply with more demanding accounting rules. ISs also help create reports that might not be required by law, but that help managers understand changes in an organization’s finances. Accounting ISs contain controls to ascertain adherence to standards, such as a double entry accounting method.

Finance

While accounting systems focus on recording and reporting financial changes and states, the purpose of financial systems is to facilitate financial planning and business transactions. In finance, information systems help organize budgets, manage cash flow, analyze investments, and make decisions that could reduce interest payments and increase revenues from financial transactions.

Marketing

Marketing’s purpose is to pinpoint the people and organizations most likely to purchase what the organization sells and to promote the appropriate products and services to them. For instance, marketing information systems help analyze demand for various products in different regions and population groups in order to more accurately market the right product to the right consumers. Marketing ISs provide information that helps management decide how many sales representatives to assign to specific products in specific geographical areas. The systems identify trends in the demand for the company’s products and services. They also help answer such questions as, “How can an advertising campaign affect our profit?” The web has created excellent opportunities both to collect marketing data and to promote products and services by displaying information about them. That is why organizations conduct so much of their marketing efforts through ISs linked to the web.

POINT OF INTEREST Texting to Help Social Causes

New information systems have allowed mobile phone users to donate more quickly and easily than ever. During the aftermath of the earthquakes in Haiti in 2010, the Red Cross utilized this ability to quickly raise over $30 million, just through text message donations. By sending “GIVE” to a number, mobile phone users automatically donated $10 which was added to their next phone bill.

For example, in Africa, mobile phone users can remind patients to take their medicines and warn farmers when elephants are coming so they can ward them off rather than kill them. These examples demonstrate how mobile communications hasten the efficient transmission of money and information in a fast moving world. Source: Alter, L. (2012). Texting Becomes Key Tool for Philanthropy. http://tlc.howstuffworks.com/ home/texting-changing-philanthropy.htm

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PART 1

Human Resources

Human resource (HR) management systems help mainly in record-keeping, employee evaluation, and employee benefits. Every organization must maintain accurate employee records. Human resource management systems maintain such records, including employees’ pictures, marital status, tax information, and other data that other systems, such as payroll, might use. For example, the sample screen from Mipis Software shown here gives the experience captured from an employee’s resume and stored in the database.

Human resource management systems, like Mipis Software, help users hire and promote employees

Performance evaluation systems provide essential checklists that managers can use to assess their subordinates. These systems also offer a scoring utility to quantify workers’ strengths and weaknesses.

HR management systems have evolved to serve many purposes: recruiting, selection, placement, benefits analysis, requirement projections (how many employees with certain skills will be required in so many months?), and other services. Many companies enable employees to use online systems to compare and select benefit packages such as health insurance and pension plans.

Web-Empowered Enterprises

The most exciting intersection of IT and business in recent years has been networked commerce— buying and selling goods and services via a telecommunications network—or as it is popularly called, e-commerce. The development of the web and the opening of the Internet to commercial activities spawned a huge surge in business-to-business and business- to-consumer electronic trade. Now, every individual and small business can afford to use a network for business: the Internet.

The Internet is a vast network of computers connected across the globe that can share both information and processing. The web is capable of displaying text, graphics, sounds, and moving images. It has enticed thousands of businesses to become involved in commercial, social, and educational initiatives. Social networking through sites such as Twitter, Pinterest, Foursquare, and Facebook provide a virtual meeting place for people and an opportunity to advertise and promote business organizations to mass audiences with minimal effort. Thus, the web is not only a place to conduct e-commerce, but also an emerging advertising medium, gradually replacing other media such as television and newspapers. Almost every brick-and-mortar business has extended its operations to the web. Chapter 8, “The Web-Enabled Enterprise,” discusses web technologies and how they are used in business activities. Because of its great influence on the use of information technology, the web’s impact on the use of information systems is discussed throughout the book.

Co ur te sy

of M ip si s

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1 PART

The Downside

It does not require much effort to consider the positive impact of technology in our daily lives. However, it often also has undesirable or unintended effects. This was true of the labor-saving machines that prompted the industrial revolution (introducing 16-hour workdays and child labor under harsh conditions), and it is also true about information technology. Think of the effect of IT: it makes our work more productive because a few keystrokes on a computer keyboard prompt the computer to calculate and print what would otherwise take many human hours. It educates us via technologies such as multimedia classes delivered online. It opens new economic opportunities such as trading with overseas consumers via the Internet. It makes the world smaller by letting people work and socialize together over great distances via networks such as the web. It creates communities and establishes closer, more interactive relationships with customers through social media sites. And it puts at our fingertips information on practically every imaginable subject. So, what’s the downside? There are quite a few downsides, which we will discuss in the following chapters. Here is a sample of the main issues and the questions they raise.

● Consumer Privacy. The ability to inexpensively and quickly collect, maintain, manipulate, and transfer data enables every individual and organization to collect millions of personal records. When visiting a commercial website, chances are the site installs a little file, a “cookie,” on your computer’s hard disk. This file helps track every click you make on that site, so companies specializing in consumer profiling can learn your shopping and buying habits. When you use a mobile phone to search for a restaurant, it records your exact location. Using an electronic toll pay- ment device on your car stores the location, day, and time each time you pass through a highway or bridge toll booth. Every time you pay with a credit card, the purchase is recorded to a personally identifiable record. All this data is channeled into large databases for commercial exploita- tion. Your control of such data is minimal. While consumers, patients, and employees might consent to the collection of information on one aspect of their lives by one party and on another aspect by another party, the combination of such information might reveal more than they would like. For example, using the data gathered from a retailer’s “frequent shopper card,” a firm can easily and inexpensively pur- chase your data from several consumer goods companies, combine the data into larger records, and prepare a dossier about you: your name, age, and gender; your shopping habits; the drugs you take (and through this information, the diseases you might have); the political party to which you contributed; and so on.

Civil rights advocates argue that IT has created a Big Brother society where anyone can be observed, monitored, and tracked. Lawmakers have passed legislation to regulate the collection and dissemination of private data. Are you willing

to give up some of your privacy to help companies better market to you products and services you might be interested in? Do you accept the manipulation and selling of your per- sonal data? Do you know how each of the businesses that you visit on the web utilizes and shares your personal data?

● Employee Privacy. IT helps employers monitor their employees, not only via the ubiquitous video camera, but also through the personal computers they use. Employers feel it is their right to monitor keystrokes, email traffic, the websites employees visit, and the whereabouts of people whose wages they pay while on the job. So, while IT increases productivity, it might violate privacy and create stress. Which is more important: your employer’s right to elec- tronically monitor you, or your privacy and mental well-being?

● Freedom of Speech. On the web anyone can become a publisher without censorship. The use of social media, blogging, and other technologies encourage netizens (Inter- net users) to opine about anything from products to their employers’ misdeeds. Some of the material published may be violent or embarrass people. If someone posts slurs about your ethnic group at a website, do you want the gov- ernment to step in and ban or penalize such postings? To what extent should web server operators be responsible for what others publish through their sites? Is unsolicited com- mercial email (spam) a form of free speech?

● Online Annoyances. Everyone has been a target of spam email. It is often a nuisance, but how do you accept this? And if you own a new small business and want to advertise via email to reduce your promotion costs, wouldn’t you want the freedom to do so? While surfing the web, you encounter many pop-up windows. Or your computer contracts spyware. Sometimes special software hijacks your browser and automatically takes you to a com- mercial site that you do not care for. Are these annoyances acceptable, or should they be stopped by legislation?

● Phishing and Identity Theft. Millions of people have fallen prey to phishing, the practice of enticing netizens to provide personal information to imposters. Email recipients are directed to copycat sites that purport to be legitimate sites of banks and other businesses where they are requested to “update” or “correct” their Social Security numbers, credit-card account numbers, passwords, and other information. This information is used by the phishers to make fraudulent purchases and obtain loans. Businesses and consumers become victims and sometimes lose money. In many cases when phishers steal an identity, the victims experience a long ordeal with authorities and businesses to deal with the damage from fraudulent activities.

● IT Professionalism. IT specialists play an increasing role in the lives of individuals and the operations of organiza- tions. The information systems they develop and maintain

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PART 1

POINT OF INTEREST

Malware Attacks Target Social Media and Mobile Devices

Over the last several years, the adoption of portable technology has increased significantly with the increasing use of smartphones, laptops, and tablets. At the same time, consumers have increased their use of social media sites. A recent Internet Security Threat report published by Symantec shows that the combination of social media sites and mobile devices has provided a wealth of new targets for malware attacks. The report identified more than 3.1 billion attacks by 286 million unique variants of malware in 2010. The attacks used a variety of methods, including shortened URLs, SMS (text) messages, and destructive applications. In addition, the report states that these attacks depended on users failing to be attentive to the permissions being accepted. Source: Anonymous. (2011, April 11, 2011). Mobile Devices and Social Networks Key Malware Targets, Wall Street Journal (Online), p. n/a.

Careers in Information Systems

Regardless of the career you choose, you are almost certain to interact with IT professionals. The IT trade is made up of people engaged in a wide variety of activities. According to a forecast by the U.S. Bureau of Labor Statistics, demand for IT professionals in the United States will continue to grow. The Bureau estimates an increase of 22 percent in demand for computer and information technology specialists for the decade 2010–2020. These positions consist of information security analysts, web developers, and computer network architects with a median salary of $75,000 (Anonymous, 2012a).

The following sections review the responsibilities of IT professionals in typical areas of specialization and show excerpts of posted online help wanted ads from employers seeking IT professionals. These IT positions were selected due to their significant job growth projections. In addition, these positions, specifically the “chief” job titles, describe the management potential for IT professionals.

Systems Analyst

Many IT professionals start their careers as programmers, or programmer/analysts, and then are promoted to systems analysts, positions that require a broad range of skills. A programmer/analyst is partly involved in the analysis of business needs and ISs, but the greater part of the job involves setting up business applications. A systems analyst is responsible for researching, planning, and recommending software and systems choices to meet an organization’s business requirements. Systems analysts are normally responsible for developing cost analyses, design considerations, implementation timelines, and feasibility studies of a computer system before making recommendations to senior management. A big part of this job includes developing alternative system plans based on (1) analyzing system requirements provided by user input, (2) documenting development efforts and system features, and (3) providing adequate specifications for programmers.

affect our physical and financial well-being tremendously. If IT specialists are considered professionals, why don’t they comply with a mandatory code of ethics as other profes- sionals, such as physicians and lawyers, do?

We will discuss these and other ethical and social issues throughout this book. As you will see, these issues are not

easy to resolve. The purpose of these discussions is to make you aware of issues and provoke your thoughts. Remember that the purpose of education is not only to develop skilled professionals but also to remind professionals of the impact of their work on the welfare of other people, and to encourage professionals to be socially responsible.

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1 PART

To succeed, systems analysts must possess excellent communication skills to translate users’ descriptions of business processes into system concepts. They must understand a wide range of business processes and ways in which IT can be applied to support them.

Most importantly, systems analysts must always keep in mind that they are agents of change, and that most people resist change. Unlike many other occupations, theirs often involves the creation of new systems or the modification of existing ones. Because new or modified systems often affect human activities and organizational cultures, systems analysts must be able to convince both line workers and managers that change will benefit them. Thus, these IS professionals must possess good persuasive and presentation skills.

Senior systems analysts often advance to become project leaders. In this capacity, they are put in charge of several analysts and programmers. They seek and allocate resources, such as funds, personnel, hardware, and software, that are used in the development process, and they use project management methods to plan activities, determine milestones, and control the use of resources.

POINT OF INTEREST Technology Jobs and Women

According to a 2012 study by the National Center for Women & Information Technology, 57 percent of 2010 undergraduate degree recipients were women. However, only 18 percent of 2010 Computer and Information Sciences undergraduate degree recipients were women. From 2000 to 2011, there has been a 79 percent decrease in the number of first-year undergraduate women interested in majoring in Computer Science. While 57 percent of professional occupations in the 2011 U.S. workforce were held by women, they only accounted for 25 percent of professional computing occupations. Considering the US Labor Department’s increased projections for information technology positions, there are substantial opportu- nities for women to secure quality, successful positions. Source: National Center for Women & Information Technology. (March 3, 2012). Women in IT: By the Numbers. http://www.ncwit.org/sites/default/files/legacy/pdf/BytheNumbers09.pdf

Database Administrator

The database administrator (DBA) is responsible for the databases and data warehouses of an organization—a very sensitive and powerful position. Since access to information often connotes power, this person must be astute not only technologically but politically as well. He or she must evaluate requests for access to data from managers to determine who has a real “need to know.” The DBA is responsible for developing or acquiring database applications and must carefully consider how data will be used. In addition, the DBA must adhere to federal, state, and corporate regulations to protect the privacy of customers and employees.

A growing number of organizations link their databases to the web for use by employees, business partners, and consumers. Attacks on corporate databases by hackers and computer viruses have made the DBA’s job more difficult. In addition to optimizing databases and developing data management applications, this person must oversee the planning and implementation of sophisticated security measures to block unauthorized access but at the same time to allow easy and timely access to authorized users. The DBA is also highly involved in the implementation of SCM systems, because they access corporate databases.

Network Administrator

Among the many IT areas, the one that has seen the most exciting developments in recent years is networks and telecommunications. Not surprisingly, this area has also seen the greatest increase in corporate allocation of IT resources in many organizations. The emergence of new technologies, such as Voice over Internet Protocol and Wi-Fi, which are discussed in Chapter 6, “Business Networks and Communications,” is expected to sustain this trend for some years, allowing network professionals to be in great demand and to command high salaries.

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PART 1

The network administrator is responsible for acquiring, implementing, managing, maintaining, and troubleshooting local area networks throughout the organization and their interfaces with the wide area networks such as the Internet. He or she is also often involved in selecting and implementing network security measures such as firewalls and access codes.

System Administrator

A system administrator—often referred to as “sys admin”—is responsible for managing an organization’s computer operating systems. System administrators often manage and maintain several operating systems, such as UNIX and Microsoft Windows and ensure that the operating systems work together, support end users’ business requirements, and function properly. System administrators are also responsible for the day-to-day maintenance of an organization’s operating systems, including backup and recovery, adding and deleting user accounts, and performing software upgrades.

Mobile Applications Developer

The explosive use of smartphones and other mobile devices has created a new position for information technology professionals: mobile applications devel- oper. These positions require technical expertise relating to the various software development tools for mobile devices and programming languages such as Java, ASP, and SQL. Mobile applications developers are often required to have experience with designing and gathering information about the specific needs of an application. Communication and system design skills are important for this type of professional. Because mobile applications are used directly by consumers, it is also important to understand their product preferences and needs.

Webmaster

The rapid spread of the web, intranets, and extranets has increased the responsibility and stature of the organizational webmaster. A webmaster is responsible for creating and maintaining the organization’s website as well as its intranet and extranet. Webmasters are increasingly involved in creatively deciding how to represent the organization on the web. These decisions involve elements of marketing and graphic design. Since many organizations use the web for commerce, webmasters must also be well-versed in web transaction software, payment-processing software, and security software. In small organizations, the website may be the responsibility of a single person. In large organizations, the webmaster often manages a crew of programmers who specialize in developing and updating code specifically for webpages and their links with other organizational ISs.

Chief Security Officer

Because of the growing threat to information security, many organizations have created the position of chief security officer (CSO), or chief information security officer (CISO). In most organizations, the person in this position reports to the chief information officer (CIO) (see next section), but in some cases the two executives report to the same person, usually the chief executive officer (CEO). The rationale is that security should be a business issue, not an IT issue. A major challenge for CSOs is the misperception of other executives that IT security is an inhibitor rather than an enabler to operations.

Mobile phone application development is a rapidly growing information technology career

J. Emilio Flores/Corbis

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1 PART

Chief Information Officer and Chief Technology Officer

The fact that a corporation has a position titled chief information officer (CIO) reflects the importance that the company places on ISs as a strategic resource. The CIO, who is responsible for all aspects of an organization’s ISs, is often, but not always, a corporate vice president. Some companies prefer to call this position chief technology officer (CTO). However, you might find organizations where there are both a CIO and a CTO and one reports to the other. There is no universal agreement on what the responsibility of each should be. Yet, in most cases when you encounter both positions in one organization, the CTO reports to the CIO.

A person who holds the position of CIO must have both technical understanding of current and developing information technologies and business knowledge. As Figure 1.6 shows, the CIO plays an important role in integrating the IS strategic plan into the organization’s overall strategic plan. He or she must not only keep abreast of technical developments but also have a keen understanding of how different technologies can improve business processes or aid in the creation of new products and services.

F I G U R E 1.6

Traits of a successful CIO Technologist

Entrepreneur

Must understand current and developing IT; does not have to be a great technician but must know to ask the proper questions about technology.

Must be entrepreneurial, proposing development of new products and services that can be supported with innovative IT.

Chief Information Officer

Business Executive Must understand business processes, the market, and the competition. Must think like a CEO and tie IT strategy into corporate strategy.

Leader Must know how to inspire staff, foster enthusiasm for new projects, and lead by personal example.

© Ce ng ag e Le ar ni ng

20 15

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PART 1

Summary

● Today’s business professionals are expected to

know how to develop and use IT significantly

more than just a few years ago, regardless of their

major field of expertise.

● Digital systems quickly and accurately store, pro-

cess, and communicate information of any type.

● Computer-based information systems pervade

almost every aspect of our lives. Their ability to

help solve problems and guide decisions makes

them indispensable in business and management.

Computer-based information systems take data as

raw material, process the data, and produce infor-

mation as output. Although data sometimes can be

useful as is, it usually must be manipulated to pro-

duce information that is useful for reporting and

decision making.

● A system is a set of components that work together

to achieve a common goal. An information system

(IS) consists of several components: hardware,

software, data, people, and procedures. The com-

ponents’ common goal is to produce the best infor-

mation from available data.

● Often, a system performs a limited task that pro-

duces an end result, which must be combined

with other products from other systems to reach

an ultimate goal. Such a system is called a subsys-

tem. Several subsystems might make up a system.

Sometimes, systems are also classified as closed

or open. A stand-alone system that is not interfaced

with other systems is called a closed system. A sys-

tem that interfaces with other systems is an open

system.

● Data processing has four basic stages. In the input

stage, data elements are collected and entered

into the computer. The computer then performs

the next stage, data processing, which is the

manipulation of data into information using math-

ematical, statistical, and other tools. The subse-

quent stage, output, displays or presents the

information. We often also want to maintain data

and information for later use. This activity is

called storage.

● Any information system that helps in management

may be referred to as a management information

system (MIS). MISs use recorded transactions and

other data to produce information for problem

solving and decision making.

● There are several types of information systems.

They include transaction processing systems

(TPSs), supply chain management (SCM) systems,

customer relationship management (CRM) sys-

tems, business intelligence (BI) systems, decision

support systems (DSSs), expert systems (ESs),

and geographic information systems (GISs). Often,

some or all of these systems are linked to each

other or to other information systems.

● Enterprise application systems, such as SCM or ERP

systems, are information systems that tie together

the different functional areas of a business, such as

order entry, inventory management, accounting and

finance, and manufacturing. Such systems allow

businesses to operate more efficiently by avoiding

reentry and duplication of information. The systems

can provide an up-to-the-minute picture of inventory,

work-in-progress, and the status of an order to be ful-

filled. Businesses that link each of their information

systems have an infrastructure to utilize data for

effective operational and strategic decisions.

● ISs are used in many business functions, most

commonly accounting, finance, marketing, and

human resources. These systems aid in the daily

operations of organizations by maintaining proper

accounting information and producing reports,

assisting in managing cash and investments, help-

ing marketing professionals find the most likely

buyers for their products and services, and keeping

accurate employee records and assisting with their

performance evaluations.

● The job prospects for IT professionals are bright.

Among the typical careers in this field are systems

analyst, database administrator, network adminis-

trator, system administrator, webmaster, chief

security officer, chief information officer, and chief

technology officer.

● IT has many advantages, but it also has created

societal concerns. Issues such as privacy, phishing

and identity theft, free speech on the web, spam,

and web annoyances are viewed by many people

as serious ethical issues. And while IT profes-

sionals increasingly affect our lives through the

systems they develop and maintain, they are not

required to adhere to any code of ethics as other

professionals are. These and related issues are dis-

cussed throughout the book.

CHAPTER 1 Business Information Systems 27 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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1 PART

KIMBALL’S REVISITED

Now that Chapter 1 has helped you understand how

businesses use data, information, and information

systems, let’s reexamine the Kimball’s Restaurant

case. Michael is spending significant time entering

the restaurant’s sales data. He does not have the

time to manage the business during its operating

hours as well as maintain the financial records. He is

responsible for rent payments, sales tax reports, and

paying suppliers for operating expenses and

materials. He needs a better system to maintain the

guest check and meal information for forecasting.

What Is Your Advice?

1. What would you suggest to Tyler to improve the

restaurant’s operational efficiency? Examine the

business’s inputs, processing, and outputs. Formu-

late recommendations to streamline the business

transactions. What type of reports do Liz and

Michael need? How would you alter the back-

office work to better suit their needs?

2. Based on Tyler’s request, his parents provided

some questions. Michael knows that some meals

are selling better than others, but he can only

guess which ones. What sales and operational

data do they need to maximize revenues and

profits while minimizing costs? What data will

help them to make decisions on how to operate

and manage their business? What information

technology system(s) would you recommend for

gathering and reporting the necessary

information?

New Perspectives

1. The restaurant industry is not static; new competi-

tors and challenges always arise. Consider the fol-

lowing challenges:

● Economic trends. When economic downturns

occur and disposable income decreases, consu-

mers tend to dine out less. Dining establish-

ments need to be creative in order to

counteract the possible loss of sales revenue.

● Operational efficiency. Like any business, Kim-

ball’s has both fixed and variable costs. Fixed

expenses can be budgeted and planned. However,

the variable expenses, if not managed properly,

can reduce profit and cash flow rather quickly.

● Marketing and promotional data. The former

owners did not gather and report any data on

their operations for analyzing marketing trends.

What can be done differently?

2. Explain how information technology and systems

can help Kimball’s to comply with gathering this

data.

Key Terms

business intelligence (BI), 18

chief information officer (CIO), 26

chief security officer (CSO), 25

chief technology officer (CTO), 26

closed system, 11

cloud computing, 13

customer relationship

management (CRM)

system, 17

data, 8

data processing, 14

data warehouse, 18

database, 12

database administrator (DBA), 24

decision support system

(DSS), 18

digital systems, 6

e-commerce, 21

enterprise application, 16

enterprise resource planning

(ERP) system, 16

expert system (ES), 18

geographic information system

(GIS), 18

information, 8

information map, 12

information system (IS), 12

information technology (IT), 13

input, 14

management information system

(MIS), 16

mobile applications

developer, 25

network administrator, 25

open system, 11

output, 14

process, 9

programmer/analyst, 23

Software as a Service (SaaS), 13

storage, 14

subsystem, 10

supply chain management (SCM)

system, 16

system, 10

system administrator, 25

systems analyst, 23

telecommunications, 15

transaction, 14

transaction processing system

(TPS), 14

webmaster, 25

28 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 1

Review Questions

1. What does the word “processing” in data pro-

cessing mean?

2. Give three examples in which raw data also

serves as useful information.

3. Give three business examples (not mentioned in

the text) of data that must be processed to pro-

vide useful information.

4. Give three examples of subsystems not operating

in the context of IT. Why are these considered

subsystems and not systems?

5. How do TPSs and DSSs differ?

6. What is a problem? Give an example of a

business problem and discuss how a

computer-based information system could

solve it.

7. “An information system consists of hardware

and software.” Why is this statement

inadequate?

8. In which situations does one need to make a

decision? Give three examples not mentioned in

the chapter.

9. How can a DSS help make decisions?

10. Note the word “support” in decision support

systems. Why are these applications not called

decision-making systems?

11. Who is considered a knowledge worker? Will you

have a career as a knowledge worker? Explain.

12. When would a business use mobile computing or

web-based information systems in their opera-

tions? Discuss an example of a business function

that could be implemented on each platform, and

explain why that platform would be preferred

over the other platform.

13. TPSs are usually used at the boundaries of the

organization. What are boundaries in this con-

text? Give three examples of boundaries.

Discussion Questions

14. No longer the domain of technical personnel,

information systems are the business of every

professional. Why?

15. For information systems projects and initiatives,

what would you expect your involvement to be as

a business professional?

16. Assume that computers can recognize voices

easily and detect their users’ exact meaning when

talking. Will the necessity for written language be

reduced to zero? Why or why not?

17. Information systems cannot solve some business

problems. Give three examples and explain why

technology cannot help.

18. Practically all knowledge workers must know how

to use information systems. Why?

19. Think of two examples of fully web-based busi-

nesses. What made the web so attractive for

these entrepreneurs?

20. We will soon stop talking of e-commerce and

simply speak of commerce. Why?

21. Help wanted advertisements do not use the term

“computer specialists”; rather, they use the term

“information system professionals” or “informa-

tion technology professionals.” Why?

22. How do traditional commerce and web-based

commerce differ? What aspects of traditional

shopping do you prefer over online shopping?

How has mobile computing altered web-based

commerce?

23. Information technology might bring people

together, but it also isolates them. Explain the

latter claim and give an example. How does

social media help or harm inter-relationships

between business professionals? Business

organizations?

24. Give two examples of phenomena that are a

social concern because of information technol-

ogy. Explain.

25. What irritates you about the web? What would

you do to minimize this irritation?

26. Do you foresee an IT-related societal or

ethical concern that is not a current concern?

Explain.

27. Identity theft existed before the advent of the

Internet. However, increased identity theft is one

of the unintended, undesirable results of using

the Internet. What is the role of educating the

public in containing this crime?

CHAPTER 1 Business Information Systems 29 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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1 PART

Applying Concepts

28. Recall what you did yesterday from the moment

you got up until the moment you went to bed.

How many times did you use a computer or

receive data or information from someone who

used a computer? (Do not forget ATMs, POS

machines, automated kiosks, personal devices,

etc.) Write a two-page essay on your daily expe-

rience with IT and on society’s dependency on

computers.

29. Contact a business organization and ask permis-

sion to observe a business process. Pinpoint the

segments in the process that a computer-based

information system could aid. Write a report

detailing your observations and suggestions.

30. Observe activities in a supermarket: shoppers

looking down aisles for specific products; lines

forming at the POS machines; workers putting

new prices on items. Prepare a list of shoppers’

and workers’ activities that could be carried out

with less use of human time and more accuracy if

they were aided by IT. Explain how you would

change those activities.

Hands-On Activities

31. Consider the Weather Channel Facebook app

example shown in a Point of Interest box earlier

in this chapter. List some initiatives that could

develop a new product or service by integrating

social media for business organizations.

32. Use a résumé template in your word-processing

program to type your résumé. If you don’t have a

lot of direct work experience, remember to

include all types of work, whether it’s babysitting,

camp counseling, mowing the lawn, or volunteer

work. Now turn your résumé into one that can be

displayed well as a webpage.

33. Prepare a list: what information that you currently

receive through other means could you receive

through your computer? The list should include

text, images, audio, and animated information.

Would you prefer to receive this information on

the computer or as you do now?

Team Activities

34. Form a team with two other students. Each team

member should play the role of a vice president

in charge of a business function: human

resources, accounting, marketing, finance, and

so on. Each vice president should enumerate

information he or she needs to perform his or

her function. Now list information that two or

more of the functions must share and data

produced by one function that another function

uses.

35. Team up with another two students. Brainstorm and

try to think of a new business opportunity that you

would like to pursue in which you will not need IT.

You should be able to convince your professor that

IT cannot improve the operations of this business.

30 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

From Ideas to Application: Real Cases

The Personal and Portable Touch

FedEx is an organization that never sleeps. The

foundation of its business is “fast,” and every minute

counts. Each business day, the company’s more than

300,000 team members handle an average of 9 million

packages, using over 663 aircraft and 90,000 motorized

vehicles. During the holiday season, its operations

experience significantly increased package volumes

and high customer expectations. The company, which

generated $37 billion in revenue in 2012, serves more

than 220 countries and territories. Customers use

FedEx because they want reliable delivery in a

compressed timeframe. When anything disrupts the

timely and safe delivery of those packages, FedEx’s

customer service reps are likely to receive a call from a

customer.

Prompt, efficient customer service is extremely

important for staying in this highly competitive

global shipping industry, let alone doing so with a

satisfactory profit. Incoming telephone calls at the

FedEx customer service centers are answered by

FedEx reps. Sitting in front of computer monitors in

a cluster of cubicles with headsets on, these agents

barely have time to stretch their limbs.

A caller complains that her package hasn’t

arrived, which is a common complaint. Another asks

if he can change his pickup time. A third caller is

confused about signature: is he supposed to sign for

the delivery or will the package just be dropped at his

doorstep? The reps are confident and friendly. They

welcome any question or complaint even if they

have heard it a thousand times before. The words “I

am sorry” are uttered often. They are careful not to

give the customers a feeling of being rushed, but try

to resolve complaints quickly. Time is money.

Several years ago FedEx installed software that

reps at the call centers can use to provide faster

service. Many of the callers are already registered in

the company’s database. One of the most frequent

requests is to send a FedEx worker to pick up a

package. Using the software, a rep can handle such

a request in 20 seconds. All she needs to do is enter

a name, which leads to a zip code, which in turn leads

to a tracking number. That number uniquely identifies

the package. Some complaints are more complex. For

example, a FedEx driver misunderstood a note a caller

had left for him and therefore misdelivered a package.

A complaint like that takes no more than 10 minutes

to resolve.

An experienced and efficient rep can handle

about 10 callers in 45 minutes. Ideally, though,

nobody would call. If FedEx had its way, at least six

of the ten callers would use their computers to go to

FedEx’s website and solve their problem by

themselves—because about 60 percent of FedEx’s

clients have a computer connected to the Internet.

Like other companies, FedEx tries to save labor by

directing callers to its website. Yet, many people

prefer to use the phone and talk to a human helper.

Every time a customer decides to use the

company’s website instead of telephoning, the

company saves up to $1.87. Efforts to divert callers

to the site have been fruitful. In 2005, FedEx call

centers received 470,000 calls per day, 83,000 fewer

than in 2000. This difference in calls translates into a

saving of $57.56 million per year. The company’s

website handles an average of 60 million requests to

track packages per month. Operating the website

does cost money. Each of these requests costs

FedEx 3 cents, amounting to $21.6 million per year.

However, if all these requests were made by phone,

the cost would exceed $1.36 billion per year. As it is

impossible to divert all callers to the website, the

company must maintain call centers. The annual cost

of these call centers is $326 million. This cost might

decrease over the years, as more and more

customers use the website, but there will probably

always be call centers, because FedEx does not want

to lose frustrated customers.

In 2000, management purchased customer

relationship management software called Clarify.

A new policy was established: systems and customer

service experts are equally responsible for the call

centers. Using PCs, reps can pull up historical data

on customers whenever customers call. Customer

records that are immediately available to reps

include shipping histories, preferences, and images

of the paper bills. Customers are happier now than

they were just a few years ago. So are the reps.

Turnover of service reps has decreased 20 percent.

Interestingly, customers are not interested in

friendliness, but in quick and accurate information.

FedEx constantly follows customer reactions to

different help styles. Managers discovered that

when reps’ time is not limited, they tend to speak

with customers beyond the time required to solve

the problem. Customers perceive them as too

talkative, and they get a bad impression about

FedEx. Thus, reps are encouraged to get off the

phone as soon as the problem is resolved rather

than try to be “nice.”

The web has clearly transformed customer

service. However, mobile computing now allows the

customer to “carry the company” with them. While

FedEx has a website version for smartphones, a fully

optimized mobile version was released in late 2010.

CHAPTER 1 Business Information Systems 31 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 1 32 The Information Age

Mobile-based websites generate a fraction of the

traffic realized by the traditional website. However,

FedEx experienced steady growth on the mobile-

based product. The increasing adoption of the new

technology forced an examination of the new

product. They believed that a more robust product

was needed to support FedEx’s operations.

Ultimately, FedEx developed a product that

offered a broader functionality using smartphone

technology on popular devices such as Apple

iPhones and Android phones. FedEx plans to track

the use of the apps and the mobile site against any

cost savings realized through reduced calls placed to

their call centers.

The availability of quality, fast customer service

continues to be realized by integrating information

technology with the latest mobile technologies.

FedEx, like many business organizations, continues

to improve through innovative technology initiatives.

Sources: FedEx. (2012). About FedEx. Retrieved 13 Septem- ber, 2012, from http://about.van.fedex.com/; Gage, D. (2005).

Personal Touch; Fedex already saves big bucks by steering

inquiries to its web site. So how can it justify spending

$326 million a year on call-center reps? Baseline, 1(39), 54-54;

Gordon, R. (2010). FedEx mobile strategy aims for customer

loyalty. www.dmnews.com/fedex-mobile-strategy-aims-for-

customer-loyalty/article/181706/

Thinking About the Case

1. What is CRM in general? Give examples of dif-

ferent CRM applications.

2. Enumerate and explain the various ways in which

the CRM applications discussed here save costs

or help in other ways.

3. Which metrics would you use to measure before

and after performance regarding the information

technologies implemented in this case? Consider

cost, service quality, cycle time, and any other

performance factor and provide a specific metric

(i.e., ratio, product, or absolute value).

4. What are the challenges of implementing mobile

technology? Are the savings similar to web-based

systems?

5. As an executive for FedEx or a similar company,

what else would you implement using mobile

computing and the Internet?

Blooming with Technology

The use of information technology is needed by every

industry size and type of business. Small businesses

can realize the positive effects through adopting

technology. However, small businesses often do not

have the resources and expertise of large

corporations to implement information technology

strategies. However, the benefits of technology for

small and medium-sized enterprises (SMEs) are just

as crucial to business operations and strategy.

Consider Four Seasons Greenhouse and Nursery,

located in Colorado. This small nursery was like many

other small businesses and garden centers. They used

manual registers to track and maintain its inventory as

well as determine which products were realizing the

most profit. The profits from the nursery were either

“negligible” or a loss. They did not have access to

useful operational data to effectively manage their

business. For example, they did not track or review

the margins of individual products. However, they

believed that they needed to do something different

for their $1M business operation.

Enter a new point-of-sale system (POS) in 2008.

The system allowed the owners to track useful

business data from the sales transactions

immediately at the time of the sale; eliminating the

need for tracking sales manually. The system

processes and stores data from the sale while

updating the inventory as well as compiling a sales

history. This eliminates reliance on manual entry of

sales transactions and reduction of inventory units

for the items sold. POS systems provide much more

than a cash register. These systems provide more

robust functionality in inputting, tracking, and

distributing data to provide useful information to

operate and manage the business.

Accurate inventory data maintained by the POS

helped with decision making. Decisions on how

many units of a product to order were no longer

based on speculation about current inventory units.

Now, accurate inventory counts eliminate the

guesswork on how much to order, helping the

business to operate on leaner inventory units.

The system’s reporting can provide the detail

transactions for an inventory item, such as how

many were purchased, discarded, and sold.

The implementation of a POS system also

confirmed that the owners did not know as much

about their business as they thought they did. As

they reviewed reports from the new system, they

saw that some products were less profitable than

they thought. The more detailed cost reporting by

item helped them to understand which products

contributed the most profit to the operation. Their

new perspective of the “real costs” provided the

opportunity to shift production to the higher-profit

items, thereby gaining more profit. Prior to

implementing the POS system, they simply did not

have the time to approach this level of decision

making.

Knowledge of their detailed product costs helps

them to price products more profitably. Price

changes can be implemented temporarily (for a

promotion) or permanently and still remain within

acceptable product margins. The accurate and timely

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 1

reporting of this information assists them to be more

effective managers of their business operations. The

ability of the system to process sales, inventory, and

purchasing transactions immediately reduces the

need for data entry of paper information. The time

savings can be used for managing the business

rather than mundane clerical functions.

The new system has expanded Four Seasons’s

management control over employee schedules to

review and allocate labor expenses to specific

departments and functions. An additional benefit

allows the owners to delegate more responsibility to

the staff and establish accountability. Instead of the

owners establishing goals, they provide the system’s

data and ask staff to submit their sales goals for the

next reporting period. Ultimately, the information

technology system creates a solid infrastructure to

process and report the businesses operations for the

entire enterprise.

The garden center is an excellent example of how

technology can realize benefits for a business. The

ability for organizations to remain competitive and

agile is crucial. These systems allow organizations

large and small to leverage business data to gain a

competitive advantage and operational efficiency.

Source: Jones, R. (2011, May). Garden Center 2.0. Today’s Garden Center, 8, 14-16.

Thinking About the Case

1. Why do point-of-sale systems process business

activities more effectively? Can the information

be tracked manually in an effective manner? Why

or why not? What types of questions could be

answered effectively? How could the information

be used to better manage the business?

2. Why do small business owners avoid the use of

information technology?

3. Consider the types of information systems dis-

cussed in the chapter. What other systems could

interact with the POS system as it processed a

sale?

References

Anonymous. (2011). Coinstar Reports 2011 1st Quarter Results. Entertainment Close-Up.

Anonymous. (2012a). Information Security Analysts, Web Developers, and Computer Network Architects. www.bls.gov/ooh/computer-and- information-technology/print/information- security-analysts-web-developers-and-computer- network-architects.htm

Anonymous. (2012b). Youtube Statistics. Retrieved September 8, 2012, from www.youtube.com/t/ press_statistics

Cerny, J. (2011). Making the MOVE to MOBILE. Mortgage Banking, 71(11), 68-70, 72-73.

Chipchase, J. (2011). “Innovation lessons from a vending machine.” Retrieved 10 September 2012, from http://globalpublicsquare.blogs.cnn.com/ 2011/06/13/innovative-vending-machines/

Gruenwedel, E. (2011). Analyst: Consumers Prefer Lower-cost Movie Rentals. Home Media Magazine, 33(22), 6.

Pruitt, A. (2007). Tiny Redbox’s DVD Kiosks Grow, Wall Street Journal, p. B.5D.

CHAPTER 1 Business Information Systems 33 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

1

CHAPT ER

PART

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two

STRATEGIC USES OF INFORMATION SYSTEMS

Learning Objectives Executives know that information technology is not merely a resource to support day-to-day operations. Clever use of IT can significantly change an organization’s long-term strategic position. Often, innovative use of information systems radically changes the way a firm conducts its business. Some information systems even change a firm’s product or service, such as when innovative software is integrated into a physical product or when a service is readily available on the web. Therefore, information systems are now an integral part of strategic planning for nearly all organizations.

When you finish this chapter, you will be able to:

● Explain what business strategy and strategic moves are.

● Illustrate how information systems can give businesses a competitive advantage.

● Identify basic initiatives for gaining a competitive advantage.

● Explain what makes an information system a strategic information system.

● Identify fundamental requirements for developing strategic information systems.

● Explain circumstances and initiatives that make one IT strategy succeed and another fail.

34 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

KIMBALL’S RESTAURANT: Using Information Strategically

Kimball’s business has steadily grown over its first

three years. With all their hard work and long hours, Liz

and Michael were pleased to see their dining room full

of customers on many nights. The bar developed a

strong, local clientele for weekday sporting events and

“after work” gatherings. Several nights a week, there

was standing room only in the bar area. The implemen-

tation of a point-of-sale system helped the dining and

kitchen operations and provided several benefits over

their antiquated hardcopy guest check process. The

new system tracked and stored each meal and customer

check information. This additional detail provided data

for analysis without the need to enter data from the

paper guest check method.

Restaurant sales continued to grow. As they grew,

Mike and Liz wondered if they should consider expan-

sion. Michael’s analysis of customer checks and sales

showed that their current location’s capacity was an

issue. However, they did not want to expand just for

the sake of expanding.

An Opportunity Liz and Michael were approached by Shaun Reilly,

whose family owned a lakeside campground property

about five miles from the restaurant. The campground

business closed after his parents retired. With changing

consumer behavior and lifestyles, Shaun did not think

the property could continue successfully as a camp-

ground. Therefore, he was looking to sell or lease the

property for an alternative use.

The campground’s picturesque view of Lake Zephyr

was an excellent location for a restaurant. The main

building had housed a medium-sized restaurant for the

campground. Several areas could be easily converted to

expand the current dining room area. In addition, the

building included a spacious covered patio area that

was used as a lounge area for campers. The patio area

could be used for additional lakeview dining during the

warmer months.

Intrigued by Shaun’s proposal, Liz and Michael vis-

ited the campground. Although the building was over

30 years old, Shaun’s family had maintained the prop-

erty meticulously. The kitchen area was ample to cook,

prepare, and store food. The additional three rooms in

the building could be redesigned easily to serve as two

dining areas and a lounge/bar area. One of the dining

rooms could also be used as a small function room for

business meetings or family events. The views of the

lake provided a remarkable atmosphere for a unique

dining experience.

Michael estimated that the dining area would

increase their dining capacity to 110 seats and the

lounge area to 25. Liz thought “Could this location sup-

port a successful restaurant?” Would Liz and Michael

damage a successful restaurant to seek out a larger

establishment? They expressed some concern about

whether it would be a viable business opportunity. Or

were they leaning toward the safe, no-risk approach?

Or should they remain with the current location and

business model they currently have?

Looking Before They Cook Michael and Liz spoke to their son, Tyler, about the

opportunity. They all agreed that it would be better to

revisit their original business plan. Because Tom’s mar-

keting expertise was so valuable when they first

planned the business, they hired him to update the

plan in terms of the proposed new location. Michael

provided the detailed menu item and daily sales sum-

mary data that he had collected since Kimball’s point-

of sale-system was installed. At a first glance, it was

clear to Tom that the restaurant was doing well. With

the new point-of-sale system, Michael captured more

data than the previous owner had from the manual

guest check system.

Tom analyzed the time customers spent at each

table, known as table turnaround. The higher the value

of this metric, the more efficiently the tables were being

used, meaning less time spent by customers at tables.

Michael had never tracked this data, or understood the

range of information that was available from the new

system.

Tom worked with the data to develop several fac-

tors that he could use to forecast sales and expenses

for the proposed new location. He extracted the average

for the total check amount, dining time, and number of

people per table. Tom analyzed this data by day of the

week, specific timeframe (holidays, etc.), and months.

These different summaries of the data provided a wide

view of the factors to compile a more accurate sales

forecast. Michael had never reviewed the data from the

POS system using this approach. He was a bit surprised

by what the data could report.

Michael and Liz then had a meeting with Terri Jordan,

the restaurant’s accountant. She prepared all of the restau-

rant’s financial statements, state sales tax reports, and

income tax filings. Over the last two years, Terri reported

that while the restaurant was doing well, their total

expenses also increased. The financial statements showed

that the cost of goods sold as well as labor expenses

increased disproportionately compared to total sales.

Although sales increased, the net profit margin decreased

slightly each month. Liz asked Terri to tell them what they

were doing wrong and how they could fix it.

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1 PART

Terri saw two possible factors in the declining prof-

its: excess inventory and labor costs. She had analyzed

the restaurant’s financial data, operations, and invoices.

The information system did not maintain data for direct

inventory costs for meals or spoilage. Terri was frus-

trated that she could not directly compare the meal

sales to inventory in order to calculate the amount of

spoilage (if any). However, using summary data, she

felt that Liz might be purchasing more food than neces-

sary based on forecasted sales. Without the ability to

forecast food purchases based on past meal sales, it is

difficult to maintain accurate inventory and to reduce

spoilage costs.

Terri also looked at the labor costs for servers and

kitchen staff. She reviewed and compared the weekly

personnel schedules. The comparison clearly indicated

that the hours scheduled did not match the anticipated

number of diners. Terri noticed that the staff schedules

did not change from day to day, even though some

days’ sales were consistently lower. This could poten-

tially explain the increased labor costs.

Liz and Michael thought about the information from

Tom and Terri. Both advisors discussed that the

increased sales and customers probably distracted the

owners from managing the business from a strategic

perspective. The owners admitted that as the business

became popular, they felt that they did not need to man-

age costs and operations as strictly. Tom said this was a

common mistake that a lot of small business owners

make, and Terri had commented that the restaurant

still had strong, stable sales and remained popular

with customers. Therefore, they just needed to focus

on a few things to increase profitability. The easy solu-

tion would be to raise prices, but either Michael or Liz

wanted to do that. Michael decided that their first task

would be to implement some strategies to strengthen

their existing business before expanding.

Moving Forward Liz, Michael, and Tyler met again with Shaun. Liz and

Michael loved the location and were excited by its pos-

sibilities, but after their discussions with Tom and Terri,

they realized that they weren’t ready to take on the

expansion.

Tyler agreed that the business was doing fine, but

they needed to focus their attention to building some

strategies in operations and information technology to

strengthen their business in the current location. He

said that this focus could provide the results to lever-

age in a new location. Expanding the restaurant with a

“critical eye” toward a lean operation would create a

perfect transition to the new location when the time

was right.

A solid action plan was in place!

Strategy and Strategic Moves

A survey of 2,335 CIOs by Gartner Research highlighted the ever-changing role of IT as an integral player in corporations. The Gartner 2012 CIO Agenda Report noted that 61 percent of the CIOs conveyed that their organization’s mobility strategy will be a top priority (Anonymous, 2012b). The majority of the respondents set a goal of being a “market leader” in their industry specific to their use of mobile computing. The Gartner study also reported that CIOs business priorities will focus on enterprise growth and attracting and retaining customers. One-third also believed that IT innovation could enhance the customer experience. Clearly, IT is expected to contribute to business strategy.

The word “strategy” originates from the Greek word strategos, meaning “general.” In war, a strategy is a framework, or an approach, to obtaining an advantageous position. Other disciplines, especially business, have borrowed the term. As you know from media coverage, corporate executives often discuss actions in ways that make business competition sound like war. Businesspeople must devise decisive courses of action to win—just as generals do. In business, a strategy is an approach designed to help an organization outperform its competitors. Unlike battle plans, however, business strategy often takes the form of creating new opportunities rather than beating rivals.

Although many information systems are built to solve problems, many others are built to seize opportunities. And, as anyone in business can tell you, identifying a problem is easier than creating an opportunity. Why? Because a problem already exists; it is an obstacle to a desired

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PART 1

mode of operation and, as such, calls attention to itself. An opportunity, on the other hand, is less tangible. It takes a certain amount of imagination, creativity, and vision to identify an opportunity, or to create one and act on it. Information systems that help seize opportunities are often called strategic information systems (SISs). They can be developed from scratch, or they can evolve from an organization’s existing ISs. They are not defined by their technical features per se, but by how they are used, that is, for strategic advantage.

In a free-market economy, it is difficult for a business to do well without some strategic planning. Although strategies vary, they tend to fall into some basic categories, such as developing a new product, identifying an unmet consumer need, changing a service to entice more customers or retain existing clients, or taking any other action that increases the organization’s value through improved performance.

POINT OF INTEREST IT as a Strategic Tool

E-business is one of the fastest growing industries in the United States as electronic commerce sales totaled $61.2 billion in first quarter 2013, a 2.7 percent increase from the previous quarter. According to eMarketing Inc., sales from electronic commerce sources are projected to grow to $434 billion by 2017. Small- to medium-size firms feel pressured to develop an e-business strategy by using the Internet to effectively fulfill customer orders and communicate with members of their supply chain. By doing so, they can create new markets for their products and services thus, create competitive advantages. In addition, effective integration of e-business information technology can also create operational efficien- cies and lower the cost of processing a sale. Sources: Anonymous. (2013). U.S. Census Bureau News. Washington, D.C.; Enright, A. (2013). U.S. e-commerce sales could top $434 billion in 2017. Internet Retailer. www.internetretailer.com/2013/04/ 25/us-e-commerce-sales-could-top-434-billion-2017; Gupta, M. (2010). The enabling role of E-business technologies in strategic operations management. Journal of International Technology and Information Man- agement, 19(2), 109–IV.

Many strategies do not, and cannot, involve information systems. But increasingly, corporations are able to implement certain strategies—such as maximizing sales and lowering costs—thanks to the innovative use of information systems. A company achieves strategic advantage by using strategy to maximize its strengths, resulting in a competitive advantage. When a business uses a strategy with the intent to create a market for new products or services, it does not aim to compete with other organizations that make the same product, because that market does not yet exist. Therefore, a strategic move is not always a competitive move in terms of competing with similar products or services. However, in a free-enterprise society, a market rarely remains the domain of one organization for long; thus, competition ensues almost immediately. So, we often use the terms “competitive advantage” and “strategic advantage” interchangeably.

The most innovative companies are battling on the front lines to create the next “got- to-have-it” technology. In 2012, the battle revolved around mobile payment technology. Paying on-the-go with a smartphone allows you to make purchases quicker and easier than ever. Starbucks agreed to a partnership with Pay with Square, a mobile payment company, to process credit card transactions via the Pay with Square smartphone app at 7,000 locations in the United States To use the app, users activate a tab in the app that notifies the Starbucks of their arrival and then the customer can pay simply by saying their name at the register. Mobile payment technology is taking retail consumerism to the next level. Practically any mobile-based system that gives a company competitive advantage is a strategic information system.

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1 PART

Achieving a Competitive Advantage

Consider competitive advantage in terms of a for-profit company, whose major goal is to maximize profits by lowering costs and increasing revenue. A for-profit company achieves competitive advantage when its profits increase significantly, most commonly through increased market share. Figure 2.1 lists eight basic initiatives that can be used to gain competitive advantage, including offering a product or service that competitors cannot provide or providing the same product or service more attractively to customers. It is important to understand that the eight listed are the most common, but not the only, types of business strategy an organization can pursue. It is also important to understand that strategic moves often consist of a combination of two or more of these initiatives and other steps, and that sometimes accomplishing one type of advantage creates another. The essence of strategy is innovation, so competitive advantage is often gained when an organization tries a strategy that no one has tried before.

F I G U R E 2.1

Eight basic ways to gain competitive advantage Initiative Benefit

Reduce costs A company can gain advantage if it can sell more units at a lower price while providing quality and maintaining or increasing its profit margin.

Raise barriers to market entrants

A company can gain advantage if it deters potential entrants into the market, enjoying less competition and more market potential.

Establish high switching costs

A company can gain advantage if it creates high switching costs, making it economically infeasible for customers to buy from competitors.

Create new products or services

A company can gain advantage if it offers a unique product or service.

Differentiate products or services

A company can gain advantage if it can attract customers by convincing them its product differs from the competition’s.

Enhance products or services

A company can gain advantage if its product or service is better than anyone else’s.

Establish alliances Companies from different industries can help each other gain advantage by offering combined packages of goods or services at special prices.

Lock in suppliers or buyers

A company can gain advantage if it can lock in either suppliers or buyers, making it economically impractical for suppliers or buyers to deal with competitors.

For example, Amazon gained a competitive advantage when it created a new subscription service, Amazon Prime. For $79 a year, subscribers enjoy free two-day shipping on everything plus access to over 25,000 movies and TV shows that can be streamed instantly. Prime members also are allowed to borrow books for their Kindle e-readers from the Kindle Owners Lending Library for no additional fee. Figure 2.2 shows that a company can use many strategies together to gain a competitive advantage, as Amazon did.

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PART 1

F I G U R E 2.2

Many strategic moves can work together to achieve a competitive advantage

Reducing Costs Locking in Suppliers

or Buyers

Establishing Alliances

Enhancing Products and Services

Differentiating Products and Services

Creating Barriers to Entrants

The Firm

Initiative #1: Reduce Costs

Customers like to pay as little as possible while still receiving the quality of service or product they need. One way to increase market share is to lower prices, and the best way to lower prices is to reduce costs. For instance, if carried out successfully, massive automation of any business process gives an organization competitive advantage. The reason is simple: automation makes an organization more productive, and any cost savings can be transferred to customers through lower prices. We saw this happen in the auto industry. In the 1970s, Japanese automakers brought robots to their production and assembly lines and reduced costs—and subsequently prices—quickly and dramatically. The robots weld, paint, and assemble parts at a far lower cost than manual labor. Until their competitors began to employ robots, the Japanese had a clear competitive advantage because they were able to sell high-quality cars for less than their competitors. A similar approach gave Intel, the computer microprocessor maker, a strategic advantage that it maintains to this day: much of the labor involved in making and testing microprocessors has been automated by information technology and robots. This enabled the company to substantially reduce the prices of its products.

In the service sector, the web has created an opportunity to automate what until recently was considered an activity that only humans could perform: customer service. An enormous trend toward automating online customer service began with companies such as FedEx, which initially gave customers an opportunity to track their parcels’ status by logging on to a dedicated, private network and database. The same approach is now implemented through the web. Many sites today include answers to FAQs (frequently asked questions). Others have special programs that can respond to customer questions. Online service gives businesses two major benefits: it changes service from being labor intensive to technology intensive, which is much less expensive, and it provides customers easy access to a service 7 days a week, 24 hours a day. Any executives of companies that operate call centers will tell you that they work hard to shift callers off the phone and to their websites to receive the help they need. It not only cuts the costs of expensive human labor but also of telephone and mailing charges. Companies that are first to adopt advanced systems that reduce labor enjoy competitive advantage for as long as their competitors lag behind.

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1 PART

WHY YOU SHOULD Understand the Notion of Strategic Information Systems

Although devising strategic moves is mainly the responsibility of senior management, let us remember Napoleon’s words: “Every soldier carries a marshal’s baton in his knapsack.” To paraphrase: every junior worker is a potential senior executive. Thus, it is incumbent on every professional to try to think stra- tegically for his or her organization. In fact, employees at the lowest levels have proposed some of the most brilliant strate- gic ideas. In today’s highly competitive market, strategy might determine an organization’s rise or fall.

An increasing number of strategic moves are possible only with the aid of ISs or by having ISs at the center of their strat- egy—that is, technology provides the product, service, or method that gains the organization strategic advantage. The potential for new business models on the web is still great. Thus, professionals must understand how to use technology in strategic moves. Understanding how strategic information systems are conceived and implemented might help you sug- gest good ideas for such systems in your organization and facilitate your promotion up the organizational ladder.

Initiative #2: Raise Barriers to Market Entrants

The smaller the number of companies competing within an industry, the better off each company is. Therefore, an organization might gain competitive advantage by making it difficult, or impossible, for other organizations to produce the product or service it provides. Using expertise or technology that is unavailable to competitors or prohibitively expensive is one way to bar new entrants.

Companies raise barriers to entrants in a number of ways. Obtaining legal protection of intellectual property, such as an invention or artistic work, bars competitors from freely using it. Microsoft, IBM, and other software powerhouses have gained tremendous strategic advantages by copyrighting and patenting software. Numerous examples of such protection can be found on the web. Priceline.com holds a patent for online reverse (“name your own price”) auctioning, which has prevented competitors from entering its business space. Amazon.com secured a patent for one-click online purchasing, which enables customers to enter shipping and credit card information once and to place subsequent orders while skipping a verification webpage. Although the software is quite simple, Amazon obtained a patent for it in 1999 that will not expire until 2017. Amazon successfully sued Barnes & Noble (B&N) when BN.com implemented a one-click technology. Now B&N, along with Apple, pays Amazon to use the technology. In October 2010, Amazon patented the one-click order process in Canada. However, by November of the following year, the patent was being appealed in Canada’s Federal Court of Appeals. The one-click process also faced difficulties in Europe where it was denied a patent in 2011 because the process was deemed not genuinely inventive enough. As a result, European companies can use the one-click process without a fee while American companies must pay Amazon to use it. Although technology can create a barrier to entry for other businesses, it can also come with legal issues in a global market.

