IT AND BUSINESS

Page 38 in Baltzan, Project II. Write a 2 pages paper answering the question, “Why is it challenging for businesses to align MIS and their other operations?” Use the question in the Project to help you along.

After reading the New Century Health Wellness Group Case Study, Group pg. 42-43, pg 83 in the Rosenblatt textbook prepare and submit responses to the four “Assignments” questions.

f o u r t h e d i t i o n
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Pa i g e B a lt z a n
B
usiness D
riven Inform
ation System
s
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instructor at 1 a.m.)
• Quick access to lectures, practice materials,
eBook, and more. (All the material you need
to be successful is right at your fingertips.)
With McGraw-Hill’s Connect™ Plus MIS,

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learned? (You need to know how to use this stuff in the real world…)
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Less managing. More teaching. Greater learning.
Would you like your students to show up for class more prepared? (Let’s face it,
class is much more fun if everyone is engaged and prepared…)
Want ready-made application-level interactive assignments, student progress
reporting, and auto-assignment grading? (Less time grading means more time
teaching…)
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objectives? (No more wondering if students understand…)
Need to collect data and generate reports required for administration or
accreditation? (Say good-bye to manually tracking student learning outcomes…)
Want to record and post your lectures for students to view online?
INSTRUCTORS…
Less managing. More teaching. Greater learning.
INSTRUCTORS GET:
• Interactive Applications—book-specific interactive
assignments that require students to APPLY what
they’ve learned.
• Simple assignment management, allowing you to
spend more time teaching.
• Auto-graded assignments, quizzes, and tests.
• Detailed visual reporting, where student and
section results can be viewed and analyzed.
• Sophisticated online testing capability.
• A filtering and reporting function
that allows you to easily assign and
report on materials that are correlated
to accreditation standards, learning
outcomes, and Bloom’s taxonomy.
• An easy-to-use lecture capture tool.
With McGraw-Hill’s Connect™ Plus MIS,
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Want an online, searchable version of your textbook?
Wish your textbook could be available online while you’re doing
your assignments?
Want to get more value from your textbook purchase?
Think learning MIS should be a bit more interesting?
Connect™ Plus MIS eBook
If you choose to use Connect™ Plus MIS, you have an affordable and
searchable online version of your book integrated with your other
online tools.
Connect™ Plus MIS eBook offers features like:
• Topic search
• Direct links from assignments
• Adjustable text size
• Jump to page number
• Print by section
Check out the STUDENT RESOURCES
section under the Connect™ Library tab.
Here you’ll find a wealth of resources designed to help you
achieve your goals in the course. You’ll find things like quizzes,
PowerPoints, and Internet activities to help you study. Every
student has different needs, so explore the STUDENT RESOURCES
to find the materials best suited to you.
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Business Driven
Information Systems
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TM
Business Driven
Information Systems
F O U R T H E D I T I O N
P a i g e B a l t z a n
Daniels College of Business, University of Denver
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TM
BUSINESS DRIVEN INFORMATION SYSTEMS, FOURTH EDITION
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of
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Some ancillaries, including electronic and print components, may not be available to customers outside
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Baltzan, Paige.
Business driven information systems/Paige Baltzan, Daniels College of Business, University
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pages cm
Includes index.
ISBN 978-0-07-337689-9 (alk. paper)—ISBN 0-07-337689-2 (alk. paper)
1. Information technology—Management. 2. Industrial management—Data processing. I. Title.
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D E D I C AT I O N
To Tony, Hannah, Sophie, and Gus:
What do you always remember?
That I Love You! That I’m Proud of You!
Paige
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Brief Contentsviii
MODULE 1 Business Driven MIS
Chapter 1 Management Information Systems: Business Driven MIS
Chapter 2 Decisions and Processes: Value Driven Business
Chapter 3 Ebusiness: Electronic Business Value
Chapter 4 Ethics and Information Security: MIS Business Concerns
MODULE 2 Technical Foundations of MIS
Chapter 5 Infrastructures: Sustainable Technologies
Chapter 6 Data: Business Intelligence
Chapter 7 Networks: Mobile Business
MODULE 3 Enterprise MIS
Chapter 8 Enterprise Applications: Business Communications
Chapter 9 Systems Development and Project Management: Corporate
Responsibility
APPENDIX
Appendix A Hardware and Software Basics
Appendix B Networks and Telecommunications
Appendix C Designing Databases
The Technology Plug-Ins
Apply Your Knowledge
Glossary
Notes
Credits
Index
BRIEF CONTENTS
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ixContents
module 1
Business Driven MIS 1
CHAPTER 1
Management Information Systems:
Business Driven MIS 2
Opening Case Study: The World
Is Flat: Thomas Friedman 3
Section 1.1 Business Driven MIS 5
COMPETING IN THE INFORMATION AGE 5
Data 6
Information 7
Business Intelligence 8
Knowledge 10
THE CHALLENGE: DEPARTMENTAL COMPANIES 11
THE SOLUTION: MANAGEMENT INFORMATION
SYSTEMS 12
MIS Department Roles and Responsibilities 14
Section 1.2 Business Strategy 15
IDENTIFYING COMPETITIVE ADVANTAGES 15
THE FIVE FORCES MODEL—EVALUATING
INDUSTRY ATTRACTIVENESS 18
Buyer Power 18
Supplier Power 19
Threat of Substitute Products or Services 19
Threat of New Entrants 20
Rivalry among Existing Competitors 20
Analyzing the Airline Industry 20
THE THREE GENERIC STRATEGIES—CHOOSING
A BUSINESS FOCUS 22
VALUE CHAIN ANALYSIS—EXECUTING
BUSINESS STRATEGIES 23
Learning Outcome Review 27
Opening Case Questions 29
Key Terms 29
Review Questions 29
Closing Case One: Apple—Merging Technology,
Business, and Entertainment 30
Closing Case Two: Best of the Best of the Best—Under 25 32
Critical Business Thinking 34
Entrepreneurial Challenge 36
Apply Your Knowledge Business Projects 37
AYK Application Projects 41
C O N T E N T S
CHAPTER 2
Decisions and Processes:
Value Driven Business 42
Opening Case Study: Action
Finally—Actionly 43
Section 2.1 Decision Support Systems 45
MAKING BUSINESS DECISIONS 45
The Decision-Making Process 46
Decision-Making Essentials 46
METRICS: MEASURING SUCCESS 48
Efficiency and Effectiveness Metrics 50
The Interrelationship Between Efficiency
and Effectiveness MIS Metrics 51
SUPPORT: ENHANCING DECISION MAKING WITH MIS 53
Operational Support Systems 54
Managerial Support Systems 55
Strategic Support Systems 56
THE FUTURE: ARTIFICIAL INTELLIGENCE 60
Expert Systems 61
Neural Networks 61
Genetic Algorithms 62
Intelligent Agents 62
Virtual Reality 63
Section 2.2 Business Processes 64
EVALUATING BUSINESS PROCESSES 64
MODELS: MEASURING PERFORMANCE 66
SUPPORT: ENHANCING BUSINESS PROCESSES
WITH MIS 71
Improving Operational Business
Processes—Automation 72
Improving Managerial Business
Processes—Streamlining 73
Improving Strategic Business
Processes—Reengineering 74
THE FUTURE: BUSINESS PROCESS MANAGEMENT 77
Learning Outcome Review 78
Opening Case Questions 80
Key Terms 80
Review Questions 81
Closing Case One: Political Micro-Targeting: What
Decision Support Systems Did for Barack Obama 81
Closing Case Two: Second Life: Succeeding
in Virtual Times 83
Critical Business Thinking 84
Entrepreneurial Challenge 86
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Contentsx
Apply Your Knowledge Business Projects 87
AYK Application Projects 89
CHAPTER 3
Ebusiness: Electronic Business Value 90
Opening Case Study: Pinterest—
Billboards for the Internet 91
Section 3.1 WEB 1.0: Ebusiness 94
DISRUPTIVE TECHNOLOGIES AND WEB 1.0 94
Disruptive versus Sustaining Technology 94
The Internet and World Wide Web—The Ultimate
Business Disruptors 95
Web 1.0: The Catalyst for Ebusiness 96
ADVANTAGES OF EBUSINESS 98
Expanding Global Reach 98
Opening New Markets 98
Reducing Costs 100
Improving Operations 100
Improving Effectiveness 100
THE FOUR EBUSINESS MODELS 101
Business-to-Business (B2B) 102
Business-to-Consumer (B2C) 102
Consumer-to-Business (C2B) 103
Consumer-to-Consumer (C2C) 103
Ebusiness Forms and Revenue-Generating
Strategies 103
EBUSINESS TOOLS FOR CONNECTING
AND COMMUNICATING 106
Email 106
Instant Messaging 106
Podcasting 107
Videoconferencing 107
Web Conferencing 108
Content Management Systems 108
THE CHALLENGES OF EBUSINESS 108
Identifying Limited Market Segments 109
Managing Consumer Trust 109
Ensuring Consumer Protection 109
Adhering to Taxation Rules 109
Section 3.2 WEB 2.0: Business 2.0 109
WEB 2.0: ADVANTAGES OF BUSINESS 2.0 109
Content Sharing Through Open Sourcing 111
User-Contributed Content 111
Collaboration Inside the Organization 111
Collaboration Outside the Organization 112
NETWORKING COMMUNITIES WITH BUSINESS 2.0 113
Social Tagging 114
BUSINESS 2.0 TOOLS FOR COLLABORATING 116
Blogs 116
Wikis 117
Mashups 117
THE CHALLENGES OF BUSINESS 2.0 118
Technology Dependence 118
Information Vandalism 119
Violations of Copyright and Plagiarism 119
WEB 3.0: DEFINING THE NEXT GENERATION
OF ONLINE BUSINESS OPPORTUNITIES 119
Egovernment: The Government Moves Online 120
Mbusiness: Supporting Anywhere Business 121
Learning Outcome Review 121
Opening Case Questions 123
Key Terms 124
Review Questions 124
Closing Case One: Social Media and
Ashton Kutcher 125
Closing Case Two: Amazon.com—Not Your Average
Bookstore 126
Critical Business Thinking 128
Entrepreneurial Challenge 130
Apply Your Knowledge Business Projects 131
AYK Application Projects 135
CHAPTER 4
Ethics and Information Security:
MIS Business Concerns 136
Opening Case Study: To Share—Or
Not to Share 137
Section 4.1 Ethics 141
INFORMATION ETHICS 141
Information Does Not Have Ethics, People Do 144
DEVELOPING INFORMATION MANAGEMENT POLICIES 145
Ethical Computer Use Policy 145
Information Privacy Policy 146
Acceptable Use Policy 146
Email Privacy Policy 147
Social Media Policy 148
Workplace Monitoring Policy 149
Section 4.2 Information Security 151
PROTECTING INTELLECTUAL ASSETS 151
Security Threats Caused by Hackers
and Viruses 153
THE FIRST LINE OF DEFENSE—PEOPLE 155
THE SECOND LINE OF DEFENSE—TECHNOLOGY 156
People: Authentication and Authorization 156
Data: Prevention and Resistance 159
Attack: Detection and Response 160
Learning Outcome Review 161
Opening Case Questions 162
Key Terms 163
Review Questions 163
Closing Case One: E-Espionage 164
Closing Case Two: Hacker Hunters 165
Critical Business Thinking 167
Entrepreneurial Challenge 168
Apply Your Knowledge Business Projects 169
AYK Application Projects 171
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xiContents
module 2
Technical Foundations of MIS 172
CHAPTER 5
Infrastructures: Sustainable
Technologies 173
Opening Case Study: Pandora’s
Music Box 174
Section 5.1 MIS Infrastructures 176
THE BUSINESS BENEFITS OF A SOLID MIS
INFRASTRUCTURE 176
SUPPORTING OPERATIONS: INFORMATION MIS
INFRASTRUCTURE 177
Backup and Recovery Plan 178
Disaster Recovery Plan 179
Business Continuity Plan 181
SUPPORTING CHANGE: AGILE MIS INFRASTRUCTURE 183
Accessibility 183
Availability 184
Maintainability 185
Portability 185
Reliability 185
Scalability 185
Usability 187
Section 5.2 Building Sustainable MIS Infrastructures 187
MIS AND THE ENVIRONMENT 187
Increased Electronic Waste 188
Increased Energy Consumption 189
Increased Carbon Emissions 189
SUPPORTING THE ENVIRONMENT: SUSTAINABLE MIS
INFRASTRUCTURE 189
Grid Computing 189
Virtualized Computing 192
Cloud Computing 195
Learning Outcome Review 199
Opening Case Questions 200
Key Terms 201
Review Questions 201
Closing Case One: UPS Invests $1 Billion to Go Green 202
Closing Case Two: Turning Ewaste into Gold 203
Critical Business Thinking 203
Entrepreneurial Challenge 205
Apply Your Knowledge Business Projects 206
AYK Application Projects 209
CHAPTER 6
Data: Business Intelligence 210
Opening Case Study: Informing
Information 211
Section 6.1 Data, Information, and Databases 214
THE BUSINESS BENEFITS OF HIGH-QUALITY INFORMATION 214
Information Type: Transactional and Analytical 214
Information Timeliness 216
Information Quality 216
Information Governance 219
STORING INFORMATION USING A RELATIONAL DATABASE
MANAGEMENT SYSTEM 219
Storing Data Elements in Entities and Attributes 221
Creating Relationships Through Keys 221
USING A RELATIONAL DATABASE FOR BUSINESS
ADVANTAGES 222
Increased Flexibility 222
Increased Scalability and Performance 223
Reduced Information Redundancy 223
Increased Information Integrity (Quality) 224
Increased Information Security 224
DRIVING WEBSITES WITH DATA 224
Section 6.2 Business Intelligence 227
THE BUSINESS BENEFITS OF DATA WAREHOUSING 227
PERFORMING BUSINESS ANALYSIS WITH DATA MARTS 228
Multidimensional Analysis 229
Information Cleansing or Scrubbing 230
UNCOVERING TRENDS AND PATTERNS WITH DATA MINING 231
Cluster Analysis 234
Association Detection 235
Statistical Analysis 236
SUPPORTING DECISIONS WITH BUSINESS INTELLIGENCE 236
The Problem: Data Rich, Information Poor 237
The Solution: Business Intelligence 237
Visual Business Intelligence 238
Learning Outcome Review 239
Opening Case Questions 240
Key Terms 241
Review Questions 241
Closing Case One: Data Visualization: Stories for the
Information Age 242
Closing Case Two: Zillow 243
Critical Business Thinking 244
Entrepreneurial Challenge 246
Apply Your Knowledge Business Projects 246
AYK Application Projects 249
CHAPTER 7
Networks: Mobile Business 250
Opening Case Study: The Ironman 251
Section 7.1 Connectivity: The Business Value of
a Neworked World 253
OVERVIEW OF A CONNECTED WORLD 253
Network Categories 254
Network Providers 254
Network Access Technologies 255
Network Protocols 258
Network Convergence 260
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Contentsxii
BUILDING A CONNECTED CORPORATION
THROUGH INTEGRATIONS 300
Integration Tools 301
SUPPLY CHAIN MANAGEMENT 302
THE BENEFITS OF SCM 303
Improved Visibility 305
Increased Profitability 306
THE CHALLENGES OF SCM 307
THE FUTURE OF SCM 308
Section 8.2 Customer Relationship Management
and Enterprise Resource Planning 309
CUSTOMER RELATIONSHIP MANAGEMENT 309
THE BENEFITS OF CRM 311
Evolution of CRM 311
Operational and Analytical CRM 312
Marketing and Operational CRM 313
Sales and Operational CRM 314
Customer Service and Operational CRM 315
Analytical CRM 316
Measuring CRM Success 317
THE CHALLENGES OF CRM 317
THE FUTURE OF CRM 319
ENTERPRISE RESOURCE PLANNING 319
THE BENEFITS OF ERP 320
Core ERP Components 322
Extended ERP Components 324
Measuring ERP Success 325
THE CHALLENGES OF ERP 327
THE FUTURE OF ENTERPRISE SYSTEMS: INTEGRATING
SCM, CRM, AND ERP 327
Learning Outcome Review 328
Opening Case Questions 330
Key Terms 330
Review Questions 330
Closing Case One: Can Customer Loyalty
Be a Bad Thing? 331
Closing Case Two: Got Milk? It’s Good for You—Unless
It’s Contaminated! 332
Critical Business Thinking 334
Entrepreneurial Challenge 336
Apply Your Knowledge Business Projects 337
AYK Application Projects 340
CHAPTER 9
Systems Development and Project
Management: Corporate Responsibility 341
Opening Case Study: Getting Your
Project On Track 342
Section 9.1 Developing Enterprise Applications 345
THE SYSTEMS DEVELOPMENT LIFE CYCLE (SDLC) 345
Phase 1: Planning 345
Phase 2: Analysis 346
Phase 3: Design 348
BENEFITS OF A CONNECTED WORLD 263
Sharing Resources 263
Providing Opportunities 265
Reducing Travel 265
CHALLENGES OF A CONNECTED WORLD 266
Security 266
Social, Ethical, and Political Issues 266
Section 7.2 Mobility: The Business Value
of a Wireless World 267
WIRELESS NETWORK CATEGORIES 267
Personal Area Networks 268
Wireless LANs 268
Wireless MANs 269
Wireless WAN—Cellular Communication System 270
Wireless WAN—Satellite Communication System 272
BUSINESS APPLICATIONS OF WIRELESS NETWORKS 274
Radio-Frequency Identification (RFID) 274
Global Positioning System (GPS) 275
Geographic Information Systems (GIS) 276
BENEFITS OF BUSINESS MOBILITY 278
Enhances Mobility 278
Provides Immediate Data Access 279
Increases Location and Monitoring Capability 279
Improves Work Flow 279
Provides Mobile Business Opportunities 280
Provides Alternative to Wiring 280
CHALLENGES OF BUSINESS MOBILITY 280
Protecting Against Theft 280
Protecting Wireless Connections 282
Preventing Viruses on a Mobile Device 283
Addressing Privacy Concerns with RFID and LBS 283
Learning Outcome Review 284
Opening Case Questions 286
Key Terms 286
Review Questions 287
Closing Case One: Wireless Bikes 287
Closing Case Two: Google Latitude . . . Without an Attitude? 288
Critical Business Thinking 289
Entrepreneurial Challenge 291
Apply Your Knowledge Business Projects 292
AYK Application Projects 295
module 3
Enterprise MIS 296
CHAPTER 8
Enterprise Applications: Business
Communications 297
Opening Case Study: Zappos Is
Passionate for Customers 298
Section 8.1 Supply Chain Management 300
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xiiiContents
Output Devices A.8
Communication Devices A.9
COMPUTER CATEGORIES A.9
SOFTWARE BASICS A.12
System Software A.12
Application Software A.13
Distributing Application Software A.14
Key Terms A.15
Apply Your Knowledge A.15
APPENDIX B
Networks and Telecommunications B.1
INTRODUCTION B.1
NETWORK BASICS B.1
ARCHITECTURE B.3
Peer-to-Peer Networks B.3
Client/Server Networks B.4
TOPOLOGY B.5
PROTOCOLS B.6
Ethernet B.6
Transmission Control Protocol/Internet Protocol B.7
MEDIA B.8
Wire Media B.8
Wireless Media B.9
Key Terms B.10
Apply Your Knowledge B.10
APPENDIX C
Designing Databases C.1
INTRODUCTION C.1
THE RELATIONAL DATABASE MODEL C.1
Entities and Attributes C.2
BUSINESS RULES C.3
DOCUMENTING ENTITY RELATIONSHIP DIAGRAMS C.4
Basic Entity Relationships C.4
Relationship Cardinality C.6
RELATIONAL DATA MODEL AND THE DATABASE C.7
From Entities to Tables C.7
Logically Relating Tables C.8
Key Terms C.9
Apply Your Knowledge C.9
The Technology Plug-Ins T.1
Apply Your Knowledge AYK.1
Glossary G.1
Notes N.1
Credits C.1
Index I.1
Phase 4: Development 348
Phase 5: Testing 349
Phase 6: Implementation 349
Phase 7: Maintenance 350
SOFTWARE DEVELOPMENT METHODOLOGY:
THE WATERFALL 351
AGILE SOFTWARE DEVELOPMENT METHODOLOGIES 352
Rapid Application Development (RAD) Methodology 353
Extreme Programming Methodology 353
Rational Unified Process (RUP) Methodology 353
Scrum Methodology 354
Section 9.2 Project Management 354
USING PROJECT MANAGEMENT TO DELIVER
SUCCESSFUL PROJECTS 355
Unclear or Missing Business Requirements 356
Skipped Phases 356
Changing Technology 356
The Cost of Finding Errors in the SDLC 356
Balance of the Triple Constraint 357
PRIMARY PROJECT PLANNING DIAGRAMS 359
OUTSOURCING PROJECTS 361
Outsourcing Benefits 364
Outsourcing Challenges 364
Learning Outcome Review 367
Opening Case Questions 368
Key Terms 368
Review Questions 369
Closing Case One: Disaster at Denver International
Airport 370
Closing Case Two: Reducing Ambiguity in Business
Requirements 370
Critical Business Thinking 372
Entrepreneurial Challenge 373
Apply Your Knowledge Business Projects 374
AYK Application Projects 378
appendices
APPENDIX A
Hardware and Software Basics A.1
INTRODUCTION A.1
HARDWARE BASICS A.2
Central Processing Unit A.2
Primary Storage A.3
Secondary Storage A.5
Input Devices A.7
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Prefacexiv
Business Driven Information Systems discusses various business initiatives first and how
technology supports those initiatives second. The premise for this unique approach
is that business initiatives should drive technology choices. Every discussion first
addresses the business needs and then addresses the technology that supports those
needs. This text provides the foundation that will enable students to achieve excellence
in business, whether they major in operations management, manufacturing, sales, mar-
keting, finance, human resources, accounting, or virtually any other business discipline.
