This page intentionally left blank



George W. Reynolds University of Cincinnati

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

Information Technology for Managers

George W. Reynolds

VP/Editorial Director: Jack Calhoun

Senior Acquisitions Editor: Charles McCormick, Jr.

Product Manager: Kate Hennessy Mason

Development Editor: Dan Seiter, Mary Pat Shaffer

Editorial Assistant: Bryn Lathrop

Marketing Manager: Bryant Chrzan

Marketing Coordinator: Suellen Ruttkay

Content Product Manager: Heather Furrow

Senior Art Director: Stacy Jenkins Shirley

Cover Designer: Lou Ann Thesing

Cover Image: ©Getty Images/Photodisc

Technology Project Manager: Chris Valentine

Manufacturing Coordinator: Julio Esperas

Composition: GEX Publishing Services

© 2010 Course Technology, Cengage Learning

ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher.

For product information and technology assistance, contact us at Cengage Learning Academic Resource Center, 1-800-354-9706

For permission to use material from this text or product, submit all requests online at

Further permission questions can be emailed to [email protected]

ISBN-13: 978-1-4239-0169-3 ISBN-10: 1-4239-0169-X

Course Technology 20 Channel Center Street Boston, MA 02210 USA

Cengage Learning is a leading provider of customized learning solutions with office locations around the globe, including Singapore, the United Kingdom, Australia, Mexico, Brazil, and Japan. Locate your local office at:

Cengage Learning products are represented in Canada by Nelson Education, Ltd.

For your lifelong learning solutions, visit

Visit our corporate website at

Microsoft, Windows 95, Windows 98, Windows 2000, Windows XP, and Windows Vista are registered trademarks of Microsoft® Corporation. Some of the product names and company names used in this book have been used for identification purposes only and may be trademarks or registered trademarks of their manufacturers and sellers.

Printed in the United States of America

1 2 3 4 5 6 7 13 12 11 10 09

To my grandchildren: Michael, Jacob, Jared, Fievel, Aubrey, Elijah, Abrielle, Sofia, Elliot —GWR


Preface xii

Chapter 1 Managers: Key to Information Technology Results 1 Belarusbank JSSB 1

Why Managers Must Get Involved in Information Technology (IT) 1 Why Managers Must Understand IT 4 What Is Information Technology? 4

Function IT 6 Network IT 6 Enterprise IT 8

The Role of Managers Vis-À-Vis IT 11 Identifying Appropriate IT Opportunities 11 Smooth Introduction and Adoption of IT 12 Ensuring that IT Risks Are Mitigated 17

What if Managers Do Not Participate in IT? 19 Overview of Remaining Text 20 Chapter Summary 22 Discussion Questions 22 Action Memos 23 Web-Based Case 23 Case Study 23 Endnotes 28

Chapter 2 Strategic Planning 31 FDA Illustrates Why Managers Must Understand Strategic Planning 31 Why Managers Must Understand the Relationship between Strategic Planning and IT 33 What Is Strategic Planning? 34

Defining Vision and Mission 34 Conducting Internal Assessment 36 Analyzing External Environment 36 Defining Objectives 38 Establishing Goals 39 Setting Strategies 39 Defining Measures 42 Deploying OGSM 42 Identifying Projects and Initiatives 43 Prioritizing Projects and Initiatives 44 Executing Projects and Initiatives 47 Measuring and Evaluating Results 47

Effective Strategic Planning: United Parcel Service (UPS) 47 Defining Vision and Mission 47 Conducting Internal Assessment 48 Conducting External Assessment 50 Defining Objectives 52 Establishing Goals 53 Setting Strategies 53

Defining Measures 53 Deploying OGSM to IT 54 Identifying and Prioritizing Projects and Initiatives 54 Executing Project, Then Measuring and Evaluating Results 56

Chapter Summary 58 Discussion Questions 58 Action Memos 59 Web-Based Case 60 Case Study 60 Endnotes 60

Chapter 3 Project Management 63 Brown-Forman: Good Project Management Process Delivers Outstanding Results 63 Why Managers Must Understand Project Management 66 What Is a Project? 67