Another barrier to potential new market entrants is the high expense of entering the particular market. Industries such as airlines have a significant barrier to entry due to the investment of information technology for central reservation and other operational systems. However, while technology can create an impediment for new market entrants, it can also have the reverse effect. For example, manufacturing businesses rely heavily on technology to manage their product lifecycle processes (from design, manufacture, service and disposal). Traditionally, due to the cost and complexity of implementing product lifecycle management (PLM) technology systems were reserved only for large manufacturing businesses; ultimately creating a barrier to entry for smaller companies. However, as new low-cost alternatives for PLM systems have become available, many smaller manufacturing businesses have adopted this technology, decreasing the barrier maintained by large manufacturers (Waurzyniak, 2012).

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PART 1

Initiative #3: Establish High Switching Costs

Switching costs are expenses incurred when a customer stops buying a product or service from one business and starts buying it from another. Switching costs can be explicit (such as charges the seller levies on a customer for withdrawal from a contract) or implicit (such as the indirect costs in time and money spent adjusting to a new product that competes with the old).

Often, explicit switching costs are fixed, nonrecurring costs, such as a penalty a buyer must pay for terminating a deal early. In the mobile phone service industry, you can usually get an attractive deal, but if you cancel the service before the one- or two-year contract ends, you have to pay a hefty penalty. So although another company’s service might be more attractive, you might decide to wait out the full contract period because the penalty outweighs the benefits of the new company’s service. When you do decide to switch, you might discover that your phone is not suitable for service with any other mobile service provider. The cost of the phone itself, then, is another disincentive to switch.

A perfect example of indirect switching expenses is the time and money required to learn new software. Once a company trains its personnel to use one word-processing or spreadsheet program, a competing software company must offer a very enticing deal to make switching worthwhile. The same principle holds for many other applications, such as database management systems, webpage editors, and graphical software. Consider Microsoft’s popular Office productivity suite. Google Docs and OpenOffice.org offer products that can be used or downloaded at no cost and are compatible with Office applications. This cost savings and inter- product compatibility could significantly lower the switching costs for an office productivity product. Yet, few organizations or consumers who are accustomed to MS Office are willing to completely switch to Google Docs or OpenOffice.org.

Manufacturers of laser and ink-jet printers sell their printers at cost or below cost. However, once you purchase a printer, you must replace a depleted ink or toner cartridge with a costly cartridge that the printer manufacturer sells, or take a risk with other cartridges whose quality is often low. You face high costs if you consider switching to another printer brand. Thus, establishing high switching costs often locks in customers. Locking in customers by any means is a way to accomplish a strategic advantage, and is discussed later in this chapter.

High switching costs are often more prominent when a company uses proprietary software, especially when the software is expensive, such as an ERP or human resource management system. In addition to the initial price of the system, the client incurs other costs, some tangible and some not. Tangible costs include modification to suit the special needs of the client’s unique business processes. Intangible costs include employees’ learning the new system and the establishment of smooth working relations with the service unit of the software vendor.

Initiative #4: Create New Products or Services

Clearly, the ability to create a new and unique product or service that many organizations and individuals need gives an organization a great competitive advantage. Unfortunately, the advantage lasts only until other organizations in the industry start offering an identical or similar product or service for a comparable or lower price.

Examples of this scenario abound in the software industry. For instance, Lotus Development Corporation became the major player early on in the electronic spreadsheet market after it introduced its Lotus 1-2-3 program. When two competitors tried to market similar products, Lotus sued for copyright infringement and won the court case, sustaining its market dominance for several years. However, with time, Microsoft established its Excel spreadsheet application as the world leader, not only by aggressive marketing but also by including better features in its application.

Another example of a company creating a new service is eBay, the firm that dominates online auctions. The organization was the first to offer this service, which became very popular within only a few months. While other firms now offer a similar service (e.g., Amazon.com and Yahoo! Auctions), the fact that eBay was the first to offer it gave the company a huge advantage. It quickly acquired a large number of sellers and bidders, a network that is so critical to creating a “mass” of clients, which in turn is the main draw for additional clients. It also gave eBay an

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1 PART

advantage in experience and allowed it to open a gap that was difficult for competitors to close, even for giants such as Amazon.com. eBay is an example of an entire business that would be impossible without the web and the information technologies that support the firm’s service.

eBay’s success demonstrates the strategic advantage of the first mover, an organization that is the first to offer a new product or service. By the time other organizations start offering the same product or service, the first mover has usually created some assets that cannot be held by the competitors: a superior brand name, a better technology or method for delivery, or a critical mass. A critical mass is a body of clients that is large enough to attract many other clients. In many cases, first movers simply enjoy longer experience, which in itself is an advantage over competitors.

eBay gained a first mover advantage by marketing products to a mass audience

XM and Sirius satellite-based radio services have changed radio broadcasting. The two pioneers in this market have reaped the rewards of being first movers since 2001. Satellite broadcasts release radio services from the constraints of territorial boundaries and from national content regulation. Because of this, many radio personalities and radio stations offer programs on satellite radio, hoping to participate in its strategic advantage. In 2008, Sirius Satellite Radio’s $5 billion buyout of XM Radio was approved but the U.S. Department of Justice, despite strong disapproval from consumer groups and lobbying from the land-based radio industry. The Department of Justice said the merger was unlikely to hurt competitors or consumers, citing the development of mobile broadband Internet devices as the upcoming replacement for satellite radio. Sirius/XM had close to 23 million subscribers in 2012. In this case, both companies were first movers and competition did not allow them to profit, so they agreed to merge.

A good example of a new product is Apple’s iPhone. Handheld devices that combine telephony and computers had been around for many years. When the iPhone was introduced in 2007, it developed a new concept: no physical keys. All the functions are activated by using touchscreen keys, and therefore can be more intuitively operated and offer more options. While the original iPhone created a market advantage for a new product, the touchscreen concept was quickly adopted by many competitors. This example clearly identifies that the advantage of a new product or service, especially for technology, can rapidly fade.

Co ur te sy

of eb ay

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PART 1

Since the release of the original iPhone, Apple has continued to make improvements with every model. The iPhone 5 boasted a larger screen, reduced weight and width, and other enhancements. Even though it had record setting pre-order sales (2 million in 24 hours), its competitor Samsung immediately seized on its shortcomings and promoted features in their own mobile phone such as instant video sharing that the iPhone lacked. This is another illustration of how being a first mover with cutting-edge technology can be a difficult position to maintain.

Some websites were the first to offer certain services that soon attracted millions of visitors per day. The high traffic they have created gives them a significant strategic asset in the form of advertising potential. Two successful social media outlets, Facebook and Twitter, are using their massive user base to bring in advertising revenues; 1.1 billion and 554 million users respectively (Anonymous, 2013c, 2013d). Both social media sites contain advertisements on their websites. With the exponential growth of mobile computing, these social media giants are attempting to please investors by expanding revenue by streaming news feed ads to users’ mobile devices. However, this type of advertising can

be irritating to some users, because the ads are often placed in the middle of the screen. What may have been passive ignorance of these screen areas may irritate users (Winkler, 2012). Facebook and Twitter are taking cautious approaches to mobile advertising in order to not lose users.

YouTube is another social media giant that has benefited from first mover advantage. YouTube enables individuals and corporations to upload video clips for viewing by its visitors. By January 2012, the site was streaming more than 4 billion videos per day. Its popularity has increased significantly since it was acquired for $1.65 billion by Google. Many businesses have created YouTube accounts to advertise their products and services. YouTube’s marketing reach, search engine capabilities, and no-cost model provide an effective environment for corporate promotions and outreach. Broadcast networks and movie studios have uploaded video content as another venue for their products. As shown in the figure, broadcast networks and media organizations have leveraged YouTube as an additional method to distribute and promote their content.

YouTube continues to be used to promote television shows and other media content

The iPhone continues to be the most popular smartphone device

©iStockphoto.com/franckreporter

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Being a first mover is not always a guarantee of long-term success, however. One example of how a first-mover strategic advantage can be lost within just a few months is in the web browser arena. Netscape Corporation (now part of AOL) dominated the web browser market, which was new in 1994. By allowing individual users to download its browser for free, it cornered up to 95 percent of the market. The wide use of the browser by individuals moved commercial organizations to purchase the product and other software compatible with the browser. Netscape’s dominance quickly diminished when Microsoft aggressively marketed its own browser, which many perceived as at least as good as Netscape’s. Microsoft provided Internet Explorer free of charge to anyone and then bundled it into the Microsoft Windows operating system software distributed with almost all PCs. Even after the court-ordered unbundling, its browser still dominated.

Other first movers have lost market share because they neglected to improve the service they pioneered. Few web surfers may remember Infoseek, the first commercial search engine. Google, which entered the search engine arena in 1998, improved the quality and speed of web searches, offering a clutter-free home page. The strategy of its two young entrepreneurs was simple: provide the best search engine, and refrain from commercializing it for a while. Over a period of about three years Google established itself as the best search engine. In time, it started to capitalize on this prominence by selling sponsored links (the right side of the results of a user’s search, and later the top shaded results). Most importantly, the organization never stopped improving its search algorithms and periodically has offered new services. The strategy has succeeded so much that “google it” has become synonymous with “search for it on the web.”

Initiative #5: Differentiate Products or Services

A company can achieve a competitive advantage by persuading consumers that its product or service is better than its competitors’. Called product differentiation, this advantage is usually achieved through advertising and customer experience. Consider Skype. Although the software was not the first to offer free phone calls over the Internet, its quality was higher than similar applications. People noticed the difference, and hundreds of millions now use the application. When the user base was large, the company (which was acquired by Microsoft) added many features, including video chat. It makes money by selling features for videoconferencing, long distance voice services, and mobile devices.

Brand-name success is a perfect example of product differentiation. Think of Levi’s jeans, Chanel and Lucky perfumes, and Gap clothes. The customer buys the brand-name product, perceiving it to be superior to similar products. In fact, some products are the same, but units sold under a prestigious brand name sell for higher prices. You often see this phenomenon in the food, clothing, drug, and cosmetics markets.

Initiative #6: Enhance Products or Services

Instead of differentiating a product or service, an organization might actually enhance existing products or services, that is, add to the product or service to increase its value to the consumer. For example, car manufacturers might entice customers by offering a longer warranty period for their cars, and real-estate agents might attract more business by providing useful financing information to potential buyers.

Since the Internet opened its portals to commercial enterprises in the early 1990s, an increasing number of companies have supplemented their products and services. Their websites provide up-to-date information that helps customers utilize their purchased products better or receive additional services. Companies that pioneered such Internet use reaped substantial rewards. For example, Charles Schwab gained a competitive advantage over other, older brokerage companies by opening a site for online stock transactions. Within months, half its revenue came from this site. All brokerage houses followed suit and allow customers to trade through a website.

Other companies use the Internet to maintain their competitive edge by continually adding to and enhancing their online services. The Progressive Casualty Insurance Company, ranked 169 on the Fortune 500 list, is an excellent example. The company enables insured drivers to place a claim and follow its progress at the company’s site. The company has connected its information systems with those of car dealerships and financing institutions. When a car is totaled (i.e., fixing

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PART 1

it would cost more than purchasing a new car), the owner can receive a check to purchase a new car. However, since the company knows that purchasing a new car can be a hassle, the insured owner can use, free of charge, the company’s Total Loss Concierge service. The company developed special software that retrieves details about the totaled vehicle. The details are shared with a network of dealerships, and the concierge selects the best alternatives in terms of compatibility with the client’s needs and the price. The agent accompanies the client in the contacts with the dealerships. If the client still owes money to a lender, the Progressive agent uses the system to retrieve the financing information and sends it to a network of financing firms. The agents send the client the best alternatives. In the auto insurance industry, the Total Loss Concierge service is an enhancement offered only by Progressive. Recently, Progressive integrated technology innovation into their business operations, offering mobile apps to access their site and the Snapshot® device to track good driving habits. Each of these initiatives fulfills the strategies of Gartner’s CIO report discussed earlier; attracting new customers and adding mobile applications.

Initiative #7: Establish Alliances

Companies can gain competitive advantage by combining services to make them more attractive (and usually less expensive) than purchasing services separately. An alliance may also be created to enable customers to use the same technology for purchases from different companies. These alliances provide two draws for customers: combined service is cheaper, and one-stop shopping or using the same technology is more convenient. The travel industry is very aggressive in this area. For example, airlines collaborate with hotel chains and car-rental firms to offer travel and lodging packages. Credit-card companies offer frequent flier miles for every dollar spent, discounts on ticket purchases from particular airlines, or discounts on products of an allied manufacturer. In all these cases, alliances create competitive advantages.

As Figure 2.3 indicates, by creating an alliance, organizations enjoy synergy: the combined profit for the allies from the sale of a package of goods or services exceeds the profits earned when each acts individually. Sometimes, the alliances are formed by more than two organizations. Consider the benefits you receive when you agree to accept a major credit card: discounts from several hotel chains, restaurant chains, flower delivery chains, and other stores; free insurance when renting a car; and frequent flier miles, to name a few. Similarly, travel websites such as Kayak and Orbitz offer you the opportunity to reserve lodging and car rental at discounts while you make your airline reservations. These companies have established alliances with hotel chains and car-rental companies.

F I G U R E 2.3

Strategic alliances combine services to create synergies

Before Strategic Alliance

Vacation Package

After Strategic Alliance

RestaurantHotel

Telephone Carrier Car Rental

Floral ShopAirline ©

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What is the common denominator among these companies? They each have an information system that tracks all these transactions and discounts. A package of attractive propositions entices clients who need these services (and most businesses do). Would this offer be feasible without an IS to track transactions and discounts? Probably not.

The growth in e-commerce and reduction of logistics costs has created new alliances. Consider United Parcel Services (UPS), well known for its delivery services, and Medtronic, a Minneapolis-based medical device company. UPS now fills pharmacy orders at their Louisville, KY facility. UPS pharmacists log into Medtronic’s system to fill orders for medical devices ordered by their patients. These medical devices are also stored at the UPS facility for immediate shipment. Medtronic has closed its own warehouse facility and significantly reduced the costs of processing its orders. Again, a clever IT initiative and corporate alliance enable an operational efficiency strategy that will have positive benefits for business organizations.

On the web, an obvious example of alliances is an affiliate program. Anyone can place links to commercial sites on his or her personal website. When a visitor clicks through to a commercial site and makes a purchase, the first site’s owner is paid a fee. Some online retailers have thousands of affiliates (sometimes referred to as associates). The early adopters of these programs, such as Amazon.com, Buy.com, Priceline.com, and other large e-retailers, enjoyed a competitive advantage in gaining new customers. It is easy for any website holder to become an associate of Amazon.com.

Business affiliating with Amazon can earn revenue by adding a link to a specific product

The web has generated strategic alliances that would probably never be created offline. Can you imagine Wal-Mart inviting Sears to sell Sears’ merchandise from Wal-Mart stores? This is exactly what Amazon does. Its site has links to products of other companies. When you search for an item on Amazon, you might find links not only to its own products but also to those of competitors, such as Ace Hardware, the consumer hardware store. If this sounds strange, consider the rationale: Amazon wants customers to compare its price and its competitors’ price for the same item and see that Amazon’s is lower, mainly because Amazon manages its warehouses more efficiently than any other retailer. Even if customers decide to purchase from the competitor through the Amazon site, Amazon receives a commission from the seller.

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A growing number of companies use software to help analyze the vast amounts of data they collect. Some share the data and business intelligence with business partners because if their partners do better, so will they. For example, Marriott, the large hotel chain, provides online and traditional travel agencies with analyses about pricing, joint promotions, and inventory. The analytical results help the agencies optimize their operations, which results in more customers for Marriott.

Initiative #8: Lock in Suppliers or Buyers

Organizations can achieve competitive advantage if they are powerful enough to lock in suppliers to their mode of operation or buyers to their product. Possessing bargaining power— the leverage to influence buyers and suppliers—is the key to this approach. As such, companies so large that suppliers and buyers must listen to their demands use this tactic nearly exclusively.

A firm gains bargaining power with a supplier either when the firm has few competitors or when the firm is a major competitor in its industry. In the former case, the fewer the companies that make up a supplier’s customer base, the more important each company is to the supplier. In the latter case, the more important a specific company is to a supplier’s success, the greater bargaining power that company has over that supplier.

The most common leverage in bargaining is purchase volume. Companies that spend billions of dollars purchasing parts and services have the power to force their suppliers to conform to their methods of operation, and even to shift some costs onto suppliers as part of the business arrangement. Consider Wal-Mart, one of the world’s largest retailers. Not only does the company use its substantial bargaining power to pressure suppliers to lower prices, but it also requires them to use information systems that are compatible with its own automated processes. The suppliers must use ISs that tell them when to ship products to Wal-Mart so that the giant retailer is never left understocked or overstocked. In recent years this power allowed the company to require its suppliers to use radio frequency identification (RFID) devices in packaging to allow more accurate tracking of ordered, shelved, and sold items. This bargaining power and tight control of inventory enables Wal-Mart to enjoy considerable cost savings, which it passes on to customers, which keep growing in numbers thanks to the competitive prices. Many suppliers are locked in with Wal-Mart because of the sheer volume of business they have with the company: some sell a third to one-half of everything they produce to this single retailer, and some, such as the giant consumer products maker Procter & Gamble, have a “Vice President, Wal-Mart” as a member of the senior management.

One way to lock in buyers in a free market is to enjoy a situation in which customers fear high switching costs. In the software arena, enterprise applications are a good example. This type of software helps organizations manage a wide array of operations: purchasing, manufacturing, human resources, finance, and so forth. The software is expensive, costing millions of dollars. After a company purchases the software from a firm, it is locked in to that firm’s services: training, implementation, updates, and so forth. Thus, companies that sell enterprise software, such as SAP, Oracle, and BMC Software, make great efforts to improve both their software and support services to maintain leadership in this market.

Another way to lock in clients is to create a standard. The software industry has pursued this strategy vigorously, especially in the Internet arena. For example, Microsoft’s decision to give away its web browser by letting both individuals and organizations download it free from its site was not altruistic. Microsoft executives knew that the greater the number of Internet Explorer (IE) users, the greater the user base. The greater the user base, the more likely organizations were to purchase Microsoft’s proprietary software to help manage their websites. Also, once individual users committed to IE as their main browser, they were likely to purchase Microsoft software that enhanced the browser’s capabilities.

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Similarly, Adobe gives away its Acrobat Reader software, an application that lets web surfers open and read documents created using different computers running different operating systems, such as various versions of Windows, the Mac operating system, and UNIX. When the Reader user base became large enough, organizations and individuals found it economically justifiable to purchase and use the full Acrobat application (the application used to create the documents) and related applications. Using this strategy put Adobe’s PDF (portable data format) standard in an unrivaled position.

Adobe uses a similar strategy for its Flash software used to create webpage animations. It offers the Flash player for download free of charge but sells the development tool. Like PDF, Flash created a symbiotic situation to augment a market: the more individuals download the player, the more businesses are willing to purchase the development tool. The more companies engage Flash modules in their webpages, the more individuals download the player, without which they cannot enjoy those animations.

The simplest way to lock in buyers is to create a physical or software limitation on using technology. This can be in the form of a company designing a socket for add-on plugs that takes only a specific size or form, or designing files so that they run only on its software. Apple Computer’s iTunes is a classic example of the latter. The online music store is a popular site for purchasing music files. However, the files contain FairPlay DRM (digital rights management) software, which ensures the files run only on Apple devices. Digital music players made by competitors are locked out. Apple’s decision had a significantly positive impact on its profits.

Creating and Maintaining Strategic Information Systems

IT might offer many opportunities to accomplish a competitive edge, especially in industries that are using older software, such as the insurance industry. Insurance companies were among the early adopters of IT and have not changed much of their software. This is why some observers say the entire industry is inefficient. Once an insurance company adopts innovative software applications, like the Progressive insurance mobile app described in the section on Enhancing Existing Products or Services, it probably will gain competitive advantage. Customers can submit a claim through the mobile app and use the phone’s camera to upload pictures of the accident scene. Airlines are another example of an industry that still uses antiquated hardware and software. As you’ll learn later in the chapter, when JetBlue was established, it adopted the latest technologies, and this was a major reason for its great competitive advantage.

Companies can implement some of the strategic initiatives described in the previous section by using information systems. As we mentioned at the beginning of the chapter, a strategic information system (SIS) is any information system that can help an organization achieve a long-term competitive advantage. An SIS can be created from scratch, developed by modifying an existing system, or “discovered” by realizing that a system already in place can be used to strategic advantage. While companies continue to explore new ways of devising SISs, some successful SISs are the result of less lofty endeavors: the intention to improve mundane operations using IT has occasionally yielded a system with strategic qualities.

Strategic information systems combine ideas for making potentially winning business decisions and ideas for harnessing information technology to implement the decisions. For an information system to be an SIS, two conditions must exist. First, the information system must serve an organizational goal rather than simply provide information; and second, the organization’s IS unit must work with managers of other functional units (including marketing, finance, purchasing, human resources, and so on) to pursue the organizational goal.

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Creating an SIS

To create an SIS, top management must be involved from initial consideration through development and implementation. In other words, the SIS must be part of the overall organizational strategic plan. The danger always exists that a new SIS might be considered the IS unit’s exclusive property. However, to succeed, the project must be a corporate effort, involving all managers who use the system.

Figure 2.4 presents questions that management should ask to determine whether to develop a new SIS. Executives meet to try to identify areas in which information can support a strategic goal. Only after completing the activities outlined in Figure 2.4 will management be able to conceptualize an SIS that seizes an opportunity.

F I G U R E 2.4

Questions to answer in a strategic information system idea-generating meeting

1. What would be the most effective way to gain an advantage?

2. Would more accessible or timely information to our employees, customers, or suppliers help establish a significant advantage? If so, how?

3. Can an information system be developed that provides more accessible and timely information?

4. Will the development effort be economically justified?

◆ Can existing competitors afford to fund the development of a similar system? ◆ How long will it take the competitors to build their own, similar system? ◆ Can we make our system a moving target to the competition by constantly enhancing it, so that it always retains its superiority?

5. What is the risk of not developing such a system?

7. Will technology add value to the customer’s experience? If so, how?

6. Are alternative means of achieving the same goals available, and if so, how do they compare with the advantages and disadvantages of a new SIS?

A word of caution regarding Question 4 in Figure 2.4, the issue of economic justification of an SIS: an increasing number of researchers and practitioners conclude that estimating the financial benefits of information systems is extremely difficult. This difficulty is especially true of SISs. The purpose of these systems is not simply to reduce costs or increase output per employee; many create an entirely new service or product. Some completely transform the way an organization, or an industry, does business. Because so many fundamental business changes are involved, measuring the financial impact is difficult, if not impossible, even after implementation, let alone before. For example, if a bank is considering offering a full range of financial services via the web, how can management know whether the move justifies the cost of the necessary software? It is difficult to estimate the success of such a bold approach in terms of how many new customers the bank would gain.

Recently, many business organizations have been focusing on providing value as well as enhancing the customer’s experience, and technology has been pivotal to their strategies. Retailers can provide product videos on the retail floor to promote their products. Supermarkets can offer scanning devices to reduce checkout time as well as offer specials and promotions to their customers. E-tailers can offer suggestions of new products and specials based on past searches and purchases. Hotels can offer room upgrades at a special price or destination information for an upcoming stay at their property. Each of these examples leverages information technology strategies to add value to the customer experience, thereby creating additional revenue, retention of customers, and increasing organizational brand value.

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1 PART

Yet, a great number of SISs are the unintended consequence of exploiting information technology to support activities that are not strategic. For example, in the 1990s, Owens & Minor, a distributor of hospital supplies, built a data warehouse from which to glean business intelligence. However, both its customers (mainly hospitals) and its suppliers (drug and medical instrument makers) agreed to pay for mining the data warehouse to improve their decision making. In this case, the company did not plan to create an SIS, but the data warehouse and the tools that help mine it may become one, increasing Owens & Minor’s profit in a business that has little to do with its original business.

Reengineering and Organizational Change

To implement an SIS and achieve competitive advantage, organizations sometimes must rethink the entire way they operate. While brainstorming about strategic plans, management should ask: “If we reestablished this business process from scratch, how would we do it?” The answer often leads to the decision to eliminate one set of operations and build others from the ground up. Changes such as these are called reengineering. Reengineering often involves adoption of new machinery and elimination of management layers. Frequently, information technology plays an important role in this process.

Reengineering’s goal is not to gain small incremental cost savings, but to achieve great efficiency leaps—of 100 percent and even 1000 percent. With that degree of improvement, a company often gains competitive advantage. Interestingly, a company that undertakes reengineering along with implementing a new SIS cannot always tell whether the SIS was successful. The reengineering process makes it impossible to determine how much each change contributed to the organization’s improved position.

Implementation of an SIS requires a business to revamp processes—to undergo organizational change—to gain an advantage. For example, consumer electronics and appliance manufacturer LG decided that it needed to apply its product innovation tactics to its supply chain management system. In 2007, management found inconsistent practices for 115 factories and subsidiaries within LG. Senior management believed that they need to reengineer its supply chain to better manage its relationship with suppliers. Originally, they allowed each division to negotiate its own agreements with suppliers. Therefore, the procurement personnel managing a chip supplier for cell phones might not be aware of their colleague’s purchase of the same chips from the same supplier for televisions at another LG manufacturing plant.

LG reengineered its procurement process to require that purchase orders be processed by a centralized function. The analysis of their operations created a streamlined process, and they compiled a single procurement manual. Ultimately, the new process replaced its fragmented and uncoordinated purchasing procedures with consolidated procedures, saving the company $2 billion; a savings of 6.7 percent. Coincidentally, these savings helped LG to be better prepared for the forthcoming global downturn. This example reinforces the lesson that business organizations should not ignore opportunities during successful times and rush to identify opportunities only during challenging times. Being prepared for downturns is an important strategy. For its reengineering efforts and results, LG was named as an innovator by Business Week in 2010.

Interestingly, most reengineering of the 1990s and early 2000s failed and simply resulted in massive layoffs. Executives found it impossible to actually change many business processes. Business processes eventually did change in companies that adopted enterprise systems, commonly called ERP systems. The reason: the new systems forced managers and employees to change their way of work.

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PART 1

Competitive Advantage as a Moving Target

As you might have guessed, competitive advantage is often short-lived. In time, competitors imitate the leader, and the advantage diminishes. So, the quest for innovative strategies must be dynamic. Corporations must continuously contemplate new ways to use information technology to their advantage. In a way, companies’ jockeying for the latest competitive advantage is a lot like an arms race. Side A develops an advanced weapon, and then side B develops a similar weapon that terminates the advantage of side A, and so on.

In an environment where most information technology is available to all, SISs that are originally developed to create a strategic advantage quickly become an expected standard business practice. A prime example is the banking industry, where surveys indicate that increased IS expenditures did not yield long-range strategic advantages. The first banks to provide ATMs and online banking reaped some rewards in terms of labor savings and new customers, but the advantage disappeared because most banks now offer these services.

A system can only help a company sustain competitive advantage if the company continuously modifies and enhances the system, creating a moving target for competitors. American Airlines’ Sabre—the online reservation system for travel agents—is a classic example. The system, which was designed in the 1950s, was redesigned in the late 1970s to sell travel agencies a new service, online airline reservations. But over the years, the company spun off an office automation package for travel agencies called Agency Data Systems. The reservation system now encompasses hotel reservations, car rentals, train schedules, theater tickets, and limousine rentals. When the Internet became accessible to businesses and consumers, the system was redesigned to let travelers use Sabre from their own computers. The system has been so successful that in some years American earned more from the technology than from its airline operations. The organizational unit that developed and operated the software became a separate IT powerhouse at AMR Corp., the parent company of American Airlines, and now operates as Sabre Holding Corporation, an independent company. It is the leading provider of technology for the travel industry. Travelocity, Inc., the popular web-based travel site, is a subsidiary of Sabre, and, naturally, uses Sabre’s software. Chances are you are using Sabre technology when you make airline reservations through other websites, as well.

We return to Amazon as an example of how ISs help companies maintain competitive advantage. Management believes that it must add new features to its website to attract buyers over and over again. The company continuously improves its webpages’ look and the online services it provides. Amazon has moved from merely selling books through the web to providing best-seller lists, readers’ reviews, and authors’ interviews; selling almost any consumer product imaginable; streaming audio and video; and posting consumer wish lists, product reviews by customers, and other “cool stuff.” The constant improvements help the company maintain its dominant position in online retailing.

However, all of these features have been imitated by competitors. Amazon now also offers web hosting services and space for rent in its warehouses worldwide. Amazon has extended its products and services to sell what it already does well; warehousing, fulfillment, and web-based sales processing. If you are a small business, you can contract with Amazon to create the “look and feel” of a major supplier and gain the order and fulfillment efficiencies of a larger business organization. Ultimately, the small business can focus on its core competencies of manufacturing its product without the “back house” order fulfillment issues. Amazon has also opened much of its software for developers to use.

Similarly, Google has offered access to some of its software. For example, it enables webmasters and other website owners to use software that finds out why Google’s crawler— software that searches the web and indexes new pages for search—has difficulties in indexing pages. The result: the site owners get their new pages indexed so the public can access them, and Google receives free labor in fixing problems its crawler faces. Organizations can integrate Google mapping software into their own intranets to map customer locations, track shipments, manage facilities, and perform other activities that are map-related. Amazon and Google have augmented the portfolio of services they provide to increase the circle of organizations and individuals who depend on them, thereby strengthening their strategic positions.

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JetBlue: A Success Story

We usually expect entrepreneurs to enter a new and profitable industry, not an old, money- losing one. However, with the proper technology and management methods, it seems that some energetic people can gain strategic advantage where others have been hurting. The U.S. airline industry has seen mainly bad times since the industry’s deregulation in the 1970s. The situation deteriorated as the 1990s drew to a close, and grew even worse after the terrible events of September 11, 2001. In 2001, the industry lost $7.7 billion, but JetBlue had a profit of $38.5 million on revenue of $320.4 million. It continued to be profitable in 2002, 2003, and 2004 along with only one other carrier, Southwest Airlines, while all other U.S. carriers had losses. JetBlue’s revenues grew from $998.4 million in 2003 to $1.27 billion in 2004. The organization continues to be profitable, posting net income of $86M and $128M in 2011 and 2012 respectively (Anonymous, 2013b).

JetBlue was established in February 2000 by David Neeleman, who served as its CEO. Two decades earlier, in 1984, Neeleman cofounded Morris Air, a small airline in Salt Lake City, Utah, which was the first airline to offer ticketless travel, a program that was developed inside the company. Working with a college student he developed Open Skies, a computer program that integrates electronic ticketing, Internet reservations, and revenue management. Revenue management tools help an airline plan the most profitable routes and ticket pricing. Morris Air was sold to Southwest Airlines, which enthusiastically adopted the e-ticket idea. Neeleman became an executive at Southwest but left in frustration, because he believed that an airline could achieve much more efficiency with information technology. JetBlue gained a significant strategic advantage over larger and older airlines. The company’s success was the result of understanding customers’ priorities and gaining marked efficiencies through automating whatever IT can automate. Management also learned to break away from practices that inhibit efficiency and agility.

In a highly competitive industry that traditionally has had a narrow profit margin, JetBlue managed to gain strategic advantage by reducing cost, therefore reducing the price to the customer, and improving a service, especially in terms of on-time departures and arrivals.

Massive Automation

We usually think of manufacturing organizations when mentioning automation, but benefits can also be gained by automating services. JetBlue uses Open Skies, the software that Neeleman developed. It is a combination reservation system and accounting system, and supports customer service and sales tracking. Using JetBlue’s system directly to purchase a ticket, the company avoids the cost of commission by booking a ticket through a travel agent. In addition, JetBlue saves office space rent and electricity by using reservation agents who work from home (telecommuting is discussed in Chapter 6, “Business Networks and Telecommunications”) and use VoIP (Voice over Internet Protocol, also discussed in Chapter 6) for telephoning. This reduces its handling cost per ticket to $4.50.

Because all tickets are electronic, there is no paper handling or related expense. JetBlue encourages customers to purchase their tickets online, and most of them do so, saving the company much labor. The cost of handling a ticket ordered via the web is reduced to only 50 cents, as opposed to $4.50 paid to a reservation agent, and a far cry from the commission when booking through a travel agent.

JetBlue automates other aspects of running an airline as well. Its maintenance workers use a maintenance information system from Dash Group to log all airplane parts and their time cycles, that is, when the parts must be replaced and where they can be found. The system reduces manual tracking costs.

For jetBlue, information technology is at least as important as fuel

© iStockphoto.com/Boarding1Now

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PART 1

Flight planning to maximize yield—the number of seats occupied on a flight—is executed on a flight-planning application from Bornemann Associates. It reduces planning costs and makes operations more efficient. JetBlue also uses an application that its team of IT professionals developed in-house, called Blue Performance. It tracks operational data that is updated flight by flight. The company’s intranet enables its employees to access the performance data. Managers have up-to-the-minute metrics, so critical in airline operations, which enable them to respond immediately to problems.

When on the ground, employees use wireless devices to report and respond to any irregular event, from weather delays to passenger injuries. The response is quick, and the events are recorded in a database for later analysis.

When training pilots and other employees, no paper records are kept. An aviation training management system provides a database to track each employee’s training record. It is easy to update and efficient for record retrieval.

Away from Tradition

JetBlue decided not to use the hub-and-spokes method of routing its airplanes, a practice used by all major airlines. Instead of having its airplanes land in one or two hubs and undergo maintenance there before taking off for the next leg of a route, it simply uses the most profitable routes between any two cities. All flights are point to point—no hubs, no spokes.

JetBlue was the first airline to establish paperless cockpits. The Federal Aviation Authority (FAA) mandates that pilots and other aircrew members have access to flight manuals. The manuals are the documents showing information about each flight, including route, weight, how the weight is spread on board, fuel quantity, and even details such as how many pets are on board. JetBlue was one of the first airlines to maintain electronic flight manuals, and the pilots and first officers access and update the manuals on laptop computers that they carry into the cockpit. As soon as the data have been entered, employees have access to the information. The advantage once realized by the paperless cockpit has been adopted by several airlines. Recently, tablet technology has been implemented to provide pilots with paperless access to operational data (Anonymous, 2012c, 2013a). Data can be updated directly from the cockpit to cloud data servers or PDFs sent directly back to operations centers.

The laptops enable the pilots and first officers to calculate the weight and balance of their plane with a few keystrokes instead of relying on dispatchers at headquarters to do the calculations for them. JetBlue saves paper and time by having employees enter flight data. The company subscribes to SharePoint, a web-based portal that enables electronic updates to flight manuals. This cuts 15 to 20 minutes from preflight preparations for every flight. The result is a savings of about 4,800 hours per year and planes that take off and land on time.

JetBlue continues to harness IT to maintain the strategic gap between the company and its competitors. Management planned a paperless frequent flier program, cockpit-monitoring cameras transmitting through satellites so that ground crews can monitor activity, and biometric applications in airport terminals. Biometrics use physical characteristics of people, such as fingerprints and retina scans, for authentication and access to physical places and online information systems. Biometrics are more secure than access codes.

Enhanced Service

Much of the technology that helps JetBlue employees provide better service is invisible to the customers, but it also has some more obvious winning features. JetBlue offers leather seats and individual real-time television on all its airplanes. When they began offering these services, other airlines did not offer such seats on economy class, and offered only recorded television programs, now others have followed. United Airlines has equipped 200 of its fleet with television entertainment with over 100 channels free for first-class passengers and for a fee for coach (Anonymous, 2013f).

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1 PART

Its use of IT technologies also placed the airline at the top of the list for on-schedule departures and arrivals, a service that is very important, especially to business travelers. Perhaps even better, JetBlue ranks at the top as having the fewest mishandled bags. Thanks to constant updates to the Open Skies system, the company has managed to maintain check-in time at less than one minute. When passengers arrive at JetBlue’s terminal at JFK airport, they are directed by a large LCD display with a computer-generated voice telling them which window is available to serve them. Usually, checking baggage takes 45 seconds. When passengers arrive at their destination, they do not have to wait for their suitcases. Their electronically tagged suitcases wait for them at the baggage claim area.

The most important metric in the airline industry is cost per available seat-mile (CASM), which is how much it costs to fly a passenger one mile of the journey. JetBlue was able to maintain the lowest or next to lowest CASM in its first three years of operations. A February 2012 Airline Economic Analysis Report compiled by Oliver Wyman reported JetBlue’s CASM at 11 cents for 2011. Only two carriers posted lower costs, Spirit and Virgin America (Hazel, Stalnaker, & Taylor, 2012).

Late Mover Advantage

Some observers cite the fact that JetBlue is a late competitor as an important factor in its success. The company is not burdened with antiquated information systems, or as IT professionals like to call them, legacy systems. This allowed them to implement the latest available technologies: fast databases, VoIP, a slick website, laptop computers with the latest algorithms for fast calculation of routes and loads in the cockpit, and other technologies. This situation illustrates the strategic advantage of the late mover.

JetBlue executives quip that while other airlines run on fuel, theirs runs on information technology. Its CIO said that up to 40 percent of the software the company was using was beta or new software. Beta software is software that the developer gives to potential adopters for trial use. Talk about being on the cutting—and possibly bleeding—edge! Yet, competitors took notice. Many of them began to mimic JetBlue’s innovations, including live TV.

When ice storms wreaked havoc with airlines in February 2007, one of JetBlue’s major problems was that crews who were supposed to be in a certain city were stranded in another, and therefore staffing of flights was affected. While the crisis was on, the IT team developed a special database and application to let crews call in their location and to replace it with the location still stored in the system. The development process took a mere 24 hours. The IT team also devised ways to communicate better with customers through broadcasting automated flight alerts via email and mobile devices.

POINT OF INTEREST Costly Battles

In 2007, Microsoft was sued by i4i Inc., a Toronto-based software firm, for patent infringement of a small piece of software code that was used in Microsoft Word. Four years later, the small Canadian technology company had spent over $10 million in legal fees. Microsoft had appealed the case to the U.S. Supreme Court. Two lower courts had ruled against Microsoft with one jury awarding i4i $290 million. By summer of 2011, the U.S. Supreme Court had upheld the position of the lower courts and Microsoft was charged $290 million. Because of the enormous value of patents in the tech industry, patent lawsuits are very fre- quent, costly, and require significant corporate resources. Source: Greene, Jay. (June 9, 2011). Supreme Court rules against Microsoft in i4i patent case. http:// news.cnet.com/8301-10805_3-20070308-75/supreme-court-rules-against-microsoft-in-i4i-patent-case/

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PART 1

Size Matters

At what point do the public and the courts start to consider a successful strategy as a predatory, unfair business practice that makes competition from other businesses impossible, even if their products are better? For instance, should a firm that takes bold entrepreneurial steps to become a business leader be curbed when it succeeds in becoming powerful? Several court cases against software industry leader Microsoft have focused on these questions. However, the questions are not simply legal issues. They are also important because they impact the economy and, as a result, society.

● Historical Background. In the 1970s, Microsoft was a small software company headed by its young president, Bill Gates, who established the company at age 19. The company was fortunate to find and buy an operating system from a small company in Seattle, Washington, for $50,000. An operating system (OS) is the software program that “mediates” between any computer program and the com- puter. Every application is developed with a particular oper- ating system, or several operating systems, in mind. To a great extent, the operating system determines which appli- cations a computer can run. Therefore, it is an extremely important program. We discuss operating systems and other types of software in Chapter 5, “Business Software.”

People who purchased a computer had to consider the OS to determine which applications they could run. After Microsoft bought the operating system, it entered into a contract with IBM, the most powerful computer manufac- turer at that time. IBM needed an operating system for its new creation, the IBM PC, and they chose Microsoft’s DOS (Disk Operating System). While Microsoft did not make much money on the IBM deal, its executives realized the strategic potential of contracting with “the big guy.”

Indeed, the strategy paid off. Soon, Compaq (later part of Hewlett-Packard) and many other manufacturers started to market IBM PC clones, cheaper computers that per- formed as well as IBM PCs and that could run the same operating system and applications. Because Microsoft’s contract with IBM allowed it to sell DOS to other parties, it made a fortune selling DOS to Compaq and others. Later, Microsoft developed Windows, an improved operating sys- tem, and the success story repeated itself. To this day, the majority of buyers of personal computers also buy a copy of some version of Windows.

One major key to gaining a decent share of the new Inter- net market was the widespread use of web browsers. In the mid-1990s, more than 80 percent of web surfers used Netscape’s browsers. Netscape was a young, entrepre- neurial company selling innovative products. Microsoft decided to increase its own browser’s market share of about 15 percent to a leading position. If a great number of people used its browser, Microsoft could expect hefty

sales of related software, such as server management applications.

No one would deny that Microsoft’s attempt to compete in the browser market was legitimate. While Netscape gave its browsers away to individuals and educational institu- tions but charged for-profit organizations, Microsoft gave its browser to everyone free of charge. Also, the company took advantage of Windows dominance; it started bundling its browser with Windows, practically forcing any PC maker who wanted to sell the machines with the operating system installed to also install Internet Explorer (IE). The great majority of new PC owners used IE without even trying any other browser.

Within two years, a majority of web surfers were using IE. But Netscape, the U.S. Department of Justice, and many individuals considered Microsoft’s tactics unfair. Microsoft used its muscle in the operating system market to compel sellers of personal computers to include a copy of Internet Explorer with Windows. Furthermore, the browser was insep- arable from newer Windows versions. Since sellers had to include Windows on every machine, and because it was practically the only operating system most buyers would accept, sellers had no choice but to succumb to the pres- sure. The U.S. Department of Justice and the Attorneys General of several states filed lawsuits claiming Microsoft violated fair trade practices. Subsequently, legal authorities in other countries, such as the European Union (EU) and Taiwan, also either probed the company or sued it. In 2004, the EU’s antitrust office fined Microsoft 497 million euros ($665 million) for abusively wielding Windows’ monopoly and for locking competitors out of the software market.

● Controversial Practices. In 2009, Microsoft settled with the European Union for $2.2 billion for monopolizing the world’s Internet searches. Their controversial practices led to $400 billion in sales and domination of Internet browsing. The fine is only one-half of one percent of sales over the 10-year period in which Microsoft was fighting the European Commission and selling Windows outfitted to run only their own browser, Internet Explorer. As part of the settlement, Microsoft has been forced to alter its “bundled” packages of software, which has allowed rival browsers to run on Windows including Safari, Chrome, and Firefox. The move benefits consumers who can choose their Internet browser and encourages web innovation from entrepreneurs.

The U.S. government opted not to extend the antitrust over- sight of Microsoft in 2011. The twice-extended oversight forced Microsoft to release key software to assist competi- tors and cooperate with a three-person committee that ensured Microsoft did not engage in any predatory prac- tices. However, since the settlement in 2002, Microsoft has seen its share of the browser market decrease (check

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1 PART

Ford on the Web: A Failure Story

Sometimes what seems to be a great, forward-looking strategic move ends up as a colossal failure. It might be because of lack of attention to details or simply because the innovator could not predict the response of customers or business partners, or had an idea too far ahead of its time. Such was the great initiative of Jacques Nasser, the former CEO of Ford Motor Company, the second largest U.S. automaker. In some cases, an early failure in a technology adoption can later lead to a success through a change in industry practices and operations. The timing of initiatives often is a key factor of success in business and some advances in technology are “before their time” and may have a future and successful impact.

The Ideas

When Nasser was appointed CEO of Ford in 1999, he regarded himself as an agent of change. He was eager to push the company into the web, which was then at the height of the “dot-com bubble.” “We are now measuring speed in gigahertz, not horsepower,” he said at the 2000 North American International Auto Show in Detroit. The concept cars sported, among other innovations, mobile Internet access. Ford Motor Co., he said, would put the Internet on wheels.

Ford launched Wingcast telematics, devices that would be installed in the company’s vehicles and enable drivers and passengers to access the web. To this end the company formed an alliance with Qualcomm, Inc., a telecommunications company, and Yahoo!

Ford created a joint venture with General Motors Corp. and DaimlerChrysler to establish Covisint, a website that served as an electronic market for parts suppliers who could bid online on requests for proposals posted by the automakers. Although not announced this way, the automakers’ hope was that suppliers would fiercely compete in an open bidding process and cut their prices dramatically, so the auto companies could enjoy cost cuts. This was the business- to-business (B2B) part of Nassers’s grand plan.

http://en.wikipedia.org/wiki/Usage_share_of_web_browsers to see the current share statistics). The U.S. antitrust oversight against Microsoft was completed in May 2011 (Goldberg, 2011). Microsoft was fined in March 2013 in rela- tion to its non-compliance with stricter anti-trust regulations imposed by the European Union (Foo, 2013).

Contrary to public perception, the United States, the Euro- pean Union, and many other countries do not outlaw monopolies. They only forbid unfair use of monopolistic power. Because anyone may compete in any market, it would be unfair to punish an entrepreneur for marketing unique products and mustering market power of any mag- nitude. Of concern in the eyes of U.S. law, for example, are two issues: (1) have any unfair practices helped the com- pany gain monopolistic power, and (2) does the monopolis- tic situation serve customers well, or does it hurt them?

● Up Side, Down Side. Microsoft argues that although it could charge higher prices for Windows, it has not, because it wants to make Windows affordable to all. Micro- soft also argues that, unlike typical monopolists, it invests huge amounts of money in research and development,

which eventually benefits society in the form of better and less-expensive products. Microsoft’s rivals in the software industry claim that Microsoft’s practices stifle true compe- tition. Both claims are difficult to measure. Some observers argue that allowing the same company to develop operat- ing systems and many applications is good for consumers: the applications are compatible with each other; all use the same interface of menus and icons. Others suggest that Microsoft should be broken into two organizations, one that develops operating systems and another that develops only applications and competes fairly in that market. And some organizations and individuals simply fear the great power that a single person can have. Recent changes in two large organizations, Microsoft and Apple, clearly high- light the impact of visionary leaders on technology compa- nies. Apple’s Steve Jobs and Microsoft’s Bill Gates both influenced the product development and innovation within their businesses as well as our economy and society.

What is your opinion? What would you do about this issue? Has the transition of their leadership impacted Apple and Microsoft? Technology innovation?

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PART 1

The business-to-consumer (B2C) idea was bolder: Ford wanted to push vehicle sales to the web. Nasser wanted to bypass dealerships and retail the vehicles online directly to consumers. Consumers would go to the website, take a virtual test-drive, see images of a vehicle in all its available colors, order a vehicle, pay for it online, and then have it driven to their door. Ford would not only provide a great service but also save the dealer fees. The company called the site FordDirect.com. A special organizational unit, ConsumerConnect, was established to build the website and handle the direct sales. Today, many manufacturers such as Toyota, Chevrolet, and Honda have integrated the functionality of building a vehicle on their websites. What once was viewed as a failure changed the approach to selling vehicles on automakers’ websites.

Hitting the Wall

Apparently, buyers were not as enthusiastic about having web access in their vehicles as Nasser predicted. In June 2001, Ford eliminated the Wingcast project. The B2B effort, Covisint, worked for a while, but not as expected. It was later sold to Compuware, a software development company. The B2C initiative failed.

The failure was not the result of faulty technology. There were web technologies that would support retail through the web. There is no reason why a car cannot be selected, paid for, and delivered (with the help of companies that specialize in such delivery from the manufacturer to the buyer) via the web (and in fact this model became popular several years later, with some changes). The company failed because it did not carefully consider state laws and its relationships with dealers.

Many state laws do not permit cutting an agent out of the sale. State franchising laws did not allow Ford to bypass its dealers. Also, since Ford would still rely on dealers to sell cars to people who do not have access to the Internet or who like to sit in a physical car and test-drive it, it could not cut the relationship all at once. Ford still needed the collaboration of the dealers, if it could overcome the legal hurdles, in order for direct sales to take off.

The Retreat

The circumstances convinced Ford to abandon its plan to sell directly to consumers. The ConsumerConnect unit was disbanded. FordDirect.com morphed into a site that allows consumers to build and price their own cars, compare vehicles, and search inventory—but working with Ford dealers rather than trying to bypass them. Like any car dealer, the site also offers used cars for sale, which is not what Ford originally wanted to do. The price tag of this failed experiment was reported to be a hefty portion of the $1 billion Ford spent on its Internet initiative under Nasser’s leadership. While other automakers were making modest profits in the period from 2000 to 2001, Ford posted losses. Nasser was forced to leave the company.

Ford’s management can find some solace in the continued operation of FordDirect.com. Although Nasser’s grand plan did not materialize, the site is the origin point of tens of thousands of sales transactions per month. The site saves dealers marketing cost. A FordDirect sale costs dealers only $160 (Anonymous, 2011). Ford also says the site helps it predict sales. FordDirect continues to add new features to its system, such as DealerConnection for dealers (Anonymous, 2012a).

The Bleeding Edge

As you might often hear, huge rewards go to whomever first implements a new idea. Innovators might enjoy a strategic advantage until competitors discover the benefits of a new business idea or a new technology. However, taking such steps before competitors have tested a system involves great risk. In some cases, failure results from rushing implementation without adequately testing a market. But even with careful planning, pioneers sometimes get burned.

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1 PART

For example, several supermarket chains tried self-checkout stations in the mid-1990s. Consumers were expected to ring up their own purchases. By and large, investment in such devices failed at that time not because the technology was bad, but because many consumers either preferred the human touch, or because they did not want to learn how to correct mistakes when the devices did not pick up the price of an item or picked it up twice. Recently, barcode scanners at both the checkout and handheld scanners that allow shoppers to enter their purchases as they shop have been installed by several chains. Consumers are finding these more user friendly and less error prone, and their popularity is growing, as the technology has matured.

While it is tempting to take the lead on new technology, the risk of business failure is quite high. Several organizations have experienced disasters with new business ideas, which are only magnified when implementing new technology. When failure occurs because an organization tries to be on the technological leading edge, observers call it the bleeding edge. The pioneering organization “bleeds” cash on a technology that increases costs instead of profits. Adopting a new technology involves great risk: there is no experience from which to learn, no guarantees that the technology will work well, and no certainty that customers, employees, or business partners will welcome it.

Being on the bleeding edge often means that implementation costs are significantly higher than anticipated, that the new technology does not work as well as expected, or that the parties who were supposed to benefit—employees, customers, or suppliers—do not like using it. Thus, instead of leading, the organization ends up bleeding, that is, suffering from high cost and lost market share. For this reason, some organizations decide to let competitors test new technology before they adopt it. They risk losing the initial rewards they might reap, but if a competitor succeeds, they can quickly adopt the technology and even try to use it better than the pioneering organization.

Microsoft generally takes this approach. It seizes an existing idea, improves it, and promotes the result with its great marketing power. For instance, the company did not invent word processing, but Word is the most popular word-processing application today. The company did not invent the electronic spreadsheet, but Excel is the most popular spreadsheet application. And Microsoft was not the first to introduce a PC database management application, but it sells the highly popular Access. The company joined the Internet rush late, but it developed and gave away Internet Explorer, the market leader in web browsers. You might call this approach competing by emulating and improving, rather than competing by being on the leading edge.

Sometimes, companies wait quite a long time to ensure that a technology has matured before they start using it, even at the risk of diminishing their strategic position. Although data warehousing—the organization and summarization of huge amounts of transactional records for later analysis—has been around since the mid-1990s, The Home Depot, Inc., decided only in 2002 to build a data warehouse. Home Depot is the world’s largest home improvement retailer. It started the project years after its main rival in the United States, Lowe’s, had implemented a well-functioning data warehouse, which it used effectively for strategic decision making.

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PART 1

Summary

● Some ISs have become strategic tools as a result of

strategic planning; others have evolved into strate-

gic tools. To compete better, executives need to

define strategic goals and determine how new or

improved ISs can support these goals. Rather than

waiting complacently until a problem occurs, busi-

nesses actively look for opportunities to improve

their position with information systems.

● An IS that helps gain strategic advantage is called a

strategic information system (SIS). To assure opti-

mal utilization of IT for competitive advantage,

executives must participate in generating ideas

and champion new, innovative uses of information

systems. In recent years, many of these ideas

involved using the Internet.

● A company achieves strategic advantage by using

strategy to maximize its strengths, resulting in a

competitive advantage.

● Strategic advantage is often achieved by one or a

combination of the following initiatives. Cost reduc-

tion enables a business to sell more units of its pro-

ducts or services while maintaining or increasing

its profit margin. Raising barriers to potential

entrants to the industry lets an organization main-

tain a sizable market share by developing systems

that are prohibitively expensive for competitors to

emulate. By establishing high switching costs, a

business can make buying from competitors unat-

tractive to clients. Developing totally new products

and services can create an entirely new market for

an organization, which can also enjoy the advan-

tage of being a first mover for that product and

market. And if the organization cannot create new

products or services, it can still enjoy competitive

advantage by differentiating its products so that

customers view them as better than a competitor’s

products. Organizations also attain advantage by

enhancing existing products or services. Many

new services are the fruits of alliances between

companies: each contributes its own expertise to

package services that entice customers with an

overall value greater than that offered by the sepa-

rate services individually. Locking in clients or sup-

pliers, that is, creating conditions that make dealing

with competitors infeasible, is a powerful strategy

to gain advantage.

● In the software industry, creating standards often

creates strategic advantage. A standard is an appli-

cation used by a significant share of the users. To

this end, many companies go as far as giving soft-

ware away. When the standard has been estab-

lished, the company enjoys a large sales volume

of compatible and add-on software.

● Reengineering is the process of redesigning a

business process from scratch to save hundreds

of percentage points in costs. Almost always, reen-

gineering involves implementing new ISs.

● Strategic advantages from information systems are

often short-lived, because competitors quickly

emulate the systems for their own benefit. There-

fore, looking for new opportunities must be an

ongoing process. Companies can maintain the stra-

tegic advantage gained through an IS by continu-

ously augmenting the services they provide.

● To maintain a strategic advantage, organizations

must develop new features to keep the system

on the leading edge. But they must be mindful

of the bleeding edge, the undesirable results

(such as huge ongoing costs and loss of custo-

mers) of being the first to use new technology

with the hope of establishing a competitive

advantage. Early adopters find themselves on

the bleeding edge when the new technology is

not yet fully reliable or when customers are

uncomfortable with it.

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1 PART

KIMBALL’S REVISITED

Tyler’s perspective was crucial in helping his parents

become aware of the strategic and operational

challenges of their business. He knows if he could

design and implement efficient changes to operations

as well as some information technology, the business

would be even more successful. Additionally, these

changes would build a solid business foundation to

objectively analyze the expansion decision.

What Is Your Advice?

1. Kimball’s has several challenges to resolve in its

operations to improve its current business and

prepare for a potential expansion. What changes

has Kimball’s implemented to positively impact

their business? Can you identify the strategic initia-

tives that Kimball’s can implement? What could

Tyler recommend to move the business forward?

Be sure to consider the following ways of gaining

a competitive advantage:

● Reduce costs

● Raise barriers to entrants

● Establish high switching costs

● Create new products and services

● Differentiate products and services

● Enhance products or services

● Establish alliances

● Lock in suppliers or buyers

2. Review the advice of the professional advisors, Tom

and Terri. Do you believe they have some merit?

What would you recommend to move forward

to resolve their perspective of the problem(s)?

What type of information technology could be

implemented?

New Perspectives

1. Considering the POS system, what information do

the owners need to manage and lead the restau-

rant? What data can help Liz and Michael monitor

their operations to ensure positive results or take

corrective action?

2. Michael and Liz operated the business without the

use of data from their operations. The oversight

and management of their operations associated

with inventory and labor appear to have been

overlooked. How do these categories of expenses

affect the profitability of the restaurant? How can

an information system assist with the manage-

ment of these functional areas?