Business Driven Information Systems is designed to give students the ability to under-
stand how information technology can be a point of strength for an organization.
Common business goals associated with information technology projects include
reducing costs, improving productivity, improving customer satisfaction and loyalty,
creating competitive advantages, streamlining supply chains, global expansion, and so
on. Achieving these results is not easy. Implementing a new accounting system or mar-
keting plan is not likely to generate long-term growth or reduce costs across an entire
organization. Businesses must undertake enterprisewide initiatives to achieve broad
general business goals such as reducing costs. Information technology plays a critical
role in deploying such initiatives by facilitating communication and increasing business
intelligence. Any individual anticipating a successful career in business whether it is in
accounting, finance, human resources, or operation management must understand the
basics of information technology that can be found in this text.
We have found tremendous success teaching MIS courses by demonstrating the
correlation between business and IT. Students who understand the tight correlation
between business and IT understand the power of this course. Students learn 10 percent
of what they read, 80 percent of what they personally experience, and 90 percent of what
they teach others. The business driven approach takes the difficult and often intangible
MIS concepts, brings them to the student’s level, and applies them using a hands-on
approach to reinforce the concepts. Teaching MIS with a business driven focus helps:
■ Add credibility to IT.
■ Open student’s eyes to IT opportunities.
■ Attract majors.
■ Engage students.
FORMAT, FEATURES, AND HIGHLIGHTS
Business Driven Information Systems is state-of-the-art in its discussions, presents concepts
in an easy-to-understand format, and allows students to be active participants in learn-
ing. The dynamic nature of information technology requires all students, more specifically
business students, to be aware of both current and emerging technologies. Students are
facing complex subjects and need a clear, concise explanation to be able to understand and
use the concepts throughout their careers. By engaging students with numerous case stud-
ies, exercises, projects, and questions that enforce concepts, Business Driven Information
Systems creates a unique learning experience for both faculty and students.
■ Audience. Business Driven Information Systems is designed for use in undergradu-
ate or introductory MBA courses in Management Information Systems, which are
required in many Business Administration or Management programs as part of the
common body of knowledge for all business majors.
■ Logical Layout. Students and faculty will find the text well organized with the topics
flowing logically from one chapter to the next. The definition of each term is provided
before it is covered in the chapter and an extensive glossary is included at the back of
the text. Each chapter offers a comprehensive opening case study, learning outcomes,
closing case studies, key terms, and critical business thinking questions.
P R E FA C E
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xvPreface
■ Thorough Explanations. Complete coverage is provided for each topic that is intro-
duced. Explanations are written so that students can understand the ideas presented
and relate them to other concepts.
■ Solid Theoretical Base. The text relies on current theory and practice of informa-
tion systems as they relate to the business environment. Current academic and pro-
fessional journals cited throughout the text are found in the Notes at the end of the
book—a road map for additional, pertinent readings that can be the basis for learning
beyond the scope of the chapters or plug-ins.
■ Material to Encourage Discussion. All chapters contain a diverse selection of case
studies and individual and group problem-solving activities as they relate to the use
of information technology in business. Two comprehensive cases at the end of each
chapter reinforce content. These cases encourage students to consider what concepts
have been presented and then apply those concepts to a situation they might find in
an organization. Different people in an organization can view the same facts from dif-
ferent points of view and the cases will force students to consider some of those views.
■ Flexibility in Teaching and Learning. While most textbooks that are “text only” leave
faculty on their own when it comes to choosing cases, Business Driven Information
Systems goes much further. Several options are provided to faculty with case selec-
tions from a variety of sources including CIO, Harvard Business Journal, Wired, Forbes,
and Time, to name just a few. Therefore, faculty can use the text alone, the text and a
complete selection of cases, or anything in between.
■ Integrative Themes. Several integrative themes recur throughout the text, which
adds integration to the material. Among these themes are value-added techniques
and methodologies, ethics and social responsibility, globalization, and gaining a
competitive advantage. Such topics are essential to gaining a full understanding of
the strategies that a business must recognize, formulate, and in turn implement. In
addition to addressing these in the chapter material, many illustrations are provided
for their relevance to business practice.
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Learning Outcomes
Learning Outcomes. These outcomes focus on what
students should learn and be able to answer upon
completion of the chapter.
WA L K T H R O U G H
section 3.1 Web 1.0: Ebusiness
L E A R N I N G O U T C O M E S
3.1 Compare disruptive and sustaining technologies, and explain how the Internet and WWW caused
business disruption.
3.2 Describe ebusiness and its associated advantages.
3.3. Compare the four ebusiness models.
3.4. Describe the six ebusiness tools for connecting and communicating.
3.5 Identify the four challenges associated with ebusiness.
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1. Knowledge: Do you consider Pinterest a form of disruptive or sustaining technology?
2. Comprehension: Categorize Pinterest as an example of Web 1.0 (ebusiness) or Web 2.0
(Business 2.0).
3. Application: Describe the ebusiness model and revenue model for Pinterest.
4. Analysis: What is open source software and how could Pinterest take advantage of it?
O P E N I N G C A S E Q U E S T I O N S
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opening case study
Pinterest—Billboards for the Internet
Pinterest has been called the latest addiction for millions of people around the world.
Pinterest, a visual social media network, allows users to create “interest boards” where
they “pin” items of interests found on the web. Terms you need to understand to use
Pinterest include:
■ Pin: A link to an image from a computer or a website. Pins can include captions for other
users. Users upload, or “pin,” photos or videos to boards.
■ Board: Pins live on boards and users can maintain separate boards, which can be cat-
egorized by activity or interests, such as cooking, do-it-yourself activities, fitness, music,
movies, etc.
■ Repin: After pinning an item, it can be repinned by other Pinterest users, spreading the
content virally. Repinning allows users to share items they like with friends and family.
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Chapter Opening Case Study. To enhance student interest, each chapter begins
with an opening case study that highlights an organization that has been time-tested
and value-proven in the business world. This feature serves to fortify concepts with
relevant examples of outstanding companies. Discussion of the case is threaded
throughout the chapter.
Opening Case Questions. Located at the end of the chapter, poignant questions
connect the chapter opening case with important chapter concepts.
Chapter Opening Case Study and Opening Case Questions
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Projects and Case Studies
Case Studies. This text is packed with 27 case studies illustrating how a variety of prominent organizations and
businesses have successfully implemented many of this text’s concepts. All cases are timely and promote critical
thinking. Company profiles are especially appealing and relevant to your students, helping to stir classroom discus-
sion and interest.
Apply Your Knowledge. At the end of each chapter you will find several Apply Your Knowledge projects that challenge
students to bring the skills they have learned from the chapter to real business problems. There are also 33 Apply Your
Knowledge projects on the OLC that accompanies this text ( www.mhhe.com/baltzan ) that ask students to use IT
tools such as Excel, Access, and Dreamweaver to solve business problems. These projects help to develop the applica-
tion and problem-solving skills of your students through challenging and creative business-driven scenarios.
PROJECT I Making Business Decisions
You are the vice president of human resources for a large consulting company. You are compiling a
list of questions that you want each job interviewee to answer. The first question on your list is, “How
can MIS enhance your ability to make decisions at our organization?” Prepare a one-page report to
answer this question.
PROJECT I I DSS and EIS
Dr. Rosen runs a large dental conglomerate—Teeth Doctors—that employs more than 700 dentists
in six states. Dr. Rosen is interested in purchasing a competitor called Dentix that has 150 dentists in
three additional states. Before deciding whether to purchase Dentix, Dr. Rosen must consider several
issues:
■ The cost of purchasing Dentix.
■ The location of the Dentix offices.
■ The current number of customers per dentist, per office, and per state.
■ The merger between the two companies.
■ The professional reputation of Dentix.
■ Other competitors.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
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End-of-Chapter Elements
Key Terms. With page
numbers referencing
where they are discussed
in the text.
Each chapter contains complete pedagogical support in the form of:
Critical Business Thinking. The best way to learn MIS is to apply it to scenarios and real-world business
dilemmas. These projects require students to apply critical thinking skills and chapter concepts to analyze
the problems and make recommended business decisions.
Entrepreneurial Challenge. This unique feature represents a running project that allows students to chal-
lenge themselves by applying the MIS concepts to a real business. The flexibility of the case allows each
student to choose the type of business he or she would like to operate throughout the case. Each chapter
provides hands-on projects your students can work with their real-business scenarios.
Two Closing Case Studies.
Reinforcing important concepts
with prominent examples from
businesses and organizations.
Discussion questions follow each
case study.
Business intelligence (BI), 8
Business process, 23
Business strategy, 15
Buyer power, 18
Chief information officer
(CIO), 15
Chief knowledge officer
(CKO), 15
Fact, 5
Feedback, 14
First-mover advantage, 17
Goods, 12
Information, 7
Information age, 5
Knowledge, 10
Knowledge worker, 10
Product differentiation, 20
Rivalry among existing
competitors, 20
Services, 12
Supplier power, 19
Supply chain, 19
Support value activities, 24
Switching costs, 18
K E Y T E R M S
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C L O S I N G C A S E O N E
Political Micro-Targeting: What Decision Support
Systems Did for Barack Obama
On the day he took the oath of office in 2009, President Barack Obama spoke a word rarely heard
in inaugural addresses— data— referencing indicators of economic and other crises. His use of the
word is perhaps not so surprising. Capturing and analyzing data were crucial to Obama’s rise to
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1. Modeling a Business Process
Do you hate waiting in line at the grocery store? Do you find it frustrating when you go to the video
rental store and cannot find the movie you wanted? Do you get annoyed when the pizza delivery
person brings you the wrong order? This is your chance to reengineer the process that drives you
C R I T I C A L B U S I N E S S T H I N K I N G
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E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. You realize that you need a digital dashboard to help you operate your business. Create a list of
all of the components you would want to track in your digital dashboard that would help you run
your business. Be sure to justify how each component would help you gain insight into the opera-
tions of your business and flag potential issues that could ruin your business. (Be sure to identify
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About the Plug-Ins
Located on the OLC that accompanies this text ( www.mhhe.com/baltzan ), the overall goal of the plug-ins
is to provide an alternative for faculty who find themselves in the situation of having to purchase an extra
book to support Microsoft Office 2010 or 2013. The plug-ins presented here offer integration with the core
chapters and provide critical knowledge using essential business applications, such as Microsoft Excel,
Microsoft Access, DreamWeaver, and Microsoft Project. Each plug-in uses hands-on tutorials for compre-
hension and mastery.
Each plug-in contains complete pedagogical support in the form of:
Plug-In Summary. Revisits the plug-in highlights in summary format.
Making Business Decisions. Small scenario-driven projects that help students focus individually on
decision making as they relate to the topical elements in the chapters.
End-of-Plug-In Elements
Plug-In Description
T1. Personal Productivity Using IT This plug-in covers a number of things to do to keep a personal computer running effectively
and efficiently. The 12 topics covered in this plug-in are:
■ Creating strong passwords.
■ Performing good fi le management.
■ Implementing effective backup and recovery strategies.
■ Using Zip fi les.
■ Writing professional emails.
■ Stopping spam.
■ Preventing phishing.
■ Detecting spyware.
■ Threads to instant messaging.
■ Increasing PC performance.
■ Using anti-virus software.
■ Installing a personal fi rewall.
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T2. Basic Skills Using Excel This plug-in introduces the basics of using Microsoft Excel, a spreadsheet program for data
analysis, along with a few fancy features. The six topics covered in this plug-in are:
■ Workbooks and worksheets.
■ Working with cells and cell data.
■ Printing worksheets.
■ Formatting worksheets.
■ Formulas.
■ Working with charts and graphics.
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T4. Decision Making Using Excel This plug-in examines a few of the advanced business analysis tools used in Microsoft Excel
that have the capability to identify patterns, trends, and rules, and create “what-if” models.
The four topics covered in this plug-in are:
■ IF
■ Goal Seek
■ Solver
■ Scenario Manager
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Support and Supplemental Material
All of the supplemental material supporting Business Driven Information Systems was developed by the author to
ensure you receive accurate, high-quality, and in-depth content. Included is a complete set of materials that will
assist students and faculty in accomplishing course objectives.
Online Learning Center ( www.mhhe.com/baltzan ) The McGraw-Hill website for Business Driven Information
Systems includes support for students and faculty. All supplements will be available exclusively on the OLC. This
will allow the authors to continually update and add to the instructor support materials. The following materials will
be available on the OLC:
Video Exercises. Each of the videos that accompany the text is supported by detailed teaching notes on how to
turn the videos into classroom exercises where your students can apply the knowledge they are learning after
watching the videos.
Test Bank. This computerized package allows instructors to custom design, save, and generate tests. The test
program permits instructors to edit, add, or delete questions from the test banks; analyze test results; and organize
a database of tests and students’ results.
Instructor’s Manual (IM). The IM, written by the author, includes suggestions for designing the course and
presenting the material. Each chapter is supported by answers to end-of-chapter questions and problems, and
suggestions concerning the discussion topics and cases.
PowerPoint Presentations. A set of PowerPoint slides, created by the author, accompanies each chapter and fea-
tures bulleted items that provide a lecture outline, plus key figures and tables from the text, and detailed teaching
notes on each slide.
Image Library. Text figures and tables, as permission allows, are provided in a format by which they can be
imported into PowerPoint for class lectures.
Project Files. The author has provided files for all projects that need further support, such as data files.
Cohesion Case. The Broadway Café is a running case instructors can use to reinforce core material such as customer
relationship management, supply chain management, business intelligence, and decision making. The case has
15 sections that challenge students to develop and expand their grandfather’s coffee shop. Students receive hands-on
experience in business and learn technology’s true value of enabling business. Please note that the Cohesion Case is
not a McGraw-Hill product but a Baltzan direct product. The case can be found at www.cohesioncase.com .
Video Content. Twenty videos accompany this text and cover topics from entrepreneurship to disaster recovery.
Video content icons are placed throughout the text highlighting where we recommend watching the videos. Video
IMs are also available so you can turn the videos into engaging classroom activities.
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McGraw-Hill Connect MIS

TM
Less Managing. More Teaching. Greater Learning.
McGraw-Hill Connect MIS is an online assignment and assessment solution that connects students with the tools
and resources they’ll need to achieve success.
McGraw-Hill Connect MIS helps prepare students for their future by enabling faster learning, more efficient
studying, and higher retention of knowledge.
McGraw-Hill Connect MIS features
Connect MIS offers a number of powerful tools and features to make managing assignments easier, so faculty can
spend more time teaching. With Connect MIS, students can engage with their coursework anytime and anywhere,
making the learning process more accessible and efficient. Connect MIS offers you the features described next.
Simple Assignment Management
With Connect MIS, creating assignments is easier than ever, so you can spend more time teaching and less time
managing. The assignment management function enables you to:
■ Create and deliver assignments easily with selectable end-of-chapter questions and test bank items.
■ Streamline lesson planning, student progress reporting, and assignment grading to make classroom manage-
ment more efficient than ever.
■ Go paperless with the eBook and online submission and grading of student assignments.
Smart Grading
When it comes to studying, time is precious. Connect MIS helps students learn more efficiently by providing
feedback and practice material when they need it, where they need it. When it comes to teaching, your time also is
precious. The grading function enables you to:
• Have assignments scored automatically, giving students immediate feedback on their work and side-by-side
comparisons with correct answers.
• Access and review each response; manually change grades or leave comments for students to review.
• Reinforce classroom concepts with practice tests and instant quizzes.
Instructor Library
The Connect MIS Instructor Library is your repository for additional resources to improve student engagement in
and out of class. You can select and use any asset that enhances your lecture.
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Student Study Center
The Connect MIS Student Study Center is the place for students to access additional resources. The Student Study
Center:
• Offers students quick access to lectures, practice materials, ebooks, and more.
• Provides instant practice material and study questions, easily accessible on the go.
• Gives students access to the Personalized Learning Plan described next.
Student Progress Tracking
Connect MIS keeps instructors informed about how each student, section, and class is performing, allowing for
more productive use of lecture and office hours. The progress-tracking function enables you to:
• View scored work immediately and track individual or group performance with assignment and grade reports.
• Access an instant view of student or class performance relative to learning objectives.
• Collect data and generate reports required by many accreditation organizations, such as AACSB.
Lecture Capture
Increase the attention paid to lecture discussion by decreasing the attention paid to note taking. For an additional
charge, Lecture Capture offers new ways for students to focus on the in-class discussion, knowing they can revisit
important topics later. Lecture Capture enables you to:
• Record and distribute your lecture with a click of button.
• Record and index PowerPoint presentations and anything shown on your computer so it is easily searchable,
frame by frame.
• Offer access to lectures anytime and anywhere by computer, iPod, or mobile device.
• Increase intent listening and class participation by easing students’ concerns about note taking. Lecture Capture
will make it more likely you will see students’ faces, not the tops of their heads.
McGraw-Hill Connect Plus MIS
McGraw-Hill reinvents the textbook learning experience for the modern student with Connect Plus MIS. A seamless
integration of an ebook and Connect MIS, Connect Plus MIS provides all of the Connect MIS features plus the
following:
• An integrated ebook, allowing for anytime, anywhere access to the textbook.
• Dynamic links between the problems or questions you assign to your students and the location in the ebook
where that problem or question is covered.
• A powerful search function to pinpoint and connect key concepts in a snap.
In short, Connect MIS offers you and your students powerful tools and features that optimize your time
and energies, enabling you to focus on course content, teaching, and student learning. Connect MIS also
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offers a wealth of content resources for both instructors and students. This state-of-the-art, thoroughly tested
system supports you in preparing students for the world that awaits.
For more information about Connect, go to www.mcgrawhillconnect.com , or contact your local McGraw-Hill
sales representative.
Tegrity Campus: Lectures 24/7
Tegrity Campus is a service that makes class time available 24/7 by automatically capturing every lecture in a
searchable format for students to review when they study and complete assignments. With a simple one-click
start-and-stop process, you capture all computer screens and corresponding audio. Students can replay any part
of any class with easy-to-use browser-based viewing on a PC or Mac.
Educators know that the more students can see, hear, and experience class resources, the better they learn. In
fact, studies prove it. With Tegrity Campus, students quickly recall key moments by using Tegrity Campus’s unique
search feature. This search helps students efficiently find what they need, when they need it, across an entire
semester of class recordings. Help turn all your students’ study time into learning moments immediately supported
by your lecture.
To learn more about Tegrity watch a two-minute Flash demo at http://tegritycampus.mhhe.com .
Assurance of Learning Ready
Many educational institutions today are focused on the notion of assurance of learning, an important element of
some accreditation standards. Business Driven Information Systems is designed specifically to support your assur-
ance of learning initiatives with a simple, yet powerful solution.
Each test bank question for Business Driven Information Systems maps to a specific chapter learning outcome/
objective listed in the text. You can use our test bank software, EZ Test and EZ Test Online, or in Connect MIS to
easily query for learning outcomes/objectives that directly relate to the learning objectives for your course. You can
then use the reporting features of EZ Test to aggregate student results in similar fashion, making the collection and
presentation of assurance of learning data simple and easy.
AACSB Statement
The McGraw-Hill Companies is a proud corporate member of AACSB International. Understanding the importance
and value of AACSB accreditation, Business Driven Information Systems 4e recognizes the curricula guidelines
detailed in the AACSB standards for business accreditation by connecting selected questions in the test bank to the
six general knowledge and skill guidelines in the AACSB standards.
The statements contained in Business Driven Information Systems 4e are provided only as a guide for the users
of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the
mission of the school, and the faculty. While Business Driven Information Systems 4e and the teaching package
make no claim of any specific AACSB qualification or evaluation, within Business Driven Information Systems 4e
we have labeled selected questions according to the six general knowledge and skills areas.
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McGraw-Hill Customer Care Contact Information
At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our
services don’t stop after you purchase our products. You can email our product specialists 24 hours a day to get
product-training online. Or you can search our knowledge bank of Frequently Asked Questions on our support
website. For Customer Support, call 800-331-5094 or visit www.mhhe.com/support where you can look for
your question on our FAQ or you can email a question directly to customer support. One of our technical support
analysts will be able to assist you in a timely fashion.