Project Variables 67 What Is Project Management? 71 Project Management Knowledge Areas 72

Scope Management 72 Time Management 73 Cost Management 74 Quality Management 76 Human Resource Management 76 Communications Management 78 Risk Management 80 Procurement Management 83 Project Integration Management 85

Chapter Summary 88 Discussion Questions 88 Action Memos 89 Web-Based Case 89 Case Study 89 Endnotes 94

Chapter 4 Business Process and IT Outsourcing 97 Eli Lilly: Why Managers Get Involved in Outsourcing 97 What Are Outsourcing and Offshore Outsourcing? 99

Why Do Organizations Outsource? 102 Issues Associated with Outsourcing 103 Planning an Effective Outsourcing Process 106

Chapter Summary 117 Discussion Questions 117 Action Memos 118 Web-Based Case 119 Case Study 119 Endnotes 123

Chapter 5 Corporate Governance and IT 127 Harley-Davidson 127

Why Managers Must Get Involved in IT Governance 127 What Is IT Governance? 131

Ensuring that an Organization Achieves Good Value From its Investments in IT 132 Mitigating IT-Related Risks 133

Why Managers Must Understand IT Governance 135

Table of Contents vii

IT Governance Frameworks 135 IT Infrastructure Library (ITIL) 136 Control OBjectives for Information and Related Technology (COBIT) 136 Using PDCA and an IT Governance Framework 139

Business Continuity Planning 142 Process for Developing a Business Continuity Plan 145

Chapter Summary 149 Discussion Questions 149 Action Memos 150 Web-Based Case 150 Case Study 150 Endnotes 154

Chapter 6 Collaboration Tools and Wireless Networks 157 IBM’s Innovation Factory 157 Why Managers Must Understand Networking and Collaboration Tools 159 Collaboration Tools 159

Bulletin Board 160 Blog 160 Calendaring 161 Desktop Sharing 162 Instant Messaging (IM) 162 Podcast 163 Really Simple Syndication (RSS) 163 Shared Workspace 164 Web Conferencing 164 Wikis 165

Wireless Communications 167 Communications Fundamentals 168 Cell Phone Services 170 Wi-Fi Solution for Local Area Networks 173 WiMAX, a Solution for Metropolitan Area Networks 175

Chapter Summary 178 Discussion Questions 179 Action Memos 179 Web-Based Case 179 Case Study 179 Endnotes 182

Chapter 7 E-business 185 Inc. 185

Why Managers Must Get Involved in E-business 185 Why Managers Must Understand E-business 187

Business-to-Business (B2B) E-business 187 Business-to-Consumer (B2C) E-business 190 Consumer-to-Consumer (C2C) E-business 192 E-government Applications 193 Mobile Commerce 194 E-business Critical Success Factors 197 Advantages of E-business 206 Issues Associated with E-business 207

Chapter Summary 209 Discussion Questions 210 Action Memos 210 Web-based Case 211

viii Information Technology for Managers

Case Study 211 Endnotes 215

Chapter 8 Enterprise Resource Planning 219 BWA Water Additives 219

Why Managers Must Understand ERP 219 What Is ERP? 221

ERP and Customer Relationship Management (CRM) 225 ERP and Supply Chain Management (SCM) 226

Benefits of Implementing ERP 227 Establish Standardized Business Processes 227 Lower Cost of Doing Business 228 Improve Overall Customer Experience 229 Facilitate Consolidation of Financial Data 229 Support Global Expansion 230 Provide Fully Compliant Systems 230

ERP Issues 231 Post Start-Up Problems 231 High Costs 232 Lengthy Implementation 234 Difficulty in Measuring a Return on an ERP Investment 234 Organizational Resistance 234

ERP System Implementation Process 235 Best Practices to Ensure Successful ERP Implementation 237

Ensure Senior Management Commitment and Involvement 237 Choose the Right Business Partners 237 Assess Level of Customization Needed 238 Avoid Increases in Project Scope 239 Plan for Effective Knowledge Transfer 239 Test Thoroughly 240 Plan for a High Level of Initial Support 240