Key Terms

affiliate program, 46

alliance, 45

bleeding edge, 58

competitive advantage, 37

create a new and unique product

or service, 41

create a standard, 47

critical mass, 42

differentiation, 44

enhance existing products or

services, 44

first mover, 42

late mover, 54

lock in clients or suppliers, 47

raise barriers to entrants, 40

reduce costs, 39

reengineering, 50

strategic advantage, 37

strategic information system

(SIS), 37

switching costs, 41

60 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

Review Questions

1. In what respect does business strategy resemble

military strategy?

2. Refer to Chapter 1’s discussion of different types

of information systems. Which types of ISs can

gain strategic advantage and which cannot? Why?

3. What should an information system achieve for

an organization in order to be considered a stra-

tegic information system? How do strategic

information systems compare with operational

information systems?

4. What strategic goal can an IS attain that does not

involve wresting market share from competitors?

Provide some business examples.

5. What conditions must exist in an organization

planning an SIS?

6. Sometimes it is difficult to convince top manage-

ment to commit funds to develop and implement

an SIS. Why?

7. An SIS often offers a corporation short-lived

advantages. How so?

8. What is reengineering? Why is reengineering

often mentioned along with IT?

9. Why have most reengineering projects failed?

What has eventually affected reengineering in

some companies?

10. Software developers have made great efforts to

“create a standard.” What does creating a stan-

dard mean in the software industry, and why

are companies doing it?

11. What should an organization do to sustain the

strategic benefits of an IS?

12. Adobe encourages PC users to download its

Acrobat Reader and Flash Player free of charge.

How does this eventually help Adobe strategi-

cally? If they give the application away, how does

their generosity help them make money?

13. Referring to the list of strategic moves (see

Figure 2.2), classify the initiatives of JetBlue.

14. What were the reasons for the failure of the orig-

inal purpose of FordDirect.com? Who eventually

gained from the system and what were the gains?

15. The executives of well-established airlines are not

less smart than those at JetBlue, and yet, their

larger airlines have not done what JetBlue has

done. Why?

16. What does the term “first mover” mean?

17. Can a late mover have any strategic advantage

with IT? What is the risk that a late mover takes?

18. What does the term “bleeding edge” mean?

Discussion Questions

19. Can an off-the-shelf computer program be used

as an SIS? Why or why not?

20. The organizations that eventually use the sys-

tems, not consulting firms that try to help orga-

nizations, develop more successful SISs. What

might be the reasons for this?

21. You head a small company. You have an idea for

software that can give your company an advan-

tage over competitors. Since you do not have a

staff that can develop and implement the soft-

ware, you decide to approach a software com-

pany. Other than the company’s technical

offerings, what additional company aspects

are desirable?

22. Some argue that an SIS gives a company an

unfair advantage and might even cause the

demise of smaller, weaker companies that cannot

afford to build similar systems. Is this good or

bad for customers? Explain your opinion.

23. Why is the web the arena of so much competition

today?

24. Information systems play a major role in almost

every reengineering project. Why?

25. Accounting and payroll ISs have never become

SISs. Why? What other types of ISs are unlikely

to ever provide strategic advantage for their

owners?

26. Give two examples of products or services whose

delivery time could be cut from days to minutes

with the aid of IT.

27. What is the role of ISs in alliances such as airlines

and credit-card issuers? Why would such alli-

ances be practically infeasible without IT?

28. JetBlue used new software that had not been

tested by other companies. If you were a CIO,

would you use software that is still in beta

(untested with live data) in your organization?

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1 PART

29. You are an executive for a large organization that

provides services to state and federal agencies.

A software development firm approached you

with an offer to implement new software that

might give your organization a strategic advan-

tage by reducing the service delivery cycle by

several days. What would you do to avoid putting

your organization on the “bleeding edge” while

still considering the new software?

30. When a software developer creates a de facto

standard (i.e., not the official standard, but some-

thing so widely used that it becomes a standard),

it has monopolistic power. Should governments

intervene to prevent this practice? Explain your

opinion.

31. Suppose you are a venture capitalist considering

a proposal to invest millions of dollars in a new

online business. What questions would you ask

the enthusiastic young people who have

approached you for funds?

32. What are the potential risks of a single organiza-

tion controlling much of the market for essential

software?

33. Can you think of any other first movers/technolo-

gies that might replace satellite radio?

Applying Concepts

34. Although Apple Computer Inc. introduced a per-

sonal computer and software that was superior to

those produced by IBM and other companies, it

failed to capture the lion’s share of the PC market.

However, it did capture a large share of several

markets: the digital music player, cell phone, and

tablet. Complete some research. What was the

difference in the company’s approach to the two

types of products? What is your conclusion

regarding the proper approach when developing

a new digital product?

35. Prepare a brief essay that includes an example

of each of the following strategic moves: raising

barriers to entrants (Hint: intellectual property),

establishing high switching costs, creating a new

product or service (Hint: the web), and establish-

ing alliances. The examples do not necessarily

have to involve IT. Do not use examples already

presented in the text. You may use examples

from actual events or your own suggestions,

but the examples must be practical.

36. A publishing company wants to publish electronic

books that can be downloaded and read on both

tablets and electronic readers. At least two firms

have developed e-book technologies that the

publisher can adopt. The publisher hires you as a

strategic consultant. Write a report explaining the

strategic moves you suggest. What would you

advise the company to do: try to develop its own

e-book reader or purchase a license for existing

technology? Who should be the initial target

audience for the product? What should be the

company’s major goal in the first two or three

years: profit, market share, user base, technolog-

ical improvement, or perhaps having the largest

sales force in this industry? Should the company

give anything away? Prepare a detailed report

enumerating and explaining your suggestions.

37. You are a software-marketing expert. A new soft-

ware development firm has hired you to advise it

on pricing and marketing strategies of its new

application. After some research, you conclude

that the firm can be successful either by selling at

a high unit price (in which case, probably only

businesses would purchase licenses to use the

application), or at a very low price, which would

be attractive to many individuals and companies.

You estimate that by the end of the sixth year of

the marketing effort competing software will be

offered, which will bring the number of units sold

to zero. For alternative A, the price would be $350

per license, and you expect 600 adopters in the

first year and an annual growth of adopters of

50 percent. For alternative B, the price would be

$25, and you expect 25,000 adopters in the

first year and an annual growth of adopters of

5 percent. Use a spreadsheet application to cal-

culate revenue, and tell the firm which strategy is

expected to bring in greater revenue. Enter the

prices and number of first-year adopters for each

alternative only once, each in a single cell, and

use absolute referencing to those cells.

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PART 1

Hands-On Activities

38. Use PowerPoint or other presentation software

to present the ideas you generated in Question 34

or 35 of “Applying Concepts.” Use the program’s

features to make a convincing and visually

pleasing presentation.

39. Research business journals and magazines

such as the Wall Street Journal, BusinessWeek,

Forbes, or Fortune. Find a story on a business’s

strategic use of data, information, or information

systems. Be aware that the writer may not have

specifically identified the system as strategic in

nature. Gain an understanding of the new sys-

tem’s goals and determine whether it is strategic.

Prepare a report explaining the opportunity

seized. Did the organization create a new product

or service, improve one, or manage to capture a

significantly greater market share of an existing

product or service? How did the data, informa-

tion, or information system play a major role in

the strategic move?

40. Consider the information provided in the “Ethical

& Societal Issues” box of this chapter. Prepare

extensive lists of pros and cons. The pros should

aim to convince an audience why Microsoft, or a

similar company, should be left alone to practice

its business maneuvers. The cons should aim to

convince an audience why governments should

intervene in how corporations such as Microsoft

behave and explain what such interventions are

meant to accomplish. How has the global market

for software changed the legal issues?

Team Activities

41. Brainstorm with your team to answer the ques-

tion: “Which information technology over the

past two years has epitomized a unique product

or service that was ‘ahead of the curve’ for a sig-

nificant amount of time?” This might be a physi-

cal product using IT or an online service that was,

or still is, unique. List the reasons each of the

team members liked this product or service.

42. Some information technologies had a certain

original purpose but were creatively used to serve

additional purposes. For example, companies

have used caller ID to retrieve customer records

as soon as a customer telephones. This saves

labor and increases service quality. You and your

teammates are consultants who work with many

businesses. Offering your clients original ideas

will increase your success. Select an information

technology or an IT feature that can be leveraged

in ways not originally conceived. How can your

clients (in manufacturing, service, or any other

business sector) use this feature to gain strategic

advantage? Prepare a rationale.

43. Sirius and XM Radio had the first mover advan-

tage in the satellite radio industry. They had radio

stations dedicated to celebrities, music stars, and

most major sports including the NFL, NHL, and

MLB. By 2006, they had close to 14 million users.

They merged in 2008 to cut operating costs. The

barriers to entry in the Internet radio industry are

relatively low because it is simple for a webcaster

to pay royalties for a song and broadcast it. iPods,

cell phones, and Internet radio are all competing

for time in the customers’ ear. Do you think the

Sirius-XM merger was a business move to elimi-

nate competition between each other and defend

against other upcoming forms of radio? What are

some other reasons to explain their merger? Pro-

vide an analysis and rationale for your position.

CHAPTER 2 Strategic Uses of Information Systems 63 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

From Ideas to Application: Real Cases

Finish Line Finishes First

Finish Line is a clothes and shoe retailer with over 640

locations in malls across the United States. In late

2012, Finish Line was about to unleash its new in-

store POS technology to engage more shoppers.

Although Finish Line was initially criticized for the

timing of the roll-out, director of store applications

and delivery, Rob Baugh, knew from the start it was

going to be a home-run. From previous research

conducted by the National Retail Federation, Finish

Line knew an astounding 95 percent of retail

purchases were still occurring in physical stores.

Thus, an opportunity awaited retailers that could

engage more customers to make more in-store

purchases. Baugh knew the goal of the POS system

was to provide service to the customer, when the

customer needed it.

Before Finish Line could make any technological

improvements, it required network upgrades and

additional wireless access points. Mobile receipt

printers were placed throughout stores to aid sales

associates performing mobile POS transactions.

To leverage the opportunity at hand, Finish Line

implemented a mobile POS system to aid and

engage shoppers through their entire in-store

shopping experience. To enable mobile payments,

it upgraded its POS system to a platform from

MICROS Systems and implemented a customer

engagement solution from VeriFone. Their new

electronic payment options included magnetic

stripe and PIN-based debit/credit cards, chip-

enabled smartcards, and mobile payments. The

multimedia processors were high-speed, color, and

supported full-motion video for additional shopper

appeal. iPod Touch devices used Micros’ MyStore

application and VerFone’s PAYware Mobile

Enterprise software, which supported all device

transaction functionality.

High confidence in the success of the new system

led to a 36-store, 3-month pilot program from May to

August. Each store featured five mobile devices that

could process a variety of business activities.

Customers appreciated using the mobile POS units

to interact with sales associates. The overall results

of the pilot were very positive and one month later,

the positive results led to a companywide roll-out,

right before the crucial holiday season. Finish Line

issued five devices per store and added barcode

scanners to allow users to conduct price checking

and inventory management processes. Transactions

completed on the mobile units are sent through the

retailer’s centralized system to consolidate its sales

and inventory data.

Finish Line’s new POS system and mobile

payments acceptance has changed its in-store

shopping experience. Finish Line did its research

and pursued an opportunity to change in-store

consumers’ shopping experience and put the

customer first.

Source: Amato-McCoy, D. M. (2012). Perfect Timing. Chain Store Age, 88(7), 28–28.

Thinking About the Case

1. Why do retailers want to provide customers with

more product/service information when they

come into a retail store?

2. How does Finish Line put the customer first?

3. Why is it important to monitor the results of

newly implemented technology, even when it is

previously deemed successful?

4. Would you be more inclined to shop at Finish

Line or one of their competitors, and why?

Realizing the Goal Helps Reach Results

Businesses aiming to expand, gain a larger market

share, or compete with competitors can accomplish

these goals through reducing costs, raising barriers to

market entrants, or creating new products or services.

Additionally, each of these goals can be accomplished

through the use of innovative technologies. When

companies explore uses for innovative technologies

with a specified goal in mind, they can experience

tremendous results in their attempts in shaping

consumer behavior, changing their shopping

experience, or even altering the backhouse operations.

Other times, when technology reaches maturity, it has

other unforeseen uses. In both of the following short

case examples, the exhibited company uses

technological innovations to either differentiate itself in

the market place, attract new customers, lock in

customers, offer a new product or service, or some

combination of the previous.

Peapod is an online grocery ordering service

provider whose goal was to use branding as

a way to promote an innovative product-service

combination. Peapod placed virtual walls in

commuter rail stations and other public locations

that looked like products on a grocer’s shelves.

These virtual walls offered branding and advertising

which attracted customers and served as a reminder

of Peapod’s innovative service which is online grocery

ordering and delivery. Shoppers can use the Peapod

app on their smartphone to order groceries and have

them delivered the next day. Although their

technology is changing the way consumers approach

64 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

grocery shopping, the added conveniences soothe the

transition. The goal is to allow customers to see the

branding, use the app, and have groceries delivered

the next day; all while waiting for a train home. The

ultra-modern shopping experience is just another

way retailers are altering consumers’ expectations of

how shopping should be conducted.

This idea has been expanded further by other

companies such as Sears Holdings Corp. Sears and

Kmart used QR code-driven “toy walls” to produce a

wall-driven shopping experience. Toy walls were

featured in high-traffic locations such as malls,

airports, and movie theatre lobbies. This shopping

approach is cost efficient because the virtual walls

do not require any floor space. Shoppers then could

simply scan the wall’s QR code to order toys while on

the run.

One of Amazon’s keys to financial success is not

the sales revenue collected by their e-reader, the

Kindle, but the sales that the Kindle provokes

subsequently. Digital sales of books, movies, and TV

shows are where Amazon expands its revenue

sources. To encourage more Kindle sales to hesitant

buyers, Amazon opened a physical store location in

Seattle, Washington so potential customers could

come in and tryout a Kindle before purchasing one.

The idea of opening a brick-and-mortar location will

increase Kindle sales which would then create more

demand for digital content and additional sales for

Amazon. After a customer has purchased the Kindle,

the digital sales expand and the customer is locked in

for future sales.

The innovative technologies aforementioned had

incredible results, primarily because they were

implemented with a specified goal in mind. Peapod

is utilizing game-changing virtual walls to turn

passersby into shoppers and Amazon is locking in

future customers by easing their initial purchase; the

most important one. There are a number of different

ways to attract new customers, lock in customers, and

produce differentiation with a new product/service

combination when utilizing innovative technologies.

In doing so, the most important key to success is to

realize a destination early, plan the course of action,

and adjust for adversities.

Source: Anonymous. (2012). What is Game-Changing Innovation? Chain Store Age, 88(5), 2–4A, 5A.

Thinking About the Case

1. What benefits are provided to the shopper by

Peapod’s services? How does their innovative

product/service combination provide additional

benefits beyond the average grocery store with

delivery service?

2. “Toy walls” could be found in malls, airports, and

movie theater lobbies during the 2011 holiday

season. Why were they featured in these loca-

tions and what additional locations would be

ideal? Explain why.

References

Anonymous. (2011). FordDirect Dealer News. Retrieved May 22, 2013, from http://forddirect.xpsitehost- ing.com/FD1106/

Anonymous. (2012a, 2012-02-09). FordDirect Launches DealerConnection Elite Service for Dealers. Travel & Leisure Close-Up.

Anonymous. (2012b). The 2012 Gartner CIO Agenda Report (pp. 10). Stamford, CT.

Anonymous. (2012c). Why Operations Take the Tablets. Flight Evening News (3), 3–3.

Anonymous. (2013a). App will aid advance towards the paperless cockpit. Flight International, 183, 22–22.

Anonymous. (2013b). JetBlue Announces 2012 Annual Profit.

Anonymous. (2013c). Number of active users at Face- book over the years. Retrieved May 22, 2013, from http://news.yahoo.com/number-active-users- facebook-over-230449748.html

Anonymous. (2013d). Twitter Statistics. Retrieved May 22, 2013, from www.statisticbrain.com/twitter- statistics/

Anonymous. (2013f, 2013-05-15). United Airlines; United Airlines Introduces 200th Aircraft With Live Television. Entertainment Newsweekly, 112.

Foo, Y. C. (2013, Mar 07). EU slaps $731 million pen- alty on Microsoft, Chicago Tribune, p. 1.

Goldberg, A. (2011). US to end antitrust oversight of Microsoft, McClatchy-Tribune Business News.

Hazel, B., Stalnaker, T., & Taylor, A. (2012). Airline Economic Analysis (p. 41). New York, NY.

Waurzyniak, P. (2012). PLM Systems Further Extend Reach to the Shop Floor. Manufacturing Engineering, 149(5), 67–70, 72–75.

Winkler, R. (2012). Facebook, Twitter: Space Invaders, Wall Street Journal, p. B.16.

CHAPTER 2 Strategic Uses of Information Systems 65 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

1

CHAPT ER

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three

BUSINESS FUNCTIONS AND SUPPLY CHAINS

Learning Objectives In an economy that produces and consumes so much information, professionals must know how to use information systems in virtually every business activity. Managers must have an overall understanding of all elements of a system, so that they know what options are available to control quality, costs, and resources. Modern information systems encompass entire business cycles, often called supply chains.

When you finish this chapter, you will be able to:

● Identify various business functions and the role of ISs in these functions.

● Explain how ISs in the basic business functions relate to each other.

● Articulate what supply chains are and how information technology supports management of supply chains.

● Enumerate the purposes of customer relationship management systems.

● Explain enterprise resource planning systems.

66 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

KIMBALL’S RESTAURANT: The New Location

Liz and Michael carefully reviewed the marketing, finan-

cial, and operational forecasts for expanding their busi-

ness to the new lakeside location and closing the

current location. They felt that their forecasts were rea-

sonable. In January, they agreed to leasing terms with

Shaun to move the restaurant into the former camp-

ground location. They planned to take several months

to complete the design and renovations and prepare

for opening “Kimball’s by the Lakeside” in late May.

Tyler had convinced his parents to take their advi-

sors’ advice and focus on operating their business

more profitably before the move. This focus would

also benefit them in their expansion, because they

would need additional management to create efficiency

in operations and build a more effective strategy for the

restaurant. The increased number of customers at the

new location would also require more employees, food

purchases, and coordination with suppliers. If the back-

house operations were not managed and controlled

properly, the expansion could create more problems

than it solved. If they can’t operate more efficiently in

the new location, their profits could evaporate, even

with the additional clientele.

Currently, Kimball’s marketing activities were lim-

ited to small advertisements in a local newspaper.

Although they had a solid clientele at the current loca-

tion, it would be important to extend their reach to the

nearest metropolitan city, about 12 miles away. Tyler

hoped to use the four months before opening the new

location to develop new marketing and promotions to

build their customer base.

Planning the Transition: Operations and Marketing Liz, Michael, and Tyler met to discuss the transition

plan. Tyler had several thoughts about the operational

changes that needed to be implemented. The company

that sold Kimball’s the point-of-sale software used by

the servers had additional software available, although

additional research needed to be completed. He won-

dered, “If reliable software was available, when would

be the right time to install and use the new system?”

Since the expansion decision was behind them, he

wondered if additional software to help the business

could be installed before the move. Using this approach,

the employees and management could use the system in

the current location and gain more experience with it. Liz

asked, “If we installed the software now, wouldn’t that be

twice as much work to then reinstall it in the new loca-

tion?” Tyler responded that the current hardware and

software would need to be shut down, packed, trans-

ported, and installed in the new location anyway. The

purchase of any new software would be “carried over”

to the new location without any additional expense.

Michael and Liz thought about the alternatives that

Tyler presented. Liz recalled the planning process for

their current location, and how issues arose at the start

of the business, even with their careful planning. Expe-

rience told her that similar issues could come up at the

new location. Michael said, “Maybe it’s not a bad idea to

install the new software now. We can train people in a

familiar and established operation for a month or two.”

Liz believed that the new location might need more

hardware based on the larger dining and kitchen area.

They all agreed that if a suitable system to help with

the backhouse operations could be installed in their cur-

rent location, it should be purchased and implemented.

Michael and Tyler then focused their attention on

marketing. They agreed that they needed to expand

their clientele to include people in the nearby metropol-

itan area. They also wanted to keep and increase their

local clientele and to continue hosting “after work” cus-

tomers from local businesses. The additional seating at

the new location could be promoted for breakfast,

lunch, and dinner meetings for businesses as well.

Michael, Liz, and Tyler agreed that it was important for

them to retain Kimball’s “local” feel while promoting

the new location to a wider audience.

Effectiveness and Efficiency

In customer service departments, the ringing tone from telephones was a common occurrence. Major business organizations would receive millions of calls from customers to ask a variety of questions on their accounts. Telephones at the offices of Capital One Financial Corp., a leading credit-card issuer and a Fortune 500 company, probably do not ring as often as they did two or three decades ago. Cardholders who once called to ask about their balance or to ensure that the company received their recent payment now have other alternatives such as smartphones, websites, or directly entering their account information into an automated phone service.

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1 PART

If you do connect with a customer service agent, technology is still involved in your call. Information technology uses the caller’s telephone number to search the company’s huge databases. Inferring from previous calls and numerous recorded credit-card transactions of the caller, the computers may predict the reason for calling. Based on the assumed reason, the computers channel the call to an employee who can best handle the situation. Important information about the caller is brought up on the employee’s computer monitor without having to ask or enter the caller’s account number. Although callers usually do not contact the company to make purchases, the computer also brings up information about what the caller might want to purchase. As soon as the customer service representative provides the caller with satisfactory answers, he or she also offers the cardholder special sales. Many callers do indeed purchase the offered merchandise. All of these steps—accepting the call, reviewing and analyzing the data, routing the call, and recommending merchandise—take the computers a mere tenth of a second. Because of Capital One’s effective operations and efficient response, they were recognized by J.D. Power and Associates for their outstanding customer service in 2012.

It is often said that the use of information technology makes our work more effective, more efficient, or both. What do these terms mean? Effectiveness defines the degree to which a goal is achieved. Thus, a system is more or less effective depending on (1) how much of a particular goal it achieves, and (2) the degree to which it achieves better outcomes than other systems do.

Efficiency is determined by the relationship between resources expended and the benefits gained in achieving a goal. Expressed mathematically,

Efficiency ¼ Benefits Costs

One system is more efficient than another if its operating costs are lower for the same or better quality product, or if the product’s quality is greater for the same or lower costs. The term “productivity” is commonly used as a synonym for efficiency. However, productivity specifically refers to the efficiency of human resources. Productivity improves when fewer workers are required to produce the same amount of output, or, alternatively, when the same number of workers produces a greater amount of output. This is why IT professionals often speak of “productivity tools,” which are software applications that help workers produce more in less time. The closer the result of an effort is to the ultimate goal, the more effective the effort. The fewer resources spent on achieving a goal, the more efficient the effort.

Suppose your goal is to design a new car with fuel economy of 60 miles per gallon. If you manage to build it, then you produce the product effectively. If the car does not meet the requirement, your effort is ineffective. If your competitor makes a car with the same features and performance, but uses fewer people and resources, then your competitor is not only as effective as you but also more efficient. ISs contribute to both the effectiveness and efficiency of businesses, especially when serving specific business functions, such as accounting, finance, and engineering, and when used to help companies achieve their goals more quickly by facilitating collaborative work.

One way to look at business functions and their supporting systems is to follow typical business cycles, which often begin with marketing and sales activities (see Figure 3.1). Serving customers better and faster, as well as learning more about their experiences and preferences, is facilitated by customer relationship management (CRM) systems. When customers place orders, the orders are executed in the supply chain. Often, information about the customer is collected as orders are taken. This information may be useful down the road. Customer relationship management continues after delivery of the ordered goods in the forms of customer service and more marketing. When an organization enjoys the support of CRM and supply chain management (SCM) systems, it can plan its resources well. Combined, these systems are often referred to as enterprise resource planning (ERP) systems.

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PART 1

F I G U R E 3.1

Business activities consist of customer relationship management, supply chain management, and supporting functions

Customer Service

Marketing

Sales

Enterprise Resource Planning

Customer Relationship Management Supply Chain Management

Marketing & Sales

Human Resource Management

Accounting

Financial Management

Technology Services

Other Support Services

Develop Plans and Schedules

Develop Material Requirements and Purchase

Pay for Supplies

Bill and Collect

Pack and Ship

Produce Goods

Support Activities:

BANK

Receive Supplied Raw Materials and Parts

Figure 3.2 shows some of the most common business activities and their interdependence. For example, cost accounting systems are linked to payroll, benefits, and purchasing systems to accumulate the cost of products manufactured by a company; and information from purchasing systems flows to both cost accounting and financial reporting systems. The following discussion addresses the role of information systems, one business function at a time.

F I G U R E 3.2

Information systems in different business functions are interdependent

Marketing and Sales Financial Management Human Resources Engineering Manufacturing and Inventory Control Accounting

1 2 3 4 5

6

Computer-aided Design

Targeted Marketing Salesforce Cash Management Investment Analysis

Product Specifications

Simulation Computer-aided Manufacturing

EvaluationTraining Promotion and Recruitment Benefits Management

Cost Accounting

Manufacturing Resource Planning PurchasingMarket Research

Production Requirements

Financial Reports

Payroll

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CHAPTER 3 Business Functions and Supply Chains 69 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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1 PART

Accounting

The purpose of accounting is to track every financial transaction within a company—from a few cents expenditure to a multimillion-dollar purchase, from salaries and benefits to the sale of every item. Without tracking the costs of labor, materials, and purchased services using a cost- accounting system, a company might discover too late that it sells products below what it costs to make them. Without a system of accounts receivable, managers might not know who owes the company how much money and when it is due. Without an accounts payable system, they cannot know how much money the company owes suppliers and when payments are due. Without a system that records and helps plan cash flow, managers cannot keep enough cash in the bank to make payments on schedule. At the year’s end, the company cannot present a picture of its financial situation—called a balance sheet—and a profit-and-loss report, unless it maintains a general ledger to record every transaction with a financial impact. Accounting systems are required by law and for proper management. General ledger, accounts receivable, accounts payable, and cash-flow books conveniently lend themselves to computerization and can easily generate balance sheets and profit-and-loss statements from records (see Figure 3.3). The word “books” in this reference is now a relic of former times. Accounting ISs are, of course, fully electronic.

F I G U R E 3.3

Accounting information systems include features that reflect up-to-date performance of the organization in financial terms

Cost Accounting Accounts Payable and Accounts Receivable

Sales Information from TPS

Other Accounting Functions

Labor: Materials:

O/H: Total Cost:

$ 3,042 $ 1,569 $ 282 $ 4,893

ANNUA L

REPOR T

Financial Reports

Accounting Information

Systems

Typically, accounting ISs receive records of routine business transactions—such as the purchase of raw materials or services, or the sale of manufactured goods—from transaction processing systems (TPSs), which include point-of-sale (POS) machines. Such a system automatically routes every purchase of raw materials or services to the accounts payable system, which uses it to produce checks or transfer funds to a vendor’s bank account. Whenever a sale is recorded, the transaction is routed to the accounts receivable system (which generates invoices) and other destinations. Totals of accounts receivable and accounts payable can be automatically transferred to a balance sheet. Data from the general ledger can be automatically compiled to generate a cash-flow report or a profit-and-loss report for the past month, quarter, or year. Accounting ISs can generate any of these reports on demand, as well as at scheduled times.

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PART 1

WHY YOU SHOULD Know About Business Functions and Supply Chains

Today’s professionals are expected to be knowledgeable not only in their specific line of work but also in other areas. And since practically every business process involves information technology, new hires are expected to know, or quickly learn, how to use the proper ISs in their respective positions. Many employers look for generalists rather than specialists and focus on the techno-manager, a manager well-versed in infor- mation technology as it relates to the entire supply chain.

Because many ISs serve multiple functions and interface with other systems, it is extremely important for a professional

to be familiar with the way ISs facilitate work in areas outside his or her expertise. If you work for a commercial organization, you are bound to be part of a supply chain or work for a unit that supports a supply chain. Knowledge of systems in different business areas helps you cooperate with your peers and coordinate efforts that cross depart- mental boundaries. Because professionals often have opportunities to be promoted to positions in other disci- plines, the more you know, the better your chances of being “cross-promoted.”

When a company develops and manufactures a new product that has never been available on the market, how can it determine a price that covers costs and generates a decent profit? It must maintain a system that tracks the costs of labor, materials, consulting fees, and every other expense related to the product’s development and manufacture. Cost-accounting systems, used to accumulate data about costs involved in producing specific products, make excellent use of IT to compile pricing data. ISs also help allocate costs to specific work orders. A work order is an authorization to perform work for a specific purpose, such as constructing a part of an airplane. When interfaced with payroll and purchasing ISs, a cost-accounting system automatically captures records of every penny spent (and originally recorded in the payroll and purchasing systems) and routes expenses to the appropriate work order. Because work orders are associated with specific products and services, the company now knows how much each product or service costs, or how much making a part of a final product costs. This can help the company in future pricing of products or services.

Accounting ISs are also used extensively for managerial purposes, assisting in organizing quarterly and annual budgets for departments, divisions, and entire corporations. The same systems help managers control their budgets by tracking income and expense in real time and comparing them with the amounts predicted in the budget. Budget applications are designed with proper controls, so that the system does not allow spending funds for a specific purpose beyond the amount that was budgeted.

Finance

A firm’s health is often measured by its finances, and ISs can significantly improve financial management (see Figure 3.4). The goal of financial managers, including controllers and treasurers, is to manage an organization’s money as efficiently as possible. They achieve this goal by (1) collecting payables as soon as possible, (2) making payments at the latest time allowed by contract or law, (3) ensuring that sufficient funds are available for day-to-day operations, and (4) taking advantage of opportunities to accrue the highest yield on funds not used for current activities. These goals can be best met by careful cash management and investment analysis.

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1 PART

F I G U R E 3.4

Financial information systems help manage cash and investment portfolios

Cash Management

Investment Analysis

Other Financial Information Systems

Budgeting and Forecasting

..IBM 85 1/2...GM 35 1/2...OZ 1

Financial Information

System

1980

1985

1990

1995

10 20 30 40

Revenue Expense

Cash Management

Financial information systems help managers track a company’s finances. These systems record every payment and cash receipt to reflect cash movement, employ budgeting software to track plans for company finances, and include capital investment systems to manage investments, thus balancing the need to accrue interest on idle money against the need to have cash available. The information on expected cash receipts comes from sales contracts, and the information on cash outlays comes from purchasing contracts as well as payroll and benefits schedules. Systems that deal specifically with cash are often called cash management systems (CMSs). One common use for a CMS is to execute cash transactions in which financial institutions transfer huge amounts of money using electronic funds transfer (EFT). EFT is the electronic transfer of cash from an account in one bank to an account in another bank. More than 80 percent of all payments of the U.S. government are made using EFT systems.

Investment Analysis and Service

Every investor’s goal is to buy an asset and later sell it for more than it cost. When investing in securities, such as stocks and bonds, it is important to know the prices of securities in real time, that is, right now. The ability of financial ISs to record millions of securities prices and their changes over long time periods, coupled with the ability to manipulate numbers using software, puts powerful analysis tools in investment managers’ hands. Within seconds, an investment analyst can use a financial IS to chart prices of a specific stock or bond over a given period, and then build or use preprogrammed models to estimate what might happen to securities prices in the future.

Even the smallest investment firm can provide clients with an inexpensive online service for buying and selling securities, providing on-demand statements listing the stocks they own (called a portfolio), periodic yield, and the portfolio’s current value. Clients serve themselves through the websites of brokerage firms to place, buy, and sell orders. Execution of orders takes only a few seconds.

Nearly instantaneously, ISs provide subscriber brokers and their clients with financial news, stock prices, commodity prices, and currency exchange rates from multiple locations across the world. Consider what happens when a foreign currency’s exchange rate fluctuates a fraction of a percent. A brokerage house can make a profit of several thousand dollars within two minutes of buying and selling several million dollars’ worth of the foreign currency.

Financial managers need to consider many factors before they invest in a security. Some of the most important factors to consider are (1) risk, measured as the variability (degree of change) of the security’s past yield; (2) expected return; and (3) liquidity, a measure of how fast an investment can be turned into cash. Special programs help calculate these factors and present the results either in tables or graphs to allow timely decision making.

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72 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 1

POINT OF INTEREST Government Swipes Away Paper

The federal government made plans in 2010 to distribute all benefits payments through direct deposit or the government’s Direct Express Debit MasterCard program if no bank account information was provided by the recipient. Americans who enrolled on or after March 1, 2011 were automatically put into this sys- tem while previous users would make the switch by March 1, 2013. The federal government’s plan to dis- tribute all benefits payments through electronic funds transfers (EFT) will cut paper and postage costs and save taxpayers about $400 million in the first five years. Source: O’Keefe, E. (2010, Apr 19). Federal benefits payments to go electronic. The Washington Post.

Engineering

The time between generating an idea for a product and completing a prototype that can be mass- manufactured is known as engineering lead time, or time to market. As discussed in Chapter 2, business organizations offering a new product or service can create a first-mover advantage. This competitive advantage requires a rapid, efficient product design and development strategy. Collaterally, it is imperative to ensure products are more “leading edge” than “bleeding edge” by integrating quality in a rapid development environment.

Engineering includes brainstorming (the process of a group of colleagues meeting and working collaboratively to generate creative solutions and new ideas), developing a concept, creating mock-ups, building prototypes, testing, and other activities that require investments of time, labor, and money. Minimizing lead time is key to maintaining a competitive edge: it leaves competitors insufficient time to introduce their own products first. ISs can contribute significantly to this effort. Over the past two decades, automakers have used engineering and other ISs to reduce the time from product concept to market from 7 years to 18 months.

IT’s greatest contribution to engineering is in the area of computer-aided design (CAD) and rapid prototyping (creating one-of-a-kind products to test design in three dimensions). Engineers can use computers to modify designs quickly and store drawings electronically. With collaborative software, they perform much of this process over the Internet: engineers can conduct remote conferences while viewing and developing plans and drawings together. The electronic drawings are then available to make rapid prototypes.

Rapid prototyping allows a model of a product to be produced within hours, rather than days or weeks. The model required is often a mock-up to show only the physical look and dimensions of a product, without the electronics or other components that are part of the full product. First, an image of the object is created on a computer. The computer is connected to a special machine that creates a physical, three-dimensional model by laying down hundreds or thousands of thin layers of liquid plastic or special resin. The model can be examined by engineers and marketing managers in the organization, or shown to clients.

When the prototypes are satisfactory, the electronic drawings and material specifications can be transferred from the CAD systems to computer-aided manufacturing (CAM) systems. CAM systems process the data to instruct machines, including robots, how to manufacture the parts and assemble the product (see Figure 3.5).

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1 PART

F I G U R E 3.5

Engineering information systems assist engineers in designing new products and simulating how they operate

Material Specifications

Computer-aided Design Simulation

Other Engineering Information Systems

Rapid Prototyping

Engineering Information

System

As we mentioned, automakers needed years to turn a concept into actual vehicles rolling out for sale. Now, thanks to CAD, CAM, rapid prototyping, and collaborative engineering software, the lead time has been reduced to months. The digital design of vehicles saves not only time but also the cost of cars crashed in tests; many of the tests can be performed with sophisticated software rather than with real cars. Similar benefits have been accomplished in aerospace and many other engineering and manufacturing industries. The illustration below shows the use of SolidWorks CAD software to design a blender.

Computer-aided design systems significantly shorten the time necessary to produce drawings and complete the design for new products

Co ur te sy

of So lid w or ks

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PART 1

Rapid prototyping shortens time to market; with 3-D printers like this one, engineers can quickly create plastic models of parts

Supply Chain Management

In its fundamental form, a supply chain consists of three major phases: procuring raw materials, processing the materials into intermediate and finished goods, and delivering the goods to customers. Processing raw materials into goods is manufacturing. Supply chain man- agement (SCM) consists of monitoring, controlling, and facilitating supply chains, as depicted in the right side of Figure 3.1. Supply chain management (SCM) systems are information technologies that support SCM. SCM systems have been instrumental in reducing manufacturing costs, including the costs of managing resources and controlling inventory (see Figure 3.6). In retail, the manufacturing phase does not exist, so the term “supply chain” refers only to the purchasing of finished goods and the delivery to customers of those goods. In the service industries the term “manufacturing” is practically meaningless, because no raw materials are purchased and processed.

Co ur te sy

of St ra ta sy s, In c.

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1 PART

F I G U R E 3.6

Manufacturing and inventory control information systems help reduce cycle times and the cost of maintaining inventory

Computer-aided Manufacturing Systems

Other Manufacturing and Inventory Control Information Systems

Manufacturing Resource Planning

Material Requirements Planning

Manufacturing and Inventory

Control Information

Systems

As is clear from the previous discussion, much of the data required for manufacturing processes can flow directly from CAD systems to CAM systems as well as to inventory control systems and other systems that support planning and execution of manufacturing. While CAM systems participate in physical activities such as cutting and welding, other information systems help to plan and monitor manufacturing.

Information technology helps in the following manufacturing activities:

● Scheduling plant activities while optimizing the combined use of all resources—machines, personnel, tooling, and raw and interim materials.

● Planning material requirements based on current and forecasted demand. ● Reallocating materials rapidly from one order to another to satisfy due dates. ● Letting users manage inventories in real time, taking into consideration demand and the

responsiveness of all work centers. ● Grouping work orders by characteristics of items ordered, such as color and width of products. ● Considering the qualifications of each resource (such as qualified labor, set-up crews, and

specialized tools) to accomplish its task. For instance, people and raw materials can be moved from one assembly line to another to respond to machine breakdown or customer emergency, and design changes can be implemented quickly to respond to changes in cus- tomer wishes.

Material Requirements Planning and Purchasing

One area of manufacturing that has experienced the greatest improvement from IS is inventory control, or material requirements planning (MRP). Traditional inventory-control techniques operated according to the basic principle that future inventory needs are based on past use: once used up, inventory was replaced. By contrast, replenishment in MRP is based on future need, calculated by MRP software from demand forecasts. MRP programs take customer demand as their initial input. The main input to MRP programs is the number of product units needed and the time at which they are needed; the programs then work back to calculate the amounts of resources required to produce subparts and assemblies. The programs use long-range forecasts to put long-lead material on order.

Other important input to MRP applications includes a list of all raw materials and subcomponent demands (called the bill of materials, or BOM)

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MRP systems help reduce inventory costs while ensuring availability of product to fulfill customer demand

© Vasily Smirnov/Shutterstock.com

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PART 1

and the economic order quantity of different raw materials. The economic order quantity (EOQ) of a specific raw material is the optimal quantity that allows a business to minimize overstocking and save cost, without risking understocking and missing production deadlines. A special program calculates EOQ for each item. It considers several factors: the item’s cost, the discount schedule for large quantities, the cost of warehousing ordered parts, the cost of alternative uses of the money (such as the interest the money could earn had it not been spent on inventory), and other factors affecting the cost of ordering the item. Some MRP applications are tied to a purchasing IS, to produce purchase orders automatically when the quantity on hand reaches a reorder level. The purchase order includes the economic order quantity.

Manufacturing Resource Planning

Manufacturing resource planning (MRP II) combines material requirements planning (MRP) with other manufacturing-related activities to plan the entire manufacturing process, not just inventory. (The “II” in MRP II is simply to distinguish this term from material requirements planning, another term with the same acronym.) MRP II systems can quickly modify schedules to accommodate orders, track production in real time, and fix quality slippage. The most important input of MRP II systems is the master production schedule (MPS), which specifies how production capacity is to be used to meet customer demands and maintain inventories. Virtually every report generated by an MRP II package starts with, or is based on, the MPS. Purchases of materials and internal control of manufacturing work flow, for example, start with the MPS, so the MPS directly affects operational costs and asset use.

MRP II systems help balance production economies, customer demands, manufacturing capacity, and inventory levels over a planning horizon of several months. Successful MRP II systems have made a significant contribution to just-in-time (JIT) manufacturing, where suppliers ship parts directly to assembly lines, saving the cost of warehousing raw materials, parts, and subassemblies.

MRP and MRP II systems gave ERP systems their name. MRP II modules are now integrated into ERP systems. While MRP and MRP II were, indeed, used mainly for planning, the “P” in ERP is somewhat misleading, because ERP systems are used mainly for daily operations, in addition to planning.

Ideally, the ISs of manufacturing organizations and their suppliers would be linked in a way that makes them subsystems of one large system. The MRP II application of an organization that manufactures a final product would plan and determine the items required, their quantities, and the exact times they are needed at the assembly lines. Suppliers would ship items directly to assembly lines just before they are incorporated into the final product (hence the term just-in-time manufacturing). Manufacturing organizations have not yet reached the point where JIT is accomplished with every product, but they have made great progress toward this ideal.

The Internet facilitates such system linking. Companies that were quick to link their systems to their suppliers’ systems attained strategic advantages. One such company is Cisco Systems, a world leader in design and manufacturing of telecommunications devices. The company used to maintain many manufacturing plants. In 2001, it had sold all but two. The company’s ISs are linked through the Internet to the ISs of its suppliers, some of whom purchased the very plants that Cisco sold. Managers can track orders using these systems. They can tell Cisco clients the exact status of their orders and the time of delivery. Cisco managers keep track of the products they order and know at what phase of manufacturing and delivery each item is—as if they were running the manufacturing plants. More than 80 percent of what Cisco orders never passes through the company’s facilities; the manufacturers ship the products directly to Cisco’s clients.

Computer-aided manufacturing systems control costs

REUTERS/Rebecca Cook/Landov

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1 PART

Monitoring and Control

Information systems have been designed to control manufacturing processes, not just monitor them. Controlling processes is important to ensure quality. For example, Ford Motor Company implemented software that it calls Project Execution, which combines bar-coding and wireless technology to ensure quality. Since each vehicle is assembled on a chassis, each chassis is tagged with a unique bar code. A bar-code sensor is installed in each stop of the assembly line. The sensor transmits wireless signals to computers and electronically controlled gates. The “gates” are not physical ones, but points where the vehicle is checked. The purpose of the system is to ensure that no assembly steps are skipped, and that each vehicle passes a series of performance and quality tests along the way. If a step is missed, the gate does not let the vehicle leave the plant. Mazda North America also implemented information technology to assist with monitoring its manufacturing process. In 2009, Mazda North America implemented a system that manages its vehicle logistics network in the United States and Canada. This system maintains and tracks various performance measures and estimated delivery dates for all of their supply partners.

Shipping

When the process of manufacturing products is complete, the next link in the supply chain is shipping. Shipping is performed either by the manufacturer or by a hired shipping company. The variables that affect the cost and speed of shipping are numerous: length of routes, sequence of loading and unloading, type of shipped materials (e.g., perishable, hazardous, or fragile), fuel prices, road tolls, terrain and restricted roads, and many more. Therefore, the use of sophisticated software to optimize shipping time and the cost of labor, equipment use, and maintenance helps companies stay competitive.

Today’s trucks are equipped with computers, global positioning systems (GPS), and satellite communication devices. You might have seen small antennas on trucks. The antenna receives real-time orders from a central shipping office, especially when routing changes are necessary, and transmits information about the truck, such as current location, the previous point of loading or unloading, and the next point of loading or unloading. Truckers rarely visit shipping offices. These systems allow them to be on the road doing productive work all the time, thanks to constant communication with the office.

The GeoBase mapping system (Figure 3.7) was released in 2009 by Telogis, a global platform for location-based services for the enterprise. The system allows organizations to use traffic and commercial vehicle turn restrictions to design dispatching and navigation solutions, as well as custom routes. Real-time updates can be accessed by laptops and mobile operating systems. The flexibility of the new system allows drivers to edit maps and routes in the field, which can be incorporated into the back-end database of the enterprise. Software like this allows workers to quickly adjust to accidents and closed roads and best utilize time and resources.

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F I G U R E 3.7

GeoBase optimizes transportation routing, navigation, and mapping along with real-time traffic data

Supply chain management software in transportation helps load trucks, ships, and airplanes in an optimal manner both in terms of space utilization and sequence of unloading. Figure 3.8 provides a visual description of an optimal loading of boxes on a truck before its dispatch using CargoWiz software from Softtruck. Figure 3.9 illustrates how information is communicated between a truck and a shipper’s office.

F I G U R E 3.8

CargoWiz is truck and container loading software that optimizes shipping space to transport cargo

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1 PART

F I G U R E 3.9

How data is transferred between a truck and a shipper’s office Communications

Satellite

Customer Fleet Management

Landline Connection

Network Management Center

Mobile Communications Unit

RFID in SCM

The most important development in hardware to support SCM has been a technology called radio frequency identification (RFID). We discuss the technology itself in Chapter 6, “Business Networks and Telecommunications.” RFID tags contain circuitry that allows recording of information about a product. When attached to a product, it contains an electronic product code (EPC), which provides much more information than the universal product code (UPC). The tag can include the date of manufacturing, the plant in which the product was made, lot number, expiration date, destination, and many other details that help track its movement and sale. The information can be read and also revised by special RFID transceivers (transmitter-receiver devices). Figure 3.10 shows an example of an RFID product and its small size. Figure 3.11 shows an example of how RFID is used in a supply chain. Items with rewritable tags can contain maintenance history of products, which helps optimize maintenance of the items.

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PART 1

F I G U R E 3.10

An example of an RFID device in relation to the size of a grain of rice

F I G U R E 3.11

An example of how RFID technology is integrated into a supply chain

The same technology can also be used for other purposes, including detection of items that should be recalled because of hazardous components and accurate condemnation of expired items, such as drugs and auto parts. When a pattern of defects is discovered in a product, RFID helps pinpoint the plant at which it was produced and the particular lot from which it came. Only products from that lot are recalled and replaced or fixed. It does not take too long to determine the particular manufacturing phase in which the defect was caused. When the expiration date of an item arrives, a transceiver detects the fact and alerts personnel to remove the item from a shelf. Packaging of drugs and other items contain RFID tags with unique identifiers. Transceivers can detect whether the products are genuine.

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1 PART

Customer Relationship Management

No commercial organization can survive without selling its products or services. Thus, businesses seek to provide products and services that consumers want—and to entice them to buy what the business produces. Businesses exert marketing efforts to pinpoint demographic groups that are most likely to buy products, to determine features that consumers desire most, and to provide the most efficient and effective ways to execute a sale when a consumer shows interest in the product or service. Because these efforts depend mainly on the analysis of huge amounts of data, ISs have become key tools to conceiving and executing marketing strategies. When marketing succeeds, ISs support the sales effort; to entice customers to continue to purchase, ISs support customer service (see Figure 3.12).

F I G U R E 3.12

Customer relationship management systems help marketing, sales, and customer service departments target interested and profitable customers

Market Research

Salesforce Automation

Targeted Marketing

Other CRM Systems

Customer Relationship Management

Systems Customer Service

Customer relationship management (CRM) systems are designed to support any and all relationships with customers. Mostly, they support three areas: marketing, sales, and customer service. Modern CRM systems can help capture the entire customer experience with an organization, from response to an online advertisement to automatic replenishment of products to proactive service. With growing competition and so many options available to consumers, keeping customers satisfied is extremely important. Many executives will tell you that their companies do not make money (and might even lose money) on a first sale to a new customer because of the substantial investment in marketing. Thus, they constantly strive to improve customer service and periodically contact anyone who has ever purchased something from them to ensure repeat sales and to encourage customer loyalty. Any information technology that supports these efforts is considered a CRM system, but in recent years the effort has been to combine applications that support all three areas—marketing, sales, and customer service—to better understand what customers want, to be able to collect payment sooner, and to ensure timely shipping.

POINT OF INTEREST Too Much, Too Little, or Just Right

Bars and clubs are inherently known for having high shrinkage costs due to spilled drinks, overpouring, not charging, and theft. However, the use of RFID can limit those costs significantly. LiquorInventory.Net’s Liquor Inventory System is a replacement pour spout in the end of a liquor bottle that is equipped with an RFID transmitter. Every time the bartender pours a drink the RFID registers it in real time and tracks it over the Internet. This allows managers and bar owners to increase customer satisfaction by more closely monitor- ing their inventory levels and accurately charging patrons the correct amount. Source: Kaplan, A. (2011). Tag! you’re it! Beverage World, 130 (1818), 49.

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CRM systems also provide an organization with an important element: all employees of the company who directly or indirectly serve a customer are “on the same page.” Through their individual computers, everyone has immediate access to the status of an order for an item, a resolution of a buyer’s complaint, or any other information that has to do with the customer. All who serve the customer are well-informed and receive the information from the same source. This is especially important in a long, complex sales cycle, because it minimizes response time and improves the quality of service for customers.

Market Research

Few organizations can sell their products and services without promotion; fewer still can promote successfully without market research. Market research systems help to find the populations and regions that are most likely to purchase a new product or service. They also help analyze how a new product fares in its first several months on the market.

Through interviews with consumers and retailers, market researchers collect information on what consumers like and dislike about products. When the researchers collect sufficient data, the marketing department uses statistical models to predict sales volumes of different products and of different designs of the same product. This critical information aids in planning manufacturing capacities and production lines. It is also extremely important for budgeting purposes. When questionnaires are involved, many companies offer web-based forms instead of paper questionnaires. In some cases, respondents use telephones to answer questions after a purchase, usually for a chance to win money prizes. The entered data is channeled into computer databases for future analysis. Dunkin’ Donuts utilizes the data gained from its guest satisfaction survey to continually monitor the performance of its stores and the quality of its products. The chain gathers customer feedback by promoting the completion of a web-based survey at the bottom of a receipt.

A portion of a sales receipt showing Dunkin’ Donuts invitation for a customer to participate in market research at its website

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1 PART

Targeted Marketing

To save resources, businesses use IT to promote to people most likely to purchase their products. This activity is often referred to as targeted marketing. Great advances in database technology enable even the smallest low-budget business to use targeted marketing. The principle of targeted marketing is to define the prospective customer as accurately as possible, and then to direct promotional dollars to those people most likely to purchase your product. Perhaps the best evidence of how much companies use ISs for targeted marketing is the use of the Internet for mass communication of unsolicited commercial email, a practice called spamming. Many people loathe spamming, but it is certainly the least expensive method of advertising. Another controversial, but apparently effective, method is pop-up advertising, in which a small window pops up either in front of or behind a web browser’s window.

To define their target markets, businesses collect data everywhere they can: from sales transactions and warranty cards, or by purchasing databases with information about organizations and individuals. Using database management systems (DBMSs)—special programs to build and manipulate data pools—a company can sort and categorize consumers by age, gender, income, previous purchase of a related product, or any combination of these facts and other demographic information. The company then selects consumers whose characteristics match the company’s customer profile and spends its promotional dollars to try to sell to those select customers.

The massive amount of personal information that corporations collect and purchase lets them prepare electronic dossiers on the interests, tastes, and buying habits of individuals. The information they possess lets them target “a market of one,” namely, an individual rather than a group. Online purchase transactions and online product registrations by consumers provide a wealth of information to corporations. Vendors sort the information to send promotional material via ground mail or email only to those customers whose profiles indicate potential interest.

Aetna faced the challenge of targeting small business owners interested in health insurance. They wanted to identify the sole proprietorships that did not have coverage while ensuring that the target list did not include small business owners who had coverage through employers or other sources. Aetna targeted a direct mail campaign, which integrated search keyword buys (purchased from search engines) and display ads from various networks. Their efforts resulted in more than $1M annually while reducing their cost per acquisition by 10 to 25 percent.

For decades, organizations have integrated the use of data to implement marketing initiatives. However, recently, the flood of marketing data from websites, affinity cards, smart phones, and social media has overwhelmed business organizations. The new term “big data” not only quantifies the amount of data stored by businesses, but the challenges of mining large, complex databases.

Telemarketing (marketing over the telephone) makes extensive use of IT. The telemarketer uses a PC connected to a large database, which contains records of potential or existing customers. With a retrieved record displayed on the screen, a marketer dials the number by pressing a single key or clicking the mouse. The telemarketer speaks to the potential buyer while looking at that person’s purchasing record with the organization or other organizations. Universities and charitable organizations use the same method to solicit donations.

Computer telephony integration (CTI) is a technique enabling a computer to use the digital signal coming through a telephone line as input in a computer system. It has been used often in marketing, sales, and customer service. For example, mail-order firms use caller ID to better serve their customers. Caller ID was originally intended to identify the telephone number from which a person calls, but mail-order businesses quickly found a new use for the gadget. They connect it to their customer database. When you call to order, a simple program searches for your number, retrieves your record, and displays it on a PC monitor. You might be surprised when the person who receives your call greets you by name and later asks if you want to use the same credit-card number you used in your last purchase. Many credit-card issuers utilize CTI to activate a new credit card sent to a customer. A label affixed to a new credit card asks the customer to call an 800-number to activate the card. CTI gains the caller’s phone number to validate that the call is originating to the customer’s phone number in their account. The use of this technology not only reduces the customer’s time to activate the card, but also increases the security of the transaction.

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PART 1

POINT OF INTEREST Not So Shy Anymore …

The financial services industry is warming up to being more social. Despite heavy industry regulations, firms are increasingly utilizing social media outlets as a way to create effective social CRM systems. An effective social CRM system should help companies stay informed, respond quickly, and record customer service issues. Financial service firms should track these four business activities through social CRM: ser- vice issues, corporate announcements, relationships and leads, and their markets. Companies can stay informed and track conversations with customers over social media tools. Therefore, they can easily learn about customer complaints or issues and quickly adjust to fix them. Firms such as TD Bank, Van- guard, and American Express already use Twitter for customer service purposes. Being a social firm means staying involved in the market community and focusing on customer service. A social CRM system helps firms serve current customers and engage potential customers. Source: LeClaire, Jennifer. (July 9, 2012). Salesforce Offers Tips on social CRM Tracking. www.newsfactor. com/story.xhtml?story_id=01000156ZCJW

Techniques such as data mining take advantage of large data warehouses to find trends and shopping habits of various demographic groups. For example, the software discovers clusters of products that people tend to purchase together, and then the marketing experts promote the products as a combination, and might suggest displaying them together on store shelves. You will learn more about data mining in Chapter 11, “Business Intelligence and Knowledge Management.”

With the proliferation of set-top boxes (devices that allow for personal programming and recording for digital televisions), several software companies have developed applications that may allow television networks to transition from the wasteful and expensive 30-second commercial to more personal advertising. Relying on information provided by households through these interactive boxes, they can select and transmit to each subscriber commercials only for products in which the subscriber is interested. For example, you will not receive commercials about pet food if you do not have pets, but you will receive commercials for gardening products and services if this is your hobby.

Use of information technology for targeted marketing has taken sophisticated forms on the web. More than just targeting a certain demographic group, web technologies enable retailers to personalize marketing when shopping and buying are conducted online. Special software used by online retailers tracks every visit consumers make and captures their “click streams” (the sequence of selections they make) and the amount of time they spend viewing each page. The retailer’s software combines this information with data from online purchases to personalize the pages whenever consumers revisit the site. The reconstructed page introduces information about the products that the individual visitor is most likely to purchase. For example, two people with different purchasing records at Amazon.com who revisit the company’s home page will find that they are looking at slightly different versions of the page. Amazon’s software custom-composes the elements for each person according to his or her inferred interests in products. The ones that the software concludes might be of the highest interest are displayed or linked on the page.

Location-Based Services

Marketing personnel continue to design new methods of targeting customers by gathering more effective information about them. Location-based services offer the ability to accurately and efficiently gather various dimensions of consumer information, such as when and where they shop and what they buy, in a real-time environment. With location-based services, location and

Location-based services using a smart phone allow customers to find businesses based on their current location

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1 PART

time data can be recorded when an action is performed. Smart phones with GPS (global positioning service) technology, combined with mobile apps and social media, can offer a significant new element for marketing strategy. About half of the people equipped with a GPS- enabled device have enabled location-based services.