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Apply Your Knowledge
Business Driven Information Systems contains 33 projects that focus on student application of core concepts and tools.
These projects can be found on the OLC at www.mhhe.com/baltzan .
Project
Number Project Name Project Type Plug-In Focus Area Project Level Skill Set
Page
Number
1 Financial
Destiny
Excel T2 Personal
Budget
Introductory Formulas AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory Formulas AYK.4
3 Technology
Budget
Excel T1, T2 Hardware
and Software
Introductory Formulas AYK.4
4 Tracking
Donations
Excel T2 Employee
Relationships
Introductory Formulas AYK.4
5 Convert
Currency
Excel T2 Global
Commerce
Introductory Formulas AYK.5
6 Cost
Comparison
Excel T2 Total Cost of
Ownership
Introductory Formulas AYK.5
7 Time
Management
Excel or Project T12 Project
Management
Introductory Gantt Charts AYK.6
8 Maximize
Profit
Excel T2, T4 Strategic
Analysis
Intermediate Formulas or
Solver
AYK.6
9 Security
Analysis
Excel T3 Filtering Data Intermediate Conditional
Formatting,
Autofilter,
Subtotal
AYK.7
10 Gathering
Data
Excel T3 Data
Analysis
Intermediate Conditional
Formatting
AYK.8
11 Scanner
System
Excel T2 Strategic
Analysis
Intermediate Formulas AYK.8
12 Competitive
Pricing
Excel T2 Profit
Maximization
Intermediate Formulas AYK.9
13 Adequate
Acquisitions
Excel T2 Break-Even
Analysis
Intermediate Formulas AYK.9
14 Customer
Relations
Excel T3 CRM Intermediate PivotTable AYK.9
15 Assessing
the Value of
Information
Excel T3 Data
Analysis
Intermediate PivotTable AYK.10
16 Growth,
Trends, and
Forecasts
Excel T2, T3 Data
Forecasting
Advanced Average,
Trend, Growth
AYK.11
17 Shipping Costs Excel T4 SCM Advanced Solver AYK.12
18 Formatting
Grades
Excel T3 Data
Analysis
Advanced If, LookUp AYK.12
(Continued)
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Project
Number Project Name Project Type Plug-In Focus Area Project Level Skill Set
Page
Number
19 Moving
Dilemma
Excel T2, T3 SCM Advanced Absolute
vs. Relative
Values
AYK.13
20 Operational
Efficiencies
Excel T3 SCM Advanced PivotTable AYK.14
21 Too Much
Information
Excel T3 CRM Advanced PivotTable AYK.14
22 Turnover Rates Excel T3 Data Mining Advanced PivotTable AYK.15
23 Vital
Information
Excel T3 Data Mining Advanced PivotTable AYK.15
24 Breaking Even Excel T4 Business
Analysis
Advanced Goal Seek AYK.16
25 Profit Scenario Excel T4 Sales
Analysis
Advanced Scenario
Manager
AYK.16
26 Electronic
Résumés
HTML T9, T10,
T11
Electronic
Personal
Marketing
Introductory Structural
Tags
AYK.17
27 Gathering
Feedback
Dreamweaver T9, T10,
T11
Data
Collection
Intermediate Organization
of Information
AYK.17
28 Daily Invoice Access T5, T6,
T7, T8
Business
Analysis
Introductory Entities,
Relationships,
and
Databases
AYK.17
29 Billing Data Access T5, T6,
T7, T8
Business
Intelligence
Introductory Entities,
Relationships,
and
Databases
AYK.19
30 Inventory Data Access T5, T6,
T7, T8
SCM Intermediate Entities,
Relationships,
and
Databases
AYK.20
31 Call Center Access T5, T6,
T7, T8
CRM Intermediate
Entities,
Relationships,
and
Databases AYK.21
32 Sales Pipeline Access T5, T6,
T7, T8
Business
Intelligence
Advanced Entities,
Relationships,
and
Databases
AYK.23
33 Online
Classified Ads
Access T5, T6,
T7, T8
Ecommerce Advanced Entities,
Relationships,
and
Databases
AYK.23
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SimNet Online is McGraw-Hill’s leading solution for learning Microsoft Office skills and beyond! SimNet is our online
training and assessment solution for Microsoft Office skills, computing concepts, Internet Explorer, and Windows
content. With no downloads for installation and completely online (requires Adobe Flash Player), SimNet is accessible
for today’s students through multiple browsers and is easy to use for all. Its consistent user interface and functional-
ity will help save you time and help you be more successful in your course.
Moreover, SimNet offers you lifelong learning. Our codes never expire and the online program is designed with Self-
Study and SimSearch features to help you immediately learn isolated Microsoft Office skills on demand. It’s more
than a resource; it’s a tool you can use throughout your entire time at your higher education institution.
Finally, you will see powerful, measurable results with SimNet Online. See results immediately in the student grade-
book and also generate custom training lessons after an exam to help you determine exactly which content areas
you still need to study.
SimNet Online is your solution for mastering Microsoft Office skills!
SIMnet: Keep IT SIMple!
To learn more, visit www.simnetkeepitsimple.com
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McGraw-Hill Higher Education and Blackboard have teamed up. What does this mean for you?
1. Your life, simplified. Now you and your students can access McGraw-Hill’s Connect™ and Create™ right from
within your Blackboard course—all with one single sign-on. Say good-bye to the days of logging in to multiple
applications.
2. Deep integration of content and tools. Not only do you get single sign-on with Connect™ and Create™, you
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Rev. Confirming Pages
Acknowledgmentsxxx
Stephen Adams
Lakeland Community College
Adeyemi A. Adekoya
Virginia State University—Petersburg
Joni Adkins
Northwest Missouri State University
Chad Anderson
University of Nevada—Reno
Anne Arendt
Utah Valley University
Laura Atkins
James Madison University
William Ayen
University of Colorado
David Bahn
Metropolitan State University—St.
Paul
Nick Ball
Brigham Young University—Provo
Patrick Bateman
Youngstown State University
Terry Begley
Creighton University
Craig Beytien
University of Colorado—Boulder
Sudip Bhattacharjee
University of Connecticut
Meral Binbasioglu
Hofstra University
Joseph Blankenship
Fairmont State College
Beverly Bohn
Park University
Brenda Bradford
Missouri Baptist University
Casey Cegielski
Auburn University—Auburn
Amita Chin
Virginia Commonwealth University
Steve Clements
Eastern Oregon University
Cynthia Corritore
Creighton University
Dan Creed
Normandale Community College
Don Danner
San Francisco State University
Sasha Dekleva
DePaul University
Robert Denker
Baruch College
Hongwei Du
California State University, East Bay
Kevin Duffy
Wright State University—Dayton
Annette Easton
San Diego State University
Barry Floyd
California Polytechnic State
University
Valerie Frear
Daytona State College
Laura Frost
Walsh College
Don Gaber
University of Wisconsin—Eau Claire
Biswadip Ghosh
Metropolitan State College of Denver
Richard Glass
Bryant University
Lakshmi Goel
University of North Florida
Mark Goudreau
Johnson & Wales University
Katie Gray
The University of Texas at Austin
Gary Hackbarth
Northern Kentucky University
Shu Han
Yeshiva University
Peter Haried
University of Wisconsin—La Crosse
Rosie Hauck
Illinois State University
Jun He
University of Michigan—Dearborn
James Henson
California State University—Fresno
Terri Holly
Indian River State College
Scott Hunsinger
Appalachian State University
Ted Hurewitz
Rutgers University
Yan Jin
Elizabeth City State University
Brian Jones
Tennessee Technological University
ACKNOWLEDGMENTS
Working on the fourth edition of Business Driven Information Systems has been an
involved undertaking, and there are many people whom we want to heartily thank for
their hard work, enthusiasm, and dedication.
This text was produced with the help of a number of people at McGraw-Hill, including
Brand Manager Wyatt Morris, Development Editor Alaina Tucker, and Kathryn Wright,
our Project Manager.
Additionally, we would like to thank Scott Davidson (Director), Tiffany Russell
(Marketing Manager), Matt Diamond (Designer), Kevin White (Digital Development
Editor), and Keri Johnson (Content Licensing Specialist) for your support and dedica-
tion to the success of this text.
Finally, we offer our sincerest gratitude and deepest appreciation to our valuable
reviewers whose feedback was instrumental in successfully compiling this text. We could
not have done this without you!
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Rev. Confirming Pages
xxxiAcknowledgments
Robert Judge
San Diego State University
B. Kahn
Suffolk University
Virginia Kleist
West Virginia University
Meagan Knoll
Grand Valley State University
Rick Kraas
Kalamazoo Valley Community
College
Chetan Kumar
California State University—San
Marcos
Guolin Lai
University of Louisiana—Lafayette
Jose Lepervanche
Florida State College—Jacksonville
Norman Lewis
Wayne State University
Mary Lind
North Carolina A&T State University
Steve Loy
Eastern Kentucky University
Joan Lumpkin
Wright State University—Dayton
Linda Lynam
University of Central Missouri
Nicole Lytle-Kosola
California State University—San
Bernardino
Garth MacKenzie
University of Maryland University
College
Michael Martel
Ohio University—Athens
Dana McCann
Central Michigan University
David McCue
University of Maryland
Lynn McKell
Brigham Young University
Patricia McQuaid
California Polytechnic State
University
Fiona Nah
University of Nebraska—Lincoln
Eric Nathan
University of Houston Downtown
Bill Neumann
University of Arizona
Richard Newmark
University of Northern Colorado
Kathleen Noce
Pennsylvania State University—Erie
Gisele Olney
University of Nebraska—Omaha
Kevin Parker
Idaho State University—Pocatello
Neeraj Parolia
Towson University
Gang Peng
Youngstown State University
Julie Pettus
Missouri State University
Craig Piercy
University of Georgia
Clint Pires
Hamline University
Jennifer Pitts
Columbus State University
Carol Pollard
Appalachian State University
Lara Preiser-Houy
California State Polytechnic
University—Pomona
John Quigley
East Tennessee State University
Muhammad Razi
Western Michigan University
Lisa Rich
Athens State University
Russell Robbins
University of Pittsburgh
Fred Rodammer
Michigan State University
Steve Ross
Western Washington University
Mark Schmidt
St. Cloud State University
Dana Schwieger
Southeast Missouri State University
Darrell Searcy
Palm Beach Community College
Jay Shah
Texas State University
Vivek Shah
Texas State University
Vijay Shah
West Virginia University—
Parkersburg
Jollean Sinclaire
Arkansas State University
Changsoo Sohn
St. Cloud State University
Toni Somers
Wayne State University
Denise Sullivan
Westchester Community College
Yi Sun
California State University—San
Marcos
Mike Tarn
Western Michigan University
Mark Thouin
The University of Texas at Dallas
Lise Urbaczewski
University of Michigan—Dearborn
Hong Wang
North Carolina A&T State University
Barbara Warner
University of South Florida
Connie Washburn
Georgia Perimeter College
Bruce White
Quinnipiac University
Raymond Whitney
University of Maryland University
College
Rosemary Wild
California Polytechnic State
University
Marie Wright
Western Connecticut State University
Yajiong Xue
East Carolina University
Ali Yayla
Binghamton University
Grace Zhang
Midwestern State University
Lin Zhao
Purdue University—Calumet
Jeanne Zucker
East Tennessee State University
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Rev. Confirming Pages
About the Authorxxxii
A B O U T T H E A U T H O R
Pa ige Ba l tzan
Paige Baltzan teaches in the Department of Business Information and Analytics at the
Daniels College of Business at the University of Denver. She holds a B.S.B.A. specializing
in Accounting/MIS from Bowling Green State University and an M.B.A. specializing in
MIS from the University of Denver. She is a coauthor of several books, including Business
Driven Technology, Essentials of Business Driven Information Systems, I-Series, and a con-
tributor to Management Information Systems for the Information Age.
Before joining the Daniels College faculty in 1999, Paige spent several years working
for a large telecommunications company and an international consulting firm, where
she participated in client engagements in the United States as well as South America
and Europe. Paige lives in Lakewood, Colorado, with her husband, Tony, and daughters
Hannah and Sophie.
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2
3
1
MODULE 1:
Business Driven MIS
MODULE 3:
Enterprise MIS
MODULE 2:
Technical Foundations
of MIS
module 1 Business Driven MIS
M OST COMPANIES TODAY rely heavily on the use of management information sys-
tems (MIS) to run various aspects of their businesses. Whether they need to order and ship
goods, interact with customers, or conduct other business functions, management information
systems are often the underlying infrastructure performing the activities. Management informa-
tion systems allow companies to remain competitive in today’s fast-paced world and especially
when conducting business on the Internet. Organizations must adapt to technological advances
and innovations to keep pace with today’s rapidly changing environment. Their competitors cer-
tainly will!
No matter how exciting technology is, successful companies do not use it simply for its own
sake. Companies should have a solid business reason for implementing technology. Using a
technological solution just because it is available is not a good business strategy.
The purpose of Module 1 is to raise your awareness of the vast opportunities made possible
by the tight correlation between business and technology. Business strategies and processes
should always drive your technology choices. Although awareness of an emerging technology
can sometimes lead us in new strategic directions, the role of information systems, for the most
part, is to support existing business strategies and processes.
Module 1: Business Driven MIS
CHAPTER 1: Management Information Systems: Business Driven MIS
CHAPTER 2: Decisions and Processes: Value Driven Business
CHAPTER 3: Ebusiness: Electronic Business Value
CHAPTER 4: Ethics and Information Security: MIS Business Concerns
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What’s in IT for me?
This chapter sets the stage for the textbook. It starts from ground zero by providing a clear description of what information
is and how it fits into business operations, strategies, and systems. It provides an overview of how companies operate in
competitive environments and why they must continually define and redefine their business strategies to create competi-
tive advantages. Doing so allows them to survive and thrive. Information systems are key business enablers for successful
operations in competitive environments.
You, as a business student, must understand the tight correlation between business and technology. You must first rec-
ognize information’s role in daily business activities, and then understand how information supports and helps implement
global business strategies and competitive advantages. After reading this chapter, you should have a solid understanding of
business driven information systems and their role in managerial decision making and problem solving.
1
■ I d e n t i f y i n g C o m p e t i t i v e
A d v a n t a g e s
■ T h e F i v e F o rc e s M o d e l —
E v a l u a t i n g I n d u s t r y
A t t r a c t i v e n e s s
■ T h e T h re e G e n e r i c S t r a t e g i e s —
C h o o s i n g a B u s i n e s s F o c u s
■ Va l u e C h a i n A n a l y s i s —
E x e c u t i n g B u s i n e s s S t r a t e g i e s
SECTION 1.2
Business Strategy
■ C o m p e t i n g i n t h e I n f o r m a t i o n
A g e
■ T h e C h a l l e n g e : D e p a r t m e n t a l
C o m p a n i e s
■ T h e S o l u t i o n : M a n a g e m e n t
I n f o r m a t i o n S y s t e m s
SECTION 1.1
Business Driven MIS
C
H
A
P
T
E
R
O
U
T
L
IN
E

C H A P T E R
Management Information
Systems: Business Driven MIS
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Rev. Confirming Pages
3Business Driven MIS Module 1
opening case study
The World Is Flat: Thomas Friedman
Christopher Columbus proved in 1492 that the world is round. For centuries, sailors maneu-
vered the seas discovering new lands, new people, and new languages as nations began
trading goods around the globe. Then Thomas Friedman, a noted columnist for The New
York Times, published his book The World Is Flat.
Friedman argues that the world has become flat due to technological advances connecting
people in China, India, and the United States as if we were all next-door neighbors. Physicians
in India are reading X-rays for U.S. hospitals, and JetBlue Airways ticket agents take plane
reservations for the company from the comfort of their Utah homes. Technology has elimi-
nated some of the economic and cultural advantages developed countries enjoy, making the
world a level playing field for all participants. Friedman calls this Globalization 3.0.
Globalization 1.0 started when Christopher Columbus discovered the world is round and
the world shrank from large to medium. For the next several hundred years, countries domi-
nated by white men controlled business. Globalization 2.0 began around 1800, during the
Industrial Revolution, when the world went from medium to small. In this era international
companies dominated by white men controlled business. Globalization 3.0 began in early
2000, removing distance from the business equation, and the world has gone from small to
tiny. In this era, people of all colors from the four corners of the world will dominate busi-
ness. Farmers in remote villages in Nepal carry an iPhone to access the world’s knowledge
at, say, Wikipedia or the stock market closing prices at Bloomberg.
Outsourcing, or hiring someone from another country to complete work remotely, will
play an enormous role in this era. It has advantages and disadvantages. Outsourcing work
to countries where labor is cheap drives down production costs and allows companies to
offer lower prices to U.S. consumers. Having an accountant in China complete a U.S. tax
return is just as easy as driving to the H&R Block office on the corner, and probably far
cheaper. Calling an 800 number for service can connect consumers to an Indian, Canadian,
or Chinese worker on the other end of the line. Of course, outsourcing also eliminates some
U.S. manufacturing and labor jobs, causing pockets of unemployment. In fact, the United
States has outsourced several million service and manufacturing jobs to offshore, low-cost
producers.
Figure 1.1 shows Friedman’s list of forces that flattened the world. They converged
around the year 2000 and “created a flat world: a global, web-enabled platform for mul-
tiple forms of sharing knowledge and work, irrespective of time, distance, geography, and
increasingly, language.” Three powerful new economies began materializing at this time. In
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4 Chapter 1 Management Information Systems: Business Driven MIS
India, China, and the former Soviet Union, more than 3 billion new willing and able partici-
pants walked onto the business playing field. Business students will be competing for their
first jobs not only against other local students, but also against students from around the
country and around the globe.1
Friedman’s 10 Forces That Flattened the World
1. Fall of the Berlin Wall The events of November 9, 1989, tilted the worldwide balance of
power toward democracies and free markets.
2. Netscape IPO The August 9, 1995, offering sparked massive investment in fiber-
optic cables.
3. Work flow software The rise of applications from PayPal to VPNs enabled faster, closer
coordination among far-flung employees.
4. Open sourcing Self-organizing communities, such as Linux, launched a
collaborative revolution.
5. Outsourcing Migrating business functions to India saved money and a
Third World economy.
6. Offshoring Contract manufacturing elevated China to economic
prominence.
7. Supply chaining Robust networks of suppliers, retailers, and customers
increased business efficiency.
8. In-sourcing Logistics giants took control of customer supply chains, helping
mom-and-pop shops go global.
9. Informing Power searching allowed everyone to use the Internet as a “personal
supply chain of knowledge.”
10. Wireless Wireless technologies pumped up collaboration, making it mobile and
personal.
FIGURE 1.1
Thomas Friedman’s 10 Forces
That Flattened the World
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5Business Driven MIS Module 1
section 1.1 Business Driven MIS
L E A R N I N G O U T C O M E S
1.1 Describe the information age and the differences among data, information, business intelligence,
and knowledge.
1.2 Identify the different departments in a company and why they must work together to achieve success.
1.3 Explain systems thinking and how management information systems enable business
communications.
COMPETING IN THE INFORMATION AGE
Did you know that . . .
■ The movie Avatar took more than four years to create and cost $450 million.
■ Lady Gaga’s real name is Stefani Joanne Angelina Germanotta.
■ Customers pay $2.6 million for a 30-second advertising time slot during the Super
Bowl. 2
A fact is the confirmation or validation of an event or object. In the past, people pri-
marily learned facts from books. Today, by simply pushing a button people can find out
anything, from anywhere, at any time. We live in the information age , when infinite
quantities of facts are widely available to anyone who can use a computer. The impact of
information technology on the global business environment is equivalent to the printing
press’s impact on publishing and electricity’s impact on productivity. College student
startups were mostly unheard of before the information age. Now, it’s not at all unusual
to read about a business student starting a multimillion-dollar company from his or her
dorm room. Think of Mark Zuckerberg, who started Facebook from his dorm, or Michael
Dell (Dell Computers) and Bill Gates (Microsoft), who both founded their legendary
companies as college students.
You may think only students well versed in advanced technology can compete in the
information age. This is simply not true. Many business leaders have created exceptional
opportunities by coupling the power of the information age with traditional business
methods. Here are just a few examples:
■ Amazon is not a technology company; its original business focus was to sell books,
and it now sells nearly everything.
■ Netflix is not a technology company; its primary business focus is to rent videos.
■ Zappos is not a technology company; its primary business focus is to sell shoes, bags,
clothing, and accessories.
Amazon’s founder, Jeff Bezos, at first saw an opportunity to change the way people
purchase books. Using the power of the information age to tailor offerings to each
customer and speed the payment process, he in effect opened millions of tiny virtual
bookstores, each with a vastly larger selection and far cheaper product than traditional
bookstores. The success of his original business model led him to expand Amazon to
carry many other types of products. The founders of Netflix and Zappos have done the
same thing for videos and shoes. All these entrepreneurs were business professionals,
not technology experts. However, they understood enough about the information age
to apply it to a particular business, creating innovative companies that now lead entire
industries.