ERP Trends 242 ERP Solutions Targeted for SMBs 242 ERP as a Service 242 Open Source ERP Software 243

Chapter Summary 245 Discussion Questions 246 Action Memos 246 Web-based Case 247 Case Study 247 Endnotes 249

Chapter 9 Business Intelligence 251 Papa Gino’s Illustrates Why Managers Must Understand Business Intelligence 251 What Is Business Intelligence? 253

Data Warehouse/Data Marts 255 Business Intelligence Tools 256

Business Performance Management 261 Balanced Scorecard 262 Dashboards 264 BPM Software 265 Employing the BPM Process 266

Chapter Summary 270 Discussion Questions 270 Action Memos 271

Table of Contents ix

Web-Based Case 271 Case Study 271 Endnotes 275

Chapter 10 Knowledge Management 279 Goodwin Procter Illustrates Why Managers Must Understand Knowledge Management 279 What Is Knowledge Management? 281

Knowledge Management Applications and Associated Benefits 282 Best Practices for Selling and Implementing a KM Project 285 Technologies That Support KM 287

Chapter Summary 294 Discussion Questions 294 Action Memos 295 Web-Based Case 295 Case Study 295 Endnotes 297

Chapter 11 Enterprise Architecture 301 Enterprise Architecture Gives Google a Competitive Edge 301 What Is Enterprise Architecture? 303

Why Is Enterprise Architecture Important? 304 Software Architecture Styles 307 Developing an Enterprise Architecture 312

Chapter Summary 318 Discussion Questions 318 Action Memos 319 Web-Based Case 319 Case Study 319 Endnotes 322 Additional Bibliography 324

Chapter 12 Ethical, Privacy, and Security Issues 331 Hannaford Brothers Illustrates Why Managers Must Understand the Ethical, Privacy, and Security Issues Relating to IT 331 What Is Ethics? 333

Improving Corporate Ethics 333 Appointing a Corporate Ethics Officer 333 Ethical Standards Set by Board of Directors 334 Establishing a Corporate Code of Ethics 334 Requiring Employees to Take Ethics Training 335 Including Ethical Criteria in Employee Appraisals 336

Privacy 336 Right to Privacy 337 Treating Customer Data Responsibly 338 Workplace Monitoring 339

Cybercrime and Computer Security 343 Types of Attacks 343 Perpetrators 346 Defensive Measures 347 Prevention 350 Detection 354 Response 354

Chapter Summary 357 Discussion Questions 358

x Information Technology for Managers

Action Memos 358 Web-Based Case 358 Case Study 359 Endnotes 361

Glossary 363

Index 371

Table of Contents xi


Why This Text? The undergraduate capstone course on information technology and the MBA level information technology course required of College of Business graduates are two of the most challenging courses in the business curriculum to teach. Students in both courses often start the term skepti- cal of the value of such a course. Indeed, “Why do I need to take this course?” is frequently their attitude. Unfortunately, this attitude is only perpetuated by most texts, which take the approach of “Here is a lot of technical stuff you have to understand.” As a result, students complete the course without getting as much from it as they could. The instructors of such courses are disap- pointed, receive poor student evaluations, and wonder what went wrong. An opportunity to deliver an outstanding and meaningful course has been missed.

Information Technology for Managers takes a fundamentally different approach to this sub- ject in three ways. First, it is targeted squarely at future managers, making it clear why IT does indeed matter to them and the organization. Second, it enables future business managers to understand how information technology can be applied to improve the organization. Third, it pro- vides a framework for business managers to understand their important role vis-à-vis information technology. Said another way, Information Technology for Managers answers three basic ques- tions—Why do I need to understand IT? What good is IT? What is my role in delivering good results through the use of IT?

Approach of this Text Information Technology for Managers is intended for future managers who are expected to under- stand the implications of IT, identify and evaluate potential opportunities to employ IT, and take an active role in ensuring the successful use of IT within the organization. The text is also valu- able for future IT managers who must understand how IT is viewed from the business perspective and how to work effectively with all members of the organization to achieve IT results.