Pepsico has tested a new initiative by rewarding consumers for purchasing their products in grocery and convenience stores. Location-based social networks such as Foursquare and CheckPoints provide incentives for users and their friends to purchase products from nearby vendors, then gather real-time data on the purchases. Ultimately, the location-based services on smartphones are “leading” prospective customers to their businesses thereby increasing sales and promoting their location.

Customer Service

Companies have saved millions of dollars per year by shifting customer service from employees to their website. Web-based customer service provides automated customer support 24 hours per day, 365 days per year. At the same time, it saves companies the cost of labor required when humans provide the same service. For example, letting customers pay their bills electronically not only provides convenience but also saves (both customers and companies) the cost of postage and paper and saves the company the time required for dealing with paper documents. Online billing costs only a small fraction of paper billing. The business research firm Gartner estimates the average invoice-to-payment cycle at 41 days, while online invoice and payment shortens the period by at least six days. Customers appreciate the discounts that many companies offer for accepting statements and paying bills online.

A 2009 Forrester Research study states that the top business drivers are those that improve customers’ website experiences and reduce the cost of web operations (63 percent). Business drivers are focused initiatives or activities that provide direct, substantial influences on the business. Many businesses are focusing their technology and organizational strategy on expanding and improving the customer experience while driving down costs. United Illuminating’s new online system increases customer engagement as well as reduces their energy costs. The use of UI’s portal increased by over 400 percent during the first four years of operation.

Some companies are using online chat to help customers. Snapfish, currently owned by HP, is one of the world’s largest online photo retailers with over 90 million members in 20 countries. The company provides unlimited online storage for photos, and provides tools to make photos into gifts and novelties. Customers sometimes need help while designing a photo book or other item. Snapfish had integrated software developed by LivePerson (see figure) to provide real-time customer interaction for customer service and to answer technical questions. Snapfish expanded its use of the live-chat technology to deepen the engagement with customers, assisting them with more complex products and design tasks. Using LivePerson Enterprise technology, Snapfish was able to target and connect with customers during their shopping cart and check out process and to provide quick responses for customers. The strategic use of this technology significantly increased the average order value by 33 percent while increasing customer satisfaction scores to 87 percent. Ultimately, Snapfish achieved the grand prize by simultaneously increasing revenue, delivering quality customer service, and increasing agent productivity by 14 percent (Anonymous, 2009).

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Online chat software integrated into a company’s webpage can provide a convenient and cost-effective approach to customer service

Online customer service applications have become increasingly sophisticated. They help track past purchases and payments, update online answers to frequently asked questions (FAQs) about products and services, and analyze customers’ contacts with the company to maintain and update an electronic customer profile. The FAQ pages of many companies have been replaced with options for open-ended questions; instead of looking up a question that is similar to what you would ask, you can simply type in your question. Employing artificial intelligence software, the site will “understand” your question and provide a short list of links where you can find an answer.

Salesforce Automation

Salesforce automation equips traveling salespeople with information technology to facilitate their productivity. Typically, salespeople are equipped with laptop or tablet computers that store promotional information for prospective customers, software for manipulating this information, and computerized forms. Many salespeople carry laptop computers or smartphones that contain all the information they need, and which allow them to connect to their organizational information systems through the Internet. Salesforce automation can increase sales productivity

significantly, making sales presentations more efficient and letting field representatives close deals on the spot, using preformatted contracts and forms.

Information technology lets salespeople present different options for products and services on the computer, rather than asking prospective customers to wait until the main office faxes or mails the information. At the end of the day or the week, salespeople can upload sales information to a computer at the main office, where it is raw input to the order-processing department, the manufacturing unit, or the shipping and invoicing departments.

Using smartphones, laptops, or tablets that can establish a wireless or cellular connection to the Internet enables salespeople to check prices, confirm availability of the items in which a customer is interested, and place an order away from the office. The salespeople can then spend more time on the road, increasing direct contact with prospective customers.

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Salesforce automation increases the sales and productivity of sales personnel

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1 PART

Human Resource Management

Human resource management (HRM) has become more complex due to the fast growth in specialized occupations, the need to train and promote highly skilled employees, and the growing variety of benefits programs. Human resource management can be classified into five main activities: (1) employee record management, (2) promotion and recruitment, (3) training, (4) evaluation, and (5) compensation and benefits management (see Figure 3.13).

F I G U R E 3.13

Human resource management information systems help managers optimize promotion and recruitment, training, evaluation, and compensation activities

Promotion and Recruitment

Training

Other Human Resource Management Information

Systems

Compensation and Benefits Management

Human Resource

Management System

Employee Record Management

Evaluation

Employee Record Management

ISs facilitate employee record management. Human resource departments must keep personnel records to satisfy both external regulations (such as federal and state laws) and internal regulations, as well as for payroll and tax calculation and deposit, promotion consideration, and periodic reporting. Many HR ISs are now completely digitized (including employees’ pictures), which dramatically reduces the space needed to store records, the time needed to retrieve them, and the costs of both.

POINT OF INTEREST Job Fishing? Start with Proper Baits

A growing number of companies require an electronic copy of your résumé when you apply for a position. The résumé is added to a database. Human resource managers search the database by keywords. The search yields a list of résumés containing words that match the keywords. Therefore, you can enhance your chances of obtaining the position you want by including as many relevant keywords in your résumé as you can. One effective way to find these keywords is to examine online and print ads for the position you are seeking. Include these keywords—sometimes called “buzzwords”—and increase the chances of your résumé coming up in the recruiters’ search. However, there are negative “buzzwords” as well. LinkedIn, a profes- sional networking site, released a list of the top 10 most overused words job seekers use in résumés and job applications. The list includes creative, organizational, and motivated, to name a few. Using these words can make your résumé or application blend in with the many others that use the same words. In order for your resume to stand out, it is important to use “buzzwords” so your resume is recognized by the database, as well as unique words so it stands out and makes an impression on the potential employer. Source: Olson, Lindsay. (December 13, 2011). 10 Buzzwords to Avoid on Your Resume. http://money. usnews.com/money/blogs/outside-voices-careers/2011/12/13/10-buzzwords-to-avoid-on-your-resume

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PART 1

Promotion and Recruitment

To select the best-qualified person for a position, a human resource manager can search a database of applicants and existing employees’ records for set criteria, such as type and length of education, particular experience, specific talents, and required licenses or certifications. Automating the selection process significantly minimizes time and money spent on recruitment, but it does require that a current database be maintained.

Intranets (intraorganizational networks that support web applications) help HR managers post position vacancy announcements for employees to peruse and consider from their own PCs. This system is especially efficient in large organizations that employ thousands of workers, and even more so at multisite organizations.

With the growing number of job applicants, many companies refuse to receive paper applications and résumés. In 2011, Starbucks received 7.6 million job applications, while Proctor & Gamble received almost a million. McDonald’s and its franchises received over one million applications and hired 62,000 people on its national hiring day, April 19, 2011. Therefore, it is no wonder that some companies may accept such documents via email, but that others accept only forms that are filled out and submitted online. Using keywords, recruiting officers can then use special software to scour a database for the most-qualified candidates. HR consultants say that this process reduces the time spent on a typical search from several hours to several minutes. Some software companies sell automated recruiting and selection software to support such activities. For example, PeopleAdmin, Inc. offers software by the same name. HR managers save the cost of publishing help wanted ads and can start reviewing résumés as soon as applicants respond online instead of waiting the typical 6–8 days from traditional advertising.

Some companies use the entire web as a database for their search. Across industries, companies using traditional recruiting systems experience a cost per hire of $5,000–$12,000, depending on the set of skills required and the level of the position. Wonderlic, Inc. develops web-based recruiting, assessment, and retention solutions. Early in 2010, they introduced their Automated Staff Acquisition Platform (ASAP) designed to help home healthcare organizations more efficiently hire talented employees (Anonymous, 2010b, 2010c). ASAP for Home Healthcare is a web-based solution that automatically gathers candidates’ skills and information and displays the findings in an easy-to-read style. This allows organizations to quickly compare all findings and select the top candidates to interview. ASAP for Home Healthcare reduces the time managers spend interviewing candidates by 75 percent and produces noticeably better results than interviews alone. ASAP for Home Healthcare streamlines the process by eliminating candidates who do not meet minimum requirements, which allows managers to quickly determine which candidates are most likely to succeed. Wonderlic offers the ASAP tailored to other industries as well. One company using ASAP for property management gained a 20 percent reduction in turnover for onsite positions. By 2010, 46 percent of U.S. firms were outsourcing all or part of their human resource function. Large firms are more likely to outsource HR. The average cost-per-hire in the United States for firms using modern recruitment systems based on outsourcing and multichannel sourcing is between $2,500 and $3,500 with smaller firms bearing the larger recruiting costs (Anonymous, 2010a). This cost-per-hire figure has decreased significantly in recent years due to innovations in the recruiting process, such as ASAP software.

Training

One important function of human resource departments is improving employee skills. In both the manufacturing and service sectors, multimedia software training is rapidly replacing training programs involving classrooms and teachers. Such applications include interactive, three- dimensional simulated environments. Some applications contain sophisticated virtual reality components. For example, one such application trains workers to handle wrought iron that must be hammered manually. The worker wears special goggles and holds a hammer in one hand and a piece of metal in the other, over an anvil. The worker “sees” the metal piece through the goggles, “hears” the hitting sound through earphones, and receives a programmed, realistic jolt every time he “hits” the metal. This safely prepares the worker for the dangerous

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work instead of putting him at risk for injury before he has enough experience to do the actual work. Although the initial investment in multimedia training systems might be high, human resource managers find the systems very effective. Surgeons train using similar systems to operate on virtual patients rather than risk injuries to human patients.

Training software emulates situations in which an employee must act and includes tests and modules to evaluate a trainee’s performance. In addition to the savings in trainers’ time, there are other benefits. The trainee is more comfortable because he or she controls the speed at which the sessions run. The software lets the trainee go back to a certain point in the session if a concept is missed. Also, the software can emulate hazardous situations, thereby testing employee performance in a safe environment. And if training in a real environment involves destruction of equipment or consumption of materials, virtual reality training applications accomplish the same results in skill enhancement without destruction or waste.

Developments in IT enable organizations to reduce training costs dramatically. Aspect is an internationally recognized software provider that focuses on unified communications for the contact center. Their PerformanceEdge eLearning with integration to the Aspect© Unified IP© platform allows for real-time monitoring of service levels and recognizes when agents need new eLearning sessions. Managers can schedule eLearning sessions for agents without compromising the overall quality of service. PerformanceEdge eLearning software improves training and coaching by providing agents and supervisors with the appropriate content at the appropriate time. For companies with limited hiring resources, especially smaller companies where the cost- per-hire can be very high, eLearning sessions can help improve the skill sets of current agents rather than recruiting new ones. By using the software, recruitment centers experience reduced hiring costs and improved agent retention. This leads to improved customer service because the best agents are hired.

Evaluation

Supervisors must periodically evaluate the technical ability, communication skills, professional conduct, and general behavior of employees. While objective factors are involved in evaluation— such as attendance rates and punctuality—employee evaluation is often very subjective. Assessing performance and effort levels, and their relative weights of importance, varies significantly, depending on who is evaluating. A supervisor might forget to include some factors altogether or might inappropriately weigh a particular aspect of performance. Subjectivity is particularly problematic when several employees are being considered for a promotion and their evaluations are compared to determine the strongest candidate. By helping to standardize the evaluation process across employees and departments, evaluation software adds a certain measure of objectivity and consistency.

In an evaluation, a supervisor provides feedback to an employee, records the evaluation for official records and future comparison, and accepts input from the employee. Software helps managers standardize their employee evaluations by providing step-by-step guides to writing performance reviews, a checklist of performance areas to include in the evaluation (with the option to add or remove topics), scales to indicate how strong the employee is in each area, and the ability to select the relative importance each factor should hold in the overall evaluation. Performance areas include written and oral communication, job knowledge, and management skills, with each topic broken down into basic elements to assist the supervisor in creating an accurate evaluation. A typical application guides the supervisor through all necessary factors and includes a help guide. When the evaluator finishes entering data, the application automatically computes a subtotal for each category and a weighted grade, which can then be electronically stored as part of the employee’s record.

Compensation and Benefits Management

ISs help HR officers manage compensation (salaries, hourly pay, commissions, and bonuses) efficiently and effectively. Programs can easily calculate weekly, monthly, and hourly pay according to annual salaries and can include federal, state, and local tax tables to assist in complying with compensation regulations. This same system can also automatically generate

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PART 1

paychecks or direct deposits, which are the electronic transfer of funds from the firm’s bank account to the employee’s.

Special software helps the HR department manage benefits such as health insurance, life insurance, retirement plans, and sick and leave days, which are determined by seniority; amounts individuals pay into plans; and other factors. To optimize benefits, some companies use special software, incorporating expert systems (ISs that emulate human expertise) that determine the optimal health and retirement plans for each employee based on factors such as marital status, age, occupation, and other data.

Using intranets, many organizations allow their employees to access the benefits database directly and make changes to their preferences, such as selecting another health-care insurance program, or adding a family member as a beneficiary in a life insurance plan. When the company engages a third party for managing pension funds or other benefits, employees can go directly to the website of that company, not involving their own company resources at all.

St. Vincent’s Hospital in Alabama implemented a self-service system for employees to access their compensation information and manage their benefits. The system expands their access to information to 24/7 from a traditional 9-to-5 when human resource personnel are available. Employees choose their benefits through this system during the open enrollment period, eliminating manual entry of benefit elections. The system has reduced costs by $1 million through eliminating printing and mailing checks as well as reduced paper and printing costs. By making the changes directly from their PCs, employees reduce the amount of work of the HR staff and decrease the company’s overhead costs. Ultimate Software is one company that produces customized human resource software that allows employees to manage their own benefits (see figure).

Human resource software can provide employees with self-service access to manage their benefits

Co ur te sy

of U lti m at e So ft w ar e

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Consumer Privacy

CRM systems, and IT in general, help businesses serve us better at lower costs. But in the process, we may lose some privacy. Consider the following scenario: you agree to give some financial information about yourself to a car dealership to finance the car you have just purchased. At a later date, you provide medical information when you purchase a prescription drug. Your credit-card company has enough information from your purchasing activity to know your culinary and fashion tastes better than you do. Whenever you interact with an organization online, information is recorded; and if you provide personally identifiable information—which is always the case when you make an online purchase—the information is added to your record held by this organization. It may also be recorded by a third party that contracts with the vendor. Finally, without your knowledge or consent, yet another organization gathers all this information and puts it in one big record that is practically a detailed personal dossier.

Organizations collect huge amounts of personal information. Every time you pay with your credit card you leave a personal record; the few details of your purchase are often used to update an already hefty dossier about your buying habits. Every time you provide personal information at a website, you either help open a new dossier with an organization or help other organizations update their dossier about you. When you pass through a highway toll booth, the electronic pass device in your car tracks the date, time, and location of your travels. GPS and location-based services monitor your movement in a similar manner. In their zeal to market more effectively, businesses often violate consumer privacy.

● What Is Privacy? In the context of information, privacy is your right to control information about yourself. For exam- ple, you maintain your privacy if you keep to yourself your college grades, medical history, or the name of the organi- zation with which you interviewed for a position. Someone who receives such information without your permission is violating your privacy.

● Business Arguments. Business leaders argue that they must collect and use personal data. Without personal data, they would have to waste time and money to target likely buyers. They need to know the repayment histories of indi- viduals to help make prudent decisions on extending loans and credit. This ability to purchase and manipulate large amounts of consumer information makes the business world more democratic than it used to be. Small companies now have the same chances of targeting prospective buyers with good credit as big companies, creating more opportunities and more competition, which eventually ben- efit consumers.

● Consumer Arguments. Consumers usually accept that they must divulge some private information to receive ser- vices, but many do not accept the mass violation of privacy. They resent unsolicited mail and email sent by companies

who know much about them although they have never pro- vided personal details to these companies. They hate tele- phone calls from salespeople who obtained their records from companies that were supposed to keep their records confidential. And their greatest concern might be the “dos- sier phenomenon.”

● Losing Control. In many cases, you volunteer information in return for some benefits, such as consumer loyalty points or participation in a sweepstakes. In others, you simply cannot receive the service or product unless you agree to provide certain personal details. In such cases, you give implicit or explicit informed consent to obtain information about yourself. However, once you provide information, you have little control over it. With some newer technology, such as RFID, you might not even be aware of who and when information is collected about you. You have just stepped out of a department store with your new clothing purchases. All are RFID-tagged. The store’s systems recorded your visit and detailed what you purchased. Can you be sure that nobody else has the proper device to read and record what you purchased? Unless you removed the tag, the serial number embedded in the EPC of the sweater you purchased may uniquely identify you to a stalker when- ever you wear it.

● The Eight Commandments of Personal Data

Collection and Maintenance. In a free, market-oriented society, not allowing organizations to collect personal data is inconceivable. What can businesses do to help protect privacy? They can adhere to these rules to avoid misuse:

Purpose. Companies should inform people who provide information of the specific, exclusive purpose for which the company maintains its data, and only use the data for another purpose with the subjects’ consent. For example, this practice could protect people with a genetic proclivity for certain diseases from higher health insurance premiums.

Relevance. Companies should record and use only data necessary to fulfill their own purposes. For example, an applicant’s credit record should not contain membership in political or religious organizations because that informa- tion is irrelevant in credit considerations.

Accuracy. Companies should ensure that the personal records they maintain are accurate. For example, many loan applicants have had terrible experiences because some of the data maintained by credit companies is errone- ous. Careful data entry and periodic verification can enhance accuracy.

Currency. Companies should make sure that all data about an individual is current. If currency cannot be guaranteed, then data should be discarded periodically. Outdated infor- mation can create seriously negative repercussions. For

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PART 1

Supply Chain Management Systems

U.S. Department of Commerce statistics show two important patterns over the past two decades: the fluctuations in inventory as a percentage of gross domestic product (GDP) and the absolute ratio of inventory to GDP have steadily decreased. In 2011, the ratio of changes of private inventory to GDP was .243 percent. This means that the U.S. GDP is growing while less and less money is tied to inventory. The smaller the inventory, the more money can be spent on other resources. Much of this trend can be attributed to the use of ISs, especially SCM systems.

The organizational importance of supply chain management has clearly increased. According to a survey by Tompkins Supply Chain Consortium, over half of several industries claimed they employ a supply chain leader at the executive level: manufacturing (51 percent), apparel and automotive (100 percent), and food and beverage (57 percent).

According to IBM, companies that implemented SCM systems have reduced inventory levels by 10–50 percent, improved the rate of accurate deliveries by 95–99 percent, reduced unscheduled work stoppages to 0–5 percent, reduced cycle time (from order to collection) by 10–20 percent, and reduced transportation costs by 10–15 percent. For example, while a significant dialogue continues to focus on healthcare costs, two healthcare facilities have addressed the issue by implementing supply chain management systems. Methodist Health System in Dallas has automated the supply chain using a web-based system. Their system improved workflow and increased service levels, cutting its staff by approximately one-half. Management estimates that this system has saved $5.5 million; much of that saving was realized by renegotiating lower product costs with its vendors with the new supply chain data. St. Joseph’s Hospital Health Center in Syracuse, NY implemented a just-in-time supply chain initiative with a distributor. The new materials management system reduced inventory size and storage space.

Several enterprise applications, such as ERP systems, also serve as SCM systems. As Figure 3.14 illustrates, many such systems enable managers not only to monitor what goes on at their own units or organization but also to follow what goes on at the facilities of their suppliers and contractors. For example, at any given point in time managers can know the status of the following: an order now being handled by a contractor, by order number; the phase of manufacturing the produced units have reached; and the date of delivery, including any delays and their length. When purchasing parts, managers use the systems for issuing electronic purchase orders, and they can follow the fulfillment process at the supplier’s facilities, such as when the

example, a person who might have been unemployable due to past illness might not be able to get a job, even though he or she might be healthy now.

Security. Companies should limit access to data to only those who need to know. In addition to passwords, audit trails (which identify every employee who accesses a personal record and for what purpose) are also very effective tools for ensuring security. Extra caution must be practiced when personal data is accessible online by business partners.

Time Limitation. Companies should retain data only for the time period necessary. For example, there is no reason for a landlord to maintain your credit record after you move out.

Scrutiny. Companies should establish procedures to let indi- viduals review their records and correct inaccuracies.

Sole Recording. When using a recording technology, a company should ensure that no other party can take advan- tage of the technology to record the same information. For example, if a store records an individual’s purchases using RFID technology, it must ensure that the RFID tags

embedded in the packaging or items are disabled as soon as the customer leaves the store.

Of course, many consumers will still feel that their privacy is invaded even if every business adopts these “commandments.” How can you protect your privacy? Do not furnish your name, Social Security (or any other identifying) number, address, or any other private information if you do not know how it will be used. If you do provide detailed information, indicate that you do not wish the data to be shared with any other organization or individual. You can usually check a box to this effect on paper or web forms. To avoid junk mail or junk email, again check the proper box on web forms. Do not fill out any online or paper forms with detailed data unless an opt-out option is available. Of course, many services we receive depend on our willingness to provide personal data, so at least some organizations must have personal information, but you can be selective. Always carefully weigh what you gain against the privacy you might lose. And finally, always read and understand the terms of service and privacy policies associated with social media venues. Learn the various settings to protect yourself and your information.

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parts were packed, when they were loaded on trucks, and when they are estimated to arrive at the managers’ floor or the floor of another business partner who needed the parts. You, as a consumer, can get a sense of what SCM systems provide when you purchase a product on the web and track its shipment status and delivery.

F I G U R E 3.14

A shared supply chain management system monitors the movement of raw and finished goods

Supplier Manufacturer Retailer

Outstanding orders from manufacturer · Inventory of raw materials and parts

Consumer

Outstanding orders from retailer ·Work in progress ·Partly assembled products ·Finished goods ·Estimated delivery dates

Outstanding orders for finished goods ·Inventory ·Receiving schedule ·Delivery schedule to consumer

Orders ·Receiving schedule

Supply Chain Management Applications

SCM applications streamline operations throughout the chain, from suppliers to customers, lowering inventories, decreasing production costs, and improving responsiveness to suppliers and clients. Harnessing the global network, managers can supervise an entire supply chain regardless of the location of the activity—at their own facilities or another organization’s, at the same location or thousands of miles away. Older SCM systems connected two organizations. New ones connect several. For example, a distributor can reorder products from Organization A and simultaneously alert Organization B, the supplier of Organization A. The systems let all parties—suppliers, manufacturers, distributors, and customers—see the same information. A change made by any organization that affects an order can affect a corresponding change in scheduling and operations in the other organizations’ activities.

Companies that have adopted SCM systems have seen improvement in three major areas: reduction in inventory, reduction in cycle time (the time it takes to complete a business process), and, as a result, reduction in production cost. Companies can reduce their inventory by communicating to their suppliers through a shared SCM system the exact number of units of each item they need and the exact time they need them. In ideal situations, they do not need to stockpile any inventory, saving warehouse costs. The management consulting firm Aberdeen Group estimates that companies using SCM systems through the Internet reduce purchase order processing cycles by 70–80 percent and pay 5–10 percent less for the items they purchase.

The Importance of Trust

SCM systems accomplish the greatest efficiencies when all businesses in the chain link their systems and share all the information that is pertinent to planning, production, and shipment. For example, BP PLC, Royal Dutch Shell PLC, Chevron Corp.’s Texaco, and other large oil companies are requiring their franchises to update their convenience store checkout systems to

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PART 1

become more efficient. The proposed technological advances include a small, touch-screen PC like those seen at restaurants or bars. The most sophisticated versions of the machines would be able to track inventory and place orders when supplies run low on items in the store. The increased efficiency will save gas stations money by monitoring sales and inventory in one system.

However, not all organizations are willing to collaborate with their business partners. One reason is the fear that when Organization A purchases from Organization B and has access to Organization B’s demand figures, it might disclose the information to competitors in an attempt to stir more competition and enjoy favorable prices. Another fear is that if Organization B realizes that at a certain point in time Organization A is in dire need of its raw materials, Organization B might take advantage of the situation and negotiate higher prices.

The first type of fear can be found in initial reluctance of suppliers to share information with large buyers such as Wal-Mart. Only the bargaining power of Wal-Mart and its insistence on sharing such information convinced suppliers to link their systems with those of Wal-Mart. The second type of fear still exists between trading partners such as General Motors and its main tire supplier. For example, Goodyear could enjoy lower inventories if it had GM’s demand schedule for tires. It could then calibrate its own order for raw materials and its manufacturing capacity to suit those of GM, save money, and pass at least some of the savings to its client in the form of cheaper products. It could always replenish its client’s inventory of tires before GM ran out of them. Better yet, it could deliver the tires directly to the assembly lines just when they are needed, saving both GM and itself warehousing costs. Yet, GM is guarding its production schedule as confidential.

Thus, effective supply chain management between companies is not only a matter of appropriate technology but also a matter of trust and culture change. So far, most of the successful collaborations have been between a large company and its business partners, whereby the company uses its power to dictate collaboration. However, some large companies have tied their SCM systems out of mutual understanding that this would benefit both companies, even if the shared information reveals some unpleasant facts. For example, Procter & Gamble, Inc., the giant supplier of household products, has had its systems connected to those of Wal-Mart since 1987, when the term “supply chain management” was not even in use. By providing its retail information to P&G, Wal-Mart ensures that it never runs out of P&G products. A culture of sharing—you show me some of your information and I show you some of mine—is essential for the success of both companies and creates a sense of mutual dependence and true partnership.

SCM systems can be taken a step beyond the sale. The systems can be used for after-the-sale services. For example, Beckman Coulter, Inc., in Fullerton, California, makes blood analyzers and other medical devices. After it sells a machine, the company uses the Internet to link the machine from the client’s facility to a computer in its Fullerton factory. Software on the computer runs 7 days per week, 24 hours per day to monitor the sold machine. When a problem occurs, the computer alerts a Beckman technician, who can repair the machine before it stops working. Beckman estimates that the system provides savings of $1 million annually, because malfunctions are captured at an early stage, which avoids the higher cost of fixing a more damaged machine. The added benefit is increased customer satisfaction. As business partners see the benefits of sharing data, trust has grown, and the fear of linking IS to those of other organizations is waning.

Continuous Attention to Inventory

Recall the wonderful trend cited in the beginning of this section: the dollar value of inventory for U.S. businesses was growing at about 60 percent of the growth of GDP. However, much of the trend took place in the 1981–1991 period. In the 1992–2004 period, inventory as a percentage of GDP stayed fairly static at about 3.5 percent. Recently, in 2012, inventories reduced real GDP by .39 percent and .46 percent in the first and second quarters respectively. Apparently, while large corporations have the resources to install and run SCM systems to cut their own inventory, the ratio of inventory to revenue in small enterprises is growing because they do not use such systems. And sometimes, the companies that suffer the inventory ripple effect are not small. They might be powerful, and they even might manage their own SCM

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system, but their system might not be linked to their buyers’ systems, so they cannot plan their production to reduce inventory.

For an example, let us return to the relationship between General Motors and Goodyear. The world’s largest auto manufacturer improved “inventory turns” 55.2 percent between 1996 and 2001. Inventory turns is the number of times a business sells (or “turns over”) its inventory per year. It is calculated by dividing the sales revenue by the average value of inventory. The greater the inventory turns number, the better. During the same period, Goodyear, GM’s tire supplier, experienced a 21 percent decrease in inventory turns. The likely conclusion is that GM avoided purchasing tires from Goodyear until it needed them at the assembly line, but Goodyear did not have enough information on when, exactly, those tires would be required, and therefore kept overstocks. Had the SCM systems of the companies been linked, Goodyear could reduce inventory and see its inventory turns rise rather than fall. It is also reasonable to assume that, due to the cost savings, Goodyear would be able to sell tires to GM at a lower price. GM and other companies have created a situation where each company tries to “sit” with a lean inventory while, inadvertently, leaving another “standing” with an overstock. In order for all involved in a supply chain to enjoy efficiencies, the musical chairs, or “hot potato” situation, must stop.

Collaborative Logistics

The web enables organizations from totally different industries to streamline operations through collaboration. In recent years an increasing number of businesses found a new way to cut shipping costs: they combine freight with other businesses, sharing their own trucks or the vehicles of trucking companies. The collaboration reduces partially empty trucks, or empty trucks between stops. To this end, the companies connect their SCM systems to the site of a company that specializes in optimization of logistics, such as Nistevo Corporation, now owned by IBM. The company manages the site and uses sophisticated software to calculate the shortest routes between departure and arrival points and the best combination of loads from two or more companies to share trucks and routes. The SCM systems of subscribing companies provide daily data into the shared system. The IS takes into consideration the type of freight to ensure safety and adherence to regulations. For example, the software is designed not to combine chemicals with food. Therefore, typical allies of food manufacturers have been paper manufacturers, for instance. The cost savings have been impressive.

The spice maker McCormick & Co., Inc. has reduced freight costs by 5–15 percent, while General Mills has realized savings of up to 7 percent of its overall logistics costs. Manufacturers of household paper products such as Georgia-Pacific and International Paper Co. share about 80 long-distance routes with General Mills on a regular basis, cutting freight costs for those shipments 5–20 percent. Because the success of collaborative shipping is so impressive, some experts expect competitors to share trucks, leaving competition to some other areas of their operations, such as development and manufacturing processes. A 2009 study by Transport Intelligence found that 94 percent of businesses responding expressed a desire to engage in supply chain collaboration with another company.

Another area where some companies have explored collaboration is warehousing. The principle here is the same: try to maximize the use of warehouse space, and if you cannot use all of it, allow other businesses to use the extra space. The way to accomplish this, again, is through the web; a third party specializing in warehousing optimization combines warehousing needs and availability from member companies to offer optimal solutions.

Some companies are also extending their collaboration with retailers. Coca-Cola initiated a new collaborative store order program with Wegmans Food Markets. Coke optimized sales and inventory by compiling a “perfect order” by using store sales data. The use of store-level POS information provided value to production planning, forecasting, and inventory management as well as order fulfillment and delivery.

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PART 1

Enterprise Resource Planning

A growing number of organizations elect to replace old, disparate ISs with enterprise applications that support all or most of the business activities we have described. As mentioned before, these systems are often referred to as enterprise resource planning (ERP) systems, although they are used not only for planning but also for managing daily operations. Designers of ERP systems take a systems approach to an enterprise. For example, the Manufacturing Resource Planning component of the system uses the information recorded on a sale to retrieve product specifications; the data is used to generate purchasing information such as items, quantities, and the timetable for suppliers to deliver for the purchasing department. As products are manufactured, the system tracks the stages of the work in progress. When items are ready to be shipped, the shipping department can retrieve information on the items for its operations. The system keeps shipping information such as content and destination, along with billing information, to help produce shipping and billing documentation. The system also records financial transactions involved in these activities, such as payment made from a bank account. The accounting component records the transactions. In addition, ERP systems also provide human resource modules for payroll, employee benefits management, and employee evaluation software. CRM components are also available and are tied to other components through orders, applications, and sales records. In terms of 2012 revenue, the ERP market was divided among four vendors: SAP (25 percent), Oracle (13 percent), Sage (6 percent), and Infor (6 percent) (Columbus, 2013). SAP and Oracle have been the leaders in this field for several years. Oracle’s market share has increased mainly through acquisitions of other ERP developers, such as J.D. Edwards and Siebel Systems.

Challenges and Disadvantages of ERP Systems

With successful ERP implementation, organizations can reap substantial rewards. However, ERP systems pose many challenges. The software packages are quite complex. Because they are not tailored to the needs of specific clients, they often require adjustment and fine-tuning for specific organizations. Therefore, their installation and testing involve experts who are usually employees of the software vendor or professionals who are certified for such work by the vendor.

Even with adjustments—often called “tweaking”—potential adopters must remember that the system was designed for an entire industry, not for the way an individual organization does business. If the organization has a competitive advantage thanks to a unique set of business processes, this advantage may diminish or disappear when the system is installed, because to a large degree the system dictates how business processes should be conducted. The system requirements are quite rigid, and therefore customization of ERP systems is limited.

ERP applications are expensive; modules cost millions of dollars. Buyers usually must allocate several more million dollars to pay for installation and modifications. Installation often takes many months to complete, and budget and time overruns are common.

The greatest advantage of ERP systems, the integration of many business processes, may become a challenge for the adopter. Because the operational lines between business units become blurred, there may be arguments over responsibility and accountability when something goes wrong. For example, the sales department may argue that the responsibility for an erroneous invoice is the accounting department’s or even of a manufacturing unit that entered incorrect costs for the order. Also, a process that becomes a weak link in the supply chain may negatively affect other processes.

Implementation of ERP systems can fail because of formidable challenges: the gap between system capabilities and business needs, lack of expertise on the consultant’s part, and mismanagement of the implementation project. The business research firm Standish Group found that only 10 percent of ERP implementation projects are completed as planned, on time, and within budget. Fifty-five percent are completed late or over budget (which usually means loss of business and revenue), and the other 35 percent of such projects are canceled because of difficulties. At Hewlett-Packard, one of the world’s largest computer and IT equipment makers, a $400 million loss in the third quarter of 2004 was blamed on poorly managed migration to a new ERP system. Previous cases of difficult implementations of ERP systems are Hershey Foods

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1 PART

and Nike. In both cases, the adopters blamed losses of hundreds of millions of dollars on late completions of ERP system installations. In one case, an industry leader was bankrupt as a result of unsuccessful implementation of an ERP system.

In 2006, Shane, a jewelry company with $200 million in sales, spent $36 million on an ERP project that was cancelled after three years. It is believed that the project was oversized and too large for the company. Research calculates that the average business spends 9 percent of its annual revenue on an ERP project; Shane spent twice as much. The failures associated with ERP projects focus on hiring inexperienced consultants/integrators, ineffective project management, and changing requirements.

Providing the Missing Reengineering

In our discussion of reengineering of business processes in the previous chapter, we noted that in the 1990s, most reengineering projects failed. Interestingly, in the late 1990s and early 2000s, ERP systems helped realize many of those reengineering ideas because the systems forced changes in processes. At the least, ERP systems integrated information from various organizational units, resulting in less labor, greater accuracy, and shorter cycles.

ERP systems also help organizations move away from the traditional silos of functional units to business processes, an approach that helps many of them operate better. Suppliers and customers do not care whose responsibility it is to take care of their orders and payments. Therefore, organizations are better off planning and managing processes rather than organizational units. Despite the risks and the high costs involved, a growing number of companies adopt ERP systems.

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PART 1

Summary

● Effectiveness is the degree to which a task is

accomplished. The better a person performs a job,

the more effective he or she is. Efficiency is mea-

sured as the ratio of output to input—the greater

the ratio, the more efficient the process. ISs can

help companies attain more effective and efficient

business processes. Productivity is the measure of

people’s efficiency. When people use ISs, their pro-

ductivity increases.

● ISs have been integrated into almost every func-

tional business area. In accounting and payroll,

because of the routine and structured nature of

accounting tasks, the systems automatically post

transactions in the books and automate the gener-

ation of reports for management and for legal

requirements.

● Financial ISs help managers track cash available for

transactions, while ensuring that available money is

invested in short- or long-term programs to yield the

highest interest possible. Investment analysis ISs

help build portfolios based on historical perfor-

mance and other characteristics of securities.

● Computer-aided design (CAD) systems help

engineers design new products and save and

modify drawings electronically. Computer-aided

manufacturing (CAM) systems direct machines in

manufacturing parts and assembling products.

● Supply chain management systems optimize work-

load, speed, and cost in the supply chains for

procurement of raw materials, manufacturing, and

shipping of goods. ISs, especially MRP and MRP II

systems, facilitate production scheduling and

material requirements planning, and shorten lead

time between idea and product. Shipping ISs

help speed up delivery and cut costs. RFID tech-

nology helps promote and operate supply chain

management (SCM) systems. Radio frequency iden-

tification (RFID) tags carry product information that

can be tracked and updated.

● Customer relationship management (CRM) includes

the entire cycle of relationships with customers,

from marketing through sales to customer service.

CRM ISs collect information about shoppers and

customers and help target the most likely buyers of

a product or service. Online customer service sys-

tems help customers help themselves via the web

24 hours per day, 7 days per week, and save the

company labor and telephone expenses. Salesforce

automation allows salespeople to spend more time

with customers and less time in the office.

● Human resource management systems expedite

staff selection and record-keeping. An increasing

amount of recruiting is done via the web. Managers

often use evaluation software to help assess their

subordinates’ performance. Employees can use

expert systems to choose health care and other ben-

efits programs that best suit their situation.

● Companies can link their SCM systems to monitor

the status of orders at their own facilities but also at

those of their business partners, usually their sup-

pliers. Such cooperation can create further efficien-

cies, but it requires a high degree of trust between

organizations.

● Rather than use disparate ISs for business func-

tions, many organizations opt to install a single

system that encompasses all their business pro-

cesses, or at least the major ones. They employ

enterprise resource planning (ERP) systems to sup-

port their supply chain management and customer

relationship management. Installation of ERP sys-

tems is expensive and challenging, and often

involves budget and time overruns.

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1 PART

KIMBALL’S REVISITED

Michael understands that the expansion of the business

is dependent on two issues: (1) gaining efficiencies in

backhouse operations and (2) defining marketing and

promotional strategies to gain additional customers.

Help Michael and Tyler assess their current systems

and plan to address those issues.

What Is Your Advice?

1. Using the classifications in this chapter, identify

the business functions within Kimball’s. What

business functions could assist Kimball’s to gain

efficiencies in the backhouse operations? List

those functions and their benefit to the business.

2. What software applications should Tyler research?

What questions could he ask his current software

vendor? What types of metrics and ratios could be

used to help monitor the business operations?

3. How would you develop a target market plan to

increase clientele for the restaurant? What types

of marketing data would you need for this effort?

Could social media be used as a component of the

target marketing plan? What information systems

could be utilized to assist with this marketing and

promotion effort? What data is necessary to gather

in order to track and monitor those efforts?

New Perspectives

1. Should Kimball’s develop any initiatives to gain

feedback from customers directly? Could social

media provide that feedback?

2. What information technology systems could help

Kimball’s to gather and store the important data

elements for the marketing?

Key Terms

bill of materials (BOM), 76

brainstorming, 73

cash management system

(CMS), 72

computer-aided design (CAD), 73

computer-aided manufacturing

(CAM), 73

customer relationship manage-

ment (CRM), 68

economic order quantity (EOQ),

77

effectiveness, 68

efficiency, 68

electronic funds transfer (EFT),

72

electronic product code (EPC), 80

enterprise resource planning

(ERP), 97

just-in-time (JIT), 77

location-based services, 85

manufacturing resource planning

(MRP II), 77

master production schedule

(MPS), 77

material requirements planning

(MRP), 76

productivity, 68

radio frequency identification

(RFID), 80

rapid prototyping, 73

supply chain, 75

supply chain management

(SCM), 75

targeted marketing, 84

time to market, 73

work order, 71

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PART 1

Review Questions

1. What is a supply chain? What is the purpose of

supply chain management systems?

2. What is the purpose of cost accounting ISs?

3. What is the relationship between CAD and CAM

systems?

4. What are the concerns in cash management, and

how do cash management ISs help financial

managers?

5. What is time to market? How have ISs affected

time to market?

6. In brief, what is the purpose of customer rela-

tionship management systems?

7. What are the typical components of ERP systems?

8. Although technologically the full linking of the

SCM systems of suppliers and buyers is feasible,

many buyers are reluctant to do so. Why?

9. Why do the ERP installation and testing of sys-

tems require that experts be involved? Why does

the implementation of so many ERP systems face

severe challenges or totally fail?

10. What is EOQ? Which two problems do ISs that

calculate EOQ help minimize?

11. What is JIT? How do MRP and MRP II systems

help achieve JIT?

12. For the human resource managers of some orga-

nizations the entire web is a database of job can-

didates. How so?

13. What information technologies play a crucial role

in marketing?

14. Many sales reps have no offices, yet they have

access to huge resources, and their productivity is

great. Explain how that is possible.

15. What is RFID, and what role does it play in SCM?

16. In the supply chain, shipping software helps

mainly in two ways. What are they?

Discussion Questions

17. You established a small shop that manufactures a

single product that you sell by mail. You purchase

raw materials from several vendors and employ

five full-time employees. For which business

functions would you certainly use software?

18. Which of the ISs you listed for Question 17 would

you link to each other, and for what purpose?

19. Why is it so important to have a quick response of

online investment ISs? Give two examples of how

such systems are critical.

20. Some experts say that ISs have great potential in

manufacturing. Explain why. (Hint: Consider

business process reengineering.)

21. Over the past decade, banks and investment firms

have offered many services that would be

impossible without ISs. Describe three such ser-

vices and explain how IT makes them possible.

22. ISs in both the manufacturing and service sectors

often help to optimize. Give two examples of

what they optimize.

23. The web has significantly cut the cost of collecting

data about shoppers and buyers. Explain how.

24. Sellers of consumer products argue that targeted

marketing serves not only them but also their

consumers. How so?

25. If you had to evaluate your own subordinates,

would you prefer to evaluate them in written,

open-ended form, or would you prefer to use

employee evaluation software? Why?

26. As an employee, would you prefer that your

supervisor evaluate you with the aid of employee

evaluation software or without it? Why?

27. Try to remember the last time you gave

someone your personal data, such as an ID

number, email address, or a physical address.

What was the reason for asking for the data? Do

you know how the data will be used by the

receiver?

28. Some consumer advocates argue that organiza-

tions should pay every individual whenever they

sell data about him or her to another organization.

(They suggest 5 or 10 cents per sale.) Do you

agree? Why?

29. Examine the list of precautions suggested in

“Ethical & Societal Issues” for ensuring mini-

mum invasion of privacy when businesses use

personal data. Which steps can be taken with-

out, or with minimal, added cost? Which steps

would impose financial burdens on businesses?

Why?

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1 PART

30. RFID tags are increasingly embedded in almost

every type of good, from soda six-packs to cloth-

ing items. Consumer advocates fear that the

technology might cause massive violation of

privacy. Describe at least two ways in which this

can happen. What controls or limitations would

you impose on RFID tags and use to minimize the

fears of invasion of privacy?

Applying Concepts

31. You are the CEO of a company that runs 2 plants,

manufactures 12 different products, and sells

them in 15 world regions. List all the items of

information (totals, metrics, etc.) that you would

like to know at least on a quarterly basis. State

which information can or cannot be obtained

through company operated ISs and why.

32. Choose three distinct but related business func-

tions (e.g., inventory control, purchasing, payroll,

accounting, etc.). Write a short paper describing

how interfacing the information systems of these

three functions can improve an organization’s

performance.

33. Select a business process (possibly at a local

firm) not mentioned in this chapter. Write an

essay explaining how IS technology could make

the process (1) more efficient and (2) more

effective.

34. Write a three-page essay titled “Factory of the

Future.” Your factory will not require anybody in

the manufacturing organization to enter any data

into information systems. All the necessary infor-

mation will come from customers at one end and

suppliers at the other end. There will also be no

need to type in any data for payments and col-

lections. Explain how all this will work.

Hands-On Activity

35. Many companies use email to advertise their

products. Your company is trying to sell a new

product and is advised to use email. All the email

addresses are of people who have agreed to

receive promotional email about products such as

the one you try to sell. The profit on each unit

sold is $200. Developing the attractive email

message, use of 2,750,000 email addresses, and

sending the message would cost $25,000. Experi-

ence shows that 5 percent of the initial recipients

forward such messages to friends and family.

Experience also shows that 2 percent of all reci-

pients actually click the web address included in

the message and visit the commercial site. Of

these visitors, 0.5 percent end up purchasing the

advertised item.

Using Microsoft Excel or another spreadsheet,

answer the following questions: (1) Would you

generate a profit if you used this advertising

opportunity? (2) Would you profit if you could

email only 1,000,000 people?

Develop a rationale for integrating social media

into the email initiative. How can the integration

of social media be used along with a direct email

campaign? Research the strategy of various

businesses as a model for your

recommendations.

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PART 1

Team Activities

36. Form a team and design an IS for a small busi-

ness that sells manufactured parts to other busi-

nesses. The system must handle customer order

processing, sales, salesperson commissions, bill-

ing, and accounts receivable. Prepare a report

describing the system’s different components and

their points of interface. What files are necessary?

How will the business use data in each file? If you

have command of Microsoft Access, create the

tables for the above objects, and populate each

one with three to five records.

37. Assume that you and your teammates are about

to start a web-based business for sporting

goods. You wish to email information to poten-

tial customers. Determine the demographic

characteristics of your target audience. Search

the web for companies that sell consumer data

that can serve you. Prepare a report about three

such companies: their names, services, and

prices (if available).

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PART 1

From Ideas to Application: Real Cases

Winning the Bet

International Game Technology (IGT) is a leading

manufacturer of slot machines and lottery machines

for casinos and government lotteries. Headquartered in

Reno, Nevada, with sales headquarters in Las Vegas, the

company also maintains sales, manufacturing, and

service sites in Africa, Australia, Europe, and South

America. Its Reno site alone produces 140,000

machines annually. It has been profitable for many

years. In 2005, it had a profit of $437 million on revenue

of $2.4 billion, apparently a situation that would lull

executives of other companies to think “If it ain’t broke,

don’t fix it.” Not IGT managers.

Until 2002, each business function had its own

information system. IGT had different systems for

handling sales, customer orders, manufacturing, and

accounting. When managers wanted to receive

information about a specific customer order, they

had to go to each functional unit to receive a

different piece of the information: customer details

from the sales department, status of the machines

being manufactured from the manufacturing units,

and payment status from accounting. The accounting

department itself had several software applications

that handled different books, such as accounts

receivable, accounts payable, and the general ledger.

As business was growing, managers complained

that they could not get comprehensive information on

orders. The IT department developed interface

software to connect the systems, but there were still

complaints that information was not coherent. The IT

specialists admitted that they were maintaining a

mishmash of software. The loudest complaints came

from the accountants. Every year it took them two

weeks “to close the books.”

The accounting department pressured manage-

ment to purchase a new system that would make their

work more efficient. The CIO understood their plea but

was afraid that satisfying this department’s request

would trigger similar requests from other units, such

as engineering and manufacturing. The result might

be a better information system for each department,

but disparate systems that still were not connected to

each other. On the CIO’s advice, IGT management

decided to implement an ERP system.

A steering committee and project team were

assembled. Their members focused on business

functionality rather than the technology. After the

first selection, systems from three companies were

considered: SAP, Oracle, and J.D. Edwards (which

was later acquired by Oracle). After further

consideration, SAP won the contract, and IGT

embarked on a two-year effort. In 2003, the company

switched to using the R/3 ERP system. IGT did not

disclose the cost of the project, but analysts estimate

it was well over $10 million.

When the system was ready, three functions were

incorporated into one enterprise system: product

development, manufacturing, and finance. Like other

ERP systems, R/3 is highly structured even when

modified for a particular customer. As often happened,

the new system forced IGT to change some of its

business processes. However, the company chose

SAP’s system because it found it less rigid than other

ERP systems. This was important to IGT, because it

builds machines to order.

The system afforded the company several benefits.

Price proposals are made based on more accurate

information and estimates. Managers on the manu-

facturing floor can view or print out manufacturing

process sheets at their own PCs. Employees can no

longer ignore specifications or “cut corners.” The

system does not allow a process to continue when an

attempt such as this is made. The products are made

more efficiently and with fewer errors. The system

connects all of the company’s sites around the globe.

One of the system’s modules is project management,

which enables managers to monitor design changes

and costs involved in new product development.

The new system replaced the old MRP (material

requirements planning) system, but the company still

uses its internally developed factory control system,

which has been successfully integrated into the SAP

system. The factory control system enables managers

to know which machines are built at which plant.

IGT reduced the average period of order to

shipping from 9−10 weeks to 7−8 weeks. When a

rush order is entered, IGT can now fulfill it in four

weeks instead of seven weeks. Between 2002 and

2005 the error rates in orders for raw materials

decreased from 10 percent to almost 0. Inventory

turn increased from 6.3 to 8.4 percent per year.

IGT’s CIO admits that the implementation was

challenging. The company makes a variety of

machines, which meant that many bills of materials

had to be entered into the system (and new ones will

have to be entered for new products). Adapting some

features to the way IGT operates was not easy.

However, the implementation was successful. The

CIO credits the success to strong support from

senior management, the establishment of a steering

committee with members from all affected units, a

capable project management team, a training

program to help employees understand how to use

the new system, and the rigorous testing the

system underwent before it was used.

Source: Bartholomew, D., “ERP: Gaming Company Hits Jackpot,” Baseline, October 2, 2006; (www.igt.com), 2007.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 1

Thinking About the Case

1. What problems did IGT face before the imple-

mentation of the ERP system?

2. How does the new system help control

processes?

3. Compared to the situation in 2002, what are the

benefits of the ERP system?

4. IGT decided to continue operating its older fac-

tory control system. Why do you think it did so?

Resting on Electronic Mail for Effective CRM

For service industries, providing the customer with

a great experience is key to success. Very often,

very small details are what surprise customers and

create a lasting positive impression. The foundation

of CRM methodologies focuses not only on

maintaining relationships with customers, but with

profitable customers.

When email adoption increased significantly in

the 1990s, many businesses shifted their marketing

and communication focus from direct mail to

electronic mail. This new technology was viewed as a

low-cost, efficient method to communicate with

customers. However, the benefits of communicating

by email quickly became a “double-edged sword” to

consumers. Overusing email could quickly create

overcommunication with their customers that would

result in customers becoming turned off.

The combination of government regulation and

the popularity of social media have reduced the

reliance on electronic mail. A 2010 report by Nielsen

confirmed that the share of time relating to email has

declined to 28 percent, while time spent with social

media increased to 43 percent. Ironically, while social

media may be popular, consumers remain loyal (42

percent) to email as the source to obtain information

about specials and advertisements. An eConsultancy

study found that only 3 percent use social-networking

sites and 1 percent use Twitter. Forrester Research’s

2011 report found that consumers delete fewer emails

without reading them.

The hotel industry continues to provide

properties with amenities that are desired by

customers. With over 7,000 hotels, Wyndham Hotel

Group has more than 8 million members in its

loyalty program. Wyndham wanted to use email

campaigns to increase revenue and occupancy at

their properties as well as promote their brand.

However, it would be important to balance their

campaigns so they did not overcommunicate with

members. The competitive nature of the hotel

industry creates a fickle customer. The promotions

offered by a hotel can often complicate the issue of

coordinating email campaigns. However, an

effective email campaign requires the same

approach as for any other business: discipline.

Although Wyndham implemented many email

promotions, they were not receiving the results that

they planned. Coupled with the effort needed to

implement these campaigns, they knew that a new

approach was needed. Working with a marketing firm,

Acxiom, a more targeted approach was developed.

With the outside consultants, they applied best

practices to determine the timing and sequences of

messages. They created webpages and various email

versions along with custom Subject text. These emails

would be sent to a subset of their rewards members in

the United States.

It was important to tailor future emails to

customers based on their past actions. Wyndham

developed an automated email engine that operated

based on such data. For example, a confirmation

email was sent based on the completion of a

registration. A variety of emails would be sent to

rewards members based on a specific purpose,

ranging from free nights to vacation specials to

reward point specials. With the focus on email

distribution, Wyndham continued to offer members

the ability to opt out of receiving emails.

Their strategy and use of email technology was

successful compared with their previous email

campaigns. Wyndham’s total revenue linked directly

from email solicitations increased by 187 percent.

Various other metrics showed positive gains as well.

The rate of emails that were opened by users

increased by 8.2 percent while registration rates for a

summer promotion increased by 43 percent over a

previous campaign.

Sources: Aquino, J. (2012). Don’t count out email yet. Customer Relationship Management, 16-19. Aquino, J.

(2012). Wyndham hotels’ targeted emails break records.

Customer Relationship Management, 16, 37. Rubel, S.

(2010). Hot or not: Email marketing vs. social-media

marketing. Advertising Age, 81(29), 16.

Thinking About the Case

1. Why was it important for Wyndham to re-

examine their email campaign approach rather

than just abandon it?

2. What do you believe was the turning point for this

effort?

3. Why have marketing professionals approached

email campaigns differently than other promo-

tional methods?

4. Consider the emails that you receive from busi-

nesses. Contrast and compare the approach of

these businesses versus Wyndham’s approach.

CHAPTER 3 Business Functions and Supply Chains 105 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

1 PART

References

Anonymous. (2009). Success Story — SnapFish. www. liveperson.com/sites/default/files/pdfs/Snap fish_CaseStudy.pdf

Anonymous. (2010a). Recruiting Still the HR Function Most Likely to Be Outsourced. Staffing Manage- ment, 6, 9–9.

Anonymous. (2010b). Wonderlic Launches ASAP for Home Healthcare(TM) A Web-Based Solution That Helps Home Healthcare Firms to Quickly Hire Capable, Service-Oriented Staff, Business Wire.

Anonymous. (2010c). Wonderlic Rolls Out ASAP for Property Management Hiring. Professional Services Close-Up.

Columbus, L. (2013). 2013 ERP Market Share Update: SAP Solidifies Market Leadership. Forbes.com. www.forbes.com/sites/louiscolumbus/2013/05/12/ 2013-erp-market-share-update-sap-solidifies-market- leadership/

106 The Information Age Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

t woPAR T

Ke ith

m or

ris /A

la m

y

PART 2

INFORMATION TECHNOLOGY CHAPTER 4 Business Hardware 108 CHAPTER 5 Business Software 148

CHAPTER 6 Business Networks and Telecommunications 183 CHAPTER 7 Databases and Data Warehouses 220

BUSINESS CHALLENGES

Liz and Michael understand the strategic and func-

tional uses of information technology for their res-

taurant business. Now they need to analyze and

assemble the hardware, software, and networking

requirements that will support their strategic and

operational decisions. In addition, Liz and Michael

will need to determine what information is needed

to support their business operations.

● In Chapter 4,“Business Hardware,” you learn how

to evaluate hardware needs and determine what

hardware will support the daily operations of a

business entity.

● In Chapter 5, “Business Software,” you learn how

to determine the types of software needed to

provide the functions for an organization’s staff

and management.

● In Chapter 6, “Business Networks and

Telecommunications,” you learn about the

network and telecommunications strategies that

various businesses use to support the technology

and business functions.

● In Chapter 7, “Databases and Data Warehouses,”

you learn the importance of an organization’s

significant asset—databases—and understand

how database technology can be leveraged for

both strategic advantage and operational

efficiency.

Information Technology 107 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

2

CHAPT ER

© K

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.c om

PART

four

BUSINESS HARDWARE

Learning Objectives At the core of any modern information system stands at least one computer. Few machines have changed human life as radically as the computer, and few such complex machines have become so affordable to so many businesses and individuals in such a short time. Because computers and other hardware devices are central to information systems and to business, to successfully implement ISs, you need to understand them. Businesses have many hardware choices, ranging from computers and mobile devices to input and output devices. Understanding the capabilities of hardware and the options available can save companies millions of dollars. This chapter provides you with the knowledge to make intelligent decisions about computer hardware in your professional career.

When you finish this chapter, you will be able to:

● List major hardware components of computers and explain their functions.

● Classify computers into major categories, and identify their strengths and weaknesses.

● Identify and evaluate key criteria for deciding what computers or related devices to purchase.

● Discuss the possible health hazards of computer use.