Students who understand business along with the power associated with the infor-
mation age will create their own opportunities and perhaps even new industries, as co-
founders Chris DeWolfe and Tom Anderson did with MySpace and Mark Zuckerberg did
LO. 1.1: Describe the information
age and the differences among data,
information, business intelligence,
and knowledge.
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Rev. Confirming Pages
BUSINESS DRIVEN DISCUSSION
Bill Gates, founder of Microsoft, stated that 20 years ago most people would
rather have been a B student in New York City than a genius in China because
the opportunities available to students in developed countries were limitless.
Today, many argue that the opposite is now true due to technological advances
making it easier to succeed as a genius in China than a B student in New York.
As a group, discuss if you agree or disagree with Bill Gates statement. 3
View from a
Flat World
APPLY YOUR KNOWLEDGE
6 Chapter 1 Management Information Systems: Business Driven MIS
with Facebook. Our primary goal in this course is to arm you with the knowledge you
need to compete in the information age. The core drivers of the information age are:
■ Data
■ Information
■ Business intelligence
■ Knowledge (see Figure 1.2 )
Data
Data are raw facts that describe the characteristics of an event or object. Before the
information age, managers manually collected and analyzed data, a time-consuming
and complicated task without which they would have little insight into how to run their
FIGURE 1.2
The Differences among
Data, Information, Business
Intelligence, and Knowledge
Data Information Business
Intelligence
Knowledge
•
•
• Data converted
into a meaningful
and useful
context
• Information collected
from multiple sources
that analyzes patterns,
trends, and relationships
for strategic decision
making
• The skills, experience,
and expertise, coupled
with information and
intelligence, that creates
a person’s intellectual
resources.
• Choosing not to fire a
sales representative
who is underperforming
knowing that person is
experiencing family
problems
• Listing products that are
about to expire first on
the menu or creating
them as a daily special
to move the product
• Raw facts that
describe the
characteristics
of an event
or object
• Order date
• Amount sold
• Customer
number
• Quantity
ordered
• Best-selling
product
• Best customer
• Worst-selling
product
• Worst
customer
• Lowest sales per week
compared with the
economic interest rates
• Best-selling product by
month compared to
sports season and city
team wins and losses
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Rev. Confirming Pages
7Business Driven MIS Module 1
business. Lacking data, managers often found themselves making business decisions
about how many products to make, how much material to order, or how many employ-
ees to hire based on intuition or gut feelings. In the information age, successful manag-
ers compile, analyze, and comprehend massive amounts of data daily, which helps them
make more successful business decisions.
Figure 1.3 shows sales data for Tony’s Wholesale Company, a fictitious business that
supplies snacks to stores. The data highlight characteristics such as order date, cus-
tomer, sales representative, product, quantity, and profit. The second line in Figure 1.3 ,
for instance, shows that Roberta Cross sold 90 boxes of Ruffles to Walmart for $1,350,
resulting in a profit of $450 (note that Profit 5 Sales 2 Costs). These data are useful for
understanding individual sales; however, they do not provide us much insight into how
Tony’s business is performing as a whole. Tony needs to answer questions that will help
him manage his day-to-day operations such as:
■ Who are my best customers?
■ Who are my least-profitable customers?
■ What is my best-selling product?
■ What is my slowest-selling product?
■ Who is my strongest sales representative?
■ Who is my weakest sales representative?
What Tony needs, in other words, is not data but information.
Information
Information is data converted into a meaningful and useful context. Having the right
information at the right moment in time can be worth a fortune. Having the wrong infor-
mation at the right moment; or the right information at the wrong moment can be disas-
trous. The truth about information is that its value is only as good as the people who use
it. People using the same information can make different decisions depending on how
they interpret or analyze the information. Thus information has value only insofar as the
people using it do as well.
Tony can analyze his sales data and turn them into information to answer all the
above questions and understand how his business is operating. Figures 1.4 and 1.5 ,
for instance, show us that Walmart is Roberta Cross’s best customer, and that Ruffles is
Tony’s best product measured in terms of total sales. Armed with this information, Tony
can identify and then address such issues as weak products and underperforming sales
representatives.
A variable is a data characteristic that stands for a value that changes or varies
over time. For example, in Tony’s data, price and quantity ordered can vary. Changing
FIGURE 1.3
Tony’s Snack Company DataOrder
Date Customer
Sales
Representative Product Qty
Unit
Price
Total
Sales
Unit
Cost
Total
Cost Profit
4-Jan Walmart PJ Helgoth Doritos 41 $24 $ 984 $18 $738 $246
4-Jan Walmart Roberta Cross Ruffles 90 $15 $1,350 $10 $900 $450
5-Jan Safeway Craig Schultz Ruffles 27 $15 $ 405 $10 $270 $135
6-Jan Walmart Roberta Cross Ruffles 67 $15 $1,005 $10 $670 $335
7-Jan 7-Eleven Craig Schultz Pringles 79 $12 $ 948 $ 6 $474 $474
7-Jan Walmart Roberta Cross Ruffles 52 $15 $ 780 $10 $520 $260
8-Jan Kroger Craig Schultz Ruffles 39 $15 $ 585 $10 $390 $195
9-Jan Walmart Craig Schultz Ruffles 66 $15 $ 990 $10 $660 $330
10-Jan Target Craig Schultz Ruffles 40 $15 $ 600 $10 $400 $200
11-Jan Walmart Craig Schultz Ruffles 71 $15 $1,065 $10 $710 $355
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Rev. Confirming Pages
8 Chapter 1 Management Information Systems: Business Driven MIS
FIGURE 1.4
Tony’s Data Sorted by
Customer “Walmart” and Sales
Representative “Roberta Cross”
Order
Date Customer
Sales
Representative Product Quantity
Unit
Price
Total
Sales Unit Cost
Total
Cost Profit
26-Apr Walmart Roberta Cross Fritos 86 $ 19 $ 1,634 $ 17 $ 1,462 $ 172
29-Aug Walmart Roberta Cross Fritos 76 $ 19 $ 1,444 $ 17 $ 1,292 $ 152
7-Sep Walmart Roberta Cross Fritos 20 $ 19 $ 380 $ 17 $ 340 $ 40
22-Nov Walmart Roberta Cross Fritos 39 $ 19 $ 741 $ 17 $ 663 $ 78
30-Dec Walmart Roberta Cross Fritos 68 $ 19 $ 1,292 $ 17 $ 1,156 $ 136
7-Jul Walmart Roberta Cross Pringles 79 $ 18 $ 1,422 $ 8 $ 632 $ 790
6-Aug Walmart Roberta Cross Pringles 21 $ 12 $ 252 $ 6 $ 126 $ 126
2-Oct Walmart Roberta Cross Pringles 60 $ 18 $ 1,080 $ 8 $ 480 $ 600
15-Nov Walmart Roberta Cross Pringles 32 $ 12 $ 384 $ 6 $ 192 $ 192
21-Dec Walmart Roberta Cross Pringles 92 $ 12 $ 1,104 $ 6 $ 552 $ 552
28-Feb Walmart Roberta Cross Ruffles 67 $ 15 $ 1,005 $ 10 $ 670 $ 335
6-Mar Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40
16-Mar Walmart Roberta Cross Ruffles 68 $ 15 $ 1,020 $ 10 $ 680 $ 340
23-Apr Walmart Roberta Cross Ruffles 34 $ 15 $ 510 $ 10 $ 340 $ 170
4-Aug Walmart Roberta Cross Ruffles 40 $ 15 $ 600 $ 10 $ 400 $ 200
18-Aug Walmart Roberta Cross Ruffles 93 $ 15 $ 1,395 $ 10 $ 930 $ 465
5-Sep Walmart Roberta Cross Ruffles 41 $ 15 $ 615 $ 10 $ 410 $ 205
12-Sep Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40
28-Oct Walmart Roberta Cross Ruffles 50 $ 15 $ 750 $ 10 $ 500 $ 250
21-Nov Walmart Roberta Cross Ruffles 79 $ 15 $ 1,185 $ 10 $ 790 $ 395
29-Jan Walmart Roberta Cross Sun Chips 5 $ 22 $ 110 $ 18 $ 90 $ 20
12-Apr Walmart Roberta Cross Sun Chips 85 $ 22 $ 1,870 $ 18 $ 1,530 $ 340
16-Jun Walmart Roberta Cross Sun Chips 55 $ 22 $ 1,210 $ 18 $ 990 $ 220
1,206 $383 $20,243 $273 $14,385 $5,858
Sorting the data reveals the information that Roberta Cross’s total sales to Walmart were $20,243 resulting in a profit of $5,858.
(Profit $5,858 5 Sales $20,243 2 Costs $14,385)
variables allows managers to create hypothetical scenarios to study future possibilities.
Tony may find it valuable to anticipate how sales or cost increases affect profitability. To
estimate how a 20 percent increase in prices might improve profits, Tony simply changes
the price variable for all orders, which automatically calculates the amount of new prof-
its. To estimate how a 10 percent increase in costs hurts profits, Tony changes the cost
variable for all orders, which automatically calculates the amount of lost profits. Manip-
ulating variables is an important tool for any business.
Business Intelligence
Business intelligence (BI) is information collected from multiple sources such as sup-
pliers, customers, competitors, partners, and industries that analyzes patterns, trends,
and relationships for strategic decision making. BI manipulates multiple variables and
in some cases even hundreds of variables including such items as interest rates, weather
conditions, and even gas prices. Tony could use BI to analyze internal data such as
company sales, along with external data about the environment such as competitors,
finances, weather, holidays, and even sporting events. Both internal and external vari-
ables affect snack sales, and analyzing these variables will help Tony determine ordering
levels and sales forecasts. For instance, BI can predict inventory requirements for Tony’s
business for the week before the Super Bowl if, say, the home team is playing, average
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9Business Driven MIS Module 1
Tony’s Business Information Name Total Profit
Who is Tony’s best customer by total sales? Walmart $ 560,789
Who is Tony’s least-valuable customer by total sales? Walgreens $45,673
Who is Tony’s best customer by profit? 7-Eleven $ 324,550
Who is Tony’s least-valuable customer by profit? King Soopers $ 23,908
What is Tony’s best-selling product by total sales? Ruffles $ 232,500
What is Tony’s weakest-selling product by total sales? Pringles $ 54,890
What is Tony’s best-selling product by profit? Tostitos $ 13,050
What is Tony’s weakest-selling product by profit? Pringles $ 23,000
Who is Tony’s best sales representative by profit? R. Cross $1,230,980
Who is Tony’s weakest sales representative by profit? Craig Schultz $ 98,980
What is the best sales representative’s best-selling
product by total profit? Ruffles $ 98,780
Who is the best sales representative’s best customer
by total profit? Walmart $ 345,900
What is the best sales representative’s weakest-selling product
by total profit? Sun Chips $ 45,600
Who is the best sales representative’s weakest
customer by total profit? Krogers $ 56,050
FIGURE 1.5
Information Gained after
Analyzing Tony’s Data
BUSINESS DRIVEN MIS
How can global warming be real when there is so much snow and cold weather?
That’s what some people wondered after a couple of massive snowstorms bur-
ied Washington, D.C. Politicians across the capital made jokes and built igloos
as they disputed the existence of climate change. Some concluded the planet
simply could not be warming with all the snow on the ground.
These comments frustrated Joseph Romm, a physicist and climate expert
with the Center for American Progress. He spent weeks turning data into infor-
mation and graphs to educate anyone who would listen as to why this reason-
ing was incorrect. Climate change is all about analyzing data, turning it into
information to detect trends. You cannot observe climate change by looking out
the window; you have to review decades of weather data with advanced tools to
really understand the trends.
Increasingly we see politicians, economists, and newscasters taking tough
issues and boiling them down to simplistic arguments over what the data
mean, each interpreting the data and spinning the data to support their views
and agendas. You need to understand the data and turn them into useful infor-
mation or else you will not understand when someone is telling the truth and
when you are being lied to.
Brainstorm two or three types of data economists use to measure the
economy. How do they turn the data into information? What issues do they
encounter when attempting to measure the economy? As a manager, what do
you need to understand when reading or listening to economic and business
reports? 4
Manipulating
the Data to Find
Your Version of
the Truth
APPLY YOUR KNOWLEDGE
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10 Chapter 1 Management Information Systems: Business Driven MIS
temperature is above 80 degrees, and the stock market is performing well. This is BI at
its finest, incorporating all types of internal and external variables to anticipate business
performance.
Top managers use BI to define the future of the business, analyzing markets, indus-
tries, and economies to determine the strategic direction the company must follow to
remain profitable. Tony will set the strategic direction for his firm, which might include
introducing new flavors of potato chips or sport drinks as new product lines or schools
and hospitals as new market segments.
Knowledge
Knowledge includes the skills, experience, and expertise, coupled with information and
intelligence, that creates a person’s intellectual resources. Knowledge workers are indi-
viduals valued for their ability to interpret and analyze information. Today’s workers are
commonly referred to as knowledge workers and they use BI along with personal experi-
ence to make decisions based on both information and intuition, a valuable resource for
any company.
Imagine that Tony analyzes his data and finds his weakest sales representative for
this period is Craig Schultz. If Tony considered only this information, he might con-
clude that firing Craig was a good business decision. However, because Tony has
knowledge about how the company operates, he knows Craig has been out on medi-
cal leave for several weeks; hence, his sales numbers are low. Without this additional
knowledge, Tony might have executed a bad business decision, delivered a negative
message to the other employees, and sent his best sales representatives out to look for
other jobs.
The key point in this scenario is that it is simply impossible to collect all the infor-
mation about every situation, and yet without that, it can be easy to misunderstand the
problem. Using data, information, business intelligence, and knowledge to make deci-
sions and solve problems is the key to finding success in business. These core drivers of
the information age are the building blocks of business systems.
BUSINESS DRIVEN ETHICS AND SECURITY
We live in the information age where the collection, storage, and use of data are
hot topics. One example of inappropriate data handling occurred at a college
where the monitoring of restrooms occurred every 15 seconds to observe the
use of toilets, mirrors, and sinks. Students, faculty, and staff began complaining
that the data collection was an invasion of their privacy and a violation of their
rights.
Another example of inappropriate data handling occurred when a profes-
sor of accounting at a college lost a flash drive containing information for
more than 1,800 students, including Social Security numbers, grades, and
names. Social Security numbers were included because the data went back
to before 1993 when the college used Social Security numbers to identify
students.
What types of student data does your college collect? What could happen if
your professor lost a thumb drive with all of your personal information? What
types of issues could you encounter if someone stole your personal data?
What can your college do to ensure this type of data storage violation does
not occur? 5
Information
Issues in the
Information Age
APPLY YOUR KNOWLEDGE
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11Business Driven MIS Module 1
Finance
Tracks strategic financial
issues including money,
banking, credit,
investments, and assets.
Human resources
Maintains policies, plans,
and procedures for the
effective management of
employees.
Sales
Performs the function of
selling goods or services.
Operations
management
Manages the process of
converting or transforming
or resources into goods or
services.
Marketing
Supports sales by
planning, pricing, and
promoting goods or
services.
Accounting
Records, measures, and
reports monetary
transactions.
FIGURE 1.6
Departments Working
Independently
THE CHALLENGE: DEPARTMENTAL COMPANIES
Companies are typically organized by department or functional area such as:
■ Accounting: Records, measures, and reports monetary transactions.
■ Finance: Deals with strategic financial issues including money, banking, credit,
investments, and assets.
■ Human resources: Maintains policies, plans, and procedures for the effective man-
agement of employees.
■ Marketing: Supports sales by planning, pricing, and promoting goods or services.
■ Operations management: Manages the process of converting or transforming or
resources into goods or services.
■ Sales: Performs the function of selling goods or services (see Figure 1.6 ).
Each department performs its own activities. Sales and marketing focus on mov-
ing goods or services into the hands of consumers; they maintain transactional data.
Finance and accounting focus on managing the company’s resources and maintain
monetary data. Operations management focuses on manufacturing and maintains
production data, while human resources focuses on hiring and training people and
maintains employee data. Although each department has its own focus and data, none
can work independently if the company is to operate as a whole. It is easy to see how a
LO 1.2: Identify the different depart-
ments in a company and why they
must work together to achieve
success.
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12 Chapter 1 Management Information Systems: Business Driven MIS
business decision made by one department can affect other departments. Marketing
needs to analyze production and sales data to come up with product promotions and
advertising strategies. Production needs to understand sales forecasts to determine the
company’s manufacturing needs. Sales needs to rely on information from operations to
understand inventory, place orders, and forecast consumer demand. All departments
need to understand the accounting and finance departments’ information for budget-
ing. For the firm to be successful, all departments must work together as a single unit
sharing common information and not operate independently or in a silo (see Figure 1.7 ).
THE SOLUTION: MANAGEMENT INFORMATION
SYSTEMS
You probably recall the old story of three blind men attempting to describe an elephant.
The first man, feeling the elephant’s girth, said the elephant seemed very much like a
wall. The second, feeling the elephant’s trunk, declared the elephant was like a snake.
The third man felt the elephant’s tusks and said the elephant was like a tree or a cane.
Companies that operate departmentally are seeing only one part of the elephant, a criti-
cal mistake that hinders successful operation.
Successful companies operate cross-functionally, integrating the operations of all
departments. Systems are the primary enabler of cross-functional operations. A system
is a collection of parts that link to achieve a common purpose. A car is a good example
of a system, since removing a part, such as the steering wheel or accelerator, causes the
entire system to stop working.
Before jumping into how systems work, it is important to have a solid understand-
ing of the basic production process for goods and services. Goods are material items
or products that customers will buy to satisfy a want or need. Clothing, groceries, cell
phones, and cars are all examples of goods that people buy to fulfill their needs. Services
LO 1.3: Explain systems thinking
and how management informa-
tion systems enable business
communications.
FIGURE 1.7
Departments Working Together
Accounting
Monetary data
Finance
Monetary data
Human resources
Employee data
Marketing
Transactional data
Sales
Transactional data
Operations management
Production data
Business Decisions
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13Business Driven MIS Module 1
are tasks performed by people that customers will buy to satisfy a want or need. Waiting
tables, teaching, and cutting hair are all examples of services that people pay for to fulfill
their needs (see Figure 1.8 ).
Production is the process where a business takes raw materials and processes them
or converts them into a finished product for its goods or services. Just think about mak-
ing a hamburger (see Figure 1.9 ). First, you must gather all of the inputs or raw mate-
rials such as the bun, patty, lettuce, tomato, and ketchup. Second, you process the raw
materials, so in this example you would need to cook the patty, wash and chop the let-
tuce and tomato, and place all of the items in the bun. Finally, you would have your out-
put or finished product—your hamburger! Productivity is the rate at which goods and
services are produced based upon total output given total inputs. Given our previous
example, if a business could produce the same hamburger with less expensive inputs
Cars
Groceries
Clothing
Teaching
Waiting
tables
Cutting hair
GOODS
Material items or products
that customers will buy to
satisfy a want or need.
SERVICES
Tasks performed by people
that customers will buy
to satisfy a want or need.
FIGURE 1.8
Different Types of Goods
and Services
Input OutputProcess
Lettuce,
tomatoes, patty,
bun, ketchup
Cook the patty, put
the ingredients
together
Hamburger
FIGURE 1.9
Input, Process, Output Example
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Rev. Confirming Pages
14 Chapter 1 Management Information Systems: Business Driven MIS
or more hamburgers with the same inputs it would see a rise in productivity and possi-
bly an increase in profits. Ensuring the input, process, and output of goods and services
work across all of the departments of a company is where systems add tremendous value
to overall business productivity.
Systems thinking is a way of monitoring the entire system by viewing multiple inputs
being processed or transformed to produce outputs while continuously gathering feed-
back on each part (see Figure 1.10 ). Feedback is information that returns to its original
transmitter (input, transform, or output) and modifies the transmitter’s actions. Feed-
back helps the system maintain stability. For example, a car’s system continuously moni-
tors the fuel level and turns on a warning light if the gas level is too low. Systems thinking
provides an end-to-end view of how operations work together to create a product or
service. Business students who understand systems thinking are valuable resources
because they can implement solutions that consider the entire process, not just a single
component.
Management information systems (MIS) is a business function, like accounting
and human resources, which moves information about people, products, and processes
across the company to facilitate decision making and problem solving. MIS incorporates
systems thinking to help companies operate cross-functionally. For example, to fulfill
product orders, an MIS for sales moves a single customer order across all functional
areas including sales, order fulfillment, shipping, billing, and finally customer service.
Although different functional areas handle different parts of the sale, thanks to MIS, to
the customer the sale is one continuous process. If one part of the company is experienc-
ing problems, however, then, like the car without a steering wheel, the entire system fails.
If order fulfillment packages the wrong product, it will not matter that shipping, billing,
and customer service did their jobs right, since the customer will not be satisfied when
he or she opens the package.