Organization and Coverage Chapter 1: Managers: Key to Information Technology Results presents a clear rationale for why managers must get involved in information technology strategic planning and project implementation. The chapter helps managers identify what they must do to advance the effective use of IT within their organizations. It also helps them understand how to get involved with IT at the appropriate times and on the appropriate issues.

Chapter 2: Strategic Planning describes how to develop effective strategic planning by defin- ing key business objectives and goals, which are used to identify a portfolio of potential business projects that are clearly aligned with business needs. Further refinement is required to narrow the portfolio to the projects that should be executed and for which sufficient resources are available. This process is illustrated by the example of the United Parcel Service, a major global organiza- tion respected for its highly effective use of IT to support business objectives.

Chapter 3: Project Management provides a helpful overview of the project manage- ment process. The presentation is consistent with the Project Management Institute’s Body of Knowledge, an American National Standard. The chapter describes the nine project management knowledge areas of scope, time, cost, quality, human resources, communica- tions, risk, procurement, and integration. A business manager can take many roles throughout the project life cycle, including champion, sponsor, project manager, change agent, and end user. The chapter identifies frequent causes of project failure and offers invaluable suggestions for how to avoid these problems.

Chapter 4: Business Process and IT Outsourcing discusses the major business reasons for outsourcing as well as many of its potential pitfalls. It also outlines and describes an effective process for selecting an outsourcing firm and successfully transitioning work to the new organization. The chapter covers the importance of establishing service-level agreements and monitoring performance.

Chapter 5: Corporate Governance and IT describes the responsibilities and practices that a company’s executive management uses to ensure delivery of real value from IT and to ensure that related risks are managed appropriately. The chapter covers two frameworks for meeting these objectives: the IT Infrastructure Library (ITIL) and Control Objectives for Information and Related Technology (COBIT). The discussion includes related issues such as the Sarbanes-Oxley Act, business continuity planning, and oversight of outsourcing arrangements.

Chapter 6: Collaboration Tools and Wireless Networks covers the fundamentals of electronic communications systems, with a focus on wireless and mobile communications. The chapter presents the benefits and disadvantages of various wide area and local area wireless networks, and how managers can understand and deal with related business issues.

Chapter 7: E-Business discusses the use of electronic business methods to buy and sell goods and services, interact with customers, and collaborate with business partners and government agencies. Several forms of e-business are covered, including business-to- business, business-to-consumer, consumer-to-consumer, and government-to-consumer. The chapter also covers m-commerce, an approach to conduct e-commerce in a wireless environment. The chapter prepares managers to understand and deal with many of the business, legal, and ethical issues associated with e-business.

Chapter 8: Enterprise Resource Planning explains what an ERP system is, identifies several of the benefits associated with ERP implementation, outlines a “best practices” approach to implementing an ERP system, and discusses future trends of ERP systems. The chapter also explains the key role that business managers play in successfully imple- menting ERP systems.

Chapter 9: Business Intelligence discusses a wide range of applications that help busi- nesses gather and analyze data to improve decision making: data extraction and data cleaning, data warehousing and data mining, online analytical processing (OLAP), business activity monitoring, key performance indicators, dashboards, and balanced scorecards. The chapter discusses the complications and issues associated with each business intelligence system, and discusses the role of the business manager in developing and using these systems.

Chapter 10: Knowledge Management describes explicit and tacit information and how organizations use knowledge management to identify, select, organize, and disseminate

Preface xiii

that information. In this chapter, you will learn about communities of practice, social net- work analysis, Web 2.0 Technologies, business rules management systems, and enterprise search. The chapter also covers how to identify and overcome knowledge management challenges, as well as a set of best practices for selling and implementing a knowledge man- agement project.

Chapter 11: Enterprise Architecture describes the use of enterprise architecture to establish a series of reference frameworks that define necessary business and IT changes. The chapter also describes the business manager’s role in defining the architecture and business needs of an organization. You will learn about current architecture styles, includ- ing centralized, distributed, client/server, and service-oriented architectures. The chapter focuses on the differences between these models and how are they used in practice. You will also be exposed to the Open Group Architecture Framework, a proven process for developing enterprise architecture.