108 Information Technology Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 2

KIMBALL’S RESTAURANT: Hardware for the Appetite

Tyler and Michael have worked on the marketing plan

for the new location. They believe that it will be success-

ful in expanding their marketing reach to gain new cus-

tomers for Kimball’s lakeside location. Now it was time

to turn their attention to improving the operational

aspect of their business. At the top of their list was

determining what restaurant software would best fit

their needs for the new location, and if their current

computer hardware could handle it.

Talking Technical Tyler and his parents agreed that upgrading their informa-

tion system would help create a more efficient operation

at the existing restaurant, and provide a solid base for

launching their new location. They also were excited

about having access to additional data and reporting capa-

bilities to help them evaluate and plan more efficiently and

effectively. What they didn’t know was what hardware and

software they needed to achieve their goals.

Tyler contacted Clark Howard at PosiDining Systems

(PDS), the software company that installed their current

POS system. They selected PDS’s entry-level version several

years ago as a low-cost option to automate the operations.

Since the installation of the PDS system, some of the

issues have been reduced (see previous chapter cases for

additional explanation). However, he is concerned that

the version of the system they are using may not be

enough for the new location. He was concerned that the

servers manually entered orders into the system based

on notes taken at the table. There could be mistakes in

either the writing or entry of the customer orders.

Tyler explained the estimated volume that was antici-

pated at the new restaurant as well as some of the man-

agement issues that were anticipated at the new location.

Clark and Tyler reviewed the number of workstations

needed by the wait and kitchen staff as well as the dining

and bar area seating chart. Clark told Tyler that the more

robust version of PDS’s product would be able to operate

the new location effectively, provide more data for man-

agement, and avoid some of the problems they’re cur-

rently experiencing with the POS system.

Although Tyler wanted an information system that

could help his family operate and manage the restaurant

effectively, he was also concerned about the cost and the

learning curve associated with a new system for both staff

and management. Clark understood his concerns. Tyler

asked if it would be possible to install the upgraded system

at the current location for 2-3 months while the lakeside

location was being prepared. Although there might be

some additional cost to install and reinstall the hardware

and software, they could train people at the current location

so the transition to the new location would be less stressful.

Clark said he would prepare a proposal for this

phased-in approach that would detail the associated

costs for the restaurant.

Computer Hardware Components

eBay, the world’s largest auction business, sold $4.0 billion of electronics in the first quarter 2013 and serves more than 116 million active users worldwide. The influence of mobile computing has been significant, 33 percent of all eBay transactions are mobile-based. These activities require a huge amount of hardware. The company uses 50,000 servers. (eBay, 2012, 2013; Sverdlik, 2013). The company’s computers are spread all over the world, and are connected through the Internet.

Hardware, in computer terms, refers to the physical components of computers and related digital devices such as tablets, scanners, and smartphones. (Software, covered in the next chapter, refers to the sets of instructions that direct the hardware to perform particular tasks.) In corporate decision making, managers should consider software first, not hardware. Businesses need to first identify the tasks they want to support and the decisions they want to make, and therefore the information they need to produce. This information will help them determine the appropriate software, and they can then purchase the best hardware to run the software. A new organization can often make software-related decisions first. However, in a great majority of cases, established organizations already have a significant investment in hardware and, therefore, must often consider adopting new software within the constraints of their existing hardware. Regardless of size, age, function, or capability, most computers have the same basic components (see Figure 4.1) and operate according to the same basic principles. A computer must handle four operations: (1) accept data, (2) store data and instructions, (3) process data, and (4) output data and/or information. In recent years, data communication over a network has become an essential aspect of input and output for almost every computer, whether stationary or portable.

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2 PART

F I G U R E 4.1

Most computer systems have the same basic components

Input Devices

Output Devices

Central Processing Unit (Microprocessor Chip)

Storage (Hard Disk)

Internal Memory (RAM and ROM Chips)

Storage (CD/DVD Drive)

Cloud Storage

In general, every computer has these components:

● Input devices receive signals from outside the computer and transfer them into the com- puter. Common input devices are computer keyboards, mice, and touch screens, but some input devices accept voice, image, or other signals.

● The central processing unit, or CPU, is the most important part of any computer. The CPU accepts instructions and data, decodes and executes instructions, and stores results (output) in mem- ory for later display. In technical terms, a CPU is a chip made of silicon, transistors, and numerous tiny soldered wires that form complex circuitry. The circuitry is built and programmed so that it can interpret electrical signals to run computers. Some computers have several CPUs. The increase in the power of computers and decrease in their prices have in large part been the result of engineers’ ability to increase the number of transistors on these chips without increasing the chips’ size.

● Internal memory, also called primary memory, is located near the CPU and stores data and instructions just before and immediately after the CPU processes them. This includes programs currently running on a machine, intermediate results of arithmetic operations, intermediate ver- sions of documents being word processed, and data elements that represent the pictures displayed on a computer screen and the sounds played by the speakers. Most of a computer’s internal memory is RAM (random access memory), and a smaller amount is ROM (read-only memory). RAM holds data and program instructions, and is volatile by design, that is, its con- tents are cleared when the computer is turned off or when a computer program is allowed to replace the data in it. ROM is nonvolatile. It contains data and instructions that do not change, mostly instructions the computer uses to load programs when it is powered on. The amount of RAM—often simply called memory—and the speed at which it operates are two of the properties that determine the power of a computer. The CPU and primary memory are usually plugged into a circuit board in the computer case called the motherboard or system board.

● Storage is different types of media—such as magnetic disks, magnetic tapes, optical discs, DVDs, and flash memory—that store data and information; however, unlike RAM, external memory allows for permanent storage. Thus, many external storage media are portable and can be moved from one computer to another. Online or cloud storage (storing data on remote stor- age devices over the Internet or a private network) is an increasingly popular form of storage.

● Output devices, most commonly computer monitors and printers, deliver information from the computer to a person. Additional output devices include speakers and digital audio players for audio output and specialized output devices such as digital scoreboards.

Recall the explanation of digital information in Chapter 1, “Business Information Systems: An Overview.” Computers and other digital devices use two states to represent zeroes and ones. Representing only two states is easier than representing many states, and two states can be more accurately detected—that is, received—than many states.

© Ce ng ag e Le ar ni ng

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PART 2

WHY YOU SHOULD Understand Information Systems Hardware

Business majors and other non-IT professionals often ask: “Why do I have to study computer hardware?” The answer is threefold. You must know enough about hardware to be able to communicate your needs to IT professionals who can provide you with the devices you need for your work. If you are in a position to choose among various options and make a decision on certain hardware pieces, you must be sufficiently knowledgeable about hardware to make informed decisions. Finally, since you are or will be a professional, you will have to purchase hardware for your personal use. Keeping abreast of developments in hardware will make you an informed con- sumer, and you will be able to optimize your purchases.

In addition, knowledge of new technologies might give you ideas about how to develop new products and services to

improve your organization’s competitive position. Throughout history, necessity has been the mother of invention, but this is not so with information technology. Time and again inven- tions have been available long before business puts them to use. Professionals who realize that a certain development can give their companies an advantage will be rewarded for their vision. Specifically, start-up entrepreneurs need to understand how technology can build or transform their operation. While IT professionals design, develop, and build technology compo- nents, the entrepreneur must have a high-level vision that can use the integration or convergence of technology in creative ways.

The amount of data that computers process and store is measured in bits and bytes. A bit is a binary digit, a 0 or 1. A byte is a combination of eight bits. All data stored and processed by a computer, including text, images, video, and audio, is represented by bits and bytes. Computer memory and storage capacity are measured in megabytes (MB, millions of bytes), gigabytes (GB, billions of bytes), and terabytes (TB, trillions of bytes) and beyond, as shown in Figure 4.2.

F I G U R E 4.2

Measuring amounts of digital data 1 KB (kilobyte) = 1,000 bytes

1 MB (megabyte) = 1,000,000 bytes

1 GB (gigabyte) = 1,000,000,000 bytes

1 TB (terabyte) = 1,000,000,000,000 bytes

1 PB (petabyte) = 1,000,000,000,000,000 bytes

1 EB (exabyte) = 1,000,000,000,000,000,000 bytes

1 ZB (zettabyte) = 1,000,000,000,000,000,000,000 bytes

1 YB (yottabyte) = 1,000,000,000,000,000,000,000,000 bytes

Classification of Computers

Computers come in a wide variety of classes, from supercomputers to handheld smartphones. Computers are classified by their power, which is determined mainly by processing speed and memory size. However, the lines between the classes have become blurred, and the class names have changed over the years. In general, the more powerful the computer, the higher its price.

Supercomputers

Supercomputers are the most powerful computers at any given time, but are built especially for assignments that require arithmetic speed. They would be overly expensive and impractical for most business situations. Usually, supercomputers are also the largest in physical size and the

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2 PART

most expensive. Universities, research institutions, government agencies, and large corporations engaged in research and development are most likely to use them. Supercomputer manufacturers include IBM, Cray, Fujitsu, Hitachi, and NEC. Supercomputers’ RAMs consist of billions of bytes, and their processing speed is trillions of instructions per second. They usually cost at least in the millions of dollars. The Titan supercomputer, discussed later in a point of interest, cost $100 million (Munger, 2012).

Supercomputers contain multiple processors that let them perform parallel processing and run at great speeds. For example, NASA uses a supercomputer system for its scientific research and space exploration. Its Pleiades supercomputer system, made by SGI, has 182 racks, 11,776 nodes, 23,552 processors and 233 TB of memory (Anonymous, 2012e). However, even this machine is slow in comparison to the Blue Gene used at the U.S. Department of Energy’s Lawrence Livermore National Laboratory. This IBM computer has 1.6 M processors capable of processing 16 thousand trillion calculations per second with 1.6 PB of memory (Brodkin, 2012). The size of its processing power is small compared to the 3,000 square feet required to house this computer system.

In parallel processing (sometimes called multiprocessing), several CPUs process different data at the same time. Uses of supercomputers include calculation of satellite orbits, weather forecasting, genetic decoding, optimization of oil exploration, and simulated testing of products that cannot otherwise be tested because of price or physical difficulty.

POINT OF INTEREST The World’s Most Powerful Computer

Oak Ridge National Laboratory turned on their newest supercomputer, Titan, for the first time in October 2012. The supercomputer is projected to be the fastest in the world and will be used to research and develop biofuels, combustion engine efficiency, magnetics, astrophysics, climate studies, nuclear science, and atomic-level materials science. Titan has 10 times the processing power of its predecessor, Jaguar, and occupies the same amount of space. The speed of the Titan is equal to every one of earth’s 7 billion people executing 3 million calculations per second. Source: Hoover, J. N. (2012). Energy Dept.’s Titan Supercomputer: Record Breaker? Informationweek - Online. http://www.informationweek.com/government/enterprise-applications/energy-depts-titan-super computer-record/240012478

In lieu of one large supercomputer, some organizations link a “cluster” of smaller computers via networks to create and enjoy similar computing power. Instead of a single machine with multiple processors, clustering uses the CPU power of multiple computers, with the same effect. A computer cluster is comprised of a group of connected computers which complete computing requests together to improve processing performance. This can be done with special software that links the CPUs of servers via a private or public network such as the Internet, all or part of the time.

Mainframe Computers

Mainframe computers are less powerful in computational speed and significantly less expensive than supercomputers. They cost several thousand to several hundred thousand dollars. Businesses that must handle business transactions and store large amounts of data in a central computer often use mainframes, which some IT professionals fondly call “big iron.” These businesses include banks, insurance companies, large retail chains, and universities. Well-known mainframe manufacturers include IBM, Fujitsu, and Unisys. While the processing speed of mainframes is usually not higher than that of the fastest PCs, they often have multiple processors

Supercomputers are used predominantly by research institutions and government agencies for complex calculations

Eimantas Buzas/Photos.com

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PART 2

and their memories are significantly larger, measured in terabytes. By some estimates, a significant amount of the world’s business data resides on mainframes. Like supercomputers, these computers are largely invisible to the public, although we access them often via the Internet.

POINT OF INTEREST Supercomputing for All

Accessibility of supercomputers has been a problem because of their enormous size and cost. They can cost over $20 million to build and suck up millions more each year in power and cooling costs. However, Jason Stowe, the CEO of Cycle Computing, has solved this problem for small businesses and researchers desiring large-scale computations without the large price. Cycle Computing’s software communicates to Amazon.com’s cloud-computing service and organizes over 50,000 of its computers to work on one prob- lem. Cycle Computing divides up computing problems into small pieces that can be spread out over all the machines and then puts the results back together. The low price, $1,000 per hour, makes the service affordable even to someone with a modest research grant and challenging questions. Source: Vance, Ashley. (2012). Supercomputers for Rent. BloombergBusinessweek. Retrieved from, http:// www.businessweek.com/articles/2012-07-26/supercomputers-for-rent

Servers

A midrange category of computers, often referred to as servers, are smaller than mainframes and less powerful. They are usually used as a shared resource, connecting hundreds of users to a variety of computers from desktops, laptops, and other servers. Therefore, these computers are used to communicate to other computers and “serve” applications and data, both through the Internet and locally within organizations. Like mainframe computers, servers sometimes use multiple processors.

Personal Computers

Personal computers (PCs) is the collective name for several types of computers: notebook computers, desktops, netbooks, and handheld computers. More powerful personal computers are sometimes called workstations. Workstations are typically used for computer-aided design (CAD), computer-aided manufacturing (CAM), complex simulation, graphical rendering, and scientific applications. As the performance of PCs steadily improves, computers that in the past were classified as midrange computers are now marketed as PCs, and the lines between computer categories continue to blur.

The power of PCs in terms of speed and memory capacity doubles about every two years. Most PCs now sold to individuals and businesses cost less than $900. However, a growing number of personal computers are not desktop PCs, but laptops and tablet computers.

Computers on the Go: Notebooks, Tablets, and Smartphones

Computers are increasingly used outside the home, office, or school. Notebook or handheld computers are used to record and retrieve data for people on the go. The notebook computer (also called a laptop) is a compact, light, personal computer that can be powered by a rechargeable battery. These computers can operate for up to eight hours without recharging their batteries. All recent notebook computers have internal circuitry that enables them to connect wirelessly to networks and the Internet. (Wireless technology is covered in Chapter 6, “Business Networks and Telecommunications.”) Notebooks have matched the power of desktop PCs in terms of speed, memory, and hard disk capacity.

One highly popular class of computing machinery is the handheld computer. Handheld computers called personal digital assistants (PDAs) appeared on the market in the early 1990s but became popular only toward the end of the decade. These devices were small enough to fit in the palm of your hand, and typically a stylus (a pen-like pointing and drawing device)

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2 PART

was used to enter data through a touch screen, although some had a small keyboard or could plug into a folding portable keyboard. By the mid-2000s, almost all new PDAs also served as mobile phones, and were increasingly called by the new term, smartphone.

POINT OF INTEREST Is it a Phone, a Tablet, or Both?

The Samsung Galaxy Note II, released in 2012, eliminates the need to carry around a mobile phone, camera, and tablet; it is all of those things and more. Its 5.3-inch screen sizes it in between traditional smartphones and tablets. It can execute the tasks of the traditional mobile phone such as making calls and text messages, as well as taking high quality pictures that can be instantly uploaded to social media sites. The “S pen” can be used for notetaking and drawing. Sloppy handwriting? No worries. Your handwriting can be automatically converted to text. The Galaxy Note II has great call quality and fast upload/download speeds. Samsung has created a demand for their product by making one device that has the capabilities of many devices. Source: Mies, G. (2012). Samsung Galaxy Note: Impressive, but Not for All. PC World, 30, 54.

Another mobile computing device is the tablet computer, often called tablet for short. Instead of a mouse, you use your fingers or a stylus on a touch screen to execute commands. Tablets can be laptop PCs with touch screens that can operate either in “traditional” monitor mode with a keyboard, or swivel to operate in “slate” mode using the touch screen. Other tablets are smaller in size without a built-in keyboard, such as the Apple iPad, Microsoft Surface, and many others. Most tablets have high-definition displays and excellent audio and video capabilities, as well as Wi-Fi and/or cellular network connectivity.

The applications for tablets have exponentially expanded in recent years. Users can surf the web, read books, shop, video chat, watch movies, listen to music, play games, and much more. Access to online “app” stores gives users instant access to songs, books, movies, and games. Tablets are popular among people of all ages because of their wide range of applications. In addition to their use for entertainment, one of the most beneficial uses for tablets is in schools, where students use them to download electronic texts, take notes on lectures, and communicate with teachers about assignments. The cost of supplying each student with a tablet can be less

than constantly replacing outdated textbooks. Some tablets evolved from e-readers. For example, the original Kindle e-reader

offered by Amazon.com performed the basic task of displaying the pages of a book. However, many e-readers have evolved to perform as many tasks as tablets. The Kindle Fire HD has a tablet-size screen and can use high-speed cellular networks. Users can download movies, songs, and books, as well as check email and surf the web. It is becoming increasingly difficult to distinguish what is a tablet and what is an e-reader because they are evolving to perform the same tasks.

The popularity of the Apple iPad, Kindle Fire, and other tablet computers has created an alternative to traditional desktop and laptop computers. The combination of a high definition display, network capabilities, and the proliferation of application software provides a solid product. Tablet technology offers business professionals the computing capability they need to perform their jobs more efficiently on the go.

Converging Technologies

As you’ve seen in the previous section, in recent years, we have experienced an increasing trend of technology convergence, building several technologies into a single piece of hardware. Smartphones are a prime example. In the early 1990s, PDAs became popular devices, placing computing power in a handheld-sized unit. Cell phones were becoming popular at the same time. The rapid adoption of both cell phones and PDAs converged to create a new product, the smartphone, which

Medical professionals can leverage the portability of a tablet device to access and update patient information

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PART 2

combined the computing power of a PDA with the calling functionality of cell phones. In addition, smartphones integrated media technologies such as MP3 players, video recording, and digital cameras. Smartphones also can connect to personal computers or networks to synchronize data (calendars, contacts), connect to printers, and access cloud storage systems. The convergence of several technologies—cellular telephone, data and networking, media, and cloud storage—in the smartphone has significantly extended the ability of individuals to “take their computers on the go.”

POINT OF INTEREST Today the Mobile Way

In 2012, the number of Chinese who accessed the Internet via mobile phone outnumbered desktop Inter- net users for the first time. The 388 million Chinese who used their mobile phone to surf the web was 22 percent more than in 2011. That leaves 380 million still accessing the Internet through a desktop com- puter. About 50 percent of all new Chinese Internet users are from rural areas, and 60 percent of them access the Internet from mobile phones. Tech companies are reacting by offering expanded services to mobile phone users and by targeting the rural population. Source: Tsuruoka, D. (2012). Mobile Phones Now Top Way To Access Internet In China, Investor’s Business Daily.

A Peek Inside the Computer

It is not necessary to look under a car’s hood to drive it, but it is important to know enough about how a car is built to know which car to buy. Similarly, professionals must know enough about the major components of a computer to understand what computing power and capabilities they buy or recommend for buying. The following discussion introduces the computer’s most common parts and peripheral equipment and describes in some detail how these devices work.

The Central Processing Unit

The CPU is the computer’s brain, where all processing takes place. The CPU consists of two units: the control unit and the arithmetic logic unit (ALU). These units store and process data. The CPU is a silicon chip with multiple circuits. It carries signals that execute all processing within a computer. Because the chip is so small, it is often called a microprocessor, or simply a processor. Most modern computers use processors that combine two or more CPUs or “cores” on a single chip, called multicore processors. Multicore processors are capable of performing more than one task at a time. For example, they can carry out a

calculation in a spreadsheet and process a graphical design simultaneously. Processing more than one program, or processing several parts of a program, at the same time is often called multi- threading, whereby each process is a thread.

Microprocessors

Microprocessors are made of silicon embedded with transistors. A transistor is a semiconductor, a component that can serve as either a conductor or an insulator, depending on the voltage of electricity that tries to flow through it. This property is excellent for computer communications, because it provides a means to represent binary code’s two states: a 1 (voltage conducted) or a 0 (voltage not conducted). Thus, transistors can sense binary signals that are actually encoded instructions telling the computer to conduct different operations.

The greater the number of transistors that can be embedded in the chip—which means the greater the number of circuits—the more powerful the microprocessor. Current processors can contain several hundred million circuits. Current technology enables chip makers to print

Smartphones provide extensive comput- ing, networking, and phone capabilities in one small unit

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2 PART

circuits on silicon that is 0.1 micron thick, one thousand times thinner than a human hair. New processor-making technologies let engineers increase the processing speed of computers while enabling them to use less energy and give off less heat.

The Machine Cycle

When a program starts running in a computer, the CPU performs a routine sequence, illustrated in Figure 4.3 for a simple arithmetic function. First, the control unit, one of the two parts of the CPU, fetches an instruction from a program in primary memory and decodes it, that is, interprets what should be done. The control unit transmits this code to the other part of the CPU, the arithmetic logic unit (ALU), which executes the instruction. Usually, the operation’s result is needed for further operations. Therefore, the control unit takes the result and stores it in primary memory, or it leaves it in a memory location called register for a following instruction to use. The control unit then fetches the next instruction, decodes it, and “puts” it in the ALU, which executes the instruction. The control unit stores the result in primary memory, and so on, until the entire program is executed, or something happens that stops the cycle. Anything that stops the cycle is called an interrupt. It might be an instruction in the program itself, a power failure, or any other event that stops the CPU.

F I G U R E 4.3

What happens inside the CPU in one machine cycle

Input Devices

Output Devices

Storage Devices

Central Processing Unit

Internal Memory

1 4

Control Unit Arithmetic Logic Unit

St o re

Fe tc

h

ADD 7 5

2 Decode 3 Execute

12

As you can see, the CPU performs four functions in every cycle: fetch, decode, execute, and store. Each cycle is called a machine cycle. CPUs can perform billions of machine cycles per second. The sequence of CPU operations must be paced so that different tasks do not collide. To this end, the control unit uses special circuitry called a CPU clock, which synchronizes all tasks. The clock is programmed to run operations at the maximum rate allowable. The number of pulses per second is called frequency, or clock rate. A machine cycle takes several clock pulses. CPU frequencies are measured in megahertz (MHz, millions of hertz) or gigahertz (GHz, billions of hertz). During the time it takes your eye to blink (about 0.2 second), a computer can execute hundreds of millions of instructions. Therefore, timing of computer operations is measured in very small fractions of a second (see Figure 4.4).

F I G U R E 4.4

The timing of computer processing operations 1 millisecond = 1/1,000 (0.001) second

1 microsecond = 1/1,000,000 (0.000001) second

1 nanosecond = 1/1,000,000,000 (0.000000001) second

1 picosecond = 1/1,000,000,000,000 (0.000000000001) second

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PART 2

Interestingly, many computers now have a lower clock rate than computers of several years ago. This does not mean that such computers work more slowly. They have multicore processors, which are more efficient. They execute more instructions per machine cycle than the older single-core processors, and therefore are faster despite the lower clock rate. Therefore, both the cycles per second and instructions per cycle (IPC) should be considered when comparing speeds of processors.

The Word

The data word (or “word” for short) is the maximum number of bits that the control unit can fetch from primary memory in one machine cycle. The word’s size is determined by the size of the CPU circuitry that holds information for processing. Obviously, the larger the word, the more instructions or data can be retrieved per second. Therefore, all other things being equal, the larger the word, the faster the computer. Current microcomputers have words of 32 and 64 bits.

The Arithmetic Logic Unit Operations

The ALU is the part of the CPU where all arithmetic and logic operations take place. Arithmetic operations include addition, subtraction, multiplication, division, exponentiation, logarithmic calculations, trigonometric computations, and other complex mathematical tasks. Logic operations compare numbers and strings of characters. For example, comparisons such as greater than, less than, and equal to are logic operations. The ALU also compares character strings that are not quantitative. For example, when you try to find a word in the text of a word-processing document, the ALU compares all words in the text to that specific word until it finds an identical word.

Computer Power

What makes one computer more powerful than another? The two major factors to consider are processing speed and memory capacity. A computer’s speed is determined, among other factors, by the CPU clock rate (measured in MHz or GHz), and the amount of information the CPU can process per cycle (determined by the size of the data word and the capacity of internal data communication). However, the architecture of the various computer components also plays a significant role in determining processing speed. To mention one, consider the discussion of multicore CPUs. When two computers are built with the same components except the number of cores, the computer with the greater number of cores is faster.

All other things being equal, the greater the clock rate, the faster the machine. This is due to the fact that it can fetch, decode, execute, and store more instructions per second. Similarly, the larger the data word, the faster the computer. A larger word means that in each trip to the primary memory, the control unit can retrieve more bits to process. Therefore, the CPU can execute a program faster.

You might have seen advertisements promoting a “64-bit computer.” This means the data word’s capacity is 64 bits. You must be cautious with regard to word size. A larger word does not always mean a faster computer, because the speed at which the bits move between the CPU and other components depends on the capacity of internal communication lines. The system bus— also called simply the bus—which is the electronic lines or traces used for communication inside the computer, might have a width of only 32 bits, while the word might contain 64 bits. The number of bits is also referred to as the width of the bus.

Buses have their own clock rate. The bus that computer makers usually mention in ads is the front side bus, which is the bus connecting the CPU to the memory. A typical front side bus clock rate is 1600 MHz. The combination of bus width and clock rate determines throughput. Throughput is the number of bits per second that the bus can accommodate. Considering both factors, CPU clock rate (so many GHz) and bus throughput, enables you to compare properly the speeds of different computers.

Computer speed is also measured in MIPS (millions of instructions per second), which is not an accurate measure, because instructions have various levels of complexity. However,

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computer speed expressed in MIPS is often used to indicate overall processing speed because all factors that determine speed are considered: clock rate, data word size, and bus throughput, as well as other speed factors that we do not discuss here. Computer speeds expressed in MIPS have been used to indicate the dramatic reduction in the cost of computing; observers often divide the MIPS by the cost of a computer and marvel how the cost of computer power has decreased dramatically, from MIPS per dollar to MIPS per cent. In recent years, computer makers have also used the term “transactions per minute” (TPM), referring mainly to database transactions, but this ratio, too, is not an absolute measurement.

Input Devices

Computers must receive input to produce desired output. Input devices include all machines and other apparatuses used to enter instructions and data into the computer. Popular input devices include the keyboard, mouse, trackball, touch screen, microphone, and various types of scanners. The most common input device is the keyboard.

Keyboard

The keyboard contains keys that users press to enter data into primary memory and instructions for programs to run. All keyboards include the basic letters of the alphabet, numbers, and punctuation marks—plus several function keys numbered F1, F2, and so on, that can be activated to execute preprogrammed functions, such as copying a highlighted sentence in a text file created with a word processor. With the growing use of the web and use of computers to play music and video clips, keyboard manufacturers have added keys that facilitate web browser commands such as Back and Forward, and music keys such as Volume and Play/Pause. On some keyboards you can bring up your email application by pressing the Mail key or the calculator by pressing the Calculator key.

QWERTY and Dvorak Keyboards

The standard keyboard layout is called QWERTY, an acronym based on the top row of letter keys from left to right. Interestingly, the QWERTY keyboard was originally designed to slow down typing, because early mechanical typewriters jammed when users typed too fast. Today’s electrical devices make this layout counterproductive. Other keyboard designs facilitate faster typing. On the Dvorak keyboard, the most frequently used keys are in the home, or central, row. Using this keyboard can increase typing speed by 95 percent. Some operating systems, such as Windows, let users map QWERTY keys into a Dvorak layout. Most computer users are reluctant to retrain themselves for the Dvorak map. In France and some other European countries, the A

and Q keys are swapped, and the Z and W keys are swapped. These keyboards are known as AZERTY keyboards.

Ergonomic Keyboards

One of the most prevalent computer-related work injuries is carpal tunnel syndrome, the pain or numbness caused by holding the forearms in an unnatural position for long periods. The repetitive motion of typing exacerbates this problem, causing repetitive-stress injuries (RSIs). In response, ergonomic keyboards are gaining popularity. Ergonomics is the study of the comfort and safety of human beings in their working environment. Ergonomic keyboards are split in the middle, and the two parts are twisted outward to better fit the natural position of the forearms.

Mouse, Trackball, and Trackpad

A mouse is an input device that controls an on-screen pointer to facilitate the point-and-click approach to executing different operations. It is most commonly used with a keyboard, although some programs use it exclusively. Mice have one

Many people prefer to use ergonomic keyboards for additional comfort while typing

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PART 2

to five buttons that let the user place the pointer anywhere on the screen, highlight portions of the screen, and select items from a menu.

When the user moves the mouse on the surface of a desk or a pad, the computer detects the movements, translates them into digital coordinates on the screen, and moves the pointer to imitate the mouse’s movement. The buttons are used for clicking, locking, and dragging displayed information. A trackball is similar to a mouse, but the ball moves within the device, rather than over a surface. With a trackpad, a user controls the cursor by moving his or her finger along a touch-sensitive pad. Many notebook computers have built-in trackpads. Many mice and trackballs have a built-in wheel that scrolls pages displayed on the monitor.

Mice, trackballs, and keyboards are also available as wireless units that use infrared or radio technology. These units give users more flexibility, especially in software-based presentations, in which the presenter may move around holding the mouse.

Touch Screen

Sometimes a single device, such as a touch screen, may serve both as an input and output device. A touch screen lets the computer user choose operations by touching the options on the computer screen. Some common public applications use touch screens to provide advice to tourists, select lottery numbers, and ring in

grocery items at self-serve supermarket checkouts. On handheld computers, the screen serves as both a display (output) and input device. The user enters commands and data either by touching a stylus on icons and menu items, or by touching the screen with the fingers.

More and more, computers and other information devices are operated through touch screens. Microsoft Windows 8 was designed specifically to utilize touch screen technology. Global positioning systems (GPSs) have offered this convenience for some time. Smartphones and tablets have touch screens. Touch screen technology is available in larger varieties such as walls, tablets, transparent touch screens, and interactive systems. The Hawaii Five-0 and CSI television shows use DoubleTake Technologies or FlickIt technology to transfer graphics or other content from a table-top monitor to other displays on the walls surrounding the actors (Anonymous, 2012c).

Integrating computer software with touch screen hardware

Trackpads have become popular on laptop systems

Szymon Mazurek/Photos.com

Co ur te sy

of W or dP re ss

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Source Data Input Devices

In some businesses, the speed of data entry is a top priority. These businesses use machine reading devices, such as bar-code scanners, known as source data input devices. They copy data directly from the source, such as a bar code or magnetic-ink characters, without human intervention. They can also record data directly from other sources, including checks and credit cards. Source data input technologies are widely used in banking, retail, credit-card processing, and shipping.

Source Data Technology

Mark-recognition devices are essential to successful source data entry. Special devices use optical mark recognition to detect the positions of marks on source documents, such as standardized test response forms. Optical bar recognition senses data encoded in the series of thick and thin black bars in bar codes.

A less accurate technology used for source data entry is optical character recognition (OCR). Unlike optical mark recognition, OCR technology is often used to try to interpret handwritten and printed texts not originally designed for source data entry. A special scanner scans the page and translates each character into a digitized representation. Software then tries to correlate the images with characters and stores interpreted text for further processing. Postal services around the world have experimented with OCR to replace human eyes and hands in the tedious job of mail sorting.

Note that OCR is not optical mark sensing. In optical mark sensing, the scanner senses a mark’s position, not what the mark actually is. The mark’s position determines the input. Because the mark’s position rather than its shape determines the input data, mark sensing is far more accurate than OCR.

A new optical mark format that uses a two-dimensional bar code (matrix) has become popular, especially for marketing and consumer advertising. These Quick Response Codes, or QR codes, were originally developed in Japan and used by automobile manufacturers due to their increased storage capacity as compared to traditional UPC barcodes. The QR code matrix consists of black- and white-squares. The convergence of smartphone, digital camera, and mobile technologies and applications has facilitated the use of QR codes. Prospective customers can use their smartphones to scan QR codes on a billboard or in a magazine to access additional information about a product. Home shopping channels show a QR code as a product is being introduced. The customer can simply scan the code to see more information and link to purchase options.

The fastest growing source data technology is radio-frequency identification (RFID). It uses a device known as an RFID tag along with an RFID reader, an efficient and cost-effective data entry method. RFID transfers data without physically touching the hardware device. In fact,

unlike bar code technology, RFID tags can be embedded in an object, and does not require a direct line of sight. It transmits data in the kilohertz, megahertz, and gigahertz frequency ranges. The tags gain their power either from batteries or from the radio frequency waves emitted from the reader.

RFID technology differs from standard barcode technology. When you are in a grocery store, each product has a bar code, called a Universal Product Code (UPC), which is scanned by the cashier to identify the product and its price. However, this value identifies only the product, but not a specific unit of the product. In contrast, an RFID tag contains an Electronic Product Code (EPC) that uniquely identifies each unit. For example, an RFID tag could be attached to each carton of vaccine to identify its specific manufacturing date and origin. This level of information could help the pharmaceutical company track the distribution of specific products as they are transported to their final destinations.

A QR code can be used to easily access a web site by scanning through a smartphone app

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PART 2

POINT OF INTEREST QR Codes Give Consumers a Quick Response

While UPC codes are used for identification, QR codes have expanded the identification concept to the web. The commercial use of QR codes has increased drastically in recent years, mostly from the increased usage of smartphones. Although QR codes have existed since the ‘90s, companies are using them today to improve consumer knowledge. By scanning a QR code with their smartphone, airline custo- mers can check in for flights without the traditional paper boarding pass. In Best Buy stores, QR codes are linked to promotional trailers for video games and customer reviews. QR codes connect the physical world and the infinite digital world. Source: Stock, S. (2010). Creative marketers find new uses for QR codes, McClatchy - Tribune Business News.

OCR has recently been integrated into mobile devices. For example, Samsung sells a cellular phone that can help save time entering information into the phone’s address book. When you use the phone’s digital camera to photograph a business card, the built-in character recognition software captures the information from the picture and enters it into the address book.

Banking

Sometimes the development of new technology removes the reliance on older technology. In the past, commercial banks and the Federal Reserve Bank processed millions of checks daily. Entering check data manually would make the process extremely expensive and slow. The bank identification number, account number, and check number are printed in special magnetic ink at the bottom of each check, as shown in Figure 4.5. A device called a magnetic-ink reader uses magnetic-ink character recognition (MICR, pronounced MIKE-er) to detect these numbers. A person at the bank enters the amount of the check, also in magnetic ink. The bank then records its check deposits by placing a large number of checks in a MICR device, which records check amounts and accounts from which the money is drawn.

Because of the convergence of scanning technology with existing ATM devices, banking customers at some ATMs are able to insert a check directly into an ATM, which reads the pertinent information (check amount, account, and bank information) and immediately processes the check without any additional processing by the bank (see POI below).

However, the greater trend is toward eliminating or reducing the use of paper checks in favor of a process that is mostly or entirely electronic. Increasing numbers of people are paying their bills through electronic banking using a bank’s website, significantly reducing labor and increasing operational efficiency.

F I G U R E 4.5

Banks use magnetic-ink character recognition (MICR) to automate part of the check clearing process

2014

FOR

DOLLARS

PAY TO THE ORDER OF

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Credit and Debit Cards

Credit and debit cards, too, facilitate source data entry. Card number and holder information are coded on the magnetic strip on the card’s back. When you charge a purchase with your credit card, the card is passed through the reader at the point of sale (POS) to record the account number and your name and address. The total amount charged is either keyed manually or recorded automatically from the cash register (often from a bar code on the item

purchased). One of the newest input devices available to consumers and merchants is the

Square card reader. In late 2008, a frustrated glass artist lost out on a $2000 sale because he could not accept credit cards, and the idea of Square was born. Square is a small, square device that plugs into the audio jack of a smartphone with a slit to slide credit cards through. The device reads the card information and converts it to an audio signal. Software on the phone decodes the information before sending it over the cell phone network to be authorized by Square’s servers. Customers can sign by drawing their signature on the smartphone screen, and credit card information is deleted from the phone after the purchase goes through. Square was introduced for iPhones, and has expanded to offer software for the iPad and Android phones. This revolutionary point-of-sale input device allows even the smallest of merchants to easily accept credit and debit cards and keep track of customer purchases. As the popularity of cashless payments continues to rise, the ability for small merchants to accept debit and credit cards will lead to increased sales.

Shipping and Inventory Control

You might have noticed that every package you receive through shipping companies such as UPS and FedEx has a bar code on it. Bar codes use the optical bar recognition techniques described earlier to represent information for both inventory control and shipment tracking. A package is scanned before it leaves the shipping facility, and the information is channeled into a computer that stores information such as the recipient’s name and address. Whenever the item reaches a station, the bar code is scanned again. This information is combined with the identification information of the station. So, anyone with access to the shipping company’s database can see exactly where the item has been and when, right up to the point of delivery. You can track an item by logging on to the shipping company’s website and entering the item’s tracking number. Since quick delivery is essential, source data input is extremely important in the shipping industry, because it is highly accurate and saves much labor and time. As discussed in Chapter 3, “Business Functions and Supply Chains,” bar codes are being replaced with RFID tags for both shipping and inventory control.

Imaging

A growing number of organizations are imaging, or image processing, their documents. Doing so allows not only the storage of enormous amounts of data in less space than paper, but also much more efficient retrieval and filing. By scanning and indexing images, many companies have already reduced millions of paper documents to digitized pictures. They use the technology to store invoices, shipping documents, insurance policies and claims, personnel files, checks, and many other document types. The images are indexed and linked to relevant records in large databases, from which they can be retrieved and displayed on computer monitors. This technology is particularly useful when documents include signatures and graphics.

Once scanned, the original document can be destroyed because an exact copy can be generated on demand. Since it is in electronic form, it can be indexed. Indexing enables you to search a document by keywords and numbers. This reduces the average time of searching a document from several hours to about five seconds. In the United States, checking account holders receive one or two sheets of imaged canceled checks from their banks instead of a stack of their original checks. Customers who do their banking online can retrieve these images at any time. This system saves banks millions of dollars in paper, space, and handling costs. The images are often stored on DVDs. Because imaging reduces the amount of paper in organizations, some

The Square card reader hardware can process sales on a mobile phone

Courtesy of Squareup.com

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PART 2

of the most enthusiastic adopters of imaging are companies in paper-intensive fields such as law, retail, insurance, banking, health care, and shipping.

Imaging technologies continue to progress. A global financial services company saved $56– $80 million in paper costs. Another financial services firm claims a 100 percent return on investment in eight months and saved $3.6 million in paper and copying costs over a one year period. A property insurance company focused on long cycle times for processes based on hardcopy documents. The insurer implemented technology to capture, archive, and retrieve documents and reduced the cost of issuing new policies by 33 percent with a savings of over $6 million per year (Anonymous, 2012a; Medina & Andrews, 2009). These examples prove that substantial cost savings are realized through document imaging technology. The efficiency of several business processes, such as invoicing, customer service, collections, and purchasing, can be affected positively with the use of this technology.

POINT OF INTEREST Deposit Your Check in a Flash

The banking world has found another solution to make standing in line for the next available teller a thing of the past. Banking customers can download an app on their iPhone, Android, or Windows smartphones, sign in, and snap a picture of the front and back of the check to deposit it. Wells Fargo, Bank of America, Chase, and Citibank have already implemented ways for customers to deposit checks using their smart- phones. The innovation saves customers time because they do not have to visit a bank branch. The finan- cial institution saves money because the check is immediately scanned into the system, eliminating the need for bank personnel to process the check as well as reducing transactions processed by a teller. Source: Avalos, G. (2012). Checks Go Cellular, Providence Journal.

Speech Recognition

The way we communicate with computers is changing. We already mentioned touch screens. However, in some work environments, using manual input devices is either impossible or inconvenient. In other situations, such as customer service, using a computer to respond automatically to spoken customer queries can save labor costs. Instructing machines by speech can help in these instances. Speech recognition—also called voice recognition—is the process of translating human speech into computer-readable data and instructions. Although speech recognition systems vary in sophistication, all receive voice input from a microphone or telephone and process it with software.

Since help-desk labor is an area of great potential for reducing costs, several companies have developed speech recognition software. Nuance Communications, Inc. offers Dragon Naturally Speaking for dictating text in word processors and email. Microsoft’s Tellme software provides voice services for automated 411 (telephone directory) services and enterprise customer service. The convergence of smartphone and voice recognition technologies has made possible applications to assist with dialing contacts, text and email messaging, as well as initiating a search.

Navigation systems have become a standard feature in many vehicles. Toyota installs VoiceBox software in the navigation systems of its new cars as well as car voice innovations; IBM’s Embedded ViaVoice is used in General Motor’s OnStar and other dashboard command systems. So far a GPS system is capable only of providing voice directions; with the new system, you will be able to verbally ask the GPS system for directions, and it will speak them back. Apple’s Siri is used on iPhones and iPads to receive voice commands as input to GPS.

Currently, the customer service departments of many companies use interactive voice recognition (IVR) to understand simple commands from telephone callers, who can utter answers to questions and receive recorded responses. IVRs can provide the most efficient method for customers to get assistance. Some companies can direct up to 90 percent of their incoming calls to IVR systems (Fluss, 2012). However, customer complaints prod companies to employ more sophisticated voice recognition systems. A recent study of consumers indicates that most

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2 PART

still prefer speaking to a live agent rather than using an IVR system (Gray, 2012). However, updating the organization’s IVR application will realize a cost-effective investment to increase its performance (Fluss, 2012).

POINT OF INTEREST A Commanding Voice

Emerging as the most common scene for voice recognition systems is mobile phones. Many mobile phones offer some type of speech recognition system that allows users to issue basic voice commands. Android-powered smartphones are taking it a step further. Users of newer Android smartphones can download an app that allows Google to recognize the pattern of their speech. The service gradually becomes accustomed to the user’s voice and over time will more accurately understand voice com- mands. Accurate speech recognition in mobile phones is extremely convenient for people without a free hand or who are driving. Source: San Jose Mercury, N. (2010). Google launches next phase of speech-recognition service, The Salt Lake Tribune.

Output Devices

Output devices include all electronic and electromechanical devices that deliver results of computer processing. We receive most information in visual form, either on screen or on paper. Therefore, this discussion focuses on the most popular output devices: monitors and printers. Output also includes audio signals, received through speakers and earphones, or downloaded to digital audio players. Soon we might also be able to enjoy smell output using digital technology.

Monitors

The most common output device is the computer monitor, which looks like and uses technology similar to a television screen. The two major types of monitors are cathode-ray tube (CRT) and flat-panel display. CRT is an older technology, and most monitors today are flat-panel. Images on a monitor are made up of small dots called pixels (picture elements, with the addition of an x for easier pronunciation).

In a CRT (cathode-ray tube) monitor, the inner side of the screen has a layer of tiny phosphoric dots, which make up the pixels. These dots respond to electronic beams by displaying different colored light. An electron gun receives instructions from the computer and sweeps the rows of pixels, spraying a ray of electrons. When electrons hit a pixel, the pixel emits light for a limited time. The electronic gun bombards some pixels and skips others, creating a picture on the screen. This type of monitor has rapidly vanished as a means of displaying data.

Flat-panel monitors have gained popularity for personal computers and handheld computers, after years of use in notebook computers. The advantages of flat-panel monitors are their slim profile, sharper images, and lower power consumption. The most common type of flat-panel monitor is the liquid crystal display (LCD). The price of LCD monitors has decreased sharply over the past several years, making them the most popular type of monitor. In addition, the lower cost of flat-panel monitors has made it possible and popular to use two monitors on one personal computer, increasing the number of active applications at any one time. In LCD, a conductive, film-covered screen is filled with a liquid crystal, whose molecules can align in different planes when charged with a certain electrical voltage. The proper voltage applied to segments of the screen disrupts the crystal’s regular structure in those areas, causing it to block light. Light continues to pass through the rest of the liquid. This combination of light and dark areas produces images of characters and pictures.

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PART 2

Flat panel displays have replaced CRTs in business organizations and households

Any type of high definition television (HDTV) set can be connected to a computer (if it has the proper socket) and serve as a computer monitor.

The price of a monitor depends primarily on its size, measured as the diagonal length of the screen. Other price factors include brightness (the brighter the better), contrast ratio (the higher the better), and pixel pitch (how close the pixels are to each other; the closer the better).

The greater the number of pixels per unit area on the screen, the sharper the picture. Picture sharpness is called resolution. It is expressed as the number of pixels that fit the width and height of a complete screen image. Monitors come in various resolutions. If you multiply these numbers, you get the total number of pixels on the screen. Common resolutions are 1024 � 768, 1280 � 1024, 1366 � 768, 1600 � 1200, 1920 � 1080, and 2560 � 1600.

Good color monitors can display more than 16 million colors and hues. The number of colors and the overall quality of pictures also depends on the quality of the video card used inside the computer. The video card contains memory and circuitry to manipulate and display two- and three-dimensional images.

Printers

Printers can be classified into two basic types—nonimpact and impact—based on the technology they use to create images on paper.

Nonimpact Printers

The printer most commonly used today in businesses is the laser printer, which is a nonimpact printer because it creates images on a page without mechanically impacting the paper. Nonimpact printers include laser, ink-jet, electrostatic, and electro-thermal printers. Laser printers are also page printers, because they print one whole page at a time. Laser and ink-jet printers produce very high-quality output, including color. Laser printing technology can create typeset quality equal to what you see in magazines and textbooks. Ink-jet printers can be used for photo-quality output, and therefore are often used to print pictures captured by digital cameras. All nonimpact printers have fewer moving parts than impact printers and are, therefore, significantly quieter. They are also much faster. The excellent quality of their output makes laser printers the choice of many individual and corporate users for desktop publishing.

Two qualities to check when purchasing a laser or ink-jet printer are speed, measured in pages per minute (PPM), and density, measured in dots per inch (DPI). The higher the density, the sharper the output. Desktop printers produce output at 300, 600, and 1200 DPI or more. Ink-jet printers are capable of producing output at much higher density, such as 4800 � 1200 DPI. The speed of desktop laser printers is 17 to 60 PPM. Color laser printing is somewhat slower due to the time it takes the printer to compose the image. Larger, commercial laser printers reach speeds of more than 400 PPM.

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2 PART

The low prices of laser and ink-jet printers might be misleading. Over the life of the printer, the buyer will spend much more money for the cartridges than for the printer. For example, a color laser printer that costs $200 typically requires four cartridges, each costing about $40. Just a single set of new cartridges costs almost as much as a new printer. If a new printer is to be used for high-volume printing, the initial larger expenditure on a laser printer makes business sense because the per-page cost of laser cartridges is lower than the per-page cost of ink-jet cartridges. However, ink-jet printers are more suitable for photo-quality prints because of their higher resolution, that is, a greater DPI density.

Impact Printers

Printers are considered impact printers if they reproduce an image on a page using mechanical impact. Of this type, the only printers you might still encounter are dot-matrix printers. The printhead of dot-matrix printers consists of a matrix of little pins. When certain pins strike the ribbon against the paper, they mark the shape of a character or another form on the paper. Thus, each character or other image is made up of tiny dots. Dot-matrix printers produce low-quality output but are still in use in many businesses, because they can print multi-copy forms.

Storage

To maintain programs, data, and information for later use, data must be stored on a nonvolatile medium, that is, a medium that retains data even when not connected to electric power. Often, we also want to move stored data to a computer that is not part of a network, and we need to back up important programs and data as well. For these purposes, we use storage media. Although media are the materials on which information is stored, and the storage device is the media and the mechanism that stores and retrieves the information, the terms “storage media” and “storage devices” are often used interchangeably.

Storage devices come in different forms and use different materials, each with strengths and weaknesses. Cost, capacity, access speed, and access mode should all be considered when evaluating storage devices. Capacity is the amount of data the medium can hold, access speed is the amount of data that can be stored or retrieved per time unit, and access mode refers to the organization of data on the medium, either random or sequential.

Storage devices differ in the technology they use to maintain data (such as magnetic or optical) and in their physical structure (disks, tapes, or other forms). Physical structure might limit ways in which data can be organized on the medium. While disks allow any type of organization, tapes allow only sequential organization. This section discusses modes of access, looks at specific media and technologies, and considers the trade-offs that managers must consider when evaluating what type of storage solution is best for a particular business.

Modes of Access

The two basic types of access modes for data storage are sequential and direct (random) access (see Figure 4.6). In sequential storage, data is organized one record after another. With sequential storage (the only option for magnetic tapes), to read data from anywhere on the tape, you have to read through all the data before that point on the tape. Retrieving files from sequential devices is slower and less convenient than on devices that utilize direct access. In direct access, records are not organized sequentially, but by the physical address on the device, and can be accessed directly without going through other records. Devices that allow direct access storage are often called DASD (DAZ-dee), short for direct access storage device. They include magnetic and optical disks as well as flash drives, small storage devices that connect to a computer via a universal serial bus (USB) receptacle.

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PART 2

F I G U R E 4.6

Sequential and direct data access

Sequential Data Access

Direct Data Access

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Magnetic Tapes

Magnetic tapes similar to those used in tape recorders are also used to store computer data. While some tape drives still use open reel tapes, most use tape cartridges. Many of these cartridges look, in general, like the tapes used in audio tape players. One of the most popular types of tape cartridges is the Linear Tape-Open (LTO). In 2012, Quantum, a storage media manufacturer, offered tape cartridges with a capacity of 3 TB (terabytes) that access data at a rate of 280 MB per second (Anonymous, 2013). The cost of storage is measured in how much money is spent on each byte of storage capacity. Tapes provide the lowest cost in terms of cents per GB. The Quantum 3 TB LTO-5 tape (retailing at $35 each) costs 1.1 cents per GB.

Backing up all or a designated part of data from its original storage medium needs to be done regularly. The entire hard disk of a PC can be backed up, or, in

organizations, large amounts of data are backed up in case a hard disk crashes or an incident occurs that makes the original data irretrievable. Backing up can be done manually or automatically with the help of software. When the backup is done for an organization, often the organization makes use of a storage area network, a dedicated area where disk (and possibly tape) storage devices are connected through communication lines to organizational ISs for the sole purpose of data backup. Such networks are discussed later in this chapter. Backup and recovery procedures are discussed in Chapter 14, “Risks, Security, and Disaster Recovery.”

Tapes are inexpensive but they have two major flaws. It takes a long time to copy from a tape. This is a serious concern when terabytes of data must be recopied to a disk from a tape. Tapes are also unreliable after about five years. To extend this period, a magnetic tape must be reeled back and forth every few months to maintain an even tension. Uneven tension, which always develops over time, may render some of the stored data unreadable.

Magnetic Disks

The most widely used storage medium is the magnetic disk. Magnetic disks include hard disks and floppy disks, though floppy disks are rarely found today. As with information on magnetic tape, information on magnetic disks is coded in magnetized spots on the disk’s surface.

© Ce ng ag e Le ar ni ng

20 15

Tape cartridges are an inexpensive method to back up data

Ray Johnson/Photos.com

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2 PART

PCs usually come with at least one hard disk built in. Hard disks are often mistakenly called hard drives. The disk is the storage medium itself; the drive is the mechanism that stores data to it and retrieves data from it. (However “hard disk,” “hard drive,” and “hard disk drive” are commonly used to mean the combination of the two, because the drive and disk are sold and installed as one unit.) A hard disk consists of one or more rigid platters installed in the same

box that holds the CPU and other computer components, or attached externally to the computer, usually through a USB port. An external hard disk is portable; it easily can be connected to or disconnected from the computer without opening the computer box. External hard disks are usually more expensive than internal disks with the same capacity. Hard disks for desktop computers are capable of storing up to 3 TB of data. The cost of storing 1 GB has decreased to less than 5 cents.

The storage and use of corporate data has become a major IT initiative. In recent years, the most important impetus for the acquisition of hard disks has been the construction of data warehouses, large databases that maintain mainly consumer purchase records. A 2011 study by McKinsey & Company projects that the growth of global data will increase by 40 percent per year. The amount of data stored by 15 out of the 17 sectors in the United States is greater than the contents of the Library of Congress (235 TB in April 2011) (Manyika et al., 2011).

POINT OF INTEREST Tera Firma

An external hard drive with storage capacity of 3 terabytes can be purchased for less than $140. How much information can a hard disk with a capacity of 1 terabyte hold? It would store about 300 hours of good quality video. Ten terabytes could store the printed collection of the Library of Congress, approxi- mately 155 million items. Source: Anonymous. Fascinating Facts. Retrieved June 4, 2013, from http://www.loc.gov/about/facts. html; Anonymous. (2013). Megabytes, Gigabytes, Terabytes ... What Are They? Retrieved June 4, 2013, from http://www.whatsabyte.com/

The quickly decreasing cost of magnetic disks enables storage and streaming of thousands of video clips on the web. McKinsey & Company estimates that a $600 disk drive could store all of the world’s music. In just two years of operations, YouTube (now part of Google) amassed a collection of video clips that required 45 terabytes of storage space. The company says it receives and stores about 72 hours of videos every minute. Using the factor of 1 GB per hour of video content, YouTube would require 172 TB per day to accommodate new uploaded videos by their users (Anonymous, 2012f; Manyika et al., 2011).

Optical Discs

Optical discs are recorded by treating the disc surface so it reflects or does not reflect light. A special detecting device detects the reflections or nonreflections, which represent ones and zeroes of digital coding. The two basic categories of optical discs are compact discs (CDs) and digital video discs (DVDs), also known as digital versatile discs. CDs come in several types: CD-ROM (Compact Disc, Read Only Memory), CD-R (recordable), and CD-RW (rewritable). Recordable DVDs come in a variety of recording options. The main advantage of optical discs is their storage capacity and portability. CDs and DVDs are also less expensive than hard disks in terms of bytes per dollar, although the cost gap is closing. Standard DVDs can store 4.7 GB per side for a total of 9.4 GB. More advanced DVDs, using techniques called blue laser and double storage, can reach capacities of 50 GB; a dual layer disc which is the industry standard for full- length video discs. However, the disadvantage of all optical discs is that the speed of storage and retrieval is currently slower than that of hard disks.

Magnetic disks are available in several forms, such as the internal disk shown here, or external USB or Firewire- connected disks

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PART 2

Solid-State Storage

Solid-state storage, also known as flash memory, is becoming popular for both primary memory (memory inside the computer) and external storage. Solid- state storage can be rewritten and hold its content without electric power. It consumes very little power and does not need a constant power supply to retain data when disconnected. It offers fast access times and is relatively immune to shock or vibration. These qualities make solid-state storage an excellent choice for portable devices such as MP3 players, digital cameras, and mobile phones, or as independent portable storage. Unlike other types of memory, erasing data can only be done in blocks of bytes, not individual bytes, and hence the name: a

whole block of bytes is erased in a flash. As an independent memory device, flash memory takes two main forms: as a memory card

(often used in digital cameras and other portable devices), and as a USB drive, sometimes called a thumb drive or USB flash drive. Many computers and some monitors and printers include multiple built-in card readers that accommodate the most popular flash memory cards, such as SD (Secure Digital) and CF (Compact Flash). USB drives are about the size of an adult’s thumb, and act as portable storage. (The name “drive” is a misnomer; there are no moving parts or disks in flash memory.) They plug into the computer through a USB port. As USB ports become standard in most computers, it is easy to use a thumb drive to save data or transfer data between computers. There is usually no need to set up any software once the USB drive is plugged in. The device is recognized as an additional external storage device. USB drives come in storage capacities of up to tens of gigabytes, and their cost is decreasing rapidly.

Flash memory cards are ideal for portable devices such as digital cameras and portable voice recorders

In addition to its use in USB flash drives and memory cards, flash memory is used in solid-state disks. A solid-state disk (SSD) is an alternative to magnetic disks. Again, the word “disk” is a misnomer, because this type of storage involves no disk and no moving parts. SSDs are attached to computers in a similar way to magnetic disks. The fact that there is no need to wait for a disk to rotate in order to locate data—a period of time called latency—makes SSDs up to 250 times faster than magnetic disks, especially if the SSD comes with its own CPU. The function of such CPUs is specifically to speed up data processing. SSDs are used by organizations to store frequently used software to prevent data processing “bottlenecks.” SSDs are also becoming popular on high-end PCs.