MIS can be an important enabler of business success and innovation. This is not to
say that MIS equals business success and innovation, or that MIS represents business
success and innovation. MIS is a tool that is most valuable when it leverages the talents
of people who know how to use and manage it effectively. To perform the MIS func-
tion effectively, almost all companies, particularly large and medium-sized ones, have
an internal MIS department, often called information technology (IT), information sys-
tems (IS), or management information systems (MIS). For the purpose of this text, we
will refer to it as MIS.
MIS Department Roles and Responsibilities
MIS as a department is a relatively new functional area, having been around formally for
about 40 years. Job titles, roles, and responsibilities often differ from company to com-
pany, but the most common are displayed in Figure 1.11 .
While many companies may not have a different individual for each of these posi-
tions, they must have top managers who take responsibility for all these areas.
FIGURE 1.10
Overview of Systems Thinking
Input Process Output
Feedback
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15Business Driven MIS Module 1
section 1.2 Business Strategy
L E A R N I N G O U T C O M E S
1.4 Explain why competitive advantages are temporary.
1.5 Describe Porter’s Five Forces Model and explain each of the five forces.
1.6 Compare Porter’s three generic strategies.
1.7 Demonstrate how a company can add value by using Porter’s value chain analysis.
IDENTIFYING COMPETITIVE ADVANTAGES
Running a company today is similar to leading an army; the top manager or leader
ensures all participants are heading in the right direction and completing their goals and
objectives. Companies lacking leadership quickly implode as employees head in differ-
ent directions attempting to achieve conflicting goals. To combat these challenges, lead-
ers communicate and execute business strategies (from the Greek word stratus for army
and ago for leading). A business strategy is a leadership plan that achieves a specific set
of goals or objectives as displayed in Figure 1.12 .
Good leaders also anticipate unexpected misfortunes, from strikes and economic
recessions to natural disasters. Their business strategies build in buffers or slack,
LO 1.4: Explain why competitive
advantages are temporary.
FIGURE 1.11
The Roles and Responsibilities
of MIS
MIS Department Roles
and Responsibilities
Chief information officer (CIO)
Chief knowledge officer (CKO)
Responsible for collecting,
maintaining, and distributing
company knowledge.
Chief privacy officer (CPO)
Responsible for ensuring the ethical and
legal use of information within a
company.
Chief security officer (CSO)
Responsible for ensuring the security
of business systems and developing
strategies and safeguards against
attacks by hackers and viruses.
Chief technology officer (CTO)
Responsible for ensuring the
speed, accuracy, availability,
and reliability of the MIS.
Responsible for (1) overseeing all uses of
MIS and (2) ensuring that MIS strategically
aligns with business goals and objectives.
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16 Chapter 1 Management Information Systems: Business Driven MIS
allowing the company the ability to ride out any storm and defend against competitive
or environmental threats. Of course, updating business strategies is a continuous under-
taking as internal and external environments rapidly change. Business strategies that
match core company competencies to opportunities result in competitive advantages,
a key to success!
A competitive advantage is a feature of a product or service on which customers
place a greater value than they do on similar offerings from competitors. Competitive
advantages provide the same product or service either at a lower price or with additional
value that can fetch premium prices. Unfortunately, competitive advantages are typi-
cally temporary, because competitors often quickly seek ways to duplicate them. In turn,
organizations must develop a strategy based on a new competitive advantage. Ways that
companies duplicate competitive advantages include acquiring the new technology,
copying the business operations, and hiring away key employees. The introduction of
Apple’s iPod and iTunes, a brilliant merger of technology, business, and entertainment,
offers an excellent example.
In early 2000, Steve Jobs was fixated on developing video editing software when he sud-
denly realized that millions of people were using computers to listen to music, a new trend
in the industry catapulted by illegal online services such as Napster. Jobs was worried that
he was looking in the wrong direction and had missed the opportunity to jump on the
online music bandwagon. He moved fast, however, and within four months he had devel-
oped the first version of iTunes for the Mac. Jobs’ next challenge was to make a portable
iTunes player that could hold thousands of songs and be completely transportable. Within
nine months the iPod was born. With the combination of iTunes and iPod, Apple created a
significant competitive advantage in the marketplace. Many firms began following Apple’s
lead by creating portable music players to compete with the iPod. In addition, Apple con-
tinues to create new and exciting products to gain competitive advantages, such as its
iPad, a larger version of the iPod that functions more as a computer than a music player. 6
Decreasing
costs
Attracting
new
customers
Increasing
sales
Increasing
customer
loyalty
Business strategies
Leadership plans
that achieve a
specific set of goals
or objectives
Entering
new
markets
Developing
new
products
or services
FIGURE 1.12
Examples of Business
Strategies
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BUSINESS DRIVEN GLOBALIZATION
According to the Economic Policy Institute, over the past decade the United
States has lost an estimated 2.4 million factory jobs to China. Factories in South
Korea, Taiwan, and China are producing toys, toothpaste, running shoes, com-
puters, appliances, and cars. For a long time U.S. firms did not recognize these
products as competition; they regarded Asia’s high-tech products as second-
rate knockoffs and believed Asian countries maintained a “factory culture”—
they could imitate but not innovate.
In hindsight, it is obvious that once these countries did begin designing and
creating high-end products, they would have obvious competitive advantages,
with high-value research and development coupled with low-cost manufac-
turing of unbeatable goods and services. Asia is now on the rise in all indus-
tries from wind turbines to high-speed bullet trains. According to Bloomberg
Businessweek ’s ranking of the most innovative companies, 15 of the top 50 are
Asian, up from just 5 in 2006. In fact, for the first time, the majority of the top 25
are based outside the United States.
How do you, as a business student, view these statistics? What type of
global business climate will you be competing in when you graduate? If you
wanted to gather competitive intelligence about the job market, where would
you look and what types of data would you want to analyze? What can you
do to create personal competitive advantages to differentiate yourself when
searching for a job? 7
The Competitive
Landscape for
Students
APPLY YOUR KNOWLEDGE
17Business Driven MIS Module 1
When a company is the first to market with a competitive advantage, it gains a par-
ticular benefit, such as Apple did with its iPod. This first-mover advantage occurs when
a company can significantly increase its market share by being first with a new competi-
tive advantage. FedEx created a first-mover advantage by developing its customer self-
service software, which allows people to request parcel pickups, print mailing slips, and
track parcels online. Other parcel delivery companies quickly began creating their own
online services. Today, customer self-service on the Internet is a standard feature of the
parcel delivery business.
Competitive intelligence is the process of gathering information about the competi-
tive environment, including competitors’ plans, activities, and products, to improve a
company’s ability to succeed. It means understanding and learning as much as possible
as soon as possible about what is occurring outside the company to remain competitive.
Frito-Lay, a premier provider of snack foods such as Cracker Jacks and Cheetos, does not
send its sales representatives into grocery stores just to stock shelves; they carry hand-
held computers and record the product offerings, inventory, and even product locations
of competitors. Frito-Lay uses this information to gain competitive intelligence on every-
thing from how well competing products are selling to the strategic placement of its own
products. 8
Managers use three common tools to analyze competitive intelligence and develop
competitive advantages including:
1. The Five Forces Model (for evaluating industry attractiveness).
2. The three generic strategies (for choosing a business focus).
3. Value chain analysis (for executing business strategies).
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Threat of Substitute
Products or Services
The power of customers
to purchase alternatives
Rivalry among
Existing Competitors
The power of
competitors
Buyer Power
The power of customers
to drive down prices
Threat of New Entrants
The power of competitors to
enter a market
Supplier Power
The power of suppliers
to drive up prices of materials
FIGURE 1.13
Porter’s Five Forces Model
18 Chapter 1 Management Information Systems: Business Driven MIS
THE FIVE FORCES MODEL—EVALUATING
INDUSTRY ATTRACTIVENESS
Michael Porter, a university professor at Harvard Business School, identified the follow-
ing pressures that can hurt potential sales:
■ Knowledgeable customers can force down prices by pitting rivals against each other.
■ Influential suppliers can drive down profits by charging higher prices for supplies.
■ Competition can steal customers.
■ New market entrants can steal potential investment capital.
■ Substitute products can steal customers.
Formally defined, Porter’s Five Forces Model analyzes the competitive forces within
the environment in which a company operates to assess the potential for profitability
in an industry. Its purpose is to combat these competitive forces by identifying oppor-
tunities, competitive advantages, and competitive intelligence. If the forces are strong,
they increase competition; if the forces are weak, they decrease competition. This sec-
tion details each of the forces and its associated MIS business strategy (see Figure 1.13 ). 9
Buyer Power
Buyer power is the ability of buyers to affect the price they must pay for an item. Fac-
tors used to assess buyer power include number of customers, their sensitivity to price,
size of orders, differences between competitors, and availability of substitute products. If
buyer power is high, customers can force a company and its competitors to compete on
price, which typically drives prices down.
One way to reduce buyer power is by manipulating switching costs , costs that make
customers reluctant to switch to another product or service. Switching costs include
financial as well as intangible values. The cost of switching doctors, for instance, includes
the powerful intangible components of having to build relationships with the new doctor
and nurses, as well as transferring all your medical history. With MIS, however, patients
can store their medical records on DVDs or thumb drives, allowing easy transferability.
The Internet also lets patients review websites for physician referrals, which takes some
of the fear out of trying someone new. 10
LO 1.5: Describe Porter’s Five Forces
Model and explain each of the five
forces.
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19Business Driven MIS Module 1
Companies can also reduce buyer power with loyalty programs , which reward custom-
ers based on their spending. The airline industry is famous for its frequent-flyer programs,
for instance. Because of the rewards travelers receive (free airline tickets, upgrades, or hotel
stays), they are more likely to be loyal to or give most of their business to a single company.
Keeping track of the activities and accounts of many thousands or millions of customers
covered by loyalty programs is not practical without large-scale business systems, however.
Loyalty programs are thus a good example of using MIS to reduce buyer power. 11
Supplier Power
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw
materials or a product. In a typical supply chain, a company will be both a supplier (to
customers) and a customer (of other suppliers), as illustrated in Figure 1.14 . Supplier
power is the suppliers’ ability to influence the prices they charge for supplies (including
materials, labor, and services). Factors used to appraise supplier power include number
of suppliers, size of suppliers, uniqueness of services, and availability of substitute prod-
ucts. If supplier power is high, the supplier can influence the industry by:
■ Charging higher prices.
■ Limiting quality or services.
■ Shifting costs to industry participants. 12
Typically, when a supplier raises prices, the buyers will pass on the increase to their
customers by raising prices on the end product. When supplier power is high, buyers lose
revenue because they cannot pass on the raw material price increase to their customers.
Some powerful suppliers, such as pharmaceutical companies, can exert a threat over
an entire industry when substitutes are limited and the product is critical to the buyers.
Patient who need to purchase cancer-fighting drugs have no power over price and must
pay whatever the drug company asks because there are few available alternatives.
Using MIS to find alternative products is one way of decreasing supplier power. Can-
cer patients can now use the Internet to research alternative medications and practices,
something that was next to impossible just a few decades ago. Buyers can also use MIS
to form groups or collaborate with other buyers, increasing the size of the buyer group
and reducing supplier power. For a hypothetical example, the collective group of 30,000
students from a university has far more power over price when purchasing laptops than
a single student. 13
Threat of Substitute Products or Services
The threat of substitute products or services is high when there are many alternatives
to a product or service and low when there are few alternatives from which to choose.
For example, travelers have numerous substitutes for airline transportation including
automobiles, trains, and boats. Technology even makes videoconferencing and virtual
meetings possible, eliminating the need for some business travel. Ideally, a company
would like to be in a market in which there are few substitutes for the products or ser-
vices it offers.
Polaroid had this unique competitive advantage for many years until it forgot to
observe competitive intelligence. Then the firm went bankrupt when people began tak-
ing digital pictures with everything from video cameras to cell phones.
A company can reduce the threat of substitutes by offering additional value through
wider product distribution. Soft-drink manufacturers distribute their products through
FIGURE 1.14
Traditional Supply Chain
Suppliers Company Customers
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20 Chapter 1 Management Information Systems: Business Driven MIS
vending machines, gas stations, and convenience stores, increasing the availability of
soft drinks relative to other beverages. Companies can also offer various add-on services,
making the substitute product less of a threat. For example, iPhones include capabilities
for games, videos, and music, making a traditional cell phone less of a substitute. 14
Threat of New Entrants
The threat of new entrants is high when it is easy for new competitors to enter a market
and low when there are significant entry barriers to joining a market. An entry barrier is a
feature of a product or service that customers have come to expect and entering competi-
tors must offer the same for survival. For example, a new bank must offer its customers
an array of MIS-enabled services, including ATMs, online bill paying, and online account
monitoring. These are significant barriers to new firms entering the banking market. At
one time, the first bank to offer such services gained a valuable first-mover advantage,
but only temporarily, as other banking competitors developed their own MIS services. 15
Rivalry among Existing Competitors
Rivalry among existing competitors is high when competition is fierce in a market
and low when competitors are more complacent. Although competition is always more
intense in some industries than in others, the overall trend is toward increased com-
petition in almost every industry. The retail grocery industry is intensively competitive.
Kroger, Safeway, and Albertsons in the United States compete in many different ways,
essentially trying to beat or match each other on price. Most supermarket chains have
implemented loyalty programs to provide customers special discounts while gathering
valuable information about their purchasing habits. In the future, expect to see grocery
stores using wireless technologies that track customer movements throughout the store
to determine purchasing sequences.
Product differentiation occurs when a company develops unique differences in its
products or services with the intent to influence demand. Companies can use differenti-
ation to reduce rivalry. For example, while many companies sell books and videos on the
Internet, Amazon differentiates itself by using customer profiling. When a customer vis-
its Amazon.com repeatedly, Amazon begins to offer products tailored to that particular
customer based on his or her profile. In this way, Amazon has reduced its rivals’ power
by offering its customers a differentiated service.
To review, the Five Forces Model helps managers set business strategy by identify-
ing the competitive structure and economic environment of an industry. If the forces
are strong, they increase competition; if the forces are weak, they decrease it (see
Figure 1.15 ). 16
Analyzing the Airline Industry
Let us bring Porter’s five forces together to look at the competitive forces shaping an
industry and highlight business strategies to help it remain competitive. Assume
a shipping company is deciding whether to enter the commercial airline industry. If
FIGURE 1.15
Strong and Weak Examples of
Porter’s Five Forces
Weak Force: Decreases
Competition or Few Competitors
Strong Force: Increases
Competition or Lots of Competitors
Buyer Power An international hotel chain
purchasing milk
A single consumer purchasing milk
Supplier Power A company that makes airline
engines
A company that makes pencils
Threat of Substitute
Products or Services
Cancer drugs from a
pharmaceutical company
Coffee from McDonald’s
Threat of New Entrants A professional hockey team A dog walking business
Rivalry among Existing
Competitors
Department of Motor Vehicles A coffee shop
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BUSINESS DRIVEN INNOVATION
Is there anything more frustrating than waiting in line at the post office? Not
only are those lines frustrating, but they are also unprofitable. The U.S. Postal
Service has faced multibillion-dollar losses every year for the past few years,
making for one of the greatest challenges in its history.
What is killing the post office? Perhaps it is Stamps.com , a website that allows
you to customize and print your own stamps 24 hours a day. Getting married?
Place a photo of the happy couple right on the stamp for the invitations. Starting
a business? Place your business logo on your stamps. Stamps.com even keeps
track of a customer’s postal spending and can recommend optimal delivery
methods. Plus, Stamps.com gives you postage discounts you can’t get at the
post office or with a postage meter.
Evaluate the U.S. Postal Service using Porter’s Five Forces Model. How could
the Postal Service create new products and services to help grow its business?
What types of competitive advantages can you identify for the Postal Service? 18
Fixing the
Post Office
APPLY YOUR KNOWLEDGE
21Business Driven MIS Module 1
performed correctly, an analysis of the five forces should determine that this is a highly
risky business strategy because all five forces are strong. It will thus be difficult to gener-
ate a profit.
■ Buyer power: Buyer power is high because customers have many airlines to choose
from and typically make purchases based on price, not carrier.
■ Supplier power: Supplier power is high since there are limited plane and engine
manufacturers to choose from, and unionized workforces (suppliers of labor) restrict
airline profits.
■ Threat of substitute products or services: The threat of substitute products is high
from many transportation alternatives including automobiles, trains, and boats, and
from transportation substitutes such as videoconferencing and virtual meetings.
■ Threat of new entrants: The threat of new entrants is high because new airlines are
continuously entering the market, including sky taxies offering low-cost on-demand
air taxi service.
■ Rivalry among existing competitors: Rivalry in the airline industry is high, and
websites such as Travelocity.com force them to compete on price (see Figure 1.16 ). 17
FIGURE 1.16
Five Forces Model in the Airline
Industry
Strong (High) Force: Increases
Competition or Lots of Competitors
Buyer Power Many airlines for buyers to choose from forcing competition
based on price
Supplier Power Limited number of plane and engine manufacturers to choose
from along with unionized workers
Threat of Substitute Products
or Services
Many substitutes including cars, trains, and busses.
Even substitutes to travel such as video conferencing and virtual
meetings.
Threat of New Entrants Many new airlines entering the market all the time including the
latest sky taxis.
Rivalry among Existing Competitors Intense competition–many rivals.
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22 Chapter 1 Management Information Systems: Business Driven MIS
THE THREE GENERIC STRATEGIES—CHOOSING
A BUSINESS FOCUS
Once top management has determined the relative attractiveness of an industry and
decided to enter it, the firm must formulate a strategy for doing so. If our sample com-
pany decided to join the airline industry, it could compete as a low-cost, no-frills airline
or as a luxury airline providing outstanding service and first-class comfort. Both options
offer different ways of achieving competitive advantages in a crowded marketplace. The
low-cost operator saves on expenses and passes the savings along to customers in the
form of low prices. The luxury airline spends on high-end service and first-class com-
forts and passes the costs on to the customer in the form of high prices.
Porter has identified three generic business strategies for entering a new market: (1)
broad cost leadership, (2) broad differentiation, and (3) focused strategy. Broad strat-
egies reach a large market segment, while focused strategies target a niche or unique
market with either cost leadership or differentiation. Trying to be all things to all people
is a recipe for disaster, since doing so makes it difficult to project a consistent image to
the entire marketplace. For this reason, Porter suggests adopting only one of the three
generic strategies illustrated in Figure 1.17 . 19
Figure 1.18 applies the three strategies to real companies, demonstrating the relation-
ships among strategies (cost leadership versus differentiation) and market segmentation
(broad versus focused).
■ Broad market and low cost: Walmart competes by offering a broad range of prod-
ucts at low prices. Its business strategy is to be the low-cost provider of goods for the
cost-conscious consumer.
■ Broad market and high cost: Neiman Marcus competes by offering a broad range of
differentiated products at high prices. Its business strategy offers a variety of specialty
and upscale products to affluent consumers.
LO 1.6: Compare Porter’s three
generic strategies.
FIGURE 1.18
Examples of Porter’s Three
Generic Strategies
Walmart Neiman Marcus
Payless Shoes Tiffany & Co.
Low Cost High Cost
Cost Strategy
Broad
Market
Narrow
Market
Competitive
Scope
FIGURE 1.17
Porter’s Three Generic
Strategies
Cost Leadership Differentiation
Focused Strategy
Low Cost High Cost
Cost Strategy
Broad
Market
Narrow
Market
Competitive
Scope
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BUSINESS DRIVEN DEBATE
Apple sold 300,000 units of its highly anticipated iPad in the first 15 hours it was
available for sale. Hundreds of thousands of Apple devotees flocked to stores
during Passover and Easter to be the first to obtain the new device, even though
it is neither a phone nor a laptop computer and many people are still wonder-
ing what it’s for.
The controversy over the usefulness of Apple’s portable tablet began as soon
as Apple announced the device was heading to market. At first glance, the iPad
is little more than a touch screen the size of a slim book, with a few control but-
tons along the edges and a home button at the bottom. Shrink it, and it would
look like an iPod Touch. What is the value of this device? That’s the question
everyone wants to answer.
The iPad’s modest features might represent an entirely new way of con-
suming media—video, web pages, music, pictures, and even books. Break into
groups and review the current value of the iPad for business. Find three exam-
ples of the ways businesses are using, or could use, the iPad. Do you consider it
the next revolutionary device or just an overpriced music player? 20
The iPad—
Greatest Product
in History or Just
Another Gadget?
APPLY YOUR KNOWLEDGE
23Business Driven MIS Module 1
■ Narrow market and low cost: Payless competes by offering a specific product,
shoes, at low prices. Its business strategy is to be the low-cost provider of shoes.
Payless competes with Walmart, which also sells low-cost shoes, by offering a far big-
ger selection of sizes and styles.
■ Narrow market and high cost: Tiffany & Co. competes by offering a differentiated
product, jewelry, at high prices. Its business strategy allows it to be a high-cost pro-
vider of premier designer jewelry to affluent consumers.