Chapter 12: Ethical, Privacy, and Security Issues provides a brief overview of ethics and identifies key privacy and security issues that managers need to consider in their use of IT to achieve organizational benefits. Ethics, privacy, and computer security are dis- cussed from the perspective of what managers need to know about these topics.

Chapter Features Opening vignette: Business majors and MBA students often have difficulty appreciating why they need to comprehend IT or what their role (if any) is vis-à-vis IT. In recognition of this, each chapter begins with an opening vignette that raises many of the issues that will be cov- ered in the chapter. The vignette touches on these topics in such a way as to provide a strong incentive to the student to read further in order to gain clarity regarding the potential impact of IT on the business as well as management’s responsibility in relation to IT.

Learning Objectives: A set of learning objectives follow the opening vignette and pro- vide a preview of the major themes to be covered in the chapter.

Real-world examples: In an effort to maintain the interest and motivation of the reader, each chapter includes many real-world examples of business managers struggling with the issues covered in the chapter—some successfully, some unsuccessfully. The goal is to help the reader understand the manager’s role in relation to information technology and to discover key learnings they can apply within their organizations.

A Manager Takes Charge: This special feature presents a real-world example of a man- ager taking the initiative to ensure the successful use of IT within his/her organization.

A Manager’s Checklist: Each chapter contains a valuable set of guidelines for future business managers to consider as they weigh IT-related topics, including how they might use IT in the future within their organization.

Chapter Summary: Each chapter includes a helpful summary that highlights the mana- gerial implications and key technical issues of the material presented.

Discussion Questions: A set of thought-provoking questions to stimulate a deeper understanding of the topics covered in the chapter.

Action Memos: Each chapter includes two action memos, which are mini-cases writ- ten in the style of an e-mail or text message, demanding a response, usually in the form of a decision or recommendation. The action memos provide realistic scenarios and test the student’s knowledge, insight and problem-solving capability.

Web-Based Case: Each chapter includes an “open-ended” case that requires students to gather their own research information and do some critical thinking.

xiv Information Technology for Managers

Case Study: Each chapter ends with a challenging real-world case of managers strug- gling with the issues covered in the chapter. These cases are unique because they look at IT from a manager’s perspective, not from an IT technologist’s point of view.


The teaching tools that accompany this text offer many options for enhancing a course. As always, we are committed to providing one of the best teaching resource packages avail- able in this market.

Instructor’s Manual An Instructor’s Manual provides valuable chapter overviews; chapter learning objectives, teaching tips, quick quizzes, class discussion topics, additional projects, additional resources and key terms. It also includes solutions to all end-of-chapter discussion ques- tions, exercises, and case studies.

Test Bank and Test Generator ExamView® is a powerful objective-based test generator that enables instructors to create paper-, LAN- or Web-based tests from test banks designed specifically for their Course Technology text. Instructors can utilize the ultra-efficient QuickTest Wizard to create tests in less than five minutes by taking advantage of Course Technology’s question banks or customizing their own exams from scratch.

PowerPoint Presentations A set of 50 or more Microsoft PowerPoint slides is available for each chapter. These slides are included to serve as a teaching aid for classroom presentation, to be made available to students on the network for chapter review, or to be printed for classroom distribution. The presentations help students focus on the main topics of each chapter, take better notes, and prepare for examinations. The slides are fully customizable. Instructors can either add their own slides for additional topics they introduce to the class or delete slides they won’t be covering.

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

Blackboard and WebCT Level 1 Online Content. If you use Blackboard or WebCT, the test bank for this textbook is available at no cost in a simple, ready-to-use format. Go to and search for this textbook to download the test bank.


I want to thank all of the folks at Course Technology for their role in bringing this text to market. I offer many thanks to Mary Pat Shaffer and Dan Seiter, my wonderful develop- ment editors, who deserve special recognition for their tireless efforts and encouragement.

Preface xv

Heather Furrow, the Content Product Manager, guided the text through the production process. Thanks also to all the many people who worked behind the scenes to bring this effort to fruition including Charles McCormick, the Senior Acquisitions Editor. Special thanks to Kate Hennessy Mason, the Product Manager, for coordinating the efforts of these many people and keeping things moving forward.