Many computers have built-in USB ports and flash memory card slots

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Solid state memory accesses information without any moving parts

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2 PART

DAS, NAS, and SAN

Organizations increasingly rely on storage systems that allow multiple users to share the same storage media over a network. In direct-attached storage (DAS), the disk or array of disks is directly connected to a server. The storage devices might also be tapes, especially if the storage is for backup. Other computers on the network must access the server to use the disks or tapes. DAS is relatively easy to deploy and manage, and involves relatively low cost. However, speed of access to data might be compromised because the server also processes other software, such as email and databases. Also, if the server is down, the other computers cannot access the storage devices. DAS might be suitable for localized file sharing, which is typical in small businesses. It is not easily scalable, because each additional server and its storage devices must be managed separately. Scalability is the ability to add more hardware or software to accommodate changing business needs.

Two other arrangements place the storage devices on the organization’s network so that they can be accessed directly by all other computers. These approaches are known as network- attached storage (NAS) and storage area network (SAN).

Network-attached storage (NAS) is a device or “appliance” especially designed for networked storage. It comprises both the storage media, such as hard disks, and management software, which is fully dedicated to serving (accessing) files over the network. NAS relieves the server of handling storage, so the server can process other applications, such as email and databases. Disks can store many terabytes of data in a small, centralized space, and managing such large storage in one place saves money. NAS is highly scalable. While in DAS each server runs its own operating system, NAS can communicate with servers running various operating systems, and therefore allow much flexibility when adding computers and other devices to the network.

Storage area network (SAN) is a network fully devoted to storage and transfer of data between servers and storage devices. The storage devices are part of this dedicated network, which is managed separately from the organization’s local area network. (Networks are covered in Chapter 6, “Business Networks and Telecommunications.”) A SAN may combine DAS and NAS devices. The communication lines in this network are high-speed optical fibers. The data transfer standards used in a SAN are different from those used by a NAS, and generally support higher speeds. NAS identifies data by files, or, as professionals say, at the file level. SAN identifies much larger quantities of data, called data blocks, and therefore can transfer and back up much larger amounts of data at a time. This is important when high speed of data transfer is important, such as in online business transactions that involve a large number of records in a stored database. A large number of users can simultaneously access data without delays. SANs are highly scalable. For these reasons, SANs are used by organizations that conduct business on the web and require high-volume transaction processing. However, SANs are relatively expensive and their management is complex. In recent years, the technical differences between NAS and SAN have blurred.

DAS, NAS, and SAN often include RAID (redundant array of independent disks), whereby data is replicated on different disks to enhance processing speed and fault-tolerance. Fault tolerance is the ability of the system to sustain failure of a disk, because the same data also appears on another disk.

Several companies specialize in NAS and SAN systems and the software that manages them, including Hewlett-Packard, Hitachi, and IBM.

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PART 2

Cloud Storage

The significant increase in the data storage needs of consumers and organizations, coupled with the exponential increase in Internet and other network use, has created a new technology product, cloud storage. Simply defined, cloud storage is the availability of network-accessible storage from an off-site computer or technology device. Based on the 1970s model of application service providers (ASPs), these systems are usually maintained by a third-party organization through a subscription charge based on several factors and service models.

With cloud storage, consumers can store their personal files “in the cloud” and access them with several devices. For example, a customer can purchase and upload MP3 files to their cloud storage area. The music files can then be accessed and played through their smartphone, personal computer, or tablet without the need to store the music on each device. The storage location associated with the cloud provides an efficient single point of storage and access to various files.

Business professionals can use cloud storage to centralize their file storage and access while traveling and telecommuting. As an alternative to storing data on multiple devices or transporting data on USB flash drives, cloud storage maintains one version of a data file, which can be accessed from various devices for editing and printing. In addition, the cloud offers a more secure location for storing sensitive data than on flash drives and portable devices that can be stolen.

Business organizations can also use cloud storage to reduce the cost of storing and managing data. Although data storage costs are decreasing, the increased use of corporate data remains a significant cost of information technology overhead. Cloud storage vendors, sometimes called storage-as-a-service, offer corporations an alternative to on-site data storage by outsourcing data storage services. Cloud storage can also provide an efficient alternative to store corporate data for compliance and archiving purposes, leveraging additional internal storage infrastructure for live and production data needed for operational business activities.

However, cloud storage has its disadvantages. The off-site storage of data increases the reliance on networks, and has associated network costs. Even with all the assurances of cloud storage vendors, that security of corporate data stored in the cloud remains a significant issue. Off-site storage creates an additional point of failure that could risk the security of sensitive corporate data. Therefore, the tradeoffs of on-site vs. off-site storage must be considered and analyzed.

IBM and Iron Mountain Digital are two major players in the corporate SaaS market. However, companies such as Amazon and Apple are capitalizing on the consumer demand for cloud storage. Amazon provides 5 GB of cloud storage at no cost for its customers to store videos, photos, music, documents and other digital files. The cloud storage is accessible through its desktop application for the personal computer as well as its Kindle Fire tablets. Amazon’s strategy is to offer Kindle Fire owners access to their cloud storage as an additional benefit. Apple iCloud stores iOS and Mac device users’ content. Microsoft Office 2013 product offers more cloud access features than previous versions; its Office 365 product is advertised as “Office in the cloud” to access Office tools from any location.

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2 PART

Business Considerations in Evaluating Storage Media

Before spending money on storage devices, professionals must consider several factors: the purpose of data storage, the amount of data to be stored, the required speed of data storage and retrieval, how portable the device needs to be, and, as always, cost.

Use of Stored Data

The first consideration before adopting storage media is how the data will be used, mainly, whether it will be used for current operations or as backup. If it is to be used for backup only, and not processing, magnetic tape, flash drives, external drives, CDs, or DVDs would be a proper choice. Magnetic tape is less costly and holds more data per reel or cassette than a single CD; this should be a consideration, too. If the users need to access individual records quickly, then magnetic hard disks are the best choice. Thus, a business that allows customers to retrieve their records online should use fast magnetic disks. If the information is archival, such as encyclopedias or maps used by library patrons, the library should place the information on CDs or DVDs, because the user needs fast, direct retrieval of specific information (records), and might not

Computers May Be Hazardous to Your

Health

As of 2010, according to the U.S. Census Bureau, about 77 million Americans use computers at work, at school, and at home (Anonymous, 2012b). An increasing number of studies show that working with computers threatens workers with a variety of hazards. These risks include repetitive-stress injuries (RSIs) due to long periods of repeated motions. According to the U.S. Occupational Safety and Health Administration (OSHA), RSIs cost American businesses an estimated $20 billion annually in workers’ compensation claims (Anonymous, 2012d). The U.S. Department of Labor reported that injuries and illnesses attributed to repetitive motion tasks accounted for three percent of all injury and illnesses in 2011. However, these cases required a median of 23 days of work absences, nearly three times as much as all types of injuries and illnesses (Anonymous, 2012d). As computer-aided work has grown, RSIs have grown, too, to the extent that some scientists call these injuries an epidemic.

The most common computer-related type of RSI is carpal tunnel syndrome. It is the result of repetitive use of a keyboard. The injury causes pain in the forearms due to swelling and pressure on the median nerve passing through the wrist. Carpal tunnel syndrome may cause permanent disability. In rare cases workers lost their ability to return to work due to this injury.

Our eyes, too, are strained from computer work. Studies found that a programmer’s eyes make as many as 30,000 movements in a workday. These are movements up, down, and to the sides, which strain the eye muscles. However, other studies found that while staring at a computer monitor people blink at one-sixth of the frequency that they blink normally. Blinking is important for moisturizing the eyeball, which helps kill harmful germs and eases eye strain. A study by The National Institute for Occupational Safety and Health (NIOSH) found that short breaks from work with computers that involve keyboards

and video displays reduce eye soreness, visual blurring, and upper-body discomfort, while quantity and quality of work were not compromised. The agency estimates that more than half of computer users who stare at computer displays for long hours develop a health problem called computer vision syndrome (CVS), which is any combination of headaches, loss of focus, burning eyes, double vision, or blurred vision.

The argument has been made that it is an employer’s moral obligation to educate employees about such risks and to provide an environment that minimizes them. Both factors, the economic and ethical, have moved many employers to try to reduce the increasing “injuries of the Information Age.” They do so by purchasing and installing ergonomic equipment, training employees how to use computers in a way that minimizes injuries, and enforcing periodic breaks from repetitive activities such as typing. The breaks help prevent both RSIs and eye strain. OSHA maintains a website, www.osha.gov/SLTC/ computerworkstation, that provides useful tips on safe computer work. As a professional, it is likely you will spend much of your workday sitting in front of a computer. Read the tips and apply them to maintain your good health.

To minimize these risks, you can download and install on your computer one of several free programs such as Workrave that prompt the user to take brief breaks and less frequent but longer rest breaks. It also limits the daily total time a worker can use a computer. When the computer is networked to other computers in the office, it does not allow the worker to use any of the others that are part of the network when a break or daily time limit is enforced. Working times of all workers whose computers are connected are recorded and tabulated on a server for review and analysis. The application also provides an animated exercise guide for the shoulders, arms, and eyes.

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PART 2

tolerate sequential search on a tape. However, with the speed and low cost of external disk drives, it is easy to justify the use of these storage devices (usually on servers) for instant information access. Archival information that should not be changed should be stored on write-once media.

The use of cloud storage to access and store data should also be considered. The low cost and availability of online servers eliminate the businesses oversight and management of data storage functions. For example, as a business begins to approach its capacity of on-site storage, new disk drives (or servers) must be purchased and installed. But when additional storage is needed in a cloud storage environment, it simply is accessed without any active effort on the part of the business.

Amount of Data Stored

When storage volume is the most important factor, professionals must first consider price per megabit or megabyte, that is, the ratio of dollars spent to storage capacity. If the medium is to be used solely for backup, their low cost makes magnetic tapes and DVDs an ideal choice. If the medium is to be used for fast retrieval, magnetic disks would be the best choice.

For some purposes, the capacity of the device is important. When a set of very large software applications and/or data must be stored on a single device, a device with a large capacity must be selected. For example, if a sales rep must be able to demonstrate applications totaling 4 GB, it might be more economical to store the data on five CDs, but this would be impractical because the rep would either have to first copy the content of all the CDs onto every PC where she makes a demonstration (which for security reasons might be prohibited by the hosting party), or she would have to swap the CDs throughout the demonstration. A small portable hard disk or USB flash drive of at least 4 GB would be a more practical option, albeit significantly more expensive.

Speed

The speed of magnetic disks (also called spindle speed) is often measured in rotations per minute (RPM). Current disks come with speeds of 5,400 to 15,000 RPM. For disks of the same size, a higher RPM means shorter data transfer time and usually better performance overall. While the great capacity and low cost of CDs and DVDs are appealing, the transfer rate of magnetic hard disks is still significantly better. If very high speed is required, SSD is currently the best choice, although its price is significantly higher than that of magnetic disks.

Accessing data in the cloud is heavily dependent on the network bandwidth (speed and volume of data that can be transferred). With internal storage, businesses control the access to servers containing storage devices. The speed of accessing data is faster because the connection is local. The speed of accessing data in a cloud environment will be based on the network (Internet) service and bandwidth purchased.

POINT OF INTEREST Don’t Place This Laptop on Your Lap

Defects in Sony batteries caused one of the largest recalls in computer history. The batteries in several models of laptop computers overheated. Some exploded, and others burst into flames. Dell replaced the batteries in 4 million computers, Apple in 1.8 million, and Lenovo in 0.5 million. In 2006, The Federal Consumer Safety Products Commission (CPSC) issued this helpful advice: “Do not use your computer on your lap.” The CPSC has offered several tips on notebook use including the placement of laptops on soft surfaces as well as using appropriate batteries and chargers. Source: Horowitz, A., Jacobson, D., McNichol, T., Thomas, O., “101 Dumbest Moments in Business,” Business 2.0, January/February 2007, p. 100; CPSC Releases Tips on Notebook Computer Use, September 2006, http://www.cpsc.gov/CPSCPUB/PREREL/prhtml06/06271.html

Unit Space and Portability

Sometimes the cost of a gigabyte stored is not the most important consideration, but the physical size of the storage medium is. A portable hard disk drive might be economical and fast,

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2 PART

but it might be more practical for a traveling salesperson to carry a CD rather than an external hard disk. And even though a CD is significantly less expensive than a USB flash drive, the salesperson might find it more convenient to carry a USB drive. CDs do not fit in shirt pockets, while a USB flash drive can be attached to a key chain or clipped to a shirt pocket. Even if storage cost is not as attractive as that of CDs, portability and the fact that USB ports are ubiquitous in PCs might push one toward selecting a USB flash drive. Many business professionals today who travel and need network connectivity and limited local disk storage are opting to use tablet computers or even smartphones to access their applications and data.

Cost

Once professionals agree on the best type of data storage device for a particular business use, they need to consider cost. The approach is simple: obtain the greatest storage capacity for the smallest amount of money. In other words, for each proposed device, consider the ratio of cents per gigabyte of capacity. The lower the ratio, the more favorable the product. It is easy to find the ratio. If a 1 TB hard disk costs $80, the ratio is $80/1 TB, or 8 cents per gigabyte. The cost per gigabyte of a 3 TB drive that costs $135 would be 4.5 cents. If a 32 GB thumb drive costs $20, the cost per gigabyte is $20/32 GB, or 62 cents per gigabyte. Thus, if the convenience and portability of a thumb drive is important to you, you will pay significantly more per GB of storage capacity.

Use of cloud storage changes the cost curve of additional capacity as the business operations warrant. As the internal capacity is approached, additional storage devices must be purchased and installed. If the capacity of the server housing the storage reaches its capacity, the server must also be upgraded. Therefore, the incremental cost is higher as each new capacity level is added. With cloud storage, the additional cost of additional capacity is incrementally smaller as more capacity is needed.

Reliability and Life Expectancy

Although this is usually not the highest priority, businesses must also consider the storage medium’s reliability and life expectancy. For instance, optical discs are more reliable and durable than magnetic disks. Magnetically stored data remains reliable for about 10 years, whereas CDs and DVDs are expected to store data reliably for 50 to 100 years (although they have not been around long enough to prove that).

While the management and oversight of managing off-site data storage through the cloud eliminates costs for businesses, it also creates a potential issue. The reliability and availability of the cloud data to business personnel and management is only as good as the vendor’s management and operations. Therefore, it is crucial to research and analyze the various cloud vendors for cost, reliability, and uptime statistics.

Trade-Offs

As you can see, several factors must be considered when purchasing storage media, and often you must trade one quality of the device for another. For example, while USB drives are convenient and fast, they are also expensive and unacceptable for storing large amounts of transactional data, or even backing up large amounts of data, because of their relatively small capacity. Figure 4.7 summarizes characteristics of the most popular storage media. Obviously, terms such as “moderate cost” and “high capacity” are relative. Storage capacities and speeds of almost all storage media have increased over the years, and costs have decreased. Thus, the specific capacities, retrieval speeds, and costs change all the time. The table is presented for general comparison and reference, whereby “high” and “low” for each medium are relative to the other media.

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PART 2

F I G U R E 4.7

Characteristics of digital storage media for business purposes

Magnetic Tape

Magnetic Hard Disk

Recordable CD

Medium Capacity per Device Size

Recording and Retrieval Speed

Cost ($/GB)

Very High

High

High

Optical Tape

Very Fast

Slow

Very High

Fast

Medium

High

Very Low

Low

Very Low

Ideal for...

Capacity per Device

Limitations

Immediate Transactions

Backup

Backup

Backup, Distribution of software

Very High

Very High

Very High

Low

Bulky, Heavy

Not Suitable for Immediate Processing

Limited Market

Low Capacity per Device

Flash Memory

High Fast High Backup, Portability

Medium Expensive

Recordable DVD Very High

Fast Very Low

Backup Medium Low Capacity per Device

Considerations in Purchasing Hardware

Decisions about purchasing computers are usually made by an organization’s IT professionals or with the help of a consulting firm. But surveys show an increasing trend of involving other employees in the decision-making process. More and more companies realize that effective use of computers depends on whether their employees are satisfied with the computers and other equipment installed in their workplace.

Before deciding what to purchase, consider the following variables:

● The equipment’s power: Its speed, its memory size, and the capacity of its storage devices, such as the hard disk installed in the computer. Increased internal memory (RAM) should always be considered to increase processing and calculation time.

● Expansion slots: Computers should have enough slots to add circuitry cards for additional pur- poses, such as adding more powerful graphic cards and wireless cards on the motherboard (the board on which the CPU and other circuitry are installed). Additional memory cards increase the speed of processing by allowing more concurrent programs and data to run.

● The number and type of external ports: Ports are sockets used to connect a computer to external devices such as printers, hard disks, scanners, remote keyboards and pointers, and communica- tion devices. More ports give more flexibility. Because so many external devices—hard disks, printers, scanners, thumb drives, digital cameras, presentation “clickers,” and many others— connect to the computer through a USB port, the greater the number of USB ports, the more external devices can be added at the same time. Although USB hubs (devices that connect to a single port and provide several) can be used, this may cause inconvenience and increased costs. Built-in multiple card readers for flash memory make it convenient to read data from the cards instead of connecting the device that houses them, such as digital cameras.

● The monitor type and resolution: Higher resolution is more pleasing and less straining to the eyes. Larger monitors allow viewing the windows of many software applications simulta- neously and require less scrolling. Multiple monitors should be considered when applications requiring large screens can increase the productivity of the computer user. Touch screens are important where keyboard data entry is impractical and inefficient.

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2 PART

● Ergonomics: Ergonomic equipment does not strain the back, arms, and eyes. For example, working with the keyboard must be comfortable. Traditional keyboards cause muscle pain when used for long sessions. Consider purchasing an ergonomic keyboard. Consider a track- ball instead of a mouse; it requires only moving fingers rather than the forearm or the entire hand.

● Compatibility: IT managers must ensure that new devices will integrate with existing hardware, software, and networks. A new computer might have a different operating system or internal architecture. If it is to be used to host an important application, care must be taken to ensure that the application will run on the new machine. For example, commercial software vendors guarantee that their applications will run on a list of processors and operating systems. Profes- sionals must consider backward compatibility, in which newer hardware is compatible with older hardware. (The same term applies to software.) For example, USB 2.0 devices are backward-compatible with USB 1.1 ports (although the communication speed then deterio- rates to the speed of the older port). Compatibility between hardware and networks is also important. Newer handheld devices such as bar-code scanners might use an updated commu- nication standard and no longer communicate with an existing warehouse network, because the new devices are not backward-compatible with the older standard transceivers.

● The hardware footprint: If space is scarce, you might want to consider the size of the computer and its peripheral equipment. The footprint is the area that a computer occupies. A smaller footprint leaves more desk space for other devices. All-in-one personal computer units have become popular with computer users with minimal desk space.

● The reliability of the vendor, the warranty policy, and the support given after the warranty expires: Ask if the vendor provides a website and 24-hour help via telephone. Try to assess how soon the equipment will be obsolete, a difficult task given the reality of fast development in com- puter equipment.

● Power consumption and noise: Computers that consume less power help save money on elec- tricity and usually also give off less heat. Computers use fans to cool down the circuitry. Quiet fans will make the work environment more pleasant.

● Cost: All of the preceding factors must be weighed against cost. Careful study might yield hardware with excellent performance for an affordable price. Perusing print and web-based trade journals is helpful. Many periodicals provide tables evaluating comparable hardware, based on laboratory tests by impartial technicians. You do not have to be an IT professional to understand their evaluations.

Figure 4.8 summarizes the factors discussed in this chapter that you should consider when purchasing hardware. When comparing computers from different vendors, it is useful to establish a 10-point scale and score each category to indicate how well each computer addresses each important item. Your organization’s, or even your department’s internal needs, may require you to add some factors. The equipment receiving the highest score is the best in the evaluator’s opinion.

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PART 2

F I G U R E 4.8

Example of an evaluation form to assist with the purchase of hardware

Greater frequency and word size

Larger

Greater number of board slots for additional devices and memory

Greater number of ports for printer, external hard disk, communication devices, and other peripherals

Greater comfort and safety

Smaller area

Availability of telephone and online support for troubleshooting

Supply of information on new upgrades

Longer warranty period

Lower cost

Factor

Power Speed

RAM capacity

Expandability

What to look for Score

Ports

Ergonomics

Compatibility Compatibility with many other computers and peripheral devices from the same and other manufacturers

with hardware

Compatibility with many software packages currently used and potentially to be used

with software

Compatibility with network infrastructure

with network

Footprint

Support

Warranty

Cost

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2 PART

Scalability and Updating Hardware

IT managers try to extend the productive life of hardware by ensuring that any equipment they buy is scalable. The principle of scalability implies that resources—in this case, hardware—can accommodate a growing amount of work either with or without upgrading. A scalable system can provide increased power as demands increase. For instance, many servers are designed to use multiple processors—4, 8, or 16 is not uncommon. If the server is initially installed with only a small number of processors, say two, then processors can be added over time to increase computing power. This way the machine will not have to be discarded too soon, and this helps protect the organization’s initial investment. The same can be done for memory, storage, and other components.

However, some hardware is not scalable. Businesses tend to update their software, especially operating systems (such as Windows), when a new version is available, but many still maintain old hardware. While they avoid the cost of purchasing new hardware, this might actually cost the companies in lost productivity: newer software cannot run as fast or as reliably on the old machines. Often, excellent features of newer software are not available if it runs on older machines. For example, although Windows Vista offered greater security, faster file management, and superior visual effects over earlier Windows versions, most PCs at the time of its introduction were not powerful enough to run the new operating system.

Hardware should be disposed of and new hardware should be installed to avoid performance gaps between software and hardware. One rough formula to help determine when to replace hardware is the ratio of the average age of hardware pieces to the average age of the operating systems running on the machines. If the ratio is less than one, it might be time to replace some or all of the hardware.

If you are concerned that the equipment’s useful life might be short because more powerful computers might be available within months, you can lease your system instead of buying it. Many vendors offer leasing programs. However, note that vendors are also aware of how quickly hardware becomes obsolete and price the leases accordingly; thus, you might find that the lease payment often covers the purchase price within a mere 18–24 months. Yet, many firms prefer leasing their PCs and notebook computers to purchasing them.

As you will see throughout this book, hardware components are combined in many different configurations to help businesses streamline operations and attain strategic goals. But hardware is rarely the first consideration in acquiring a new IS. When planning a new IS, managers should first determine their business needs and then consider which software can support those needs. Only then should they select the hardware that supports the software. The next chapter focuses on software.

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PART 2

Summary

● More professionals outside the IT field find them-

selves in the decision-making role regarding the

purchase and use of computer hardware. There-

fore, understanding hardware is important.

● For ease of reference, computers are classified into

several categories according to their power. The

most powerful are supercomputers, used mainly

by research institutions for complex scientific cal-

culations. Somewhat less powerful, but more suit-

able for business operations, are mainframe

computers; many organizations still use them to

process large databases and perform other tasks

that require speed and large primary memory. Mid-

range computers are less powerful than mainframe

computers and are often used as servers. Micro-

computers include PCs and smaller computers,

such as notebook, handheld, and tablet

computers.

● Regardless of their size and power, all computers

must have several components to function. The

“brain” of every computer is its central processing

unit (CPU), which consists of circuitry on a piece of

silicon wafer and controls four basic operations: (1)

it fetches instructions from memory, (2) it decodes

them, (3) it executes them, and (4) it stores the

results in memory.

● The rate at which the CPU does all this is the com-

puter’s clock rate.

● A computer’s data word is the number of bits that

can move through its CPU in one machine cycle.

● Speed, memory size, and the number of processor

cores are among the determinants of a computer’s

power.

● The larger part of a computer’s memory, RAM (ran-

dom access memory), is volatile; that is, it keeps

data only as long as electrical power is supplied.

ROM (read-only memory) is nonvolatile. Unlike

data in RAM, data stored in ROM stays in ROM

when you turn the computer off. Similarly, all sec-

ondary storage media, such as magnetic disks,

optical discs, and flash cards, are nonvolatile.

● Imaging devices help process large amounts of text

and graphic data and have made the work of banks

and other industries more productive.

● When evaluating storage media, factors to consider

are capacity, transfer rate, portability, and the form

of data organization that it allows. The latter deter-

mines the mode of access (sequential or direct).

● Data stored on tapes can only be organized and

retrieved sequentially, therefore tapes are good

for backup but not for transactions. Direct access

storage devices, such as RAM, magnetic disks,

optical discs, and solid-state disks, allow random

organization and retrieval. Direct organization pro-

vides faster storage and retrieval of records that

must be accessed individually and quickly, such

as records in airline reservation systems. Only

direct-access devices are suitable for processing

databases.

● When purchasing computers, professionals should

consider computer power and other factors in addi-

tion to cost. Professionals should consider expand-

ability of RAM, the availability of sockets (ports) for

connecting peripheral equipment, and compatibil-

ity with existing hardware and software.

● Like many new technologies, information technol-

ogy may pose health risks to users. The most com-

mon problems computer users experience are

carpal tunnel syndrome and repetitive-stress inju-

ries caused by the repetitive use of the keyboard

over long time periods. Today, manufacturers of

computer equipment pay more attention to health

hazards and try to design devices ergonomically.

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2 PART

KIMBALL’S REVISITED

While Liz and Michael are focused on the marketing,

renovation, and grand opening projects for the new

location, it is difficult for them to focus on

information technology. They will need to rely on

Tyler’s knowledge from his college courses and the

business. Tyler needs some guidance to understand

the issues to make an informed decision.

What Is Your Advice?

1. Tyler wants to brand the new location with the

service-oriented environment, providing timely

and quality service for its customers. He believes

that the use of technology would not only create

that environment, but also show customers a

well-managed business using technology. What

alternatives could fulfill this branding for a restau-

rant? Should they use handheld devices to process

customer orders at the tables? Would this be an

efficient method of entering orders? What types

of devices could be used?

2. The reliance on the new system will require some

type of backup of the production data. What advice

would you offer Tyler for this important function?

3. Consider the entire operation of a restaurant. Iden-

tify and discuss the various hardware devices that

Tyler should expect to install.

New Perspectives

1. Would it be appropriate for Kimball’s to solely rely

on the handheld devices for customer orders?

Analyze and discuss this point.

2. Review the marketing, promotional and social

media discussion from the previous chapter.

What type of hardware should Tyler recommend

to assist with these initiatives?

Key Terms

arithmetic logic unit (ALU), 115

backward compatibility, 136

bit, 111

bus, 117

byte, 111

central processing unit (CPU), 110

clock rate, 116

cloud storage, 131

clustering, 112

compact disc (CD), 128

control unit, 115

CPU clock, 116

CRT (cathode-ray tube), 124

data word, 117

digital video disc (DVD), 128

direct access, 126

direct-attached storage (DAS),

130

dot-matrix printer, 126

ergonomics, 118

fault tolerance, 130

flash drive, 126

flash memory, 129

flat-panel monitor, 124

hard disk, 128

hardware, 109

imaging, 122

impact printer, 126

input device, 110

internal memory, 110

liquid crystal display (LCD), 124

machine cycle, 116

magnetic disk, 127

magnetic-ink character

recognition (MICR), 121

magnetic tape, 127

mainframe computer, 112

microprocessor, 115

MIPS, 117

motherboard, 110

mouse, 118

multicore processor, 115

multiprocessing, 112

multithreading, 115

network-attached storage (NAS),

130

nonimpact printer, 125

notebook computer, 113

optical disc, 128

output device, 110

parallel processing, 112

personal computer, 113

personal digital assistant (PDA),

113

pixel, 124

port, 135

radio-frequency identification

(RFID), 120

RAID, 130

RAM (random access memory),

110

resolution, 125

ROM (read-only memory), 110

scalability, 130

sequential storage, 126

server, 113

smartphone, 114

solid state disk (SSD), 129

solid state storage, 129

source data input device, 120

speech recognition, 123

storage, 110

storage area network (SAN), 130

storage-as-a-service, 131

stylus, 113

supercomputer, 111

tablet computer, 114

technology convergence, 114

throughput, 117

touch screen, 119

trackball, 119

trackpad, 119

universal serial bus (USB), 126

USB drive, 129

workstation, 113

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PART 2

Review Questions

1. You have decided to buy parts and build your

own personal computer. At the minimum, what

are the components that you would need for this

device to be considered a computer?

2. Modern CPUs contain cores. What is a core?

3. Multicore CPUs facilitate multithreading. What is

multithreading?

4. Most people never get to see a supercomputer,

let alone use one. Why? What are the most fre-

quent uses of this type of computer?

5. News about the death of mainframe computers

has been greatly exaggerated. Explain.

6. IT professionals often speak of the merging of

technologies. Think of handheld computers and

cell phones. Give an example of such merging.

7. When a computer is offered for sale, one of its

advertised characteristics is something such as

“2.9 GHz.” What does this mean, and what does it

measure?

8. Why are computers said to be processing data

digitally?

9. What is the difference between volatile and non-

volatile memory? Give one example of volatile

memory and one example of nonvolatile

memory.

10. What are the main qualities to look for in an LCD

monitor?

11. Among the external storage devices discussed in

this chapter, all but one store data on the surface

of some material, and one in circuitry. Which one

stores data in circuitry?

12. What is DVD technology? How does it differ from

CD technology?

13. What does footprint mean in hardware? When is

a footprint important in the office?

14. What are the most important features to consider

before purchasing a PC?

15. On a continental tour, a traveling salesperson

makes software-based presentations at every

place he stops. He has ensured that there is a PC

and projecting equipment at every site he visits.

Occasionally, he needs to change the content of

his presentation. He wants to carry as small a

storage device as possible. What data storage

device would you recommend he carry?

Discussion Questions

16. Computers fail significantly less frequently than

copy machines and printers. Why?

17. Comment on this statement: large computers,

such as mainframes and supercomputers, have

no future.

18. Because information technology advances so

rapidly, business professionals find it difficult to

make informed decisions regarding computer

and peripheral equipment purchases. What fac-

tors cause this difficulty? What advice would you

provide to help with the decision?

19. End users’ role in making hardware purchasing

decisions is growing. Analyze the technological

and operational reasons for this trend.

20. Would you replace a PC with a tablet computer

for your studies or work? Why or why not?

21. Which storage medium would you use in each of

the following situations: (1) airline reservations

system, (2) information on employee benefits and

professional conduct, and (3) online answers to

customers’ frequently asked questions (FAQs)?

Explain your choices.

22. The miniaturization and merging of technologies

into highly portable devices has caused some

annoyances. Give some examples.

23. Comment on the following statement: the useful

life of a PC is about two years, therefore, it is not

important whether the vendor is still in business

in two or three years.

24. Thanks to DVD and other advanced technologies,

a PC can combine the functions of a computer,

telephone, fax machine, and television set. Would

you give up your home telephone and television

set if you could use your PC to make calls and

watch television? Why or why not?

25. Sometimes useful information might be lost, not

because the medium on which it was stored

deteriorated or was damaged, but because no

device was available to retrieve the information.

How could that happen? Can you give examples?

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2 PART

26. You might have heard of the e-reader, a handheld

device that allows readers to read a book from

internal memory or cloud storage. What are the

advantages and disadvantages of such devices

when compared with traditional books? Think in

terms of portability, text clarity, searching for spe-

cific words or pages, and so on. What would you

prefer: an electronic book or a paper book? Why?

27. Observers say that personal computers have

become a commodity. What does the term

“commodity” mean? How could this develop-

ment impact businesses and homes?

28. Try to count how many hours per week you use a

personal computer: at your home, in the PC lab,

in the library, or elsewhere. Do you consider

yourself “computer addicted”?

29. What do you expect will be the most popular

storage devices for personal use in five years?

What will be the most popular non-portable stor-

age devices for corporate use in five years? Why?

30. Almost daily a new electronic device, often one

that combines several technologies, is offered for

sale. People sometimes refer to these devices as

“gadgets,” which hints that they might be nice to

have but not really necessary or even useful. How

do you delineate the difference between a gadget

and a helpful device?

Applying Concepts

31. Analyze each of the business scenarios outlined

below. Recommend a hardware configuration for

each of the scenarios listed using the table. Develop

a rationale of your configuration selections.

Assume that the cost of the hardware configura-

tions will be approved based on your rationale.

a. An artist creates complex graphics. The soft-

ware required to develop these graphics

require large and complex programs. While

the quantity of their graphic printouts is not

substantial, they must be high quality.

b. The administrative personnel use a computer

for editing and printing documents and small

reports using word-processing software. These

employees will maintain the document files on

their computer system. These documents will

require professional and quality appearance.

c. The data analysts require access to corporate

databases to complete complex statistical

analysis. These queries and data analysis can

require significant time to complete the math-

ematical calculations. The analysts will print

reports consisting of the results of their data

analysis in reasonable quality and speed.

d. The corporation’s accountants need a computer

system that will be able to develop reports as

well as substantial spreadsheets. They will need

to access their software-as-a-service accounting

software through a browser as well as down-

load financial data. Their reports need to be

professional and or reasonable quality.

32. Assume you can choose among magnetic tapes,

magnetic hard disks, recordable optical discs

(CD-R: write once, read many), and flash mem-

ory USB drives. Consider each scenario inde-

pendently of the others. For each of the

following purposes, explain which one of the

media you would choose and why. Start by

saying which medium you have chosen. Then

explain why.

a. You need to store thousands of employee

records for several years. This is only a backup

procedure. The information will never be pro-

cessed from the backup medium.

DCBAFeatures Processor Speed (clock rate) Internal Storage, RAM (GB) Internal storage, hard disk Monitor (size, resolu�on) Video Graphics (memory, resolu�on) Printer (type, PPM, DPI)

Computer Configura�on

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PART 2

b. The storage medium is used as part of an air-

line reservation system.

c. Your business sells machines that must be

maintained well by your clients. You wish to

provide them with a digital version of the

maintenance manual. The manual includes an

index (like the one at the end of a book) with

links to the proper pages.

d. You are a sales manager who travels often.

You must store a large PowerPoint presenta-

tion that you show to prospective customers in

their office. You do not carry a laptop com-

puter, but there is a PC wherever you go. You

do not want to carry CDs, because you found

that the graphic-rich presentation moves too

slowly from CDs.

e. You have a business on the web. You maintain

your own server and site. You provide much

textual and graphical information from the site.

Customers can search products and make

purchases.

f. You want to store all the paintings of impres-

sionist painters for use by your local library

patrons. Patrons can search by artist name,

artist nationality, or the painting’s topic. The

library would like multiple copies of what you

store, and to be able to loan them to patrons

for viewing at home.

g. You use the medium for a large database that

your employees manipulate frequently.

h. You work for the IRS, and you need to archive

the tax records of millions of taxpayers for

several years. The archiving is done after all

processing of tax filings are complete and after

all refunds and payments have been made. IRS

employees must occasionally go back and

retrieve specific records from these files, and

when they need a record, they want to access

it directly.

Hands-On Activities

33. Your company is about to open a new branch.

You were selected to equip the office with 20

personal computers, 10 laptop computers, and 5

laser printers. Management has asked that you

purchase all the equipment from a single online

vendor. Each PC must be purchased complete

with a 20-inch LCD monitor. After interviewing

employees about their typical computing needs,

you developed the following scale:

PCs: Every 1 MHz of clock rate receives 1 point;

every 1 GB of RAM receives 10 points; every 1 GB

of hard disk storage receives 1 point. For CD-RW,

each 1X of reading speed receives 1 point (writing

and rewriting speeds are not essential, but the

capabilities are required).

LCD monitors: Every 1:100 of contrast ratio gets

10 points. Other features are not essential.

Laptops: The same scoring as for PCs.

Printers: Every 1 PPM receives 100 points; every 1

DPI receives 1 point.

Research three online vendor sites for this equip-

ment. Prepare a spreadsheet table with three col-

umns, one for each vendor, and enter the

information you found about each piece of

equipment for each vendor. Enter a formula to

add up the total number of points at the bottom of

each column. Do not consider any factor that is

not mentioned here. Find the vendor whose total

points per dollar is the highest.

34. Use a spreadsheet application to prepare a table

that clearly shows (both in text and numbers)

how to calculate the following. A music CD con-

tains 750 million bytes. How long does it take to

play all the music on it, assuming the disc plays at

1X? If the CD contains data, how long would it

take to retrieve all the data from it into a compu-

ter’s RAM, if you used a 60X CD drive?

35. Imagine you are the head of the sales department

for a regional paper company. As part of your

responsibility, you must select new hardware for

your department, which consists of two adminis-

trative personnel, ten inside salespeople, six

outside salespeople, and four inside sales

executives. While selecting the new hardware, it

is important to remember the types of employees

that make up the office:

● Administrative personnel who create office

memos and take care of paper work

● Inside salespeople who use a software as a

service (SaaS) for sales and marketing software

for customer contacts

● Outside salespeople that need access to customer

contact information on the road (through the SaaS

application) and send memos, emails, etc.

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2 PART

● Inside sales executives who are mostly internal

but sometimes travel

Headquarters has allowed you to choose from

the following new hardware: laptop computers,

desktop computers, and tablets. Administrative

personnel and inside salespeople will receive

one new piece of hardware and outside sales-

people and inside sales executives will receive

two new pieces of hardware. In a formal pur-

chase order proposal, determine which employ-

ees should receive what types of hardware and

why. Make sure you specify why the selected

hardware will fit the responsibilities of the

employee you choose it for. Include the follow-

ing items which would be presented to your

purchasing manager. Conduct online research to

determine the competing laptops, desktops, and

tablets and create three tables, one for each of

the three types of hardware being purchased,

that shows the features and costs of the hard-

ware. Record the cost per unit and total costs of

the new hardware purchases. Include in the pro-

posal features of the hardware that will make it

beneficial for the tasks it needs to perform. Do

not forget installation or transition costs if they

are applicable.

Team Activities

36. Your team has received $1,000 to purchase a

computer system. Assume you have no equip-

ment; everything needs to be purchased. Use the

evaluation form in Figure 4.8. Visit the websites of

three computer hardware vendors, and write

down specifications of three sets of equipment.

Include in each set a computer, a keyboard and

mouse (or trackball), a compatible 22- or 24-inch

LCD monitor, and a color laser printer. Your team

should evaluate the features of each configura-

tion, on a scale of 1 to 10 (1 = worst; 10 = best),

and total the points. Which configuration (and,

therefore, vendor) would you recommend to your

fellow students? If you cannot spend your entire

$1,000, any surplus should be considered a ben-

efit. Be ready to explain your recommendation.

37. As in Activity 36, assume you have $1,000 avail-

able. You are to purchase your ideal PC, monitor,

and printer, while utilizing all or almost all of your

budget. Shop the web for these devices, list them

(item name, vendor, and capabilities) and their

prices, and rationalize why this is the ideal system

for your needs and desires.

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 2

From Ideas to Application: Real Cases

Better Storage for Our Best Friends

“At Petco animals always come first,” says the

website of Petco Animal Supplies, Inc. Established in

1965, the company is a leading retailer of pet supplies,

from cat collars to aquariums to pet food. It operates

more than 1150 stores nationwide. To accommodate

customers, it also operates an online store.

Because Petco maintains thousands of products in

its warehouses, and because receiving and shipping

takes place often, it must track in real time the

location of each item. In its three main warehouses,

workers use handheld devices equipped with both

barcode and RFID capabilities. They are used to scan

product barcodes, record inventory receipts, and track

shipping instructions and execution. Because of the

large number of stores and the huge variety of items,

Petco is highly sensitive to disruptions and downtime

of its information systems. Downtime may cause

significant financial damage due to lost sales.

All this data must be recorded and backed up.

Petco used magnetic tapes to back up data every few

hours, but the approach was far from ideal. Tape

backup is reliable, but the latency of a few hours

posed a risk. If electric power was lost, so was

several hours of data that could not be recorded.

Also, recording on tape is labor-intensive, because

tapes must be manually mounted and dismounted.

Rewinding tapes is time-consuming, and therefore

delays availability of new tapes for recording.

Another issue with data storage was that the

company used the DAS (direct-attached storage)

approach: each computer backed up to its own

magnetic disk. The data could not be shared by all

computers. This created two problems. Many of the

disks were underutilized; much space—up to 50

percent—was never used. As the company grows, the

total underutilized disk space grows as well. In

addition, sharing the stored data was challenging.

To overcome these problems, Petco IT staff tried

mirroring. In disk mirroring, the entire disk is

automatically copied to a backup disk. While this

reduces labor and makes data available immediately

from the mirror disk, it also presents a problem. If the

original disk is corrupt, such as infected with a virus, so

is the mirror disk.

The IT staff examined SAN (storage area network)

and NAS (network-attached storage) solutions. It

found that SAN would require much maintenance,

while NAS required much equipment to handle data

communications. Petco opted for a system called

iSCSI provided by Network Appliance, Inc., better

known as NetApp. The system of backing up to DAS

was replaced with backing up the Petco computers to

NetApp servers over the Internet. iSCSI (pronounced

“eye scuzzy”) utilizes the existing Internet standards

and network, and provides very fast data transfers.

The adopter does not need to incur the typical

expense of optical fiber networks associated with

SAN. The magnetic disks and the software that

manages them were implemented in the three main

warehouses.

Compared to the DAS approach, using such a

system reduces the total amount of required storage

capacity, because much of the capacity of directly

attached disks is never used. The new arrangement

does not require as much storage planning as was

required with DAS. The company can add storage

capacity whenever data management needs require

it. This eliminates wasted money spent on excess

capacity. Thus, the storage system is scalable. It is

easy and inexpensive to add more disks at any of

the three warehouses.

Another benefit of using this technology was that

the system could be installed without interruption to

warehouse operations. In fact, warehouse workers did

not notice the change. They left work on Friday, and

when they returned on Monday morning everything

looked the same to them.

Source: Pettis, A., “Petco’s New Storage Gear is the Cat’s Meow,” eWeek, March 13, 2006; (www.petco.com), March 2007.

Thinking About the Case

1. What were the data backup problems when Petco

used tapes?

2. What were the data backup problems when Petco

used mirroring?

3. What are the disadvantages of using DAS, and

how are these disadvantages compounded when

a company grows?

4. What benefits did Petco acquire when adopting

the current technology for backing up warehouse

data?

Food in Transit

As you sit to eat a meal, you may wonder how many

processes and activities must be completed before the

product gets to your table. Consumers want quality,

fresh food products at a reasonable price. Each of

those characteristics requires food manufacturers to

operate efficiently to remain in business and stay

competitive.

Consider Texas-based Mission Foods, one of the

largest manufacturers of Mexican food products in the

U.S. Their operations consist of 16 plants and 50

distribution centers. Mission’s distribution model uses

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2 PART

a network of independent distributors to deliver their

products over 2,300 routes. The distributors deliver

directly to supermarkets and retail locations. Mission

used an antiquated paper-based, batch methodology to

manage its route delivery operations. Some of their

distributors communicated invoicing and receipt

acknowledgement information to Mission via modems.

The remainder of the invoices was processed through

the original hard copies, which required scanning for

processing. On any given day, Mission could process

about 30,000 documents nationwide. These processes

were inefficient and labor intensive, extending the time

to process invoices accurately by the company’s

information systems.

A 2010 survey completed by ARC Advisory Group

determined that the top four mobile technologies used

for supply chain management are smartphones,

handheld computers, cellular networks, and mobile

bar code scanners. Mission’s management believed

that the technology advancements in networking and

mobile computers could help end the inefficient

picking and packing processes. Their analysis

determined that a device was needed that would be

able to enter and store information and be able to

transmit information using a variety of methods:

● Wide area wireless connection in the field

● Wireless 802.11b standard within Mission’s facilities

● Bluetooth capabilities at a customer site

Mission was able to procure one hardware unit

that was capable of the three communication

methods. The distributor can gain a customer’s

signature on the handheld device in real time when

the product is accepted. At this point, the invoicing

data is immediately transmitted and processed by

Mission’s information systems over AT&T’s cellular

network. As always, network connections can be

disrupted. However, if the network is unavailable at

the time of delivery, the system will store the

information on the handheld and attempt to resend

the data. Any transactions that have not been sent

during the day will be transmitted when the

distributor returns to Mission’s distribution center

through their wireless LAN.

Several years later, the success of this initiative

led Mission to look inside its warehouses to gain

additional efficiency using handheld devices. Their

warehouse activities still used paper order picking

lists to gather full cartons of a product and place

them onto a delivery pallet. Their current system

created two problems: incorrectly picked products

and improper selection of recently manufactured

products before older products.

With the first problem, the incorrect product is

shipped. With the second, employees selected boxes

that did not have the oldest expiration date, which

caused the company to scrap expired products.

Misson’s solution consisted of implementing special

handheld devices capable of scanning barcodes directly

from the product cartons. The devices included special

terminal emulation software that mimicked the data

entry terminals used by Mission’s information system.

As an employee scanned the pick location and the

product in the warehouse, the system would ensure

that the accurate product and quantity was being

selected. Any discrepancies would be immediately

communicated to the warehouse employee.

Source: Napolitano, M. (2011). Mission foods’ wireless evolution. Logistics Management (2002), 50(4), 46–48, 50.

Thinking About the Case

1. Is there any benefit for Mission to deploy this

technology for its independent distributors? For

the consumer?

2. What types of handheld devices could be used

today for a system like this? Compile some research

on the hardware solutions for a similar product.

3. Why would it be important for Mission to know

that a customer acknowledged the receipt of pro-

ducts delivered from the independent

distributors?

4. These information technology initiatives required

capital investments by Mission for the hardware,

software, and networking costs. What would you

expect the benefits to be gained by Mission?

What cost savings and other benefits would be

needed to justify the investment?

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PART 2

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Manyika, J., Chui, M., Brown, B., Bughin, J., Dobbs, R., Roxburgh, C., & Hung Byers, A. (2011). Big data: The next frontier for innovation, competition, and productivity.

Medina, R., & Andrews, L. (2009). New Impetus for Going Paperless. Infonomics, 23(3), 40-42.

Munger, F. (2012). The cost of Titan. Retrieved from http://blogs.knoxnews.com/munger/2012/11/the- cost-of-titan.html

Sverdlik, Y. (2013). An eBay server’s worth. Datacenter Dynamics. http://www.datacenterdynamics.com/ focus/archive/2013/03/ebay-servers-worth

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2

CHAPT ER

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PART

five

BUSINESS SOFTWARE

Learning Objectives Hardware, as powerful as it might be, is useless without software. Software consists of instructions that tell the computer and its peripheral devices what to do and how to do it. These instructions are called programs or applications. Many IT professionals refer to computer programs as “systems” because they are composed of components working to achieve a common goal. As a professional, you must be able to make educated decisions regarding software selection. To do so, you need to understand the factors involved in developing, selecting, and using software.

When you finish this chapter, you will be able to:

● Explain the difference between application software and system software.

● Enumerate the different generations of programming languages and explain how they differ.

● Cite the latest major developments in application and system software.

● Identify and explain the roles of web programming languages.

● Explain the types and uses of website design tools.

● Clarify the differences between proprietary software and open source software.

● List characteristics that are important in evaluating packaged software applications for business use.

● Understand the problem of software piracy and how it affects businesses and consumers.

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PART 2

KIMBALL’S RESTAURANT: Software Added to the Bill

Michael knew that the “front house” operations were

important for customer service and efficient functioning of

the restaurant. However, he knew that the restaurant could

not survive on the efficiency of its front-house operations

alone. He remembered their accountant’s emphasis on

the need to pay more attention to the purchase of food.

The profits of a restaurant depend significantly on ordering

and forecasting, reducing spoilage by not ordering more

product than they need. Michael has learned that there is

a careful balance between ordering too much and running

out of food. He wondered also if he could manage his sup-

pliers better with more accurate data on the restaurant’s

needs. Could he reduce his deliveries from a supplier to

ask for a larger discount? Negotiate better prices by consol-

idating orders to specific suppliers?

Accounting for Success As he thought about these questions, he wondered how

he could collect and access better data. The new point-

of-sale system recorded the sales of each menu selection

and type, from appetizers, entrees, and desserts to side

orders. The management information from the new sys-

tem surely could help him to project the number of

patrons on any given night and the sales of individual

menu items. How could he use that information? Would

he need input from Liz and the kitchen operations?

He decided to discuss it with both Tyler and his wife.

Michael asked Liz to provide some details on her order-

ing process. She said that she gives a standard order to

the suppliers for the main components of the menu

items. She then used those order quantities as a basis

for her next order. “Sometimes I may order more or

less based on what I see in the food storage areas, free-

zers and refrigerators,” she said. “It’s just a guess, but I

think it is working pretty well.” She also said that she is

meticulous about marking the delivery dates of perish-

able items so that she does not use spoiled materials.

Tyler then asked, “How do we know what is thrown

out because of spoilage? Or when we run out of a prod-

uct?” Michael also explained that he wants to make sure

they are ordering efficiently based on accurate forecasts

rather than just by guess. Food costs are a significant

percentage of their total operating costs. He did not

want to ask, but he believed that Liz did not ask or negoti-

ate prices with the suppliers. He asked Tyler to complete

an inventory of the food for a week to gain more under-

standing of the situation. Tyler wondered if he could

design a simple spreadsheet to develop an order list for

the various suppliers in order to simplify the process.

As Michael considered basing their food purchases

on a forecast, he also wondered if scheduling their serv-

ing, kitchen, and busing personnel could be done in a

similar manner. Also, they are currently using a payroll

service to pay employees and generate all the necessary

regulatory reporting; maybe there is a better way to man-

age the labor costs to gain efficiency and reduce costs.

Putting Software to Work Most of the menu and promotional materials for the res-

taurant have been created using a local graphic artist

and print shop. This service added costs to their opera-

tion as well as increased turnaround time to complete

the materials. Tyler wondered if they might be able to

purchase some software for their new computer system

that would allow them to create and print some of the

promotional, marketing, and menu materials on their

own color laser printer. For the grand opening, they

will need additional materials for the marketing, promo-

tion, menus and other administrative functions.

As another important part of the promotional pro-

cess, moving to the new location could be a perfect

opportunity to upgrade their website. Currently, the

website consists of a few simple pages containing a

few pictures of the restaurant, their location and direc-

tions, and a sample menu; the website had not been

changed in the last two years. They want to give it a

new “look” and presentation to match the new location,

and add some dynamic content for specials and updates

to create more interaction with customers. Tyler knows

a little about building a website from his college

courses, but he has no graphical or web design skills.

He wonders if there are any software tools out there

that could help him “kick up” their website in order to

prepare for the new location and draw new customers.

Software: Instructions to the Hardware

If you have ever walked to the back of a restaurant, you might have seen a touch screen computer station where servers bring your check. The computer runs software that collects front- house information and sends it to back-house operations. The specialized computers can calculate check totals, keep track of inventory, and save historical records of purchases. This data allows managers to monitor customer trends or patterns and keep track of supplies.

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2 PART

You use software all the time, not just when you use your computer. You use software when you drive a car, upload a video from your smartphone, and when you use the self-checkout station at a store. The purpose of much of the software used by organizations is to increase productivity.

POINT OF INTEREST Apps Help Battle Hurricane Sandy

In the days preceding the landfall of Hurricane Sandy, the American Red Cross advertised and encour- aged mobile phone users to download two of their free apps, Hurricane by American Red Cross and First Aid by American Red Cross. Available through the Apple App and Google Play stores, the Hurricane app provided useful information on the storm’s location, strength, and direction, as well as step-by-step instructions on precautions to take before, during, and after the storm (assuming your mobile device had service). The app also used location software to list the nearest shelter locations. The First Aid app pushed safety tips for specific occurrences, such as hurricanes or floods, and preloaded content ensured usefulness, even without cellular reception. Together, the apps provided those affected by Hurricane Sandy with vital information and instruction during a time of disaster and chaos. Source: Anonymous. (2012). Red Cross Responding to Hurricane Sandy Across Multiple States, U.S. Newswire.

When executives talk about productivity tools, they really mean computer programs, commonly known as software applications. Word processors, electronic spreadsheets, web browsers, project management tools, collaborative work programs, and many other types of productivity tools are software that runs on computers and enables workers to produce more products and services in a given amount of time. This chapter discusses the differences between system software and application software, programming languages that are used to write software, and the types of business software tools currently available.

Software is a series of instructions to a computer or other digital device to execute any and all processes, such as displaying text, mathematically manipulating numbers, or copying or deleting documents. Digital devices only understand instructions made up of electrical signals alternating between two states, which eventually close or open tiny electrical circuits. Different sequences of signals represent different instructions to the computer. In the early days of computers, programming a computer meant actually changing the computer’s wiring by opening and closing switches or moving plugs from one circuit to another. Because programs today consist of instructions that require no hardware reconfiguration, the skill of composing software programs is independent of building or directly manipulating hardware. Software is executed not only on computers, but in every device that uses microprocessors, such as motor vehicles, digital cameras, and mobile phones. However, in this chapter we will focus mainly on computer software that serves organizations.

The two major categories of software are application software and system software. Application software enables users to complete a particular application or task, such as word processing, investment analysis, data manipulation, or project management. System software enables application software to run on a computer, and manages the interaction between the CPU, memory, storage, input/output devices, and other computer components. Both types of software are discussed later in the chapter.

Programming Languages and Software Development Tools

Programs are needed for absolutely every operation a computer conducts. An operation can be as simple as adding 1 + 2, typing a word, or emitting a beep—or as involved as calculating the trajectory of a spacecraft bound for Mars. The process of writing programs is programming, also known as “writing code” and “software engineering.”

Remember, the only language that computer hardware understands is a series of electrical signals that represent bits and bytes, which together provide computer hardware with instructions to carry

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PART 2

out operations. But writing programs in this language—called machine language—requires a programmer to literally create long strings of ones and zeroes to represent different characters and symbols, work that is no longer required thanks to programming languages and other software development tools. Assembly languages made programming somewhat easier because they aggregated common commands into “words,” although many of the “words” are not English-like. Higher-level programming languages enable the use of English-like statements to accomplish a goal, and these statements are translated by special software into the machine language.

Software development kits (SDKs) are even easier to use because they require practically no knowledge of programming languages to develop software. An SDK typically offers a set of software development tools for a particular hardware system (like a video game console or the Apple iPhone), operating system, or programming language. SDKs provide several software tools that integrate together to increase the productivity of software development professionals and reduce software costs. Adobe’s Creative Suite includes a portfolio of software including Photoshop, Illustrator, and InDesign to assist with print design and digital publishing.

Programmers have at their disposal literally thousands of different programming languages, such as Visual Basic, Java, and C++. Programmers and nonprogrammers alike can use webpage development tools such as Adobe Dreamweaver or Avanquest WebEasy Professional, which provide menus, templates, and palettes that the developer can select or click to create intricate webpages, forms, animation, and links to organizational information systems. To develop the software development tools themselves, and to develop highly specialized software, programmers still have to write code in programming languages.

Figure 5.1 shows how programming languages have evolved dramatically over the years. The different stages of development are known as generations. First-generation (machine language) and second-generation (assembly) languages were quite inefficient tools for code writing. They required lengthy written code for even the simplest procedures. In third- and fourth-generation languages, shorter, more human-friendly commands replaced lengthy code. Ultimately, it would be nice to be able to program using the daily grammar of your native language—English, Spanish, Hebrew, or any other language. But even then, the so-called natural language would have to be translated by another program into machine language.