VALUE CHAIN ANALYSIS—EXECUTING
BUSINESS STRATEGIES
Firms make profits by taking raw inputs and applying a business process to turn them
into a product or service that customers find valuable. A business process is a standard-
ized set of activities that accomplish a specific task, such as processing a customer’s
order. Once a firm identifies the industry it wants to enter and the generic strategy it
will focus on, it must then choose the business processes required to create its products
or services. Of course, the firm will want to ensure the processes add value and create
competitive advantages. To identify these competitive advantages, Michael Porter cre-
ated value chain analysis , which views a firm as a series of business processes that each
add value to the product or service.
Value chain analysis is a useful tool for determining how to create the greatest pos-
sible value for customers (see Figure 1.19 ). The goal of value chain analysis is to identify
processes in which the firm can add value for the customer and create a competitive
advantage for itself, with a cost advantage or product differentiation.
The value chain groups a firm’s activities into two categories, primary value activities,
and support value activities. Primary value activities , shown at the bottom of the value
chain in Figure 1.19 , acquire raw materials and manufacture, deliver, market, sell, and
provide after-sales services.
1. Inbound logistics: acquires raw materials and resources and distributes to manufac-
turing as required.
2. Operations: transforms raw materials or inputs into goods and services.
3. Outbound logistics: distributes goods and services to customers.
LO 1.7 Demonstrate how a company
can add value by using Porter’s value
chain analysis.
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FIGURE 1.19
The Value Chain
Support
Value
Activities
Primary
Value
Activities
Firm infrastructure (3.1%)
Human resource management (7.1%)
Technology development (and R&D) (4.2%)
Procurement (27%)
Receive
and
store raw
materials
(5.2%)
Make the
product or
service
(40.3%)
Deliver the
product or
service
(6.6%)
Market and
sell the
product or
service
(4.3%)
Service
after
the sale
(2.2%)
Value Added
24 Chapter 1 Management Information Systems: Business Driven MIS
4. Marketing and sales: promotes, prices, and sells products to customers.
5. Service: Provides customer support after the sale of goods and services. 21
Support value activities , along the top of the value chain in Figure 1.19 , include firm
infrastructure, human resource management, technology development, and procure-
ment. Not surprisingly, these support the primary value activities.
■ Firm infrastructure: includes the company format or departmental structures, envi-
ronment, and systems.
■ Human resource management: provides employee training, hiring, and
compensation.
■ Technology development: applies MIS to processes to add value.
■ Procurement: purchases inputs such as raw materials, resources, equipment, and
supplies.
It is easy to understand how a typical manufacturing firm takes raw materials such
as wood pulp and transforms it into paper. Adding value in this example might include
using high-quality raw materials or offering next-day free shipping on any order. How,
though, might a typical service firm take raw inputs such as time, knowledge, and MIS
and transform them into valuable customer service knowledge? A hotel might use MIS
to track customer reservations and then inform front-desk employees when a loyal cus-
tomer is checking in so the employee can call the guest by name and offer additional
services, gift baskets, or upgraded rooms. Examining the firm as a value chain allows
managers to identify the important business processes that add value for customers and
then find MIS solutions that support them.
When performing a value chain analysis, a firm could survey customers about the
extent to which they believe each activity adds value to the product or service. This
step generates responses the firm can measure, shown as percentages in Figure 1.20 ,
to describe how each activity adds (or reduces) value. Then the competitive advan-
tage decision for the firm is whether to (1) target high value-adding activities to further
enhance their value, (2) target low value-adding activities to increase their value, or (3)
perform some combination of the two.
MIS adds value to both primary and support value activities. One example of a
primary value activity facilitated by MIS is the development of a marketing campaign
management system that could target marketing campaigns more efficiently, thereby
reducing marketing costs. The system would also help the firm better pinpoint tar-
get market needs, thereby increasing sales. One example of a support value activity
facilitated by MIS is the development of a human resources system that could more
efficiently reward employees based on performance. The system could also identify
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Firm infrastructure (3.1%)
Human resource management (7.1%)
Technology development (and R&D) (4.2%)
Procurement (27%)
Receive
and
store raw
materials
(5.2%)
Make the
product or
service
(40.3%)
Deliver the
product or
service
(6.6%)
Market and
sell the
product or
service
(4.3%)
Service
after
the sale
(2.2%)
Value Added
Threat of New
Entrants
The power of competitors
to enter a market
Buyer Power
The power of
customers to drive
down prices
Supplier Power
The power of
suppliers to drive up
prices of materials
Threat of Substitute
Products or Services
The power of customers
to purchase alternatives
FIGURE 1.20
The Value Chain and Porter’s
Five Forces Model
BUSINESS DRIVEN START-UP
Derek Johnson, a student at the University of Houston, was having lunch with
his friend who happened to be the communications director for her sorority.
During lunch Derek’s friend was telling him how hard it was to communicate
with all of her sisters in the sorority. She had to send out important announce-
ments about meetings, charitable events, and even dues. She had tried every-
thing including Facebook, email, and message boards, but so far nothing was
working. As Derek pondered his friend’s dilemma, he came up with a solution:
mass text messaging.
Johnson began researching mass text messaging products and was surprised
to find that none existed for the average consumer. Spotting an entrepreneurial
opportunity, Derek quickly began working on a product. Within a few months
he launched his website, Tatango, and began offering group text messaging at a
reasonable price. Now, a few years later, Tatango offers customers subscription
plans starting under $20 a month that allows groups to send text messages to all
members at once—whether 10 or 10,000—from any device.
In a group, brainstorm a list of problems you are currently experiencing.
Decide whether any present potential new business opportunities, and if so,
analyze the potential using the tools introduced in this chapter. Be prepared to
present your new business to the class. 22
Want to Start
Your Own
Business? Just
Find a Problem
to Solve
APPLY YOUR KNOWLEDGE
25Business Driven MIS Module 1
employees who are at risk of quitting, allowing manager’s time to find additional
challenges or opportunities that would help retain these employees and thus reduce
turnover costs.
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26 Chapter 1 Management Information Systems: Business Driven MIS
FIGURE 1.21
Overview of Business Driven
Information Systems
Data
Information
Business Intelligence
Knowledge
Systems Thinking
Porter’s Business Strategies
Business Strategy MIS Topics
MODULE 1:
BUSINESS DRIVEN MIS
Transaction Processing Systems
Decision Support Systems
Executive Information Systems
Artificial Intelligence
Business Process Reengineering
eBusiness
eBusiness Models
Social Networking
Knowledge Management
Collaboration
Chapter 1: Management
Information Systems
Chapter 2: Decisions and
Processes
Chapter 3: Ebusiness
Chapter 4: Ethics and
Information Security
Understanding Business
Driven MIS
Creating Value Driven
Businesses
Finding Electronic Business
Value
Identifying MIS Business
Concerns
Information Security Policies
Authentication and Authorization
Prevention and Resistance
Detection and Response
Chapter 5: Infrastructures Deploying Organizational MIS
Grid Computing
Cloud Computing
Virtualization
Sustainable MIS Infrastructures
Business Strategy MIS Topics
MODULE 2:
TECHNICAL FOUNDATIONS OF MIS
Chapter 6: Data Uncovering BusinessIntelligence
Database
Data Management Systems
Data Warehousing
Data Mining
Chapter 7: Networks Supporting Mobile Business
Business Networks
Web 1.0, Web 2.0, Web 3.0
Mobile MIS
Wireless MIS
GPS, GIS, and LBS
Chapter 8: Enterprise
Applications
Enhancing Business
Communications
Customer Relationship Management
Supply Chain Management
Enterprise Resource Planning
Business Strategy MIS Topics
MODULE 3:
ENTERPRISE MIS
Chapter 9: Systems
Development and Project
Management
Leading MIS Projects
MIS Development Methodologies
Project Management
Outsourcing
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27Business Driven MIS Module 1
Value chain analysis is a highly useful tool that provides hard and fast numbers for
evaluating the activities that add value to products and services. Managers can find
additional value by analyzing and constructing the value chain in terms of Porter’s Five
Forces Model (see Figure 1.20 ). For example, if the goal is to decrease buyer power, a
company can construct its value chain activity of “service after the sale” by offering high
levels of customer service. This will increase customers’ switching costs and reduce their
power. Analyzing and constructing support value activities can help decrease the threat
of new entrants. Analyzing and constructing primary value activities can help decrease
the threat of substitute products or services. 23
Revising Porter’s three business strategies is critical. Firms must continually adapt
to their competitive environments, which can cause business strategy to shift. In
the remainder of this text we discuss how managers can formulate business strate-
gies using MIS to create competitive advantages. Figure 1.21 gives an overview of the
remaining chapters, along with the relevant business strategy and associated MIS
topics.
Learning Outcome 1.1: Describe the information age and the differences among data,
information, business intelligence, and knowledge.
We live in the information age, when infinite quantities of facts are widely available to anyone who
can use a computer. The core drivers of the information age include data, information, business
intelligence, and knowledge. Data are raw facts that describe the characteristics of an event or
object. Information is data converted into a meaningful and useful context. Business intelligence
(BI) is information collected from multiple sources such as suppliers, customers, competitors, part-
ners, and industries that analyzes patterns, trends, and relationships for strategic decision making.
Knowledge includes the skills, experience, and expertise, coupled with information and intelligence,
that creates a person’s intellectual resources. As you move from data to knowledge you include
more and more variables for analysis resulting in better, more precise support for decision making
and problem solving.
Learning Outcome 1.2: Identify the different departments in a company and why they
must work together to achieve success.
Companies are typically organized by department or functional area such as accounting, finance,
human resources, marketing, operations management, and sales. Although each department has its
own focus and its own data, none can work independently if the company is to operate as a whole.
It is easy to see how a business decision made by one department can affect other departments.
Functional areas are anything but independent in a business. In fact, functional areas are interdepen-
dent. Sales must rely on information from operations to understand inventory, place orders, calculate
transportation costs, and gain insight into product availability based on production schedules. For an
organization to succeed, every department or functional area must work together sharing common
information and not be a “silo.” Information technology can enable departments to more efficiently
and effectively perform their business operations.
Learning Outcome 1.3: Explain systems thinking and how management information
systems enable business communications.
A system is a collection of parts that link to achieve a common purpose. Systems thinking is a
way of monitoring the entire system by viewing multiple inputs being processed or transformed
to produce outputs while continuously gathering feedback on each part. Feedback is information
L E A R N I N G O U T C O M E R E V I E W
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Rev. Confirming Pages
28 Chapter 1 Management Information Systems: Business Driven MIS
that returns to its original transmitter (input, transform, or output) and modifies the transmitter’s
actions. Feedback helps the system maintain stability. Management information systems (MIS) is a
business function, like accounting and human resources, which moves information about people,
products, and processes across the company to facilitate decision making and problem solving.
MIS incorporates systems thinking to help companies operate cross-functionally. For example, to
fulfill product orders, an MIS for sales moves a single customer order across all functional areas
including sales, order fulfillment, shipping, billing, and finally customer service. Although different
functional areas handle different parts of the sale, thanks to MIS, to the customer the sale is one
continuous process.
Learning Outcome 1.4: Explain why competitive advantages are temporary.
A competitive advantage is a feature of a product or service on which customers place a greater value
than they do on similar offerings from competitors. Competitive advantages provide the same product
or service either at a lower price or with additional value that can fetch premium prices. Unfortunately,
competitive advantages are typically temporary, because competitors often quickly seek ways to
duplicate them. In turn, organizations must develop a strategy based on a new competitive advan-
tage. Ways that companies duplicate competitive advantages include acquiring the new technology,
copying business processes, and hiring away employees.
Learning Outcome 1.5: Describe Porter’s Five Forces Model and explain each of the five
forces.
Porter’s Five Forces Model analyzes the competitive forces within the environment in which a com-
pany operates, to assess the potential for profitability in an industry.
■ Buyer power is the ability of buyers to affect the price they must pay for an item.
■ Supplier power is the suppliers’ ability to influence the prices they charge for supplies (including
materials, labor, and services).
■ Threat of substitute products or services is high when there are many alternatives to a product or
service and low when there are few alternatives from which to choose.
■ Threat of new entrants is high when it is easy for new competitors to enter a market and low
when there are significant entry barriers to entering a market.
■ Rivalry among existing competitors is high when competition is fierce in a market and low when
competition is more complacent.
Learning Outcome 1.6: Compare Porter’s three generic strategies.
Organizations typically follow one of Porter’s three generic strategies when entering a new market:
(1) broad cost leadership, (2) broad differentiation, (3) focused strategy. Broad strategies reach a large
market segment. Focused strategies target a niche market. Focused strategies concentrate on either
cost leadership or differentiation.
Learning Outcome 1.7: Demonstrate how a company can add value by using Porter’s
value chain analysis.
To identify competitive advantages, Michael Porter created value chain analysis, which views a firm
as a series of business processes that each add value to the product or service. The goal of value
chain analysis is to identify processes in which the firm can add value for the customer and create
a competitive advantage for itself, with a cost advantage or product differentiation. The value chain
groups a firm’s activities into two categories—primary value activities and support value activities.
Primary value activities acquire raw materials and manufacture, deliver, market, sell, and provide
after-sales services. Support value activities, along the top of the value chain in the figure, include
firm infrastructure, human resource management, technology development, and procurement. Not
surprisingly, these support the primary value activities.
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29Business Driven MIS Module 1
1. Knowledge: Define Globalization 1.0, 2.0, and 3.0 and provide a sample of the type of business
data managers collected during each era.
2. Comprehension: Explain Friedman’s flat world and the reasons it is important for all businesses,
small or large, to understand.
3. Application: Demonstrate how students competing for jobs in a “flat world” can create competi-
tive advantages to differentiate themselves in the marketplace.
4. Analysis: Analyze the current business environment and identify a new flattener not mentioned
on Friedman’s list.
5. Synthesis: Propose a plan for how a start-up company can use any of Porter’s strategies to com-
bat competition in a global world.
6. Evaluate: Argue for or against the following statement: “The world is not flat (in Friedman’s sense
of the term) because many undeveloped countries are not connected electronically.”
O P E N I N G C A S E Q U E S T I O N S
Business intelligence (BI), 8
Business process, 23
Business strategy, 15
Buyer power, 18
Chief information officer
(CIO), 15
Chief knowledge officer
(CKO), 15
Chief privacy officer (CPO), 15
Chief security officer (CSO), 15
Chief technology officer (CTO), 15
Competitive advantage, 16
Competitive intelligence, 17
Data, 6
Entry barrier, 20
Fact, 5
Feedback, 14
First-mover advantage, 17
Goods, 12
Information, 7
Information age, 5
Knowledge, 10
Knowledge worker, 10
Loyalty program, 19
Management information systems
(MIS), 14
Porter’s Five Forces Model, 18
Primary value activities, 23
Production, 13
Productivity, 13
Product differentiation, 20
Rivalry among existing
competitors, 20
Services, 12
Supplier power, 19
Supply chain, 19
Support value activities, 24
Switching costs, 18
System, 12
Systems thinking, 14
Threat of new entrants, 20
Threat of substitute products or
services, 19
Value chain analysis, 23
Variable, 7
K E Y T E R M S
1. What is data and why is it important to a business?
2. How can a manager turn data into information?
3. What is the relationship between data, information, business intelligence, and knowledge?
4. Why is it important for a company to operate cross-functionally?
5. Why would a company want to have a CIO, CPO, and CSO?
6. Explain MIS and the role it plays in a company and global business.
7. Do you agree that MIS is essential for businesses operating in the information age? Why or why not?
8. Why is it important for a business major to understand MIS?
9. What type of career are you planning to pursue? How will your specific career use data, informa-
tion, business intelligence, and knowledge?
R E V I E W Q U E S T I O N S
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30 Chapter 1 Management Information Systems: Business Driven MIS
10. Explain systems thinking and how it supports business operations.
11. What business strategies would you use if you were developing a competitive advantage for a
company?
12. Explain Porter’s Five Forces Model and the role it plays in decision making.
13. How could a company use loyalty programs to influence buyer power? How could a company
use switching costs to lock in customers and suppliers?
14. What are Porter’s three generic strategies and why would a company want to follow only one?
15. How can a company use Porter’s value chain analysis to measure customer satisfaction?
C L O S I N G C A S E O N E
Apple—Merging Technology, Business,
and Entertainment
This might sound hard to believe, but a bit more than a decade ago, Apple was on the brink of
bankruptcy. Apple Computer Inc., now back from near oblivion, is blazing a trail through the digital
world with innovation and creativity that has been missing from the company for the past 20 years.
The unique feature of Apple’s competitive advantages is that they come from customers and users,
not Apple employees. That’s right; the company welcomes products created by consumers to sell to
consumers, a trend new to business.
Capitalizing on the iPod
With millions of iPods in the hands of consumers, many people are finding ways to capitalize on
the product. John Lin created a prototype of a remote control for the iPod and took his prototype to
Macworld, where he found success. A few months later, Lin’s company had Apple’s blessing and a
commitment for shelf space in its retail stores. “This is how Apple supports the iPod economy,” Lin
said.
In the iPod-dominated market, hundreds of companies have been inspired to develop more than
500 accessories—everything from rechargers for the car to $1,500 Fendi bags. Eric Tong, vice presi-
dent at Belkin, a cable and peripheral manufacturer, believes that 75 percent of all iPod owners pur-
chase at least one accessory—selling over 30 million accessories to date. With most of the products
priced between $10 and $200, that puts the iPod economy well over $300 million and perhaps as
high as $6 billion. Popular iPod accessories include:
■ Altec Lansing Technologies—iPod speakers and recharger dock ($150).
■ Belkin—TuneCast mobile FM transmitter ($40).
■ Etymotic Research—high-end earphones ($150).
■ Griffin Technology—iTrip FM transmitter ($35).
■ Kate Spade—Geneva faux-croc mini iPod holder ($55).
■ Apple—socks set in six colors: green, purple, blue, orange, pink, and gray ($29).
■ Apple—digital camera connector ($29).
Capitalizing on the iPhone
Looking at someone using an iPhone is an interesting experience because there is a good chance they
are not making a phone call. They could be doing a number of things from playing a game to trading
stocks, watching a TV show, or even conducting business with a mobile version of salesforce.com ’s
customer-management software. In a brilliant strategic move, Apple let outsiders offer software for
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the iPhone and in less than six months, more than 10,000 applications had been created. In fact, more
than 15,000 applications are available at its app store section of iTunes, and they have been down-
loaded a total of 500 million times. Now, many of the iPhone apps are available for the iPad.
The iPhone and iPad app store market is getting so huge relative to other smartphone markets
that some developers argue there is little point adapting applications for Google’s Android or any other
iPhone competitor. According to Jeff Holden, CEO of Pelago Inc., when he created his social networking
company he fully intended to follow the conventional wisdom for how to build a sizable, fast-growing
software company: Get your programs on as many platforms and devices as possible. But when he
crunched the numbers he came to an interesting business conclusion: The 13 million iPhone owners had
already downloaded more applications than the 1.1 billion other cell phone owners! To entrepreneurs,
developing a program for the iPhone automatically provides a significantly larger market—almost 94
times larger than its competitors. “Why would I ever build for anything but the iPhone?” Holden asked.
Capitalizing on the iPad
Apple’s latest release, the iPad, is a lightweight, portable, tablet computer, similar to the iPhone, that
allows customers to download applications, check email, and play music all at the touch of a button.
Both the iPhone and the iPad can multitask, allowing customers to read a web page while download-
ing email in the background over wireless networks. The arrival of the iPad brought a simultaneous
expansion of the network of accessories. Because the iPad was designed with an exposed screen and
without a camera, separate keyboard, memory card slots, or expansion ports, one might say it was
specifically built for accessories. Many owners will modify it in some way, whether for mere decora-
tion or hard-core protection. A few of the new accessories include:
■ iPad Clear Armor screen protector—$35.
■ iPad Antique book case cover—$40.
■ iPad wireless keyboard—$99.
■ iPad overcoat sleeve—$35.
■ iPad Joule luxury stand—$130.
Apple has consistently outperformed its key rivals through the development of its MP3 player, the
iPod, and continues to make its products smaller and less expensive, while providing complementary
features such as games and applications. For the iPhone, Apple developed a unique application called
Siri, a voice-activation system that is capable of recognizing voice commands. Siri can perform all
kinds of functions from dialing a contact and creating an email to location services such as “Find my
Phone,” ensuring lost phones are found quickly.
Apple’s latest offering is a new service called the iCloud. The iCloud has the ability to collect all
of the content, including videos, photos, songs, books, etc., from customer devices such as iPods,
iPads, and iPhones in one secure location in “the cloud.” Apple customers no longer have to worry
about backing up their applications or data because everything is automatically uploaded and stored
in the iCloud when using an Apple device. In a fast-paced, technology-driven sector, with com-
petitors quickly following suit, Apple is constantly pressured to develop new products and product
extensions. Luckily Apple stays ahead of the pack by focusing on the following key competitive
advantages:
■ Customer focus: Apple is driven by customer satisfaction and ensures customers are deeply
involved in product development and application development.