I want to thank two contributors to the text: Ralph Brueggemann for his excellent help in providing material on enterprise architecture as well as his insightful feedback on the early chapters of the text, and Naomi Friedman, who wrote several of the opening vignettes and cases.

Last, but not least, I want to thank my wife, Ginnie, for her patience and support in this major project.


I greatly appreciate the following reviewers for their perceptive feedback on early drafts of this text:

Larry Booth, Clayton State University Nicole Brainard, Principal, Archbishop Alter High School, Dayton, Ohio. Ralph Brueggemann, University of Cincinnati Rochelle A. Cadogan, Viterbo University Wm. Arthur Conklin, University of Houston Barbara Hewitt, Texas A&M Kingsville William Hochstettler, Franklin University Jerry Isaacs, Carroll College Marcos Sivitanides, Texas State University Gladys Swindler, Fort Hays State University Jonathan Whitaker, University of Richmond


I welcome your input and feedback. If you have any questions or comments regarding Information Technology for Managers, please contact me through Course Technology at

George Reynolds

xvi Information Technology for Managers


H O W C A N Y O U E N S U R E Y O U R F U T U R E V A L U E A N D S U C C E S S A S A L E A D E R A N D M A N A G E R ? “The most valuable and successful leaders and managers today are those who consistently deliver the promised results of strategic initiatives. While visionary thinking and break- through innovation are still important ingredients, organizations are increasingly recogniz- ing that the real competitive differentiator is the ability to execute strategic initiatives reliably and deliver expected results—every time.”

—Daryl Conner, founder of Conner Partners, a consulting firm that helps companies address the human side of organizational change


Why Managers Must Get Involved in Information Technology (IT) Belarusbank Joint Stock Savings Bank is one of the top 50 financial institutions in Europe. Its headquar-

ters is in Minsk, the capital of Belarus, a country in Eastern Europe with a population of 10 million. The

bank operates with six regional branches, 111 local branches, and 1812 outlets; it has 24,000 employees

and approximately $4 billion in assets. It offers customers a wide range of banking products and services,

including cash settlements, lending, deposit banking, leasing, foreign currency exchange and conversion,

and depository services.

Belarusbank began operations when Belarus was part of the Soviet Union. Its legacy systems and

work processes were based on the Soviet style of banking, which emphasized tight control over

efficiency. Each bank unit had its own separate accounting, reporting, and administrative systems and

processes. The bank’s operations were highly inefficient and overly complex.

Senior executives decided to compete globally, but recognized that the bank’s convoluted systems

were hindering its growth. For Belarusbank to achieve its objectives, it needed to change its decentral-

ized systems and antiquated work processes. It needed a single system that would support streamlined,

standard work processes and enable employees to share business and customer data stored anywhere

in the company.

After studying the situation and evaluating many alternatives, management initiated a $20 million

project to implement software from German vendor SAP AG and modernize the bank’s operations. The

software will replace many systems deployed over decades by various banking units. The new central-

ized banking operations will process some 2 million transactions daily and support 5000 employees. All

credit, deposit, and payment processes will be standardized. The bank will be able to meet international

accounting standards, international financial reporting standards, and Basel II financial reporting

requirements, which are critical for expansion into international money markets. Management is working

to identify the new roles, rewards, and expectations that employees must adopt to use the new

information systems and work processes effectively.

The bank’s new systems also will improve the efficiency of all the bank’s business processes and

provide a quicker “time to market” for new products and product enhancements. Customer satisfaction

Chapter 1


also is expected to improve through increased customer responsiveness and consistency of business

processes. Business unit managers are preparing workers to recognize these new capabilities and take

advantage of them in their everyday work.

A major portion of the project’s benefits will come from a 10 percent reduction in employees, with

a significant reduction in the number of accountants and IT workers. Further benefits will come from cost

savings in computer software, hardware, and maintenance. These savings will recover the total cost of

the SAP implementation over several years.

“IT solutions in the …