F I G U R E 5.1

The evolution of programming languages

Human Language: Future • Use natural language

• No need to learn new syntax

Fourth Generation: 1980s • More English-like • Many preprogrammed functions

• Includes data management features

• Easy to learn and use

1990s – 2010s • Object-oriented programming • Visual programming tools • Software development kits • Mobile applications development

Third Generation: 1950s • English-like • Problem oriented • Easier to learn and use

Second Generation: 1950s (Assembly Languages) • Shorter codes than machine language

• Machine dependent First Generation: 1940s (Machine Languages) • Difficult to learn and use • Long instructions • Machine dependent ©

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2 PART

Third-generation languages (3GLs) are considered “procedural” because the programmer has to detail a logical procedure that solves the problem at hand. Third-generation languages reduced the programmer’s time spent producing code. One 3GL statement is equivalent to 5–10 assembly language statements. Some common procedural languages include FORTRAN, COBOL, BASIC, RPG, Pascal, and C. Some of them, such as RPG and COBOL, are no longer in use or in limited use.

Fourth-generation languages (4GLs) make application development even easier. They are built around database management systems that allow the programmer to create database structures, populate them with data, and manipulate the data. Many routine procedures are preprogrammed and can be recalled by including a single word in the code. A single 4GL statement is equivalent to several 3GL statements, and therefore to dozens of assembly statements.

4GL commands are more English-like than commands in 3GL procedural languages. In fact, 4GLs are significantly less procedural than 3GLs. With 4GL commands, the programmer often only needs to type what is to be done, but doesn’t need to specify how the procedure accomplishes the task. For example, if one column in a database is AGE, the programmer can simply use the preprogrammed command LIST AVERAGE(AGE) to display on the screen the average age, which is calculated from the age values in all the records. Similarly, preprogrammed functions are provided for total, standard deviation, count, median, and many more tasks. The list of preprogrammed functions in electronic spreadsheets such as Microsoft Excel has become so comprehensive that some people refer to them as 4GLs.

Structured Query Language (SQL) is a 4GL used by many database management software packages. SQL is a nonprocedural language that consists of simple commands and keywords to manipulate, extract, and update data in a relational database. For example, the following SELECT statement in SQL will list six fields (customer number, name, street, city, state, and balance due) from a database table (tblCustomer) for all customers whose balance due is greater than $1000.

SELECT CustNumber, CustName, CustStreet, CustCity, CustState, BalanceDue

FROM tblCustomer WHERE BalanceDue > 1000;

WHY YOU SHOULD Be Software Savvy

As a professional, you should regard software as a tool to further your productivity and education. Software can automate many processes that professionals must accomplish. Even the simplest of software applications, such as electronic spreadsheets, can be used to build decision support applications. Electronic spreadsheets are extremely useful for organizing and comparing data, and database software allows users to efficiently sort through large amounts of client information. Software vendors offer a huge variety of programs with various functions and fea- tures. While it is challenging for individuals to be knowledgeable

about all available software, an understanding of the types of software and some particular applications lets you make informed comparisons and suggestions for improving your orga- nization’s software portfolio and your own library of personal software. In addition, the various categories and uses of soft- ware tend to follow the trends in hardware innovations. For example, the integration of mobile computing applications has created a market for mobile development software. The more knowledge you have about software trends, the more valuable you will be to your organization.

4GLs speed up the programming process. They are relatively easy to use by people who are not professional programmers, and therefore enable non-IT employees in many companies to produce applications on their own. The produced code is usually easy to change, which reduces the cost of software maintenance. Because 4GLs are very English-like, debugging—locating and fixing programming errors—is relatively easy.

Higher-level programming languages have their advantages, but also some disadvantages (see Figure 5.2). Therefore, programming languages are chosen based not only on programming productivity but also on the amount of control over the resulting software that is desired.

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PART 2

F I G U R E 5.2

Advantages and disadvantages of using higher-level programming languages

Advantages of Higher-Level Programming

Ease of learning the language

Ease of programming

Significantly shorter code

Ease of debugging

Ease of maintenance (for example, modification of a procedure)

Disadvantages of Higher-Level Programming

Less control over hardware

Less efficient memory use

Program runs more slowly

Visual Programming

To accelerate their work, programmers can use one of several visual programming languages, such as Microsoft Visual Basic, Embarcadero Delphi, Micro Focus COBOL, ASNA Visual RPG, and Visual C++. These languages let programmers create field windows, scroll-down menus, click buttons, and other objects by simply choosing the proper icon from a palette. They can then use a flexible tool to shape and color these objects. (Note that here the term “object” is used loosely, not with its special meaning in the context of object-oriented languages, as discussed in the next section.) Seeing exactly and immediately how boxes and menus look on screen reduces the chance of bugs and helps programmers finish their jobs faster than if they had to write code. The appropriate code is written automatically for them when they click on elements. However, the programmer can always go back to the code and add or change statements for operations that cannot easily be accomplished by using the visual aids. Thus, knowledge of the programming language is still required. Visual Basic software from Microsoft is used to develop forms that can allow users to enter data and click on a button to process the data.

Using Visual Basic, programmers develop a form that includes a clickable button to execute a command such as Print

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Co ur te sy

of M ic ro so ft , In c.

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2 PART

Object-Oriented Programming

An increasing amount of software is developed using object-oriented programming (OOP) languages. These languages use a modular approach, which offers two great advantages: ease of maintenance and efficiency in applications development (see Figure 5.3). In traditional programming, programmers receive specifications of how a program should process data and how it should interact with users, and then they write code. If business changes and the program must be modified, the programmer must change the code. In traditional programming, data and the operations to manipulate the data are kept separate from each other. In object- oriented programming, on the other hand, operations are linked to the data. For example, if the operation is to calculate an employee’s gross pay, taxes, and net pay, selecting and clicking the record triggers the calculation. Routine, frequent operations are kept with the data to be processed. Thus, OOP’s primary emphasis is not on the procedure for performing a task, but on the objects involved in the task.

F I G U R E 5.3

Advantages of object- oriented programming (OOP) over procedural languages

OOP Advantages

Requires less code than other languages

Requires less time than programming in other languages

Enhances program modularity and reusability

Makes code maintenance easier

Enhances ability to create user-friendly interface

Appropriate for graphic- and sound-enhanced applications

What Is an Object in OOP?

Figure 5.4 illustrates how an object in OOP encapsulates a data set with the code used to operate on it. Data elements in the object are called data members. They might be records, whole files, or another type of data structure. Data members have attributes that define the nature of the data, such as Social Security number, last name, and hourly rate. The code elements of the object are called methods. These procedures operate on the data, such as calculating an employee’s gross pay for the week. In object-oriented software, there is no direct access to data members of an object; they can be accessed only through the methods, which are part of the object. In our example, the object includes four methods: Hourly Rate, Weekly Pay, Overtime Pay, and Age. Weekly Pay calculates each employee’s gross and net pay, Overtime Pay calculates each employee’s overtime gross pay, and Age computes all employees’ average age.

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PART 2

F I G U R E 5.4

A representation of the object EMPLOYEE

Ease of Maintenance and Development

Typically, about 80 percent of all work associated with software is spent on maintaining it. Maintenance primarily involves modifying programs to meet new business needs, but also debugging errors that were not detected when testing the developed code. In object-oriented programming, software developers treat objects as parts, or standardized modules that work together and can be used and reused. Instead of creating large, complex, tightly intertwined programs, programmers create objects. Objects are developed in standard ways and have standard behaviors and interfaces. These modules enable software to be assembled rapidly rather than written laboriously.

OOP also makes creating programs easier for nonprogrammers. The inexperienced developer does not need to know how an object does what it does, only what it does. Thus, the developer can select and combine appropriate objects from an object library, which is a repository of developed objects, to build a desired application.

Object-Oriented Programming Languages

The most popular OOP languages are Java, C++/C#, and Visual Basic. Smalltalk, developed by Xerox, was an early object-oriented programming language. C++ has become the major commercial OOP language because it combines traditional C programming with object-oriented capabilities. Java, developed by Sun Microsystems, is a popular object-oriented language designed to be platform independent, that is, to run on any computer regardless of the CPU or operating system. Another popular language, Visual Basic, enables the programmer to use graphical objects, but does not fulfill all the requirements of a true OOP language. For example, moving an icon to another application does not move the code associated with it. Some OOP languages are designed specifically for use in developing graphical user interfaces (GUIs). Elements of GUIs include windows, icons, scroll boxes, and other graphical images that help the user interact with the program with minimal effort.

Languages for the Web

Because an increasing amount of software is developed for websites and to link applications via the Internet, special software languages and tools have been developed for these tasks. Such programming languages include Java, JavaScript, and PHP. The main advantage of Java and JavaScript is that the code produced—often called applets—can be executed well regardless of

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2 PART

the operating system that the computer uses. Therefore, the same applet will be executed the same way on a computer running Windows or one running Mac OS X. This is a significant benefit, especially when the applets are developed to be posted at a website.

The use of web-based applications can reduce costs for an organization. Consider a municipality that maintains a fleet of vehicles for public services and safety. The total cost of ownership of the fleet (purchase and operational costs) has a direct impact on municipal budgets and taxes paid by property owners. Using fleet management software, management can monitor the maintenance of vehicles. Management Reporting Suite, developed by Chevin, provides a web-based fleet management system necessary for organizations to gather and aggregate real- time data to improve key business areas such as total cost of ownership, fuel cost, mobility, and carbon dioxide reduction (Geoghegan, 2013).

In recent years an increasing number of applications have been developed in Microsoft’s .NET “environment.” .NET is software that supports building and linking applications that can “talk to each other” on the Internet and enable web browsers to invoke information resources, such as databases. Applications developed using .NET tools run on Microsoft operating systems, such as Windows. IBM’s WebSphere is another application software portfolio designed to integrate enterprise-wide web applications across various technology platforms. As technology offerings have become decentralized consisting of different operating systems and hardware, WebSphere provides the development environment to develop applications for various business processes in an agile technology infrastructure (Anonymous, 2013a, 2013c). We discuss operating systems later in this chapter.

Development for Mobile Applications

In the late-1990s, the proliferation of web-based applications exploded with the integration of e-commerce technology. The rapid technological evolution of cell phones into smartphones has created a huge demand for mobile applications. The same consumers who adopted the use of web-based applications for purchasing, business transactions, and information gathering were the perfect audience for mobile applications. Consequently, the market for mobile software development kits increased based on the demand for these new software applications.

The specific platform that will be used to implement the mobile application needs to be considered. The most popular mobile platforms are Android, Apple, Windows, and Blackberry. Each of these mobile technology platforms uses specific variations to develop its applications. For instance, Apple’s Developer provides a software development environment to create mobile applications for its iPhone product. For Android-based products, there are several alternatives.

Language Translation: Compilers and Interpreters

Recall that computers understand only machine language. Just as assembly languages need assemblers, procedural languages need special programs to translate source code, which is the program as originally written, into object code, which is the same program in machine language. (Unfortunately, the word “object” is used for several different contexts. In the context of this section it has nothing to do with object-oriented languages.) The two types of programming language translators are compilers and interpreters. Compilers translate the higher-level code into an equivalent machine language code, but do not execute the code; the translated code must be run to check for programming errors. Interpreters translate each program statement and execute it.

A compiler (see Figure 5.5) scans the entire source code, looking for errors in the form (syntax) of the code. If it finds an error, it does not create the object code; instead, it generates an error message or a list of error messages. If the compiler finds no syntactic errors, it translates source code into object code, which the computer can execute. At this point, the programmer can save the object code. From now on, the user can simply run only the object code. This saves translation time.

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PART 2

F I G U R E 5.5

A compiler converts higher-level language code (source code) into machine language (object code), which the computer can execute

00110110 01100011 10011000 11100011 11010110

00110110 01100011 10011000 11100011 11010110

00110110 01100011 10011000 11100011 11010110

Source Code

Object Code

Compiler

total = 0 cases = 0 perform average_them until cases = 100 Display “That is the End!”

An interpreter checks one statement at a time. If the first statement is free of syntactic errors, it interprets the statement into object code and makes the computer execute it. If the statement is erroneous, the interpreter issues an error message. In some environments, the programmer can immediately correct the statement. The computer then executes the corrected statement, and the interpreter moves on to check the next statement. Error-free statements are executed immediately.

Code written in interpreted programming languages can run only on machines whose disks store the interpreter. In contrast, compiled code is ready to run because it is in machine language and does not need to be translated. Most Visual Basic and Java translators are interpreters. Translators of FORTRAN, COBOL, C, C++, and most other 3GLs are compilers.

When you purchase an application, whether a computer game or a business program, you purchase a compiled version of the code, that is, the object code. There are three reasons for this. First, the application is executed immediately because there is no need to compile the code. Second, most users do not have the compiler for the source code. Third, the vendor does not wish buyers to modify the code. If the program is sufficiently modified, the modified copies may be sold without violating intellectual property laws such as patents and copyrights. Source code can be modified by anyone who knows the programming language in which it was written; modifying object code is very difficult.

While testing code, programmers can use programming language translators to find syntactic errors. When they execute the program, they can find execution errors—also called runtime errors—such as division by zero or an excessive use of memory (memory leak). However, only the programmer can detect and prevent logical errors, because the logic relies, and should rely, solely on the way the programmer translated a way to produce a result into code.

Application Software

As noted earlier, an application is a program developed to address a specific need. An application can also be software that lets nonprogrammers develop such programs. Most programs that professionals use are application programs, such as word-processing programs, spreadsheet programs, payroll programs, investment analysis programs, and work-scheduling and project management programs.

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Programs designed to perform specific jobs, such as calculating and executing a company’s payroll, are collectively called application-specific software. Programs that serve varied purposes, such as developing decision-making tools or creating documents, are called general-purpose application software. Spreadsheets and word processors are general-purpose applications.

General-purpose applications are available as packaged software; that is, they come ready to install from an external storage medium such as a CD or a file downloaded from a vendor’s website. Application-specific software is not always so readily available. Managers must decide whether an off-the-shelf software package meets all of their needs. If it does, the company can simply purchase it. But if off-the-shelf or other ready-made software cannot address an organization’s specified needs, managers must have a program developed, either within the organization or by another organization specializing in that type of software. Therefore, it is important to clearly define the business’s functional and information requirements before acquiring software. We discuss alternative ways to acquire ready-made software in Chapter 13, “Choices in Systems Acquisition.”

Office Productivity Applications

The purpose of business software is to make the work of people more productive and businesses more efficient in the processing of their daily operations. However, applications that help employees in their routine office work often are called simply “productivity tools.” They include word processors, spreadsheets, presentation tools, file and database management software, graphics programs, personal information managers, desktop publishing tools, and project management applications, as well as many others for more specialized purposes. Web browsers are also included in this group, because they help so many employees to find and communicate information in their daily work. These tools were developed to support home and office users on their personal computers.

While word processors are used mainly to type letters, articles, and other text documents, they also automate otherwise laborious tasks such as creating tables of contents and indexes. Some enable users to plan the binding and look of books up to the point of handing files to a high- quality printer for the production of the physical book. Examples of word processors include Microsoft Word or Corel WordPerfect.

Spreadsheets such as Microsoft Excel no longer limit users to entering numbers and performing basic arithmetic calculations. They include a long list of complex mathematical, statistical, financial, and other functions that users can integrate into analysis models. These functions are so powerful that statisticians often use them. Executives can build their own decision-support models with this robust tool. Spreadsheets also provide a large array of preformatted charts from which the user can select for presentation purposes.

Presentation tools such as Microsoft PowerPoint enable professionals and salespeople to quickly develop impressive presentations. One does not need to be a graphics expert, because the tools provide wide selections of font types and sizes and allow users to embed almost any art that they find (with permission!) or have created in graphics programs. Animations, sound, and video clips can be integrated into presentations and slide shows that can be posted to run on the web as videocasts.

POINT OF INTEREST 10/20/30 Rule

Guy Kawasaki was the chief evangelist of Apple and is the author of ten books including Enchantment and How to Drive Your Competition Crazy. In another one of his books, The Art of the Start, he teaches readers how to become a successful entrepreneur through his experiences. One of the most important and easily remembered lessons from his book is the “10/20/30” rule for PowerPoint presentations in a business setting: 10 slides, 20 minutes, 30 point font. His reasoning is that the presenter should do most of the talking by using the slides as reference points and 30 point font provides sufficient white space to keep the audience’s atten- tion. He gets his point across through his humorous tone; “I don’t care if you’re selling dog food, permanent life, nano particles, optical components, or the cure to cancer: Ten slides and twenty minutes is all you get.” Source: Kawasaki, Guy. (n.d.). “Official” Bio. http://www.guykawasaki.com/about/; Kawasaki, Guy. (2004). The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything. New York, New York: Penguin Group (USA) Incorporated.

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PART 2

File management and data management tools enable the creation and manipulation of local or shared databases. Popular database management systems such as Microsoft Access are relatively easy to learn and create simple databases. They often include features that professional developers can use to create more complex databases.

Graphics programs make it easy to create intricate images and manipulate digital photographs. They are often used to create graphics to be placed on webpages. The large selection of these tools includes Adobe’s Illustrator and Photoshop, Corel Paint Shop Pro, and Xara Designer Pro, as well as the free IrfanView and Gimp.

Desktop publishing tools, such as Microsoft Publisher, Adobe InDesign, and Serif PagePlus, enable both expert and novice to easily create professional looking pamphlets, newsletters, cards, calendars, and many other items for publication on paper or as webpages. More professional tools, such as Quark, by a company of the same name, have significantly increased the productivity of the publishing industry.

Project management tools, such as Microsoft Project, Basecamp, or free software alternatives such as Open Workbench and OpenProj, help managers of any type of project—such as building construction, product development, and software development—to plan projects and track their progress. Project managers enter information such as tasks and their expected completion dates, milestones, and resources required for each task: labor hours, materials, and services. The software alerts planners when they enter illogical information, such as scheduling a worker to work 120 hours in one week, and when tasks violate interdependencies. The latter happens when, for instance, planners schedule the start of Phase D before the completion of Phase C, though they had previously indicated that Phase D depends on the completion of Phase C.

Project management software facilitates the planning, execution and monitoring of projects

Software developers often create suites of productivity tools. For example, most versions of Microsoft Office suite include a word processor (Word), spreadsheet (Excel), presentation application (PowerPoint), and an email application (Outlook). Microsoft added OneNote into its Office suite. OneNote allows users to consolidate various links, videos, webpages, and other files into their notes. Other examples of suites are IBM Lotus SmartSuite, and the free Apache OpenOffice.org. When productivity tools are integrated into a software suite, the documents created can be interdependent using technologies such as object linking and embedding (OLE). You can create tables in a spreadsheet, copy them into a word-processed document or a presentation, and ensure that when you modify the tables in the spreadsheet they also change in the document or presentation. A Microsoft Word document can link various objects with additional information, spreadsheets, and charts, embedded within the text to present a report more effectively.

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2 PART

Linking various objects from different office suite products can provide a professional and complete report

You can also embed links to websites in your documents. Linking among documents involves hypermedia technologies, and embedding information such as sound and video clips in documents uses multimedia technologies. These technologies are discussed in the next section. A growing number of web-based office applications are offered free of charge; all one needs is a web browser. Typically, all the documents the user creates are saved at the application’s server. This way, both the applications and documents can be accessed from anyplace with an Internet link. For example, ThinkFree, offered by the company of the same name, is an online suite that includes a word processor, spreadsheet, graphical application, and a presentation application in a cloud office environment. It is promoted as a free online alternative to Microsoft Office implemented within a collaborative, multi-device environment (desktop, laptop, tablet, and smartphones). Google offers Google Drive (formerly known as Google Docs) an environment similar to ThinkFree. Microsoft Office itself now offers WebApps. The new environment of office productivity tools offers cloud storage and access to data files, along with applications such as calendaring and contact managers across all hardware platforms and devices. The world of application software has broadened by offering quality alternatives to off-the-shelf software.

Hypermedia and Multimedia

Hypermedia is a feature that enables a user to access additional information by clicking on selected text or graphics. Hypermedia is the web’s most essential ingredient. When first conceived, the concept was limited to text and was called hypertext. Now, hypermedia is very common, used widely in various types of software, and essential to web-based documents as well as documents, charts, and presentations created using productivity tools. Any text or icon that

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160 Information Technology Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

PART 2

can be clicked to jump to another place in a document or open a new document is called a link, whether on the web or not. Often, we say that a word or icon is “clickable.” Hypermedia enables linking text, pictures, sounds, animations, and video.

Hypermedia features are enabled by webpage authoring tools. They are also part of other applications, such as some word processors and presentation tools. You can easily create a PowerPoint presentation with marked text or an icon that calls up a picture, a sound, or an animation, or one that takes you to another slide. Programs that can handle many different types of data are called multimedia software. Multimedia is a powerful means of communicating, because it does not limit the method of communication. A natural extension of the computer’s capabilities, it provides flexibility that lets people work the way they think, integrating all types and forms of information. Multimedia is tightly associated with hypermedia, because it often uses embedded links. These links are the essence of hypermedia and are used to communicate pictures, sounds, and video as part of the same message in a way that is similar to an educational lecture or a product manual. A few examples of the uses of multimedia are described in the following sections.

Multimedia in Education and Research

One of the most common uses of multimedia is in education. A student taking a multimedia- based lesson can view a scenario in one window and view text in another while listening to a recording or webcast of his or her professor. The student might then be asked to answer questions interactively, providing responses in another window on the screen. The same program might be designed to provide the student with feedback on her performance. With voice recognition software, multimedia programs used in language training can ask a student to pronounce certain words and evaluate the student’s performance.

Another common use of multimedia is in compiling and integrating data from research. For instance, a researcher might use multimedia programs to view written articles and television news footage and to listen to radio clips.

Multimedia in Training

In many industries, multimedia is commonly used to simulate real-world situations for training exercises. For example, multimedia products that use video and voice and allow users to respond to questions about various situations have been used to teach workers for an electric utility company how to solve high-voltage wire problems. If they attempted to solve the same cases in the field, their lives would be jeopardized. Flight simulators use extensive multimedia software to simulate takeoff, landing, and other flight situations when training pilots before they fly real planes.

Multimedia in Business

Multimedia can be very useful in business situations as well. Consider this example: one manager writes a document that includes digitized photographs or video clips and possibly a “live” spreadsheet, which lets the user enter numbers and execute calculations. The manager sends the document to a colleague for review; the colleague tacks on a video and voice clip requesting clarification of a certain point. The compound document can be filed electronically, retrieved, altered, and communicated as appropriate, without ever being transformed into a paper document. In fact, multimedia by its very nature cannot be transferred to a paper document. Many websites include multimedia because of its interactive nature.

Mashups

Many companies, including Amazon.com, eBay, Flickr, Google, and Yahoo!, have opened their applications so that the applications, or some of their features, can be integrated with other software to create new useful applications. These integrated applications are called mashup applications, or simply mashups. For example, an amateur programmer can combine a

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2 PART

mapping application from one website—such as Mapquest, Apple Maps, or Google Maps—with a local database of charity associations to show the locations and details of the associations on a map. The mapping application continues to provide its regular features, such as directions to and from the organizations’ locations.

The programmer uses software elements from different applications and combines them, or some of their features, into a hybrid application. Since these software elements are constantly available on the web, users of the mashup can enjoy it whenever their computers are connected to the Internet.

One of the most educationally useful mashups on the web is Khan Academy. Khan Academy is a not-for-profit online institution designed by a graduate of Harvard and MIT, which offers lessons on a broad range of subjects from arithmetic to calculus to molecular science to the French Revolution. The website has delivered over 200 million lessons by embedding YouTube videos into their webpages. In the YouTube videos, the instructor talks students through lessons and problems using the mouse pointer arrow and uses different colors on a black background to help students visualize what’s going on. After watching the video, students can post comments and questions, similar to other YouTube videos. Khan Academy’s strategy of combining a traditional website with embedded YouTube videos has created an effective mashup that is more valuable than the sum of its parts. The YouTube videos allows students to work at their own pace and the comments section lets them get help from other students, just as if they were sitting in class. It’s not just a lecture; it’s an interactive, social learning experience.

Website Design Tools

As a growing number of organizations established websites, and many needed to change the content of the webpages daily or even hourly, the need for web design tools grew. Popular webpage development packages include Microsoft SharePoint Designer and Expression Web, Avanquest WebEasy Professional, and Adobe CS2/Dreamweaver. Many Internet service providers (ISPs) and website hosting companies also provide online tools and templates to design and implement personal and commercial websites.

Webpage development packages expedite development of webpages. Like other visual tools, they provide menus, icons, and other features from which the developer can select. Therefore, developers have to write code only when a feature is not readily available. When using ready- made options, such as fill-in forms and animation effects, the code is automatically added. Since much of the code is in nonproprietary languages such as HTML and XML (which we discuss in Chapter 8, “The Web-Enabled Enterprise”), a programmer can start work with one development tool, such as WebEasy Professional, and continue the work with another, such as Dreamweaver. Developers alternate if they find one tool is easier to use for quick development of icons, for example, whereas another offers a more appealing way to develop animations.

Recently, a new method of developing websites has become popular. Small businesses and individuals have implemented websites using a blog environment, such as Wordpress. The blog environment can then be tailored using an automated web design program such as Artisteer. Products such as Artisteer give users who have limited web design experience the ability to customize a blog to operate as a website. The example shown here illustrates a website design for a cake and coffee shop that could be developed through Artisteer.

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PART 2

Artisteer web design software assists users to develop customized websites exporting to Wordpress and Blogger formats

Groupware

Multimedia technologies are any applications that allow sharing of ideas and information resources among group members. Most of these applications are integrated with web technologies. Groupware applications are programs that enable workers to collaborate in real time over the web. They not only eliminate the need to travel and sit in the same physical room but also facilitate expression of ideas by demonstrating them through the combination of text, images, drawings, sound, animation, and video. Collaboration software includes various productivity tools used for team-based environments and projects where human interaction (either synchronous or asynchronous) is necessary. The specific functions vary by software application but can include project/task management, shared calendars, video/audio/text chatting, email, voice messages, and file sharing. Wiggio is an example of collaboration software. With over 1.1 million users, the software provides an environment to connect a group of people working on a project or initiative. A project representative (group leader) begins the process by creating a group and then adding members. Members can be assigned or prohibited from various functions within the group environment. The revision of this textbook was completed using Wiggio between the author and research assistant.

Google Drive, formerly called Google Docs, is a cloud-based feature that allows users to work with others on a document, presentation, spreadsheet, form, or drawing and save it online. You can upload an existing file or create a new one using Google’s software. While working on a file, the user can see who else is working on that file and what changes they are making. Files are saved to the cloud so they can be opened by those granted access. Using Google Drive saves businesses time and transportation costs while providing an accessible medium for team collaboration.

3-D Geographic Software

An increasing number of applications are being developed to create 3-D models of geographic areas and whole cities, down to every hydrant and shrub. The raw materials are land and aerial photographs that cover the targeted area. The digital photographs are “sewn” together to allow a

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2 PART

continuous “walk” or “travel” on a city street or university campus. This helps with navigation, whereby one can recognize buildings and landmarks by their similarity to the software images. This type of information can be delivered through the web. When tied with a global positioning system (GPS), the software helps people who have never been to a place to navigate easily. In the near future, 3-D software such as this will help property rental companies manage their assets. For example, a manager will be able to click on an apartment on the 12th floor of a building and check information about the unit and let a potential renter have a view from the windows or balcony. Maintenance staffs will be able to virtually go into the walls and check pipes and electrical wiring, and fire companies will be able to navigate quickly and locate hydrants on their way to put out fires.

Trimble SketchUp is a type of 3-D geographic software that is also used to create virtual cities and areas, though it is effective on a smaller scale as well. Inventive business owners use the software to create their own machines or products rather than creating virtualizations of already existing buildings or places. The potential for SketchUp is endless. Users can start by creating a small component such as a two-by-four piece of wood and eventually design an entire house and the rest of the block it’s on. For those less inventive, the SketchUp library allows users to download components created by other users. Examples of these components include anything from pallets and framed walls to train stations and skyscrapers. SketchUp even connects to Google Maps, which allows the option for users to place a house where it is in real life. 3-D geographic software is important in the business world because of its capacity to virtualize existing tangible items and create new ones.

Model of the Old Salem Town Hall developed using SketchUp, a 3-D modeling tool

System Software

System software includes programs that are designed to carry out general routine operations, such as the interface between user and computer, loading a file, copying a file, or deleting a file, as well as managing memory resources and operating peripheral equipment such as monitors and printers. The purpose of system software is to manage computer resources and perform routine tasks that are not specific to any application. On one hand, system software is developed to work in partnership with as many applications as possible; on the other, applications can work with system software only if they are developed to be compatible with that software. The following discussion covers major types of system programs. Note that compilers and interpreters, which were discussed earlier, are also classified as system software.

Be ry l Re id

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Operating Systems

The operating system (OS) is the single most important program that runs on a computer and the most important type of system software. As Figure 5.6 illustrates, operating systems perform basic tasks, such as recognizing input from the keyboard and mouse, sending output to the computer display, keeping track of files and directories (groups of files) on disks, sending documents to the printer, and interfacing with network devices. Without an operating system, no application can run on a computer. An operating system is developed for a certain microprocessor or multiple microprocessors. Programmers know which operations each microprocessor can perform and how it performs them. The OS must address technical details such as CPU circuitry and memory addresses. Therefore, OSs are usually developed with the aid of low-level programming languages, such as assembly languages, or with a language that can access low-level machine functions, such as C.

F I G U R E 5.6

The operating system mediates the computer system’s resources and application software as well as controls peripheral and network devices

Operating System

User

Keeps track of files and

directories

Sends documents to

the printer

Receives input from the keyboard

and the mouse

Sends images to the

monitor

Application

Receives information from a network card

The OS is sometimes called the “traffic cop” or the “boss” of computer resources. Indeed, it is charged with control functions such as optimally allocating memory locations for an application program, copying the application from an external storage medium into memory, passing control to the CPU for execution of program instructions, and sending processing results to output devices. Operating systems are also often referred to as “platforms,” because they are the platform on which all other applications “ride” when interacting with the hardware.

When application developers write code, they use the application program interfaces (APIs) for the operating system on which the application will run. APIs are software included in the operating system. A good API makes it easy to develop an application. Applications using the same API have similar interfaces.

From User to OS to CPU

Figure 5.7 shows the OS’s position in the logical operation of a computer. The user interacts with the user interface using menus, icons, and commands provided by the application. The application converts some of the user’s input into commands the OS understands, and the OS commands the CPU to carry out the operation. (Some commands are not delivered to the OS but directly from the application to the hardware.) The OS ensures that applications can use the

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CHAPTER 5 Business Software 165 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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2 PART

CPU, memory, input and output devices, and the file system. The file system is software that stores, organizes, and retrieves files.

F I G U R E 5.7

Computer systems operate on a number of layers, beginning with the user interface and moving into the computer’s hardware System Software

Hardware

OS, Language Translators, Communication Programs…

Procedures and Functions

User Interface (Menus, Icons…)

Application Software

For example, assume that you are using a word processor. You select a paragraph you wish to copy and paste. You select Copy from the menu. The word processor converts your choice into an appropriate command for the OS, which then instructs the CPU to copy the paragraph. A similar action takes place when you select Paste from the menu. Assume that you like a picture on a webpage and have permission to copy it. You right-click the picture and choose to copy it. The web browser’s menu might not look the same as the word processor’s menu. However, when you select Copy Image, the operating system receives a command from the application that is identical to the one it received when you used the word processor. And when you paste, the Paste command that the OS receives from the browser is the same one it received from the word processor. Thus, developers of these two applications did not need to program the copy and paste operations; they only needed to know how their programs must call up these operations from the OS.

In addition to performing input and output services and controlling the CPU, many OSs perform accounting and statistical jobs, including recording times when a user logs on and logs off, the number of seconds the operator used the CPU in every session, and the number of pages a user printed. Some OSs also perform utilities such as hardware diagnostics, file comparison, file sorting, and the like. However, not all OSs provide all the utilities that might be necessary, in which case special utility programs must be used. Operating systems also include a number of security functions, such as the ability to set user passwords and restrict access to files and computer resources.

Operating System Functions

Operating systems provide several services, the most important of which is system management. System management refers to the efficient allocation of hardware resources to applications and includes tasks such as prompting the user for certain actions, allocating RAM locations for software and data, instructing the CPU to run or stop, allocating CPU time to different programs running at the same time, and instructing co-processors and peripheral equipment.

User Interface An important part of the OS is the user interface. A graphical user interface (GUI) makes the use of the computer intuitive and easier to learn. The interface takes the form of easy- to-understand frames, icons, and menus. Users find it helpful to have most of the interface features identical regardless of the application they use, unless the application requires an interface element for a unique feature.

Memory Allocation One of the most important functions of an operating system is memory management, especially for RAM—the memory where data and program code must reside before being executed. Ideally, an entire application and all the data it processes reside in RAM until

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166 Information Technology Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 2

processing ends. However, when many applications are open concurrently, or when applications and data pools exceed the computer’s RAM capacity, the operating system may use virtual memory. Virtual memory lets the user proceed as if significantly more RAM were available than really exists. Virtual memory uses the hard disk as an extension of RAM. A special module of the OS continually detects which parts of the application program are used frequently. The OS keeps these parts in RAM while leaving on the disk the least frequently used parts. Professionals call this activity “page swapping”—“pages” are program parts of equal size that the OS swaps between RAM and the disk, and the space on disk used as memory is called “swap space.” Because hard disks are slower than RAM, opening many applications at the same time may reduce the speed at which programs are running. However, virtual memory enables concurrent use of many and large programs without need to purchase more RAM, which is significantly more expensive than disk memory.

Plug and Play A good operating system should also facilitate fairly simple changes to hardware configuration. When a new device, such as an external hard disk, DVD burner, external communication device, or joystick, is attached to a computer, the operating system’s job is to recognize the new attachment and its function. If the OS can do so (without your intervention) immediately after you attach the device, it is a plug-and-play (PnP) OS, and the device, too, is referred to as a plug-and-play device. To do so, the operating system must have access to the attached device’s driver. A driver is the software that enables the OS to control a device, either one installed inside the computer (such as a second video card) or an external device such as a flash memory drive. Thus, a true PnP OS, such as Windows 8 or Mac OS X, includes the drivers for many devices, or at least is fully compatible with a driver that is installed either from a disc or after it is downloaded from the web. In recent years, almost all external devices have been built to attach to a computer through a USB port. (USB ports were discussed in Chapter 4, “Business Hardware.”)

Increasing Services from OSs The trend in OS development is to incorporate more and more services that used to be provided by separate software. These services include database management, networking, and security. For instance, users now expect an OS to perform such security measures as tracking account numbers and passwords, controlling access to files and programs, and protecting the computer against viruses. OSs also check for access codes to ensure that only authorized users can access the computer. Modern operating systems provide networking functions previously handled by separate programs.

Current Operating Systems As mentioned earlier, operating systems are designed to work with a particular microprocessor; consequently, different computers and types of microprocessors use different OSs. While specific operating systems exist for supercomputers, mainframe computers, midrange computers, and handheld computers, most people use a personal computer (PC) operating system. Popular operating systems for PCs include Windows, Linux, and Mac OS. Smartphones and tablets have their own operating systems geared toward the mobile environment, such as Apple iOS, Google Android, and Microsoft Windows RT. Figure 5.8 provides a list of popular operating systems. Some may come bundled with other applications. For example, i5/OS (formerly, OS/400) comes with powerful DB2 database management systems.

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2 PART

F I G U R E 5.8

Popular operating systems for various hardware platforms

Typically run on…

Mainframe

Name OS Developer

z/OS (zSeries) Clearpath OS2200

IBM Unisys

Midrange i5/OS Solaris

IBM Sun Microsystems

Personal Computers

Windows Linux (Fedora, Red Hat, Smallfoot) OS X BSD

Microsoft Various Apple FreeBSD

Servers Microsoft Server 2012 HP‐UX 11i Unix

Microsoft HP Bell Labs (original developer) with various Unix‐like OSs derived by others

Tablets iOS (iPad) Microsoft RT (Surface) Android (various)

Apple Microsoft Google

Smartphones Blackberry OS iOS Windows Phone Jelly Bean, Ice Cream Sandwich

Blackberry Apple Microsoft Android, Inc (original developer, now Google), licensed under Apache license

One OS that has grown in popularity is Linux, which can be obtained free of charge. Linux is based on UNIX, an operating system developed by AT&T Bell Labs in 1969 to run on midrange computers, and for 10 years was distributed free of charge. Different companies and individuals modified UNIX, developing variations of the OS such as Linux (developed by Linus Torvalds and others) and Solaris (developed by Sun Microsystems). Linux and other “open source” software is discussed in the next section.

One of the most important qualities of an OS is its stability. A stable OS does not cause the computer to freeze or produce error messages. It is expected to continue to function even if the user makes a mistake, in which case it should gracefully notify the user what happened and give an opportunity to resolve the problem, rather than stop functioning. Early versions of Windows were notoriously unstable. Although mishaps do occur with later versions of Windows, they are significantly more stable. OSs based on UNIX are known to be highly stable, and their stability is the main reason for their popularity, especially for running servers. Mac OS X versions are based on UNIX. Linux, too, is considered to be very stable.

Although Mac OS is installed on fewer than 10 percent of the world’s computers, its share is growing (Anonymous, 2013b). From the start, Mac operating systems have been more intuitive and user-friendly than Windows operating systems. In many respects they set the standards that Windows OSs later followed. Many current popular applications, such as Excel, were first designed for the Mac OS, and only later adapted for Windows, when the latter provided user interfaces similar to those of the Mac OS. Mobile operating systems are also steadily increasing their share of the OS marketplace.

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168 Information Technology Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 2

Other System Software

While operating systems are the most prevalent type of system software, other types of system programs include compilers and interpreters (discussed previously), communications software, and utilities. Some people also include in this class database management systems, which are discussed in Chapter 7, “Databases and Data Warehouses.”

Communications software supports transmission and reception of data across computer networks. We discuss networking and telecommunications in Chapter 6, “Business Networks and Telecommunications.” Utilities include programs that enhance the performance of computers, such as Symantec’s Norton 360, which checks PCs for inefficiencies and fixes them. It also includes online backup facilities. Utilities also include antivirus programs, firewalls, and other programs that detect and remove unwanted files and applications, such as cookies and spyware, or block data from being transmitted into or out of a networked computer. We discuss these topics in Chapter 8, “The Web-Enabled Enterprise,” and Chapter 14, “Risks, Security, and Disaster Recovery.”

Open Source Software

The great majority of business and individual software is proprietary, that is, software that is developed and sold for profit. The developers of proprietary software do not make the source code of their software public. The developer retains the rights to the software. In most cases you do not actually own the copies of applications that you purchase; you only purchase licenses to use those applications. In contrast to proprietary software, some programmers freely contribute to the development of a growing number of computer programs not for profit. The developers of open source software can obtain the source code free of charge, usually on the web. Anyone who can contribute features or fix bugs is invited to do so. Anyone who wishes to download the latest version can do so free of charge. An open source program can be developed by a random group of programmers, rather than by a single company. Programmers share an application’s basic code, find its weaknesses, debug it, and contribute new pieces. This process might yield better results than the traditional “closed” process of proprietary software, because so many talented programmers continuously try to show their prowess in improving the program. Some historians find the beginning of the open source “movement” in people such as Richard Stallman and his allies in the Free Software Foundation, who believe that software should be as free as the air we breathe and never sold for money.

The advantages of open source software over proprietary software are clear: the software has fewer bugs because thousands of independent programmers review the code, and it can offer more innovative features by incorporating ideas from a diverse set of experts from different countries and cultures who collaborate. The motive for developing and improving open source software is not monetary, but rather the satisfaction of solving programming problems and the recognition of one’s contribution. Programmers who improve such software do it for fame and recognition by their peers the world over. They collaborate mainly via the Internet. They post patches of code that improve current code, or add extensions and plug-ins to enhance functionality of an application. These extensions are free for all to download and use. The major disadvantage is that development and support depend on the continued effort of an army of volunteers.

A recent study conducted by BearingPoint reveals that the critical drivers for adopting open- source software focus on competitive differentiation, reduced deployment cost, increased customization agility, and avoiding software vendor lock-in (Anonymous, 2012). The pressure to reduce costs in a competitive environment has forced banks and financial services businesses to take a second look at open source software, driving IT costs downward (Yeaton, 2013).

The need for agile software development with the transition to consumer-focused platforms such as the web and mobile, only heighten the popularity of open source software. The

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2 PART

expanding focus on customer engagement by businesses requires a development agility that can be provided by open source software. Acquia believes that implementing social publishing using open source technology provides that agility. Customer engagement functions such as blogs, wikis, forums, and other user-generated content can be implemented more cost effectively using open source software. A cost savings of 75-85 percent over proprietary software alternatives can be realized (Anonymous, 2011).

For all of the advantages of implementing open source software, there are several issues to consider before adoption. The advantages of reduced costs and increased return on investment (ROI) are losing relevance. A Computerworld study found that 42 percent of organizations using open source software did not calculate ROI and total costs (Collett, 2011). A 2010 study by Accenture found that quality, reliability, and security were rationales for selecting open source software. Organizations are focusing on the value that can be achieved by adopting an open source environment. Institutional issues such as training and help desk costs are also important factors. Open source software includes hundreds of useful applications, such as the popular web browser Mozilla Firefox, the content-management system Drupal, the relational database management system MySQL, and the powerful programming language PERL (Practical Extraction and Report Language). The OpenOffice.org suite, which can be freely downloaded at www.openoffice.org, provides an alternative to Microsoft’s Office suite of productivity applications. With the OpenOffice.org suite, users can create 3-D graphical designs, multimedia presentations, documents, spreadsheets, and databases.

OpenOffice.org provides free application software to complete various productivity tasks

Linux is the best known open source operating system. A Finnish graduate student named Linus Torvalds developed it for his own use, but he has never claimed rights to the software. Hundreds of programmers have contributed code to Linux. Over time, Linux evolved into many different variants, some of which are free, such as Ubuntu, Red Hat Fedora, and Smallfoot, while others such as Red Hat Enterprise Edition and SUSE charge for additional interface features and support services. Linux has become the OS of choice of many Internet service providers to run their Internet servers. The major disadvantage of using Linux is the limited number of applications that can run on it, compared with the Windows platform.

Reputable software and hardware companies including IBM, Intel, Hewlett-Packard (HP), and Dell have committed to supporting Linux by developing applications that run on it. A growing

Co ur te sy

of M ic ro so ft , In c.

170 Information Technology Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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PART 2

number of corporations have adopted it, including Burlington Coat Factory, Tommy Hilfiger, and Toyota Motor Sales U.S.A. Many major brokerage houses on Wall Street use Linux, including the New York Stock Exchange. Linux is popular not only because it is stable, but because it is versatile: it can run on mainframe computers, PCs, handhelds, and electronic devices. The oil company Amerada Hess uses Linux on a supercomputer to help find oil and gas deposits. Pixar Animation Studios has used Linux machines to render digital animated characters. TiVo, the television recording device, runs on Linux. So do many game consoles and television sets that are connected to the Internet. A version of Linux, Linux Mobile, operates on some handheld computers and mobile phones.

While many versions of Linux can be downloaded free of charge from the web, most firms prefer to purchase a packaged version. Companies such as Novell, Red Hat, and VA Software sell the software and promise technical support. Usually, contracts also include software updates. Companies such as IBM and HP have made millions of dollars by bundling Linux with other system software and business applications, such as database management systems.

Software Licensing

The next time you “purchase” software, read carefully the “purchase” contract. You might be surprised to learn that you do not own the software you have just obtained. As noted earlier, most of the software that organizations and individuals obtain is not purchased; it is licensed. The client receives a software license, limited permission to use the software, either indefinitely or for a set time. When the use is time-limited, the client pays annual license fees. The only exceptions to this rule occur when an adopter uses its own employees to develop the software, when it hires the work of a software development firm, or when the adopter uses software developed by people who explicitly allow the user to change the software and sell the product.

Software Licensing Models

Software licensing comes in several models. The permissive model allows anyone to use, modify, and make the software into a product that can be sold or licensed for profit. The Berkeley Software Distribution (BSD) UNIX operating system is an example of software under this model. Another is the General Public License (GPL), which permits anyone to use, modify, and make applications with the code, but not to use it in proprietary products for sale or licensing. This is the approach taken by the Free Software Foundation. Much of the software we use is proprietary, which means the code is owned by someone who has the right to sell or license it to us.

POINT OF INTEREST The eBay & Skype Licensing Battle

When Internet auctioneer giant eBay, Inc. bought Skype in 2005, some of the core software to run its Internet-calling service remained with the Skype founders so the founders could keep leverage. So in 2009 when eBay began designing new software to run the service to avoid a licensing dispute with the founders, the founders used their leverage and threatened to withdraw all the underlying technology. eBay sued the founders to prevent them from pulling the technology. To complicate the matter, eBay put Skype up for sale in the middle of this litigation. The final result gave 14 percent of Skype back to the founders and spun Skype off into its own company, which owned the key technology that started the whole litigation in the first place. In 2011, Microsoft bought Skype for $8.5 billion. Source: Hartley, M. (2009). EBay builds its own software for Skype; Licensing dispute, National Post; Stone, B. (2009, Nov 07). Founders Win a Piece Of Skype From eBay, New York Times, p. B.3.

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2 PART

Microsoft, SAP, Oracle, and all other for-profit organizations that develop software own their software and license it. Such licensing takes several forms, such as a fee per user per year, or a site license for a limited or unlimited use regardless of how many users use the software. The latter type of agreement is sometimes signed between a software vendor and a higher-education institution.

Software as a Service

One alternative to software licensing is for organizations to develop their own software, either in- house or outsourced to technical professionals. Such software would be owned by the company free from licensing. However, as the strategic and operational needs of the organization change, the application software used to process its activities also needs to be modified. Therefore, the maintenance and support of the organization’s application software must be provided by information technology professionals at a significant cost to the organization.

Recently, another variation of software licensing has become very popular with businesses from small to large. The software as a service (SaaS) model provides application software developed and maintained by a third-party provider and offered to organizations for a recurring fee. In a manner similar to leasing a car, the third-party, sometimes called an application service provider (ASP), develops and maintains the software on their hardware. All software maintenance, support, and hardware operations are provided by the ASP and included in the monthly fee.

Businesses access SaaS through network connections between their locations and the SaaS software provider. Instead of processing and storing the organization’s transactions on their local computers, data processing and software execution is processed in a cloud environment through a thin client using a standard web browser. The thin client is a low-level personal computer system designed only to initiate the connection to the SaaS provider and operate the software remotely.

This contemporary software delivery method reduces the organization’s application software development cost by amortization in the monthly leasing fees. Therefore, the initial cost is significantly reduced, and the software is operational immediately with SaaS. In addition, maintenance and support of any software modifications are handled by the SaaS provider, not by the business. One of the disadvantages of SaaS is that businesses are not able to customize the software to their specific needs. Using the SaaS software delivery model requires the use of the mainstream product. While SaaS can offer some customization, the inherent operation and “mechanics” of the software have been developed to appeal to a mass market.

POINT OF INTEREST Wall Street’s Adoption of SaaS

The financial sector is the second largest industry user of software as a service or SaaS, only following the technology sector. However, while many smaller firms have fully embraced SaaS, many larger firms are hesitant to adopt. Morgan Stanley, Merrill Lynch, and Citibank use hosted customer relationship man- agement (CRM). They are reluctant to rely on hosted software for more complex and time-sensitive appli- cations because of the enormity of their databases and their security concerns. Larger firms do not experience the same ease of adoption level as smaller firms because smaller firms have a much easier time with the integration of data from different applications. Despite the fact SaaS offerings can integrate data with other programs, they run more efficiently when data is stored by the SaaS provider’s data center. Source: Crosman, P. (2008, 2010-06-07). SaaS Gains Street Traction—Providers are pitching Software- as-a-Service as a universal answer to application needs. But will Wall Street firms adopt SaaS beyond CRM?, Wall Street & Technology, p. 37.

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PART 2

Considerations for Packaged Software

When an application is developed especially for an organization, specific program goals and custom requirements are considered during the development process. Such requirements include business needs, organizational culture needs, the need to interface with other systems, and performance issues, such as response time. However, organizations find ways to satisfy many needs with ready-made software as well. Figure 5.9 summarizes important factors and outlines what you should look for when purchasing software.

Software Piracy

The Los Angeles County Sheriff’s Department purchased a license to install software offered by DataWall, Inc. The license allowed the department to install 3,700 copies of the software, but it installed 6,000 copies. The department claimed that the number of employees using the software concurrently could not exceed 3,700. The sheriff’s department was sued. An appellate court did not accept the department’s argument. The defendant ended up paying over $750,000 in fines and attorney fees.

Software piracy, the illegal copying of software, is probably one of the most pervasive crimes. Software piracy has several forms: making copies from a single paid copy of the software; using the Internet to download software from a website without paying for it, or copying software through use of peer-to-peer applications; using one licensed copy to install an application on multiple computers; taking advantage of upgrade offers without having paid for a legal copy of the updated version; using for commercial purposes copies that were acquired with discounts for home or educational use; and using at home a copy that was purchased by an employer under a license to use only on the employer’s premises. The software industry established two organizations to protect software developers from piracy: Business Software Alliance (BSA) and the Software & Information Industry Association (SIIA). The two organizations were established by major software companies and are supported by the majority of the world’s software development firms. Both organizations have websites that encourage everyone to report pirated software. Occasionally, the organizations sponsor studies that estimate the proportion and financial damage that piracy causes in various world regions.

As the amount of software sold on the market grows, so do the estimated losses that the software industry suffers from piracy. In the 1980s and 1990s, the global financial damage was estimated at $10–$12 billion annually. A study completed by the Business Software Alliance estimates the cost of unlicensed software at $63 billion in 2011, up 8 percent from 2010. Bootleg software increased by 12 percent in the Asia Pacific region to a record of $21 billion. The study reported that there is a significant difference relating to the average piracy rates between emerging and mature markets; 68 percent to 42 percent respectively. A spokesperson for BSA explained that piracy deprives local governments of tax

revenue, costs jobs in the technology supply chain (developers, distributors, retailers), and cripples local software companies.

While some people believe that software piracy saves money, it can increase costs beyond litigation and fines. Pirated software can be infested with malware or viruses. In a study completed by IDC and commissioned by Microsoft, infected software was found in 30 percent of businesses. The global study studied 270 websites and networks and interviewed over 250 information technology managers. The study estimates that consumers could spend 1.5 billion hours and $22 billion while the cost to businesses globally is $114 billion.

The cost of software piracy extends beyond the cost of virus-embedded software. In May 2013, a U.S. company agreed to pay a $115 thousand fine to settle a case of unlicensed software copies from four software companies. Unlicensed software can subject businesses to costs associated with litigation, fines, and settlements, not to mention any adverse publicity that can arise from the offense.

Critics question the methods used to reach these estimates. Furthermore, they say that even if the estimates of pirated software are correct, the conclusions are exaggerated, because not all who pirated software would necessarily acquire it if they had to pay for it. Thus, if everybody was forced to pay for the software, the software companies would not collect the entire worth of installed software, but much less. Still, it is reasonable to assume that many pirates actually needed the software, and would pay for it had piracy not existed.

Laws in most countries treat software the same way as they do books, DVD movies, and other types of intellectual property: copies (except for one copy of the software for archival purposes) may not be made without permission of the copyright or patent holder. Yet, the crime is pervasive because it is easy to commit and rarely is punished.

Sources: Anonymous. (2012, 2012-07-24). Software piracy tab sur- passes $63 billion. Network World, 29, p. 10; Anonymous. (2013, 2013-03-13). Microsoft Corporation: Software Piracy Costs Billions in Time, Money for Consumers and Businesses, Computer Weekly News, p. 3933.

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2 PART

F I G U R E 5.9

Sample software evaluation form Factor What to Look For Score

Fitness for purpose Try to maximize the number of needs satisfied. _________

Ease of learning to use The shorter the learning time, the better. _________

Ease of use The easier a program is to use, the better. Try to minimize the number of commands that need to be memorized. The more intuitive the icons, the better. _________

Compatibility with Try to maximize compatibility with related software other software and with other operating systems.

Try to maximize portability of data and output to other programs. _________

Reputation of vendor Use professional contacts and references to gather background information on the vendor. Be sure the vendor can deliver what it promises. Be sure the vendor stands by its pricing. _________

Ask references about their experience. Look for knowledgeable staff on Web and phone support. _________

Networking Try to maximize ability of many computers to share the software. _________

Cost Seek detailed pricing information. Seek the best price, while maintaining quality and performance. Consider the total cost of ownership: annual license

fees, support cost, necessary hardware upgrades, and other costs associated with use of the software. _________

Availability and quality of telephone and online support

While Figure 5.9 provides a general framework for evaluating ready-made software, each item might be augmented with further inquiry, depending on the program’s main purpose. For example, potential buyers often test a word-processing program for features such as availability of different fonts, dictionary size, response time to search operations, ability to create tables of contents and indexes, and other features. Electronic spreadsheet programs are tested for speed of recalculation of formulas, charting, and other features typical of this type of software. Webpage development applications are tested for ease of creating various layouts and graphical designs, as well as the ability to maintain desired template appearance and integrity of links among related pages and associated media. Many trade journals and websites, such as CNET, PC World, and PC Magazine, maintain labs in which they test competing applications. Experts test different applications on the same computer and report the results.

When considering the selection of packaged software, it is important for businesses to differentiate their needs versus “nice to haves.” This process does not suggest that important business functions should be disregarded for the sake of purchasing a particular software package. However, in the fast-paced competitive environment of evolving business models, reducing the time to implement information technology can have a positive effect on businesses and give them a competitive edge. Just as the “time to market” is important in a new product release, so is the implementation timeframe associated with new information technology initiatives.

The factors to be considered when purchasing large software packages such as ERP software are significantly more complex. The purchasing organization must consider not only the cost of the software, which is usually millions of dollars, but also the amount of time it will take to implement the software, the cost of interrupting ongoing operations, the difficulty and cost of modifying the software for the organization’s specific needs, and many other issues.

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PART 2

Summary

● “Software” is the collective term for computer pro-

grams, which are sets of instructions to computer

hardware.

● Software is classified into two general categories.

System software manages computer resources,

such as CPU time and memory allocation, and carries

out routine operations, such as translation and data

communication. Application software is developed

specifically to satisfy some business need, such as

payroll or market analysis. Application software can

include programs that carry out narrowly focused

tasks, or general-purpose applications, such as

spreadsheets and word processors.

● To develop software, programmers use programming

languages and software development tools. Third-

generation languages (3GLs) are more English-like

than machine language and assembly languages,

and allow more productive programming, meaning

that they require less time to develop the same code.

Fourth-generation languages (4GLs) are even more

English-like and provide many preprogrammed func-

tions. Object-oriented programming (OOP) languages

facilitate creation of reusable objects, which are data

encapsulated along with the procedures that manipu-

late them. Visual programming languages help pro-

grammers develop code by using icons and other

graphics while code is developed automatically by

manipulating the graphics.

● As an increasing amount of software is linked to the

Internet, many software tools have been created espe-

cially for development of webpages and the software

that links webpages with organizational information

resources, such as databases. They include program-

ming languages such as Java, JavaScript, and PHP,

and webpage development packages. Java and other

languages for the web produce code that runs on vari-

ous computers and therefore is very useful for the web.

● All code written in a programming language other

than machine language must be translated into

machine language code by special programs,

either compilers or interpreters. The translation

creates object code from the source code. Software

offered for sale is usually object code.