■ Resources and capabilities: Apple continues to invest heavily in research and development to
take advantage of new technologies, improved facilities, and cloud infrastructures.
■ Strategic vision: Apple has a clear alignment of its vision, mission, and business leadership and
goals.
■ Branding: Apple is the leader in brand loyalty as it has achieved cult status with its authentic
product image.
■ Quality focus: Apple has an outstanding commitment to quality.24
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32 Chapter 1 Management Information Systems: Business Driven MIS
Customer
Focus
Strategic
Vision
Resources
and
Capabilities
Branding Quality
Focus
Questions
1. Do you agree or disagree that Apple’s iTunes, iPhone apps, and iPad apps give the company a
competitive advantage? Be sure to justify your answer.
2. Why are data, information, business intelligence, and knowledge important to Apple? Give an
example of each type in relation to the iPad.
3. Analyze Apple using Porter’s Five Forces Model.
4. Which of the three generic strategies is Apple following?
5. Which of Porter’s five forces did Apple address through its introduction of the iPhone?
6. Which of Porter’s five forces did Apple address through its customer-developed applications?
Best of the Best of the Best—Under 25
Bloomberg Businessweek runs a yearly article featuring the top five American entrepreneurs under
25 years old. With between 200 and 300 applications each year, choosing 5 is difficult. To help ensure
fair competition, the magazine narrows it down to 25 and then asks its readers to decide which 5
have the greatest potential. Below are the top five winners from 2011.
1: SCOREASCORE
Founder: Jordan Passman, 24
Revenue: $250,000
Growing up in Los Angeles, Jordan Passman knew the ins and outs of the music business where his
father worked as a high-profile music attorney. Passman, wanting to follow in his father’s footsteps, was
working for the American Society of Composers when he noticed an unmet need in the marketplace–
music buyers in the film, commercial, and television market looking for music composers. An idea
was born and Passman began working on a website that connected music buyers with music
composers. “People were still scrounging Craigslist for composers, and I knew there were so many
composers out there that didn’t have representation,” says Passman. ScoreAscore links music buyers
who are looking for scores for film, commercials, video games, or other productions with 100 select
C L O S I N G C A S E T W O
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33Business Driven MIS Module 1
professional music composers represented by Passman, who charges 20 to 40 percent as a fee for
each transaction. Passman aspires to be the go-to for YouTube filmmakers!
2: THINKLITE
Founders: Dinesh Wadhwani, 21; Enrico Palmerino, 22
Revenue: $3,500,000
In 2009, Babson College students Dinesh Wadhwani and Enrico Palmerino were reading an article about
energy-efficient lightbulbs when their own lightbulbs went off! The roommates began collaborating on
how they could build a business with the primary competitive advantage of saving money with energy-
efficient lights, instead of focusing solely on saving the environment as most of the current manufac-
turers in the market were focusing on as their product niche. ThinkLite’s mission is to help companies
reduce electric bills through energy-efficient lighting. The pair began ThinkLite by licensing technolo-
gies from private companies in Germany, coupled with parts from Korea, and designs from Boston,
with final production occurring in China. Clients, such as AT&T and Kodak, boast lighting bill reductions
ranging from 50 percent to 80 percent, a significant savings for big business! ThinkLite now has over
100 clients and is looking to expand into smaller markets such as restaurants and stores.
3: DELTA PRODUCE
Founders: Kosta Dionisopoulos, 24; Christos Marafatsos, 24
Revenue: $2,600,000
The supply chain of food distribution is a tough business, and getting the right perishable goods
to the correct location at the perfect time is more an art form than analytics and logistics. Kosta
Dionisopoulos was driving a van delivering produce while attending the University of Maryland when
Christos Marafatsos saw an opportunity to start a unique produce delivery business. Delta Produce
not only delivers food, but also provides online marketing, allowing customers to reduce costs by buy-
ing in bulk or in groups. Delta Produce now has 18 employees and its customers include restaurants,
grocery stores, and wholesalers. “Both my partner and I are young, so interacting online is something
we’re accustomed to doing,” says Marafatsos.
4: APPLETON LEARNING
Founder: Glenn Clayton, 25
Revenue: $4,200,000
Glenn Clayton found himself looking for ways to earn extra money while attending the University of
Alabama, so he began tutoring local high school students. Clayton soon recognized a need in the mar-
ket and launched Appleton Learning, which matches college tutors with high school students. Clayton
began hiring friends to help meet the tutoring needs, and by the end of his sophomore year he was
spending over 60 hours each week managing Appleton Learning. “I realized if people were leaving
big name tutoring companies to come to some college kid working out of a broom closet, there was a
need in the market not being met,” Clayton says. Appleton Learning has found sales doubling yearly,
and Clayton has built a unique website that matches students with tutors based on their individual
learning needs and styles. Appleton Learning has over 1,000 tutors, including college students, profes-
sionals, and retirees, serving over 6,000 high school students. Appleton Learning is looking to expand
opening 20 new branches across the Southeast over the next few years.
5: DESMOS
Founder: Eli Luberoff, 24
Revenue: $200,000
While taking a year off from Yale, Eli Luberoff noticed a problem in the education arena—software
compatibility issues. Luberoff decided to create software that would overcome these issues and allow
teachers and students to collaborate regardless of the systems they were using or their location.
Luberoff launched his company, Desmos, by testing software from several large publishers, including
McGraw-Hill, Houghton Mifflin Harcourt, and Pearson just to name a few. Luberoff’s strategy for mak-
ing money is to provide the software for free while charging licensing fees to publishers. 25
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34 Chapter 1 Management Information Systems: Business Driven MIS
Questions
1. If you had $1 million to invest in one of the five above-mentioned start-ups, which one would
you choose and why? Be sure to justify your answer using Porter’s Five Forces Model and three
generic strategies analysis.
2. Choose one of the above businesses and explain why data, information, business intelligence, and
knowledge are important to successfully running the business over the next few years. Be sure to
list examples of the different types of data, information, business intelligence, and knowledge you
might find in this company.
3. Review Bloomberg Businessweek ’s most current top five under 25. Choose one of the companies
and perform a detailed analysis of the company using the strategies discussed in this chapter.
Determine a few ways the company can improve its business by creating competitive advantages
using the ideas and methods discussed throughout this chapter.
1. Focusing on Friedman
Thomas Friedman’s newest book is titled Hot, Flat, and Crowded: Why We Need a Green Revolution—
And How It Can Renew America. Research the Internet to find out as much information as you can
about this text. Why would a business manager be interested in reading this text? How will this text
impact global business? Do you think Hot, Flat, and Crowded will have as great an impact on society
as The World Is Flat had on business? Why or why not? 26
2. Pursuing Porter
There is no doubt that Michael Porter is one of the more influential business strategists of the 21st
century. Research Michael Porter on the Internet for interviews, additional articles, and new or
updated business strategies. Create a summary of your findings to share with your class. How can
learning about people such as Thomas Friedman and Michael Porter help prepare you for a career
in business? Name three additional business professionals you should follow to help prepare for
your career in business.
3. Renting Movies
The video rental industry is fiercely competitive. Customers have their choice of renting a movie by
driving to a store (Blockbuster), ordering through the mail (Netflix), or watching directly from their
television (pay-per-view or Netflix). Using Porter’s Five Forces Model (buyer power, supplier power,
threat of new entrants, threat of substitute products, and competition), evaluate the attractiveness
of entering the movie rental business. Be sure to include product differentiation, switching costs,
and loyalty programs in your analysis.
4. Working for the Best
Each year, Fortune magazine creates a list of the top 100 companies to work for. Find the most
recent list. What types of data do you think Fortune analyzed to determine the company ranking?
What issues could occur if the analysis of the data was inaccurate? What types of information
can you gain by analyzing the list? Create five questions a student performing a job search could
answer by analyzing this list.
5. Salary Surveys
Salary surveys offer great tools for highlighting the opportunities associated with an MIS major.
The starting annual salaries in the MIS field range from $50,000 to $85,000 and many are rising.
Figure 1.22 displays a Computerworld salary survey. Research the Internet for a current MIS salary
survey. Which types of jobs are on the rise? If there are any jobs you are unfamiliar with, research
C R I T I C A L B U S I N E S S T H I N K I N G
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35Business Driven MIS Module 1
the Internet to determine the job characteristics. List the top three jobs you would want if you were
to pursue a career in MIS. What do you find interesting about these jobs? What skills can you build
to help you prepare for these jobs? 27
6. Starting your own Business
Josh James recently sold his web analytics company, Omniture, to Adobe for $1.8 billion. Yes,
James started Omniture from his dorm room! Have you begun to recognize the unbelievable
opportunities available to those students who understand the power of MIS, regardless of their
major? Answer the following questions. 28
a. Why is it so easy today for students to create start-ups while still in college?
b. What would it take for you to start a business from your dorm room?
c. How will this course help you prepare to start your own business?
d. Research the Internet and find three examples of college student start-ups.
e. What’s stopping you from starting your own business today? You are living in the information
age and with the power of MIS, it is easier than ever to jump into the business game with
very little capital investment. Why not start your own business today?
7. The Five Forces Model at Work
Your team is working for a small investment company that specializes in technology invest-
ments. A new company, Geyser, has just released an operating system that plans to compete
with Microsoft’s operating systems. Your company has a significant amount of capital invested in
Microsoft. Your boss, Kellee Lazarus, has asked you to compile a Porter’s Five Forces analysis for
Microsoft to ensure that your company’s Microsoft investment is not at risk.
8. Competitive Analysis
Cheryl O’Connell is the owner of a small, high-end retailer of women’s clothing called Excelus.
Excelus’s business has been successful for many years, largely because of O’Connell’s ability to antic-
ipate the needs and wants of her loyal customer base and provide them with personalized service.
O’Connell does not see any value in IT and does not want to invest any capital in something that will
not directly affect her bottom line. Develop a proposal describing the potential IT-enabled competitive
opportunities or threats O’Connell might be missing by not embracing IT. Be sure to include a Porter’s
Five Forces analysis and discuss which one of the three generic strategies O’Connell should pursue.
Job Description Compensation
Business intelligence analyst $ 81,866
Communications specialist $ 85,938
Database architect $ 98,995
Ebusiness specialist $ 71,717
Information security specialist $ 83,693
IT / IS technology / business systems analyst $ 78,305
Network architect $ 96,302
Programmer / analyst $ 75,995
Project leader $ 87,922
Senior systems analyst $ 89,987
Software developer $ 85,684
Software engineer $ 93,726
Storage architect / engineer $111,077
Systems programmer $ 89,472
Web developer $ 66,347
FIGURE 1.22
Computerworld Salary Survey
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36 Chapter 1 Management Information Systems: Business Driven MIS
9. Applying the Three Generic Strategies
This chapter discussed several examples of companies that pursue differentiated strategies so
that they are not forced into positions where they must compete solely based on price. In a team,
choose an industry and find and compare two companies, one that is competing based on price
and another that is pursuing a differentiated strategy enabled by the creative use of IT. Some
industries you may want to consider are clothing retailers, grocery stores, airlines, and personal
computers. Prepare a presentation for the class on the ways that the company is using IT to help
it differentiate and compete against the low-cost provider. Before you begin, spend some class
time to make sure each team selects a different industry.
10. 10 Best Things You Will Say to Your Grandchildren
Wired magazine recently posted the top 10 things you will say to your grandchildren. For each
expression below try to identify what it is referring to and why it will be considered outdated. 29
1. Back in my day, we only needed 140 characters.
2. There used to be so much snow up here, you could strap a board to your feet and slide all
the way down.
3. Televised contests gave cash prizes to whoever could store the most data in their head.
4. Well, the screens were bigger, but they only showed the movies at certain times of day.
5. We all had one, but nobody actually used it. Come to think of it, I bet my LinkedIn profile is
still out there on the web somewhere.
6. Translation: “English used to be the dominant language. Crazy, huh?”
7. Our bodies were made of meat and supported by little sticks of calcium.
8. You used to keep files right on your computer, and you had to go back to that same computer
to access them!
9. Is that the new iPhone 27G? Got multitasking yet?
10. I just can’t get used to this darn vat-grown steak. Texture ain’t right.
E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
You have recently inherited your grandfather’s business, which is conveniently located in your city’s
downtown. The business offers many different kinds of specialized products and services and was
first opened in 1952 and was a local hot spot for many years. Unfortunately, business has been
steadily declining over the past few years. The business runs without any computers and all order-
ing takes place manually. Your grandfather had a terrific memory and knew all of his customers and
suppliers by name, but unfortunately, none of this information is located anywhere in the store. The
operational information required to run the business, such as sales trends, vendor information, pro-
motional information, and so on, is all located in your grandfather’s memory. Inventory is tracked in a
notepad, along with employee payroll, and marketing coupons. The business does not have a website,
uses very little marketing except word of mouth, and essentially still operates the same as it did in
1952.
Throughout this course you will own and operate your grandfather’s business, and by taking
advantage of business practices discussed in this text, you will attempt to increase profits, decrease
expenses, and bring the business into the 21st century. For the purpose of this case, please choose
the business you wish to operate and create a name for the business. For example, the business could
be a coffee shop called The Broadway Café, an extreme sports store called Cutting Edge Sports, or
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37Business Driven MIS Module 1
even a movie store called The Silver Screen. Try to pick a business you are genuinely interested in
running and that aligns with your overall career goals.
Pro ject Focus: Compet i t ive Advantage
1. Identify the business you are going to build throughout this course and choose a name for your
business.
2. Write an analysis of buyer power and supplier power for your business using Porter’s Five Forces
Model. Be sure to discuss how you could combat the competition with strategies such as switch-
ing costs and loyalty programs.
3. Write an analysis of rivalry, entry barriers, and the threat of substitute products for your business
using Porter’s Five Forces Model. Be sure to discuss how you could combat the competition with
strategies such as product differentiation.
4. Describe which of Porter’s three generic strategies you would use for your business. Be sure to
describe the details of how you will implement this strategy and how it will help you create a
competitive advantage in your industry.
PROJECT I Capitalizing on Your Career
Business leaders need to be comfortable with management information systems (MIS) for the follow-
ing (primary) reasons:
■ The sheer magnitude of the dollars spent on MIS must be managed to ensure business value.
■ Research has consistently shown that when top managers are active in supporting MIS, they
realize a number of benefits, such as gaining a competitive advantage, streamlining business
processes, and even transforming entire industries.
■ When business leaders are not involved in MIS, systems fail, revenue is lost, and entire compa-
nies can even fail because of poorly managed systems.
How do companies get managers involved in MIS? One of the biggest positive factors is managers’
personal experience with MIS and MIS education, including university classes and executive semi-
nars. Once managers understand MIS through experience and education, they are more likely to lead
their companies in achieving business success through MIS.
1. Search the Internet for examples of the types of technologies currently used in the field or indus-
try that you plan to pursue. For example, if you are planning a career in accounting or finance,
you should become familiar with financial systems such as Oracle Financials. For a career in
logistics or distribution, research supply chain management systems. If marketing appeals
to you, research customer relationship management systems, blogs, emarketing, and social
networking.
2. As a competitive tool, MIS can differentiate products, services, and prices from competitors’
offerings by improving product quality, shortening product development or delivery time, creating
new MIS-based products and services, and improving customer service before, during, and after
a transaction. Search the Internet for examples of companies in the industry where you plan to
work that have achieved a competitive advantage through MIS.
3. Create a brief report of your findings; include an overview of the type of technologies you found
and how companies are using them to achieve a competitive advantage.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
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38 Chapter 1 Management Information Systems: Business Driven MIS
PROJECT I I Achieving Alignment
Most companies would like to be in the market-leading position of JetBlue, Dell, or Walmart, all of
which have used management information systems to secure their respective spots in the market-
place. These companies are relentless about keeping the cost of technology down by combining the
best of MIS and business leadership.
The future belongs to those organizations perceptive enough to grasp the significance of MIS and
resourceful enough to coordinate their business and management information systems.
1. Use any resource to answer the question, “Why is it challenging for businesses to align MIS and
their other operations?” Use the following questions to begin your analysis:
a. How do companies monitor competitive intelligence and create competitive advantages?
b. What are some of the greatest MIS challenges for most firms?
c. What drives MIS decisions?
d. Who or what is the moving force behind MIS decisions for most companies?
PROJECT I I I Market Dissection
To illustrate the use of the three generic strategies, consider Figure 1.23 . The matrix shown demon-
strates the relationships among strategies (cost leadership versus differentiation) and market seg-
mentation (broad versus focused).
■ Hyundai is following a broad cost leadership strategy. It offers low-cost vehicles, in each particu-
lar model stratification, that appeal to a large audience.
■ Audi is pursuing a broad differentiation strategy with its Quattro models available at several price
points. Audi’s differentiation is safety, and it prices its models higher than Hyundai’s to reach a
large, stratified audience.
■ Kia has a more focused cost leadership strategy. Kia mainly offers low-cost vehicles in the lower
levels of model stratification.
■ Hummer offers the most focused differentiation strategy of any in the industry (including
Mercedes-Benz).
FIGURE 1.23
Porter’s Three Generic
Strategies
Broad market
Cost leadership strategy Differentiation strategy
Hyundai Audi
Focused market
Kia Hummer
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39Business Driven MIS Module 1
Create a similar graph displaying each strategy for a product of your choice. The strategy must
include an example of the product in each of the following markets: (1) cost leadership, broad market;
(2) differentiation, broad market; (3) cost leadership, focused market; and (4) differentiation, focused
market. Potential products include cereal, dog food, soft drinks, computers, shampoo, snack foods,
jeans, sneakers, sandals, mountain bikes, TV shows, movies.
PROJECT IV Porter’s Five Forces
Setting strategic direction for a business is a challenge for even seasoned professionals. The good
news is there are many tools available you can use to help you find competitive advantages, including
Porter’s Five Forces. Porter’s Five Forces Model analyzes the competitive forces within the environment
in which a company operates to assess the potential for profitability in an industry. Its purpose is to
combat these competitive forces by identifying opportunities, competitive advantages, and competitive
intelligence. If the forces are strong, they increase competition; if the forces are weak, they decrease
competition.
Porter’s Five Forces Model is a good framework for understanding market forces. Break into groups
and choose a comparison from the list below to perform a Porter’s Five Forces analysis.
■ Notebook computer and laptop computer.
■ PDA and laptop computer.
■ iPhone and cell phone.
■ iPod and CD player.
■ GPS device and a road atlas.
■ Digital books and printed books.
PROJECT V Adding Value
To identify these competitive advantages, Michael Porter created value chain analysis, which views
a firm as a series of business processes that each add value to the product or service. Value chain
analysis is a useful tool for determining how to create the greatest possible value for customers. The
goal of value chain analysis is to identify processes in which the firm can add value for the customer
and create a competitive advantage for itself, with a cost advantage or product differentiation.
Starbucks has hired you after your graduation for a temporary position that could turn into a full-
time opportunity. With new cafés and juice shops popping up on every corner, coupled with the global
recession, Starbucks is worried about losing market share to competitors. Your boss, Heather Sweitzer,
is out of ideas for ways to improve the company’s profitability. You decide that one of the most useful
tools for identifying competitive advantages is Porter’s value chain analysis. Of course, you do not yet
have the detailed knowledge to complete all of the elements required, but you know enough to get
started and plan to take your draft to Sweitzer next week. Using your knowledge of Starbucks, create a
value chain analysis. Feel free to make assumptions about operations; just be sure to list any that you
make. Also, be sure to write an overview of the tool and its potential value so Sweitzer can understand
how it works.
PROJECT VI Flat Competition
“When I was growing up in Minneapolis, my parents always said, ‘Tom, finish your dinner. There are
people starving in China and India.’ Today I tell my girls, ‘Finish your homework, because people in
China and India are starving for your jobs.’ And in a flat world, they can have them, because there’s no
such thing as an American job anymore.” Thomas Friedman.
In his book, The World Is Flat, Thomas Friedman describes the unplanned cascade of techno-
logical and social shifts that effectively leveled the economic world, and “accidentally made Beijing,
Bangalore, and Bethesda next-door neighbors.” The video of Thomas Friedman’s lecture at MIT
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40 Chapter 1 Management Information Systems: Business Driven MIS
discussing the flat world is available at http://mitworld.mit.edu/video/266 . If you want to be prepared
to compete in a flat world you must watch this video and answer the following questions:
■ Do you agree or disagree with Friedman’s assessment that the world is flat?
■ What are the potential impacts of a flat world for a student performing a job search?
■ What can students do to prepare themselves for competing in a flat world? 30
PROJECT VI I Wikiblunders
According to PC World these false facts all appeared on Wikipedia:
1. Robbie Williams eats domestic pets in pubs for money.
2. David Beckham was a Chinese goalkeeper in the 18th century.
3. Paul Reiser’s dead. (Reiser is an actor).
4. Sinbad’s dead. (Sinbad is an actor) .
5. Sergey Brin’s sexy, dating Jimmy Wales, and dead. (Brin founded Google and Wales founded
Wikipedia).