● Some application programs are custom-designed,

but many are packaged. The majority of packaged

applications are purchased off the shelf, although

“off the shelf” might actually mean downloading

the application through the Internet.

● Office productivity tools help workers accomplish more

in less time. The most pervasive of these tools include

word processors, spreadsheets, presentation tools, file

and database management software, graphics pro-

grams, desktop publishing tools, and project manage-

ment tools. Some of them are offered as suites.

● Hypermedia and multimedia technologies are useful

tools for training, education, research, and business.

● Groupware combines hypermedia and multimedia

with web technologies to help people in separate

locations collaborate in their work.

● Three-dimensional geographic software helps

model city blocks and campuses. Combined with

other information, it is useful in city service plan-

ning and real estate management.

● A growing number of applications are developed

using web programming languages and software

tools such as those included in Microsoft .NET.

The applications support web services and access

to information resources from web browsers.

● The most important type of system software is operat-

ing systems, also referred to as “platforms.” Operating

systems carry out an ever-growing number of func-

tions, and include networking and security features.

System software also includes utility programs.

● Open source software is being adopted by a growing

number of businesses and governments. The source

code and its documentation are open to all to review

and improve. Open source applications and system

software can be downloaded from the web. Program-

mers continually improve the code, not for monetary

remuneration, but to prove their programming prow-

ess and gain the appreciation of the users. This prac-

tice yielded the powerful operating system Linux as

well as hundreds of useful applications.

● Almost all software is licensed. The user purchases

or agrees that they have the right to use the soft-

ware for a limited time or indefinitely, but does not

own the software. Software as a Service (SaaS) is

an alternative to traditional software licensing in

which application software is developed and main-

tained by a third-party provider and offered to orga-

nizations for a recurring fee.

● Businesses should follow a systematic evaluation to

determine the suitability of ready-made software to

their needs. Consideration of software includes many

factors, among which are fitness for purpose, ease of

learning to use, ease of use, reputation of the vendor,

and expected quality of support from the vendor.

● While software prices have decreased over the

years, software piracy is still a problem. The latest

estimate of the cost of software piracy is $114 billion.

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2 PART

KIMBALL’S REVISITED

Michael, Liz, and Tyler have been focused on the

renovations and the move to the new location.

Currently, the computer systems are used to interact

with the restaurant point-of-sale system for

management reporting and system administration

functions. With their new computer system, Tyler

believes that they can do more, especially in the area of

operations. He knows that the operations of the

restaurant should focus on more than simply the

system that places the orders from customers, sends

the orders to the kitchen, and prints the guest checks. The

point-of-sale system must store important data that could

be used by other functions to operate the business.

What Is Your Advice?

1. What types of software are needed by Kimball’s to

assist them with their operations? What applica-

tion software do you believe would complement

their point-of-sale system?

2. Research various restaurant point-of-sale systems.

Can Kimball’s use any packaged productivity

software or integrate with this software to help

manage the restaurant?

3. Tyler has heard a great deal about the differences

between Windows and Mac-based software for

graphics and artistic work. Now that you have

two new Windows-based personal computers for

the restaurant, should you consider additional

hardware components or software to work on

their graphs needs?

New Perspectives

1. Liz is very cautious about using past information

for ordering food from suppliers. She never has

done that and the restaurant seems to be doing

well. Discuss your rationale with her relating to a

better approach to this activity.

2. What advice would you give to Tyler to help him

with the development of the initial website for the

new location? What would you suggest to help

with the marketing and promotion of the new

location (from previous chapters)?

3. Can you use the initial website design to help the

restaurant? Or do you think you need to scale up

to a larger website solution to gain effectiveness?

Key Terms

applet, 155

application, 150

application program interface

(API), 165

application software, 150

application-specific software, 158

assembly language, 151

compiler, 156

debugging, 152

driver, 167

general-purpose application

software, 158

graphical user interface (GUI),

155

groupware, 163

hypermedia, 160

interpreter, 156

machine language, 151

mashup, 161

multimedia software, 161

object code, 156

object-oriented programming

(OOP) language, 154

open source software, 169

operating system (OS), 165

packaged software, 158

plug-and-play (PnP), 167

programming, 150

programming language, 151

proprietary software, 169

software, 150

software as a service (SaaS),

172

source code, 156

suite, 159

system software, 150

utilities, 166

virtual memory, 167

visual programming language,

153

webpage authoring tools, 161

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PART 2

Review Questions

1. What are the most popular operating systems

for mainframe computers? Personal

computers?

2. If you were going to develop a new mobile

application for the Android, what are the various

software development kits that you would

consider?

3. The use of 4GLs is said to contribute to program-

mer productivity. How so?

4. What is multimedia? Give five examples of how

this technology can be used in training, customer

service, and education.

5. With so many ready-made software packages

available, why do some companies commission

software development projects?

6. Office applications are often called productivity

tools. Why?

7. Electronic spreadsheets are great tools for

modeling. Give an example of a model that

shows gradual growth of a phenomenon and

describe how you would implement it in a

spreadsheet.

8. What are the different media in multimedia?

9. What is the importance of 3-D geographic soft-

ware? For which types of organizations is it

useful?

10. What is the difference between system software

and application software?

11. What are the advantages of developing a website

using a tool such as Artisteer or Joomla? Are

there any disadvantages?

12. Linux is a free and stable operating system, which

is a great advantage. What are the disadvantages

of adopting it?

13. What is the difference between an interpreter and

a compiler?

14. To a compiler or interpreter any logic is legiti-

mate, even if it results in a bad program. Why

can’t compilers and interpreters detect logic

errors in a program?

15. What are the main elements to consider when pur-

chasing ready-made software for an organization?

16. What is open source software? To what does the

word “source” refer?

17. Give three reasons why Linux has become a

popular server operating system.

Discussion Questions

18. Why has the trend been to purchase software

rather than have it tailor-made for organizations?

19. Think of a standard application such as a payroll

system. What might drive an organization to

develop its own payroll application rather than

purchase a ready-made application?

20. Practically all operating systems that run on PCs

have graphical user interfaces. What additional

(or different) elements would you like to see in

operating systems and applications to make them

more intuitive?

21. A decision to adopt Linux or another open

source operating system is not an easy one for

IS managers. What are their concerns? (Hint:

Think of the relationships between OSs and

applications.)

22. Some companies sell open source software, such

as Linux. Companies and many individuals buy

the software rather than download it free of

charge. Why? Would you buy such software or

simply download it from the web?

23. Widespread free application software, such as

OpenOffice.org, that runs on a variety of OSs, as

well as web-based applications such as Google

Drive, threatens to eat into Microsoft’s potential

revenue. Why?

24. The more an application takes advantage of a

GUI, the more suitable it is for international use.

How so?

25. Increasingly accurate voice recognition software

and sophisticated software that can interpret

commands in natural language are bringing us

closer to the days of operating a computer by

speaking to it. Would you rather speak to a com-

puter than use a keyboard, mouse, or some other

input device? Why or why not?

26. Why is software piracy so pervasive? What are

your innovative ideas to reduce this problem?

27. Most pressure to legislate and enforce copyright

laws for software has come from North America

and Western Europe and not from other parts of

the world. Why?

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2 PART

28. Do you think open source software will proliferate

or disappear?

29. If you were so proficient in programming lan-

guages that you could improve open source code

(such as the Linux operating system, the Firefox

browser, or any of hundreds of applications),

would you do it for no monetary compensation?

Why or why not?

30. In what ways can young people who seek IT

careers benefit by participating in improving open

source software?

31. Some observers compare open source software

to water. Both the software and water are free,

but some companies manage to generate reve-

nue from selling them. How?

Applying Concepts

32. HeadHunter, Inc., is a new personnel recruiting

and placement company. The well-established

and cash-rich management consulting company

that founded HeadHunter is intent on providing

adequate financial resources for the new firm to

acquire information systems. HeadHunter has

opened offices in eight major U.S. cities and two

European cities.

Recruiting specialists exchange written corre-

spondence with prospective clients, both man-

agers looking for new positions and companies

that might hire them. Records of both recruits and

client companies must be kept and updated. All

10 branches should be able to exchange infor-

mation in real time to maximize the potential

markets on both continents. HeadHunter

professionals will often travel to make presenta-

tions before human resource managers and other

executives.

The majority of HeadHunter’s own personnel are

college graduates who lack programming skills.

HeadHunter management would like to adopt

software that is easy to learn and use.

a. List the types of software the firm needs, both

system software and applications.

b. Research trade journals and online sources.

Suggest specific software packages for the

firm.

c. Develop an evaluation matrix (as shown in

Figure 5.9) for each software package

alternative.

Hands-On Activities

33. Honest Abe and Cars R Us are two fiercely com-

petitive car dealerships. Recently, both started to

sell Sniper Hybrid, a new model from Green

Motors. Dealers’ cost of the car is $19,600. Green

Motors pays a dealership $300 for each car sold,

and the dealership also keeps whatever markup it

adds to the cost. Both dealers start selling the car

at the price of $20,600.

Immediately after the two dealerships started to

offer the car, each decided to lower the price until

the other dealership stopped selling the car.

However, their price reduction policies differed.

Honest Abe’s policy is as follows: at the end of

each day, the company sets the price for the next

day at the competitor’s price minus $50. Cars R

Us’s policy is the following: at the end of each

day, the company sets the price for the next day

at the competitor’s price minus one percent.

Each dealership decided to stop selling the car

as soon as it sells a car at a loss instead of a

profit.

Using a spreadsheet application, enter the initial

numbers and build a model that will help you

answer the following questions:

a. Which dealer will stop selling the car first?

b. How many days after it starts to sell the car will

this dealer stop selling it?

c. How much money will this dealer lose per car

on the first day it loses money on this car?

d. If the Honest Abe changes his price reduction

to $25, how will this change the results?

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PART 2

Team Activities

34. Team up with other students from the class. Each

student must select a personal desktop computer,

tablet, or a laptop to analyze. Create a group on

Wiggio.com with yourself and your teammates.

Create a folder for each of the devices. Within

each folder create one spreadsheet and one doc-

ument. In the spreadsheet, create a table that

shows the price, specifications, brand, and fea-

tures. In the document, write a short rationale of

the device you chose (2-3 paragraphs) based on

the information from the spreadsheet.

Use Wiggio’s team environment to edit and

review your teammates’ work. Select a competing

device researched by one of your teammates.

a. Download and edit their spreadsheet. Create

additional columns to the right to provide your

evaluation of their device using the same

evaluation criteria. Upload your new version of

the spreadsheet to their folder.

b. Download and edit their document. Compile a

short narrative that compares your device to

their selection. Update your new version of the

document to their folder.

c. Add your professor to the group so he/she can

see the previous versions of the documents

and spreadsheets and grade your work.

At the end of the assignment, jointly write a

1-2-page response to the Team Assignment

answering the following questions:

a. How did Wiggio help your group during this

activity?

b. What features of Wiggio were most useful?

Least useful?

c. What did you think of groupware? How did

using groupware affect the completion of this

assignment?

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PART 2

From Ideas to Application: Real Cases

Less May Be More

Sometimes, the best is the worst enemy of the good.

In software, too much sophistication may alienate

customers instead of improve service. Managers at

one successful business learned this the hard way.

Citizens National Bank of Texas has a long history.

It was established in Waxahachie, Texas, in 1868, and

is still privately held. The bank has 16 offices. It does

not try to compete with big banks, but rather caters to

small communities of 500–25,000, and emphasizes

friendly customer service. The extra care has paid off:

the bank enjoys two to two and a half cross-sales per

customer, a ratio considered high in banking. This

means that, on average, each customer has

purchased more than two products, such as a

checking account, savings account, or home loan.

Banks’ profitability is highly related to the number of

services the same customer purchases. Citizens’ best

customers use six or seven products.

For many years the bank tracked customer

contacts manually. Relationship bankers—as the

bank’s salespeople are called—wrote down on paper

the details of contacts. Every Monday, management

received a sales report covering the previous week

and the calls each banker was going to make that

week. With 50,000 customers and many prospective

ones, this information soon became reams of paper.

The documents contained good information, but the

information was difficult to glean and manage.

In 2001, management decided to install a

customer relationship management (CRM) system.

The product chosen was a CRM package from Siebel

Systems (which was later acquired by Oracle).

Citizens National hoped to enable the CEO and the

16 relationship bankers to improve tracking of

prospective customers and increase the number of

contacts the bankers made.

The bank hired a local consulting firm that

specializes in installing software for small

businesses. The cost of the new software was

$150,000. Installing it and adapting it to the bankers’

needs cost another $350,000. Siebel’s CRM software

is recognized as very good, but it was overkill for the

bankers, who were typically old-fashioned sales-

people not keen on using technology. The system

has many features that the bankers did not need,

and lacked simple features that they did need. It was

too sophisticated for Citizens’ simple handling of

customers. Much of the adaptation time was spent

turning off unused features.

Large companies often use CRM systems to set up

customer support cases, which are files with details of

complaints and how they were resolved, from

beginning to end. The bank did not need this function.

When customers call to complain, the call center

handles the complaint immediately, or channels it to

the appropriate officer for immediate resolution. If a

customer needs a new checkbook, the call center sends

an email message to the proper bank worker who

handles checkbook orders. The request for the activity

is scheduled, and the bank worker handles such

requests in the order in which they come in. The new

system did not support this simple way of operation.

The bankers found navigating the new system

challenging. Moving from a window to another

relevant window was not intuitive, and the bankers

wasted much time. They expected to see the typical

opportunities to sell more services to a customer

listed in the record of the customer. For example,

they expected to see an opportunity to offer the

customer a business loan listed. However, such

opportunities must be entered by the system’s users

when the customer record is set up.

Different relationships with the same customer

might be on different screens. The bankers were

confused, and could not get a good sense of all the

relationships a customer might have with the bank

(such as which services the customer used or a

history of complaints the customer had). They had to

flip screens constantly. The relationships were

organized in a manner inconvenient to the bankers.

A consultant that specializes in CRM systems

observed that Siebel’s system had everything, which

is typically too much for small businesses. These

clients, he said, usually lose the forest for the trees.

Another challenge was integrating Siebel’s

software with Citizens’ banking software. Like many

small and medium size banks, it uses Kirchman

Bankway. The software helps process and track

deposits, loans, and trust accounts. While the

Kirchman software keeps customer last and first

name in a single field in its database, Siebel’s

systems keeps them in two separate fields. This and

other differences made integration of the systems

time-consuming. The bankers did not expect the

integration time to be so long. After three years,

Citizens’ management decided to abandon Siebel’s

system. The bank’s consulting firm was committed

to automating CRM at the bank.

As shown in the previous example, information

technology is not always a successful initiative for

business organizations. The goal of customer

relationship management software (CRM) is to find,

attract, and convert prospects to business customers

of an organization. In addition, it must be able to

retain its current customers as well as attempt to win

back customers it may have lost. Ultimately, this

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PART 2

software application can leverage its functionality to

achieve its goal while reducing marketing costs and

maintain quality customer service.

Investments in information technology for

effective customer relationship management must

focus on its ability to target the right customers to

prospect and encouraging these customers to adopt

a set of principles and actions to retain them for a

lifecycle of profitability. Notice that it is not simply to

“win” customers, but to gain profitable customers. An

intensive approach to gain these customers is

imperative. Research has shown that customers will

open 73 percent of their accounts within the first 90

days of the relationship. To gain wallet share and

customer loyalty, it’s important to tailor the “pitch”

based on their expectations. An effective CRM will

provide that guidance to offer the best products to a

prospective customer at the correct time.

An article focused on information technology

solutions for financial institutions (credit unions)

suggests three important considerations for CRM

implementations:

1) The solution must fit your banking-specific needs.

2) The software must be easy to use.

3) The software should be integrated with your core

system.

The article states that businesses are set in an

environment exhibiting constant change. CRM

software, along with sales force automation software,

are evolving along with the changes in business

strategy and operations. The suggestions above

provide insight that the software solution must allow

customization to the business needs. While the goal of

CRM is to maximize the wallet and market share, a

system which is complex or challenging to use will not

achieve its purpose. The human factor associated with

the ability to use the system is always a significant

factor on how its users interact with a new system.

The data maintained by CRM systems needs to

maintain a “360-degree view” of your relationship

with your customers. Ultimately, data gathered from

third-party sources as well as your core information

system must all remain synchronized and integrated

for your employees to develop an accurate

relationship with customers.

Sources: Bartholomew, D., “Why Citizens National Bank Threw Out Siebel in Favor of Intuit’s QuickBase,” Baseline, February

26, 2007 (www.cnbwax.com), April 2007; Buhler, A., “CRM

Selection,” Credit Union Management, April 2012.

Thinking About the Case

1. What were the goals of installing CRM software?

2. A Siebel executive commented that the com-

pany’s CRM system does not fit the needs of all

clients. He noted that the clients need to decide if

they want an application or a tool kit. Research

the term “tool kit.” Is Siebel’s CRM system an

application or a tool kit? Explain why.

3. The bank’s president said that management

learned a lesson, and that the $500,000 spent on

the abandoned CRM system was tuition for that

education. What would you have done in the first

place to avoid this “tuition”? Use the three con-

siderations as the foundation of your analysis.

Investing in Automation for Efficiency

In turbulent economic times and competitive markets,

businesses that can reduce operating costs and

increase resource productivity are the corporate

version of an Olympic silver medalist. If a business

expands its market share and/or sales revenue as well,

they should be awarded a gold medal. Medco and

Staples are two such organizations, gaining positive

achievements through investment in automation and

software. In businesses that distribute or manufacture

hard goods, it is important to move products from

distribution centers as efficiently and economically as

possible. New strategies and tactics are needed to

realize these goals.

One of the largest health-care companies in the

United States, Medco was a spin-off of Merck with $60

billion in revenues in 2009. Its managed pharmacy

benefits product provides services to about 20 percent

of Americans. Various employers, unions, and

governmental agencies contract with Medco to fulfill

prescriptions for employees to keep them healthy

while reducing costs. Not a simple goal.

Medco knew that they could not expand their

business simply by hiring more pharmacy technicians

to fulfill prescriptions. These employees are highly paid

and are capable of providing more value than just

counting pills and closing a cap. Management knew

that a strategy capable of scalability was an important

component of their expansion. The company embarked

on an initiative to automate the prescription fulfillment

process from order to shipment.

Their new system was developed with over 1 million

lines of software code, capable of processing 1,500

database transactions per second. The confluence

between the patient database management system and

automated pharmacy dispensing formed the strategy for

the information technology infrastructure. Their two

fulfillment centers handle approximately 2,000 stock-

keeping units (SKUs), focusing on high-volume and

most-prescribed drugs. In 2007, their successful

automated fulfillment system and expanding business

created the need for a third fulfillment center.

In 2009, Medco fulfilled 103 million prescriptions

annually. However, the success story does not revolve

solely on the revenue and transactions, but on the

astonishingly little time that Medco requires to

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).

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2 PART

process an order. Prescription transactions (received,

dispensed, packed, and loaded for shipment) are

completed in less than 25 minutes. Each order is

required to pass through 100 automated control

checkpoints during the lifecycle of the fulfillment

process. Efficiency and speed without quality

controls for prescription orders would create both

liability and loss of business. Their engineering chief

noted “The worst thing we could do would be to

automate an error.”

Staples has become the world’s largest office

products company, growing from $2 billion to $24

billion in annual sales over 15 years. Their

management and operational successes have led the

industry in profitability and are one of only three top

office products companies to realize a profit.

Customer satisfaction with Staples’s delivery

business became problematic in 2005. Their analysis

of the issues determined a direct correlation between

orders with errors and loss of customers. The cost of

new customer acquisition was lost with the inaccurate

or late delivery of customer orders. Ultimately, the

cost of rework and fulfilling an order correctly has

“significant economic value.”

A complete “out of the box” method was

considered. Instead of the fulfillment personnel

moving toward the product, why not have the

product be brought toward the fulfillment personnel?

The operators were placed at stations at the perimeter

of the warehouse. Control software transports the

products to the operators using mobile robots. The

cycle times and labor requirements were reduced

through the entire warehouse activity process, from

receiving to shipping. Their pilot implementation was

extremely successful, reducing the order fulfillment

time by half and lowering the picking error rate.

Like Medco, Staples’s new system can be

adjusted according to demand and capacity assigned

to jobs based on need. In addition, the new system is

less demanding on its workers, with less walking and

lifting necessary to complete an order.

Source: Manrodt, K. B., Ogle, M., & Harrington, L. (2011). The Case for Infrastructure Investment: Lessons from Medco and

Staples. Supply Chain Management Review, 15(5), 40–46.

Thinking About the Case

1. Each of these systems needed significant invest-

ment in resources and capital. What do you

believe was the rationale to justify the costs of

these systems? What types of quantitative sav-

ings can be documented to support this

rationale?

2. It is rather simplistic to conceive the benefits to

automating business operations. What would be

the subjective factors and risks associated with

these initiatives?

3. The competitive pressures have become more

prominent. How would initiatives such as those

implemented by Medco and Staples change the

competitive environment in their respective

industries?

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Geoghegan, S. (2013). Fleet Management Software. Law & Order, 61(4), 52-55.

Yeaton, T. (2013). Beyond Cost-Cutting: Why Open Source Software Is Gaining Traction on Wall Street, Wall Street & Technology - Online, Feb 8.

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PART 2

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BUSINESS NETWORKS AND TELECOMMUNICATIONS

Learning Objectives Modern telecommunications technology allows businesses to send and receive information in seconds. Except when a physical transfer of goods or performance of a local service is involved, geographical distances are becoming insignificant in business transactions. When using computers and other digital devices, people can now work together as if they were sitting next to each other, even when they are thousands of miles apart. Financial transactions and information retrieval take seconds, and wireless technology enables us to perform these activities from almost anywhere and while on the go. Understanding the technology underlying telecommunications—its strengths, weaknesses, and available options—is essential in any professional career.

When you finish this chapter, you will be able to:

● Describe business and home applications of digital telecommunications.

● Identify the major media and devices used in telecommunications.

● Explain the concept of network protocols.

● Compare and contrast various networking and Internet services.

● List networking technologies and trends that are likely to have an impact on businesses and information management in the near future.

● Discuss the pros and cons of telecommuting.

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2 PART

KIMBALL’S RESTAURANT: A New Look at Customer Service and Technology

Tyler knew that the opening of the new location was

quickly approaching. The renovations were going well

and expected to be completed on time. The upgrade of

the computer system was installed at the current loca-

tion and functioned without any issues. The servers

were entering orders using the touch screen monitor

installed on a workstation in the restaurant. Michael

and Tyler observed the servers as they used the new

system. The servers seemed to readily accept the new

technology and used it to enter customer orders. Tyler

asked the servers for feedback.

They provided positive comments on how easy the

system was to use. They still had to take notes at the

table, although some were trying to remember the orders

and then enter them into the system. They thought that

the customers were impressed with the quality of service

without writing the orders on a pad. One of the servers,

Rick, said that when he placed the meals at the correct

customer without asking, it showed superior customer

service and saved time delivering the meals. At first, Rick

did not think the new system would work well, but now

sees its benefits.

Liz also saw the benefits. She noticed that the ser-

vers did not seem to be returning very many meals for

mistakes after they were served. That reduced the num-

ber of “rush” meal reorders that caused chaos in the

kitchen. The cooks have been pleased that they can pre-

pare a meal once and eliminate additional effort to re-

prepare a meal. Liz also noticed that she did not see

any order changes with the new system. She wondered

why. Customers could not suddenly stop changing their

minds about orders. She asked one of the servers about

this. Harriet, the most experienced server, said that cus-

tomers often changed their meal details. However, from

her experience, she said that these changes almost

always happened within a short period of time after the

server placed the order. Harriet believed that the change

was entered into the system so that the kitchen staff

probably was not aware of the change. Previously, she

had to go into the kitchen and change the guest check.

Clark, from PosiDining, contacted Tyler about a new

offering. They just completed the development of a soft-

ware application that allows servers to enter orders on a

tablet. Tyler thought that using tablets would be awe-

some, but wondered what it would cost. They already

purchased a touch screen workstation that they are

using in the current location and which would be

installed at the new location.

Clark said, “You’ll need additional workstations for

two reasons. First, because the size of your new location

is larger, you’ll have too many servers trying to enter

orders on one computer. Second, you should have at

least one additional unit in the event of a hardware

failure.” Tyler thought that was reasonable. Clark

explained that the hardware cost of the tablet is less

than the touch screen hardware unit. He suggested that

Tyler might want to use a combination of tablets and the

traditional entry units. This system would require a sim-

ple router capable of both wired and wireless access con-

nected to the current server. The PosiDining software

would work with both Android and Apple tablets.

Serving the Technology Infrastructure The new location was built over 50 years ago, when the

only networks anyone knew about were TV networks.

The building structure was not suited to adding net-

work cabling throughout the building, but Tyler was

thinking about where they would need networking

and cabling. In the old location, his parents had not

invested in an Internet connection for the restaurant.

They used a small POS unit connected to a phone line

to process credit transactions. Tyler knew that their

new business model required some more general con-

nections to the Internet.

In the renovation design, Tyler slipped in some

additional networking specifications just before the con-

tractors began their work. Using the floor plans, he was

able to identify specific locations that needed network

connectivity. These locations included the serving work-

stations, host station, bar, office, kitchen, banquet room,

and dining room.

In the final month of renovations, Michael questioned

the cost of these additions. Michael asked, “Tyler, why

do we need network connections in the walls of the din-

ing and banquet rooms? We only need it at the worksta-

tions for the servers. People are not going to be doing

Internet work at their tables, are they?” Tyler sighed.

“Dad, people want to be connected to the Internet for

their smartphones. Look in coffee shops and other res-

taurants. They advertise it as something the establish-

ment provides.” Michael started to understand, and

Tyler continued, “Think about it, Dad. If you book pre-

sentations and business meetings, the customer may

need Internet for their meeting. We could either charge

them for it or bundle it as an added service.” Michael

once again was grateful for Tyler’s young perspective

and recent business education, and how they would

help Kimball’s. He knew that the networking would add

more cost to the renovation, but it would be worth it.

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PART 2

Telecommunications in Business

It is your first visit to Barcelona. You are standing at a bus stop, waiting for the bus that will take you on the next leg of your vacation tour. You pull out your mobile phone, send a short text message to a four-digit number, and receive a message with an accurate time when your bus will arrive. You then use the device to receive directions and maps describing how to get from one point to another. You use the time until the bus arrives to view a local TV program on your phone. On the bus, you use the device to check your email. When you arrive at your destination you use the phone to find one of the many hotspots where you can connect to the Internet. You use the phone to email and call home. Since the call uses the Internet, it is free.

POINT OF INTEREST Looking to Create a Stir?

The best way to get your thoughts into the public’s hands in the modern era is through social media. With 500 million active Facebook users and more than 175 million Twitter users, it’s almost crazy for businesses to not utilize these mass marketing devices. The hundreds of millions of social media users far surpass the 46 million in the United States who still subscribe to a daily newspaper and the 7.6 to 12 million aver- age daily prime-time viewers of the top four TV networks (ABC, CBS, NBC, and Fox). Social media outlets allow people and businesses to effectively and swiftly dispatch their messages to mass numbers of friends or customers. In today’s business environment, getting your message out there first is key. Source: Neuharth, A. (2011, Feb 25). Facebook and Twitter now are our triggers, USA TODAY, p. A.11.

Telecommunications, which is essential to smooth operations in today’s business world, is the transmittal of data and information from one point to another. The Greek word tele, which means “distance,” is part of such words as “telephone,” “teleconference,” and other words referring to technologies that allow communications over a distance. Thus, telecommunications is communications over a distance. When considering telephone, email, the web—none of these essential business services would be available without fast, reliable telecommunications. Telecommunications, made possible by networking technologies, has brought several improvements to business processes:

● Better business communication. When no physical objects need to be transferred from one place to another, telecommunications technology can make geographical distance irrelevant. Email, voice mail, instant messaging (IM), faxing, file transfer, mobile telephony, and teleconferenc- ing enable detailed and instant communication, within and between organizations. Telecom- munications can also be used by one person to monitor another person’s performance in real time. The use of email, IM, and voice mail has brought some secondary benefits to business communications by establishing a permanent written or electronic record of, and accountabil- ity for, ideas. Web-based instant messaging is used to support online shoppers in real time. The result is more accurate business communications and reduced need for manual recording.

● Greater efficiency. Telecommunications has made business processes more efficient. Any infor- mation that is recorded electronically can become immediately available to anyone involved in a business process, even when the business units are located far apart. For example, as soon as an order is placed, anyone in the organization who will be involved with it at any stage can view the order: from the marketing people, to purchasing officers, to manufacturing managers, to shipping workers, to billing and collection clerks. For example, if a store lacks a certain item, a clerk can check the entire chain’s inventory and tell the customer the nearest store that has the item available. If a customer wishes to return an item, she can do so at any store of the chain because a sales associate can easily verify the purchase details. This may also help retail chains discover “serial returners.”

● Better distribution of data. Organizations that can transmit vital data quickly from one com- puter to another can choose not to have centralized databases. Business units that need

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2 PART

certain data frequently might store it locally, while others can access it remotely. Only fast, reliable transfer of data makes this efficient arrangement possible.

● Instant transactions. The availability of the Internet to millions of businesses and consumers has shifted a significant volume of business transactions to the web. Both businesses and con- sumers can shop, purchase, and pay instantly online. Wireless technology has also made pos- sible instant payment and data collection using small radio devices, such as electronic toll collection tags. In addition to commercial activities, people can use telecommunications for online education and entertainment.

● Flexible and mobile workforce. Employees do not have to come to the office to carry out their work as long as their jobs only involve the use and creation of information. They can tele- commute using Internet connections. Salespeople, support personnel, and field workers are more mobile with wireless communication.

● Alternative channels. Services that used to be conducted through specialized dedicated chan- nels can be conducted through alternative channels. For example, voice communication used to be conducted only through proprietary telephone networks but is now also conducted through the Internet using Voice over Internet Protocol (VoIP), which decreased its cost. Radio and television broadcasts were conducted through radio frequencies and company- owned cables. Newer technologies enable organizations to broadcast over the Internet and provide telephone services over the Internet as well. Furthermore, Internet technologies allow individuals to broadcast text, sound, and video to subscribers’ computers or to web-capable mobile devices. (We discuss these technologies in Chapter 8, “The Web-Enabled Enterprise.”)

At the same time you enjoy the opportunities created by telecommunications technology, you must recognize that it poses some risks. Once an organization connects its information systems to a public network, security becomes a challenge. Unauthorized access and data destruction are constant threats. Thus, organizations must establish proper security controls as preventive measures. We discuss the risks and security measures in Chapter 14, “Risks, Security, and Disaster Recovery.”

Telecommunications in Daily Use

We have grown so accustomed to telecommunications networks that we no longer think much about them in daily life; however, they are pervasive. The most widespread telecommunications uses are described in the following sections.

Cellular Phones

Cellular phones derive their name from the territories of service providers, which are divided into areas known as cells. Each cell has at its center a computerized transceiver (transmitter- receiver), which both transmits signals to another receiver and receives signals from another transmitter. When a call is placed on a cellular phone, the signal is first transmitted to the closest transceiver, which sends a signal through landlines that dial the desired phone number. If the receiving phone is also mobile, the call is communicated to the transceiver closest to the receiving phone. As the user moves from one area, or cell, to another, other transceivers pick up the transmission and receiving tasks.

Using cellular phone networks, people can transmit and receive calls almost anywhere, freeing them from a fixed office location. Many mobile phones today are “smartphones”; they can access the Internet and web and include applications or “apps” to perform thousands of different functions. People use their mobile phones for email, web surfing, online banking, shopping, and keeping up with their friends. Many mobile phones include digital cameras, contact lists and calendars, and GPS (global positioning system) circuitry. “My car is my office” is a reality for many professionals who spend much of their time traveling. As technology advances and more capabilities are squeezed into smaller casings, some professionals can say, “My pocket is my office.”

The major advantage of mobile phones is that they are attached to people, not offices. This is why many companies have decided to discard landlines in favor of either mobile phones or Internet-based (VoIP) phone services. In the U.S., people are replacing residential landline

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PART 2

telephone service with cell phones. According to the National Center for Health Statistics, in 2011, 32 percent of all households consisted of wireless only service (Zager, 2012).

Some companies make the switch to mobile phones when they move their offices. Moving electronic switchboards and telephone lines to its new offices in Hawaii would have cost NovaSol, a scientific research firm, $30,000. The company decided to equip its 80 employees with cell phones. Other companies make the switch because so many employees already have both landline phones in the office and a cell phone for their time with customers or on manufacturing lines. For this reason, Dana Corp., a manufacturer of auto parts, removed most of the phones from its offices in Auburn Hills, Michigan. The lines left are used mainly for teleconferencing.

Videoconferencing

People sitting in conference rooms thousands of miles apart are brought together by their transmitted images and speech in what is called videoconferencing. Businesses use videoconferencing to save on travel costs and lodging, car fleets, and the time of highly salaried employees, whether they work in different organizations or at different sites of the same

organization. From national and global perspectives, videoconferencing also reduces traffic congestion and air pollution. The increasing speed of Internet connections makes it easy for anyone with a high-speed link to establish videoconferences by using a peer-to-peer link or the services of a third party, a company that specializes in maintaining videoconferencing hardware and software. In the latter case, businesses pay a monthly fee for unlimited conferences or pay a per-use fee.

The popularity of video-conferencing has created several new application software pro-ducts used by individuals and businesses. Some examples are Citrix GoToMeeting, Cisco WebEx, Adobe Connect, ooVoo, and Skype. The increasing popularity of telecommuting has increased the adoption of videoconferencing. In addition to being a cost-effective alter- native to travel, web-based meetings can be set up on an impromptu basis and can be made more productive with the tools provided in video-conferencing software.

Wireless Payments and Warehousing

Radio frequency identification (RFID) technology, mentioned in Chapter 3, “Business Functions and Supply Chains,” and covered in more detail later in this chapter, enables us to conduct transactions and to make payments quickly. An increasing number of drivers never approach a cash register or swipe credit cards when paying for fuel at gasoline stations. If you use a speed payment device such as ExxonMobil’s SpeedpassTM, an RFID tag communicates with a device on the pump to record the details of the transaction. An antenna dish on the rooftop of the gas station communicates these details and checks your credit through a link to a large database located hundreds or even thousands of miles away and operated by the bank authorizing the charge. In this transaction, you use telecommunications twice: once between the device and the pump, and once between the gas station’s antenna and the database. Wireless toll payment systems use a similar technology. A special transceiver installed at the toll plaza sends a signal that prompts the tag installed in your car to send back its own signal, including the unique owner’s code, entry location, and time the vehicle passes by. The information is used to charge

Videoconferencing saves time and travel expenses while increasing organizational productivity

Comstock/Photos.com

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2 PART

the account associated with the owner’s number, and the information captured is transmitted to a large database of account information.

RFID technology is also used in warehouses where employees can use handheld units to check a central system for availability and location of items to be picked up from and stored in shelves or bins. When storing, the handhelds are used to update inventory databases. Such systems have made the work of “untethered employees” more efficient compared with older systems that require physical access to a computer. Wireless communications have many other uses, some of which are discussed in detail later in the chapter.

Another form of wireless payment that is becoming increasingly popular is mobile payment/ electronic wallet apps for mobile devices. Mobile payments have received mixed reviews due to security concerns however; early investments from large banking institutions say otherwise. One product gaining traction in a few U.S. cities is Isis™. Isis™ is more than just a mobile payment app for a smartphone; it is a complete electronic wallet. Included in the wallet are payment cards, promotional offers, and loyalty cards. The app uses near-field communication to contact checkout terminals at Isis Ready™ merchants. Near-field communication (NFC) is a standard communication protocol to create a radio connection between two devices. The connection can be completed either by making contact between the two devices or by bringing the devices into close proximity (within a few centimeters). Currently, Isis is compatible with only American Express, Capital One, and Chase payment cards. Mobile payment and electronic wallet innovations capitalize on the convergence of two items that most people have on them at all times: their wallet and smartphone. (Leber, 2012; Anonymous, 2012b)

WHY YOU SHOULD Understand Telecommunications

As a professional, you will be responsible for ensuring that your organization maximizes its benefits from fast and reliable telecommunications. To do so, you might be involved in select- ing from networking alternatives. To be a creative and produc- tive contributor to these decisions, it is essential that you understand the fundamental promises and limitations of net- working and telecommunications.

Many tasks that used to be in the sole domain of highly paid specialists are being performed by professionals whose main occupation is not IT. For example, creating small networks in businesses and homes used to be the responsibility of techni- cians. Now any professional is expected to know how to cre- ate hotspots and how to use a plethora of networks: wired, wireless, and cellular.

Peer-to-Peer File Sharing

One of the most exciting features in worldwide telecommunications is peer-to-peer (P2P) file sharing through the Internet: anyone with access to the Internet can download one of several free applications that help locate and download files from any online computer. You might have heard of some of these applications, such as LimeWire, BitTorrent, and Vuze. While the concept has effectively served scientists who share scientific text files and application developers who exchange code, the most extensive use has been in downloading artistic files, such as music and video files. Because unauthorized duplication and use of such files violates copyright laws and deprives recording and film companies of revenue, these industries have sued some violators in court, and the U.S. Supreme Court ruled against organizations that provide file-sharing services. Security is also a significant concern with peer-to-peer file sharing. Shared files may contain viruses and other malware.

Web-Empowered Commerce

Increasingly fast digital communication enables millions of organizations to conduct business and individuals to research, market, educate, train, shop, purchase, and pay online. Entire industries, such as online exchanges and auctions, have been created thanks to the web. Web- based commerce is covered in detail in Chapter 8, “The Web-Enabled Enterprise” and is illustrated with many examples throughout the book.

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PART 2

Bandwidth and Media

While people can enjoy technologies without understanding how they work, educated professionals often do need to understand some fundamental concepts to be able to participate in decision making when selecting networking equipment and services. This section introduces bandwidth and networking media.

Bandwidth

A communications medium is the physical means that transports the signal, such as a copper wire telephone line, a television cable, or radio waves. The bandwidth of the medium is the speed at which data is communicated, which is also called the transmission rate or simply the bit rate. It is measured as bits per second (bps). Figure 6.1 shows common bit rate measurements. Bandwidth is a limited resource. Usually, the greater the bandwidth, the higher the cost associated with the communications service. Thus, determining the type of communications lines to install or subscribe to may be an important business decision.

F I G U R E 6.1

Transmission speed measurement units bps = Bits per second

Kbps = Thousand bps

Mbps = Million bps (mega bps)

Gbps = Billion bps (giga bps)

Tbps = Trillion bps (tera bps)

When a line is capable of carrying multiple transmissions simultaneously, it is said to be broadband. Cable television, DSL (digital subscriber line), fiber-optic cables, and most wireless connections are broadband. In general, broadband offers greater bandwidth and faster throughput, and in common usage the term “broadband” is associated with a high-speed networking connection, which is required for fast transmission of large files and multimedia material. In contrast, the term narrowband refers to lower speeds, although the speed under which communication is considered narrowband has constantly increased. Dial-up connections are generally considered to be narrowband.

Media

Communications media—the means through which bits are transmitted—come in several types. Media can be tangible, such as cables, or intangible, such as radio waves. The most available tangible media are twisted pair cable, coaxial cable, and optical fiber (see Figure 6.2). Intangible media include all microwave radio technologies, which support wireless communication. The electric power grid has also been added as a medium for communications. All can be used to link a business or household to the Internet. Later in the chapter we discuss the various Internet connection services and also refer to typical periodic cost of the services.

© Ce ng ag e Le ar ni ng

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2 PART

F I G U R E 6.2

Networking media Medium Availability Bandwidth Vulnerability to

Electromagnetic Interference

Twisted pair cable High Low to medium High

Radio waves High Medium to high Low (but vulnerable to radio frequency interference)

Microwave Low High Low

Coaxial (TV) cable High High Low

Optical fiber Moderate but Highest Nonexistent growing

Electric power Very High High High lines (BPL)

Twisted Pair Cable

Twisted pair cable is a popular medium for connecting computers and networking devices because it is relatively flexible, reliable, and low cost. The most common types of twisted pair network cable today are Category 5 or Category 6 (Cat 5 or Cat 6), named for the cable standards they follow. Twisted pair cable connects to network devices with RJ-45 plug-in connectors, which resemble the RJ-11 connectors used on telephone wire, but are slightly larger.

Twisted pair cable is also used in telephone networks, but in the United States and many other countries, twisted copper wires are now used only between the telephone jack and the central office of the company providing the telephone service. The typical distance of this link is 1.5–6 kilometers (about 1–4 miles), and is often referred to as “the last mile.” The central offices themselves are connected with fiber optic cables, but it is often the “last mile” media that determine the overall speed of the connection. In recent years many “last mile” connections have

also been converted to optical cables. Most new buildings, including residential ones, are equipped with fiber optic cables rather than copper wires.

Coaxial Cable

Coaxial cable is sometimes called TV cable or simply “cable” because of its common use for cable television transmission. It is widely used for links to the Internet. Television companies use the same networks they employ to transmit television programming to link households and businesses to the Internet. Since telephone services can be offered on any broadband Internet link, cable companies also offer telephone service through this medium.

Optical Fiber

Fiber optic technology uses light instead of electricity to represent bits. Fiber optic lines are made of thin fiberglass filaments. A transmitter sends tiny bursts of light using a laser or a light- emitting diode (LED) device. The receiver detects the period of light and no-light to receive the data bits. Optical fiber systems operate in the infrared and visible light frequencies. Because light is not susceptible to EMI (electromagnetic interference) and RFI (radio frequency interference), fiber optic communication is much less prone to error than twisted pair

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Twisted pair cables use an RJ-45 con- nector similar to the RJ-11 telephone connector

Bacилий Topoyc/Photos.com

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PART 2

and radio transmission. Optical fibers can also carry signals over relatively longer distances than other media.

Optical fibers (left) and coaxial cable (right)

The maximum speed attained with optical fibers has been 25.6 terabits per second (Tbps), enough to transmit the content of 600 DVDs in one second. Some optical carriers support bit rates of up to several Tbps. Such great bandwidth enables multiple streams of both Internet and television transmission. Some telecommunications companies, such as Verizon, have laid optical fiber lines to offer households both services, directly competing with TV cable companies such as Comcast. In other countries, such as Japan and South Korea, a greater percentage of households are offered broadband over optical fibers, and the bandwidth that subscribers can receive is significantly higher than that in the United States. However, an increasing number of U.S. communities are served with optical fibers, with speeds of several tens of megabits per second (Mbps). Such speeds permit the telecommunications company to offer television service on the same fiber that provides telephone and Internet service. The potential of optical fibers is usually much greater than telecommunications companies actually provide.

Radio and Satellite Transmission

Radio frequency (RF) technologies use radio waves to carry bits. Several wireless technologies can transmit through air or space. Some of the most popular for personal and business networking, such as Wi-Fi and Bluetooth, are discussed later in this chapter. Microwaves are high-frequency radio waves that can carry signals over long distances with high accuracy. You have probably noticed the parabolic antennas on the roofs of some buildings. They are so numerous on rooftops and high antenna towers because microwave communication is effective only if the line of sight between the transmitter and receiver is unobstructed. Clusters of microwave antennas are often installed on high buildings and the tops of mountains to obtain a clear line of sight. Terrestrial microwave communication—so-called because signals are sent from and received by stations on the earth—is good for long-distance telecommunications but can also be used in local networks in and among buildings. It is commonly used for voice and television communications. When radio communication is used outside buildings, it is vulnerable to weather conditions—thunderstorms, fog, and snow might degrade communication quality.

Signals can also be transmitted using microwaves via satellite links. The two major types of satellites are geostationary, also called GEO, and low earth orbit, called LEO. Both types serve as radio relay stations in orbit above the earth that receive, amplify, and redirect signals. Microwave transceiver dishes are aimed at the

satellite, which has antennas, amplifiers, and transmitters. The satellite receives a signal, amplifies it, and retransmits it to the destination.

Microwave transceivers are used by businesses

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GEO satellites are placed in orbit 35,784 kilometers (about 22,282 miles) above earth. At this distance the satellite is geosynchronized (synchronized with the earth); that is, once it starts orbiting, the satellite stays above the same point on earth at all times, without being propelled. Thus, a GEO satellite is stationary relative to earth. Because they orbit at such a great distance above the earth, three GEO satellites can provide service for every point on earth by relaying signals among themselves before transmitting them back down to their destinations.

Because of the distance from earth to satellites, the communication is fine for transmitting data because delays of a few seconds make no significant difference. However, a delay of even 2 or 3 seconds (due to the trip to and from the satellite and the time of processing the data) might be disturbing in interactive communication, such as when voice and pictures are

communicated in real time. You might have noticed such delays when reporters use devices that communicate to a television station. When an anchorperson asks a question, the reporter on location receives the question with a noticeable delay.

LEO satellites minimize this shortcoming. These lower-cost satellites are placed about 650– 2500 kilometers (400–1600 miles) above earth. The signals’ round-trip is short enough for mobile telephone and interactive computer applications. Unlike GEOs, LEO satellites revolve around the globe every few hours. Multiple LEOs are required to maintain continuous coverage for uninterrupted communication.

Electrical Power Lines

One medium that had been available for years but has only recently been tapped for telecommunications is the electric power grid. The bits in an electric power grid are represented by electric impulses, but they must be distinct from the regular power that flows through the grid. Engineers have succeeded in overcoming this technical challenge. In some regions of the United States, broadband service is offered through power lines. The service is referred to as Broadband over Power Lines (BPL) or Power Line Communication (PLC). BPL is covered in more detail later in the chapter.

From the point of view of organizations, among the important factors in choosing a networking medium are availability, current and potential bandwidth, and vulnerability to electromagnetic interference (EMI) or radio frequency interference (RFI). Your business’s current and future needs for data security, as well as compatibility with an already installed network, are also factors. Cost is another important consideration. For example, one of the benefits of optical fiber is that it is practically immune to EMI. However, it is more expensive than other options. Another point to consider is the availability of a specific service on an available medium. For instance, you might have a telephone line on a remote farm, but no company offers broadband service to it.

Networks

In the context of data communications, a network is a combination of devices or nodes (computers or communication devices) connected to each other through one of the communication media previously discussed. We will often use the word “computer” for a device that is networked, but this is only for convenience. Any compatible device that can transmit and receive on a network is part of it.

Large companies lease communication satellite frequencies to transmit data around the globe

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PART 2

Types of Networks

Computer networks are classified according to their reach and complexity. The three basic types of networks are LANs (local area networks), which connect computers, printers, and other computer equipment for an office, several adjacent offices, an entire building or a campus; MANs (metropolitan area networks), which span a greater distance than LANs and usually have more complicated networking equipment for midrange communications; and WANs (wide area networks), which connect systems in an entire nation, continent, or worldwide. Some people also include a fourth category: PANs (personal area networks), which encompass connections between personal digital devices such as a computer and its keyboard or mouse, or a mobile phone and a hands-free headset.

LANs

A computer network within a building, or a campus of adjacent buildings, is called a local area network, or LAN. LANs are usually established by a single organization with offices within a radius of roughly 5–6 kilometers (3–4 miles). LANs are set up by organizations to enhance communications among employees and to share IT resources. Households might set up LANs to share a broadband link to the Internet and to transmit digital music, pictures, and video from one part of a home to another.

In office LANs, one computer is often used as a central repository of programs and files that all connected computers can use; this computer is called a server. Connected computers can store documents on their own disks or on the server, can share hardware such as printers, and can exchange email. When a LAN has a server, the server usually has centralized control of communications among the connected computers and between the computers and the server itself. Another computer or special communications device can also exercise this control, or control can be distributed among several servers. A peer-to-peer LAN is one in which no central device controls communications.

In recent years the cost of wireless devices has decreased significantly, and many offices as well as households now network their computers wirelessly, or create networks in which some of the computers are wired and some are not. Wireless LANs (WLANs) offer significant benefits: installation is easy because there is no need to drill through walls to install wires, and equipment can be moved to wherever it is needed. Wireless LANs are less costly to maintain when the network spans two or more buildings. They are also more scalable. Scalability is the ease of expanding a system. It is easy to add more nodes, or clients, to a WLAN, because all that is needed is wireless circuitry in any device that comes within range of a wireless network.

However, wireless LANs have a significant drawback: they are not as secure as wired LANs unless some measures are taken. On a wired network, one needs to physically connect a device to access the network resources. On a wireless network, security measures must be taken to prevent connection by unauthorized wireless devices within range of the network. Some of these measures are covered later in the chapter.

MANs

A metropolitan area network (MAN) usually links multiple LANs within a large city or metropolitan region and typically spans a distance of up to 50 kilometers (about 30 miles). For example, the LAN in a chemistry lab might be linked to a research hospital’s LAN and to a pharmaceutical company’s LAN several miles away in the same city to form a MAN. The individual LANs that compose a MAN might belong to the same organization or to several different organizations. The high-speed links between LANs within a MAN typically use fiber optic or wireless broadband connections.

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POINT OF INTEREST A New Type of House Calls

GE Healthcare and Intel have partnered in marketing Intel’s Health Guide patient monitoring and manage- ment system. The system offers in-home services to patients with chronic illness or those recently dis- charged from hospitals who still require healthcare attention. The technology allows patients to check their vitals and track health while the data is sent to databases where patient records are updated, orga- nized, and prioritized. Health Guide increases communication by gathering timely information on patient conditions and offering two-way videoconferencing between nurses and patients. The system is intuitive and easy to use so patients, with timely interaction from healthcare professionals, can provide relevant self-care. Because the amount of “baby boomers” reaching senior citizenship is rapidly increasing, actual face-to-face time in the existing healthcare model is no longer feasible. By closely monitoring patient con- ditions and vitals without a visit to the doctor’s office, healthcare professionals can increase their patients’ health quality and reduce hospitalizations. Sources: Anonymous. (2009, Jul 16). Intel Corporation: Intel Health Guide Adds New Connectivity Options, Customers; Intel Health Guide Enables Personalized Care Management at Home Through Video Conferencing, Vital Signs Collection, and Customizable Content, M2 Presswire; Anonymous. (2010, Jan 06). GE, Intel team up on health push, Investor’s Business Daily.

WANs

A wide area network (WAN) is a far-reaching system of networks. One WAN is composed of multiple LANs or MANs that are connected across a distance of more than approximately 48 kilometers (or 30 miles). Large WANs might have many constituent LANs and MANs on different continents. The simplest WAN is a dial-up connection to a network provider’s services over basic telephone lines. A more complex WAN is a satellite linkup between LANs in two different countries. The most well-known WAN is the Internet.

WANs can be public or private. The telephone network and the Internet are examples of public WANs. A private WAN might use either dedicated lines or satellite connections. Many organizations cannot afford to maintain a private WAN. They pay to use existing networks, which are provided in two basic formats: common carriers or value-added networks.

A common carrier provides public telephone lines that anyone can access or dial up, and leased lines, which are dedicated to the leasing organization’s exclusive use. The user pays for public lines based on time used and distance called. Verizon and AT&T are common carriers. Leased lines are dedicated to the leaseholder and have a lower error rate than dial-up lines, because they are not switched among many different subscribers.

Value-added networks (VANs) provide enhanced network services. VANs fulfill organizational needs for reliable data communications while relieving the organization of the burden of providing its own network management and maintenance. Many businesses use VANs for their electronic data interchange (EDI) with other businesses, suppliers, and buyers. However, due to cost considerations, an increasing number of organizations prefer to conduct commerce via the Internet rather than through VANs. VAN services cost much more than those offered by Internet service providers (ISPs). (Many VAN providers also provide Internet links.) This issue is discussed in Chapter 8, “The Web-Enabled Enterprise.”

PANs

A personal area network (PAN) is a wireless network designed for handheld and portable devices such as smartphones and tablet or laptop computers, and is intended for use by only one or two people. Transmission speed is slow to moderate, and the maximum distance between devices is generally 10 meters (33 feet). For example, Maria and Simon meet at a conference and exchange electronic business cards using their Bluetooth-enabled smartphones. Maria’s device automatically synchronizes her office notebook computer and/or contact databases, updating her address book on both devices to maintain accurate timely information. (Bluetooth and other wireless technologies are covered later in the chapter.)

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PART 2

Networking Hardware

Networks use a variety of devices to connect computers and peripheral devices (such as printers) to each other, and to connect networks to each other. Each computer or device connected to a network must have a net- work interface card (NIC) or proper networking circuitry, which connects through a cable or a wireless antenna to a switch, bridge, or router, which in turn connects to a LAN or WAN. A switch is a common device often used as a central location to connect computers or devices to a local network. A bridge is a device that connects two networks, such as a LAN, to the Internet. A router routes data packets to the next node on their way to the final destination. It can connect dissimilar networks and can be programmed to also act as a firewall to filter communications. Routers keep tables of network addresses, known as Internet Protocol (IP) addresses, which identify each computer

on the network, along with the best routes to other network addresses. You are not likely to see a WAN router, but you might have seen a router used to support a LAN in a small office or in a household. Cable providers usually provide a router for wireless and wired Internet access in a household environment. A repeater amplifies or regenerates signals so that they do not become weak or distorted.

Another type of networking hardware that might be familiar to home computer users is the modem. A modem—a word contracted from modulator-demodulator—in traditional usage is a device whose purpose is to translate communications signals from analog to digital, and vice versa. For many years the only way to link to the Internet was to dial up, meaning connecting over regular telephone lines. These lines were originally designed for analog—continuous— signals rather than for digital signals, which consist of discrete bursts. An analog modem turns the digital signal from your computer into an analog signal that can go out over the phone lines. A modem on the receiving computer transforms the analog signal back into a digital signal the computer can understand. The former transformation is called modulation and the latter is called demodulation.

A dial-up connection with a modem is very slow (usually no faster than 56 Kbps), so most users and small businesses have turned to faster connections that use digital signals throughout the connection, such as DSL and cable connections. Even though the medium transfers digital signals, the word “modem” is now used for the devices that connect computers to the Internet with these technologies. Thus, for example, if you use a cable company to link to the Internet, the device connecting your computer’s network card to the cable is called a cable modem. If you use a DSL service, the device used is called a DSL modem, and if you use a power line, the device is called a BPL modem.

Virtual Private Networks

A LAN is a private network, because it only provides access to members of an organization. Though a firm does not own the lines it leases, the network of leased lines might be considered a private network, because only members authorized by the organization can use it. Many companies cannot afford or do not wish to pay for a private network. By implementing special software (and sometimes also hardware) they can create a virtual private network (VPN). Although the Internet is discussed in Chapter 8, “The Web-Enabled Enterprise,” VPNs are important in the context of the current discussion.

A virtual private network (VPN) can be thought of as a “tunnel” through the Internet or other public network that allows only authorized users to access company resources. The “virtual” in VPN refers to the illusion that the user is accessing a private network directly, rather than through a public network. VPNs enable the use of intranets and extranets. An intranet is a

Wireless LAN routers have become commonplace in offices and households

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2 PART

network that uses web technologies to serve an organization’s employees who are located in several sites that might be many miles apart; an extranet serves both the employees and other enterprises that do business with the organization. It is important to understand that once a LAN is linked to a public network, such as the Internet, technically anyone with access to the public network can obtain access to the LAN. Therefore, organizations that link their LANs to the Internet implement sophisticated security measures to control or totally deny public access to their resources.

AT&T’s Customer Service Centers utilize VPN technology to maintain operational continuity for their call centers. If operations are disrupted due to disaster or inclement weather, call center employees are able to access their contact center technology from their homes using the VPN. They are able to access all of the tools, data, and applications as if they were working at the service centers. VPN technology allows AT&T to establish business continuity for its customers while maintaining employee safety (Read, 2011).