6. Tony Blair worships Hitler. (Blair was the former prime minister of the United Kingdom).
7. The Duchess of Cornwall’s Christian name is Cow-miller.
8. Robert Byrd’s dead. (Byrd is a U.S. senator from West Virginia).
9. John Seigenthaler helped assassinate John and Robert Kennedy. (Seigenthaler is a journalist).
10. Conan O’Brien assaults sea turtles while canoeing. 31
We know that people use information technology to work with information. Knowing this, how
could these types of errors occur? What could happen if you decided to use Wikipedia to collect busi-
ness intelligence for a research paper? What could Wikipedia do to help prevent these types of errors?
PROJECT VI I I What’s Wrong with This Bathroom?
If you were the CEO of a global financial company that was experiencing a financial crisis, would you
invest $1 million to renovate your office? Probably not and you are possibly wondering if this is a
fabricated story from The Onion. Guess what, this is a true story! John Thain, the former CEO of Merrill
Lynch, decided to spend $1.2 million refurbishing his office—well after Merrill Lynch posted huge
financial losses. Thain personally signed off on all of the following:
■ Area rug: $87,784
■ Mahogany pedestal table: $25,713
■ 19th century credenza: $68,179
■ Pendant light furniture: $19,751
■ 4 pairs of curtains: $28,091
■ Pair of guest chairs: $87,784
■ George IV chair: $18,468
■ 6 wall sconces: $2,741
■ Parchment waste can: $1,405 (yes, for a trash can!!)
■ Roman shade fabric: $10,967
■ Roman shades: $7,315
■ Coffee table: $5,852
■ Commode on legs: $35,115 32
It takes years of education and work experience for people to build the skills necessary to take
on the role of CEO. Obviously, a company like Merril Lynch would only hire a highly qualified person
for the job. What do you think happened to John Thain? Why would he spend an obscene amount
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41Business Driven MIS Module 1
of money redecorating his office when his company was having financial trouble? What happens
to a company whose executives are not aligned with company goals? How can you ensure that
your company’s executives are not making monumental mistakes, such as million dollar bathroom
renovations?
PROJECT IX I Love TED!
A small nonprofit started in 1984, TED (Technology, Entertainment, Design) hosts conferences for
Ideas Worth Spreading. TED brings people from all over the globe to share award-winning talks cover-
ing the most innovative, informative, and exciting speeches ever given in 20 minutes. You can find
TED talks by Al Gore, Bill Gates, Steve Jobs, Douglas Adams, Steven Levitt, Seth Godin, Malcolm
Gladwell, and so on. 33
Visit www.ted.com and peruse the thousands of videos that are available then answer the
following:
■ Review the TED website and find three talks you would want to watch. Why did you pick these
three and will you make time outside of class to watch them?
■ How can you gain a competitive advantage by watching TED?
■ How can you find innovative ideas for a start-up by watching TED?
■ How can you find competitive intelligence by watching TED?
Project
Number Project Name
Project
Type
Plug-In
Focus Area Project Level Skill Set
Page
Number
1 Financial
Destiny
Excel T2 Personal
Budget
Introductory
Formulas
AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory
Formulas
AYK.4
3 Technology
Budget
Excel T1, T2 Hardware
and Software
Introductory
Formulas
AYK.4
4 Tracking
Donations
Excel T2 Employee
Relationships
Introductory
Formulas
AYK.4
5 Convert
Currency
Excel T2 Global
Commerce
Introductory
Formulas
AYK.5
6 Cost
Comparison
Excel T2 Total Cost of
Ownership
Introductory
Formulas
AYK.5
7 Time
Management
Excel or
Project
T12 Project
Management
Introductory Gantt Charts AYK.6
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.
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What’s in IT for me?
Working faster and smarter has become a necessity for companies. A firm’s value chain is directly affected by how well
it designs and coordinates its business processes. Business processes offer competitive advantages if they enable a firm
to lower operating costs, differentiate, or compete in a niche market. They can also be huge burdens if they are outdated,
which impedes operations, efficiency, and effectiveness. Thus, the ability of management information systems to improve
business processes is a key advantage.
The goal of Chapter 2 is to provide an overview of specific MIS tools managers can use to support the strategies
discussed in Chapter 1. After reading this chapter, you, the business student, should have detailed knowledge of the
types of information systems that exist to support decision making and business process reengineering, which in
turn can improve organization efficiency and effectiveness and help an organization create and maintain competitive
advantages.
■ M a k i n g B u s i n e s s D e c i s i o n s
■ M e t r i c s : M e a s u r i n g S u c c e s s
■ S u p p o r t : E n h a n c i n g D e c i s i o n
M a k i n g w i t h M I S
■ T h e F u t u re : A r t i f i c i a l
I n t e l l i g e n c e
SECTION 2.2
Business Processes
SECTION 2.1
Decision Support Systems
■ E v a l u a t i n g B u s i n e s s P ro c e s s e s
■ M o d e l s : M e a s u r i n g
P e r f o r m a n c e
■ S u p p o r t : E n h a n c i n g B u s i n e s s
P ro c e s s e s w i t h M I S
■ T h e F u t u re : B u s i n e s s P ro c e s s
M a n a g e m e n t
C H A P T E R
C
H
A
P
T
E
R
O
U
T
L
IN
E

Decisions and Processes:
Value Driven Business 2
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43Business Driven MIS Module 1
opening case study
Action Finally—Actionly
Data are all over the Internet! Tons and tons and tons of data! For example, over 152 million
blogs are created each year, along with 100 million Twitter accounts resulting in 25 billion
Tweets, 107 trillion emails are sent, and 730 billion hours of YouTube videos are watched.
Known as the social media sector, this arena is by far one of the fastest growing and
most influential sectors in business. Companies are struggling to understand how the social
media sector impacts it both financially and strategically.
Data are valuable to any company and the data on the Internet are unique because the
information comes directly from customers, suppliers, competitors, and even employees.
As the social media sector takes off, companies are finding themselves at a disadvantage
when attempting to keep up with all of the “online chatter” about their goods and services
on the many different social media websites, including Facebook, Twitter, MySpace, Flickr,
LinkedIn, Yelp, Google, blogs, etc.
Any time there is a problem there is a potential business solution, and Actionly.com
chooses to capitalize on the data glut problem. Actionly monitors multiple social media
channels through one tracking service looking for specific keywords for industries, brands,
companies, and trends. Actionly customers choose a keyword to monitor—such as a brand,
product names, industry terms, or competitors—and then Actionly constantly collects the
data from these social channels and pulls that data into a cohesive digital dashboard. The
digital dashboard tracks the desired information, such as marketplace trends, specific com-
panies, competitive brands, entire industries (for example, clean technology), by simulta-
neously searching Twitter, Facebook, Google, YouTube, Flickr, and blogs. After completing
a search, Actionly.com uses Google Analytics to create graphs and charts indicating how
frequently each keyword was found throughout the various channels. Additionally, it links
each respective channel to the dashboard and filters them with “positive” and “negative”
connections, allowing users to respond to any comments.
Actionly.com’s business model sets it up for success in this emerging industry. Actionly
has a first-mover advantage because it was the first online brand management company
offering this service to customers. And the company benefits by using its own services
to ensure its brand stays number one on all social media websites. Actionly uses Google
Analytics to help transform the data it collects from the various social media websites into
valuable business intelligence. Its digital dashboard monitors several key metrics, including:
■ Reputation Management: Actionly’s easy to use digital dashboard allows customers to
observe and analyze trends and track mentions about brands based on historical data
as well as continuously updated data. For example, a customer can view graphs that
highlight key trends across 30 days for specific brands, products, or companies.
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44 Chapter 2 Decisions and Processes: Value Driven Business
■ Social ROI: By connecting to Google Analytics from Actionly, a customer can analyze its
campaign performance for individual tweets or Facebook posts to determine which are
successful and which are failing. Actionly analyzes every post and click to track page
views, visitor information, goal completions, and so on, through its digital dashboard,
allowing users to customize reports tracking the performance of daily posts.
■ Twitter Analytics: After adding Twitter accounts to the dashboard, a user can drill down
into the data to view graphs of followers, mentions, and retweets. This eliminates the
need to manually track a number of Twitter accounts, and a user can view the data in
graphs or export the data in Excel for further analysis.
■ Marketing Campaign Tracking: If a company is launching a big promotion or contest,
it can post messages across multiple Facebook or Twitter accounts; all the user has to
do is select which Twitter or Facebook accounts it wants to use and when. Actionly’s
Campaign Tracking helps a user view which posts are resonating well with customers
and measure metrics such as page views, signups, conversions, and revenue by post.
Actionly even segments the data by post, account, campaign, or channel, allowing users
to measure performance over time.
■ Click Performance: Actionly tracks performance by hour and day of week, allowing
customers to view which clicks are getting the most attention. Actionly’s algorithm auto-
matically assigns a sentiment to tweets, allowing the customer to immediately filter
positive or negative or neutral posts to react to information quickly.
■ Sentiment Analysis: Reviewing positive and negative feedback helps gauge how a
brand is doing over time, allowing the client to try to increase the positive sentiment.
However, no sentiment scoring is 100 percent accurate due to the complexities of inter-
pretation, culture, sarcasm, and other language nuances. For example, if Actionly is
incorrectly tracking a metric, it can change it, allowing users to assign their unique senti-
ments directly to their tweets. A user can also select to have positive or negative alerts
for keywords emailed as soon as the keyword is posted to help manage online brand
and company reputations.
■ Competitive Analysis: Actionly tracks competitor intelligence by watching new-product
releases, acquisitions, or customer feedback, allowing a company to stay on top of mar-
ket entrants, market-related blogs, news, or industry-related seminars/webinars.
■ Find Influencers: Actionly’s digital dashboard allows a user to engage directly with
key influencers or people who are driving the online chatter about goods and services.
Actionly identifies influencers and determines their relevance to the company, brand, or
product. It then compiles a list of influencers based on users with the most followers and
who have been most active for the specific searches in the past 30 days. 1
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45Business Driven MIS Module 1
1. Managers need to analyze large amounts of information:
Innovations in communication and globalization have resulted in a
dramatic increase in the variables and dimensions people need to consider
when making a decision, solving a problem, or appraising an opportunity.
2. Managers must make decisions quickly:
Time is of the essence and people simply do not have time to sift through
all the information manually.
3. Managers must apply sophisticated analysis techniques, such as
Porter’s strategies or forecasting, to make strategic decisions:
Due to the intensely competitive global business environment, companies
must offer far more than just a great product to succeed.
MANAGERIAL
DECISION-MAKING
CHALLENGES
section 2.1 Decision Support Systems
L E A R N I N G O U T C O M E S
2.1 Explain the importance of decision making for managers at each of the three primary organization
levels along with the associated decision characteristics.
2.2 Define critical success factors (CSFs) and key performance indicators (KPIs), and explain how
managers use them to measure the success of MIS projects.
2.3 Classify the different operational support systems, managerial support systems, and strategic
support systems, and explain how managers can use these systems to make decisions and gain
competitive advantages.
2.4 Describe artificial intelligence, and identify its five main types.
MAKING BUSINESS DECISIONS
Porter’s strategies outlined in Chapter 1 suggest entering markets with a competitive
advantage in either overall cost leadership, differentiation, or focus. To achieve these
results, managers must be able to make decisions and forecast future business needs and
requirements. The most important and most challenging question confronting manag-
ers today is how to lay the foundation for tomorrow’s success while competing to win
in today’s business environment. A company will not have a future if it is not cultivat-
ing strategies for tomorrow. The goal of this section is to expand on Porter’s Five Forces
Model, three generic strategies, and value chain analysis to demonstrate how managers
can learn the concepts and practices of business decision making to add value. It will also
highlight how companies heading into the 21st century are taking advantage of advanced
MIS capable of generating significant competitive advantages across the value chain.
As we discussed in Chapter 1, decision making is one of the most important and
challenging aspects of management. Decisions range from routine choices, such as
how many items to order or how many people to hire, to unexpected ones such as what
to do if a key employee suddenly quits or needed materials do not arrive. Today, with
massive volumes of information available, managers are challenged to make highly
complex decisions—some involving far more information than the human brain can
comprehend—in increasingly shorter time frames. Figure 2.1 displays the three pri-
mary challenges managers face when making decisions.
LO. 2.1: Explain the importance of
decision making for managers at
each of the three primary organiza-
tion levels along with the associated
decision characteristics.
FIGURE 2.1
Managerial Decision-Making
Challenges
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46 Chapter 2 Decisions and Processes: Value Driven Business
The Decision-Making Process
The process of making decisions plays a crucial role in communication and leadership
for operational, managerial, and strategic projects. Analytics is the science of fact-based
decision making. There are numerous academic decision-making models; Figure 2.2
presents just one example. 2
Decision-Making Essentials
A few key concepts about organizational structure will help our discussion of MIS deci-
sion-making tools. The structure of a typical organization is similar to a pyramid, and
the different levels require different types of information to assist in decision making,
problem solving, and opportunity capturing (see Figure 2.3 ).
Operational At the operational level , employees develop, control, and maintain
core business activities required to run the day-to-day operations. Operational decisions
are considered structured decisions , which arise in situations where established pro-
cesses offer potential solutions. Structured decisions are made frequently and are almost
repetitive in nature; they affect short-term business strategies. Reordering inventory and
creating the employee staffing and weekly production schedules are examples of rou-
tine structured decisions. Figure 2.4 highlights the essential elements required for opera-
tional decision making. All the elements in the figure should be familiar, except metrics
which are discussed in detail below.
Managerial At the managerial level , employees are continuously evaluating com-
pany operations to hone the firm’s abilities to identify, adapt to, and leverage change.
A company that has a competitive advantage needs to constantly adjust and revise its
strategy to remain ahead of fast-following competitors. Managerial decisions cover
FIGURE 2.2
The Six-Step Decision-Making
Process
DECISION-MAKING
PROCESS
Problem Identification: Define the problem as clearly and precisely
as possible.
Data Collection: Gather problem-related data, including who, what,
where, when, why, and how. Be sure to gather facts, not rumors or
opinions about the problem.
Solution Generation: Detail every solution possible, including ideas
that seem farfetched.
Solution Test: Evaluate solutions in terms of feasibility (can it be
completed?), suitability (is it a permanent or a temporary fix?), and
acceptability (can all participants form a consensus?).
Solution Selection: Select the solution that best solves the problem
and meets the needs of the business.
Solution Implementation: If the solution solves the problem, then
the decisions made were correct. If not, then the decisions were
incorrect and the process begins again.
1
2
3
4
5
6
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47Business Driven MIS Module 1
FIGURE 2.3
Common Company Structure
STRATEGIC
MANAGERIAL
OPERATIONAL
FIGURE 2.4
Overview of Operational
Decision Making
STRATEGIC
MANAGERIAL
OPERATIONAL
Employee Types: Lower management, department managers, analysts,
staff
Focus: Internal, functional
Time Frame: Short term, day-to-day operations
Decision Types: Structured, recurring, repetitive
MIS Type: Information
Metrics: Key performance indicators focusing on efficiency
Examples:
• How many employees are out sick?
• What are next week’s production requirements?
• How much inventory is in the warehouse?
• How many problems occurred when running payroll?
• Which employees are on vacation next week?
• How many products need to be made today?
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48 Chapter 2 Decisions and Processes: Value Driven Business
short- and medium-range plans, schedules, and budgets along with policies, proce-
dures, and business objectives for the firm. They also allocate resources and monitor
the performance of organizational subunits, including departments, divisions, process
teams, project teams, and other work groups. These types of decisions are considered
semistructured decisions; they occur in situations in which a few established processes
help to evaluate potential solutions, but not enough to lead to a definite recommended
decision. For example, decisions about producing new products or changing employee
benefits range from unstructured to semistructured. Figure 2.5 highlights the essential
elements required for managerial decision making.
Strategic At the strategic level , managers develop overall business strategies, goals,
and objectives as part of the company’s strategic plan. They also monitor the strategic per-
formance of the organization and its overall direction in the political, economic, and com-
petitive business environment. Strategic decisions are highly unstructured decisions ,
occurring in situations in which no procedures or rules exist to guide decision makers
toward the correct choice. They are infrequent, extremely important, and typically related
to long-term business strategy. Examples include the decision to enter a new market or
even a new industry over, say, the next three years. In these types of decisions, managers
rely on many sources of information, along with personal knowledge, to find solutions.
Figure 2.6 highlights the essential elements required for strategic decision making.
METRICS: MEASURING SUCCESS
A project is a temporary activity a company undertakes to create a unique product,
service, or result. For example, the construction of a new subway station is a project,
as is a movie theater chain’s adoption of a software program to allow online ticketing.
Peter Drucker, a famous management writer, once said that if you cannot measure
LO 2.2: Define critical success
factors (CSFs) and key performance
indicators (KPIs), and explain how
managers use them to measure the
success of MIS projects.
FIGURE 2.5
Overview of Managerial
Decision Making
STRATEGIC
Employee Types: Middle management, managers, directors
Focus: Internal, cross-functional, (sometimes external)
Time Frame: Short term, daily, monthly, yearly
Decision Types: Semistructured, ad hoc (unplanned) reporting
MIS Requirement: Business intelligence
Metrics: Key performance indicators focusing on efficiency, and critical
success factors focusing on effectiveness
Examples:
• Who are our best customers by region, by sales representative, by product?
• What are the sales forecasts for next month? How do they compare to
actual sales for last year?
• What was the difference between expected sales and actual sales for
each month?
• What was the impact of last month’s marketing campaign on sales?
• What types of ad hoc or unplanned reports might the company require
next month?
OPERATIONAL
MANAGERIAL
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49Business Driven MIS Module 1
FIGURE 2.6
Overview of Strategic
Decision Making
Employee Types: Senior management, presidents, leaders, executives
Focus: External, industry, cross company
Time Frame: Long term—yearly, multi-year
Decision Types: Unstructured, nonrecurring, one time
MIS Requirement: Knowledge
Metrics: Critical success factors focusing on effectiveness
Examples:
• How will changes in employment levels over the next 3 years impact the company?
• What industry trends are worth analyzing?
• What new products and new markets does the company need to create competitive
advantages?
• How will a recession over the next years impact business?
• What measures will the company need to prepare for due to new tax laws?
MANAGERIAL
OPERATIONAL
STRATEGIC
something, you cannot manage it. How do managers measure the progress of a com-
plex business project?
Metrics are measurements that evaluate results to determine whether a project is
meeting its goals. Two core metrics are critical success factors and key performance
indicators. Critical success factors (CSFs) are the crucial steps companies perform to
achieve their goals and objectives and implement their strategies (see Figure 2.7 ). Key
performance indicators (KPIs) are the quantifiable metrics a company uses to evaluate
progress toward critical success factors. KPIs are far more specific than CSFs.
It is important to understand the relationship between critical success factors and
key performance indicators. CSFs are elements crucial for a business strategy’s success.
KPIs measure the progress of CSFs with quantifiable measurements, and one CSF can
have several KPIs. Of course, both categories will vary by company and industry. Imag-
ine improve graduation rates as a CSF for a college. The KPIs to measure this CSF can
include:
■ Average grades by course and gender.
■ Student dropout rates by gender and major.
■ Average graduation rate by gender and major.
■ Time spent in tutoring by gender and major.
KPIs can focus on external and internal measurements. A common external KPI is
market share , or the proportion of the market that a firm captures. We calculate it by
dividing the firm’s sales by the total market sales for the entire industry. Market share
measures a firm’s external performance relative to that of its competitors. For example, if
a firm’s total sales (revenues) are $2 million and sales for the entire industry are $10 mil-
lion, the firm has captured 20 percent of the total market (2/10 5 20%) or a 20 percent
market share.
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50 Chapter 2 Decisions and Processes: Value Driven Business
A common internal KPI is return on investment (ROI) , which indicates the earning
power of a project. We measure it by dividing the profitability of a project by the costs.
This sounds easy, and for many departments where the projects are tangible and self-
contained it is; however, for projects that are intangible and cross departmental lines
(such as MIS projects), ROI is challenging to measure. Imagine attempting to calculate
the ROI of a fire extinguisher. If the fire extinguisher is never used, its ROI is low. If the
fire extinguisher puts out a fire that could have destroyed the entire building, its ROI is
astronomically high.
Creating KPIs to measure the success of an MIS project offers similar challenges.
Think about a firm’s email system. How could managers track departmental costs and
profits associated with company email? Measuring by volume does not account for
profitability, because one sales email could land a million-dollar deal while 300 others
might not generate any revenue. Non-revenue-generating departments such as human
resources and legal require email but will not be using it to generate profits. For this rea-
son, many managers turn to higher-level metrics, such as efficiency and effectiveness,
to measure MIS projects. Best practices are the most successful solutions or problem-
solving methods that have been developed by a specific organization or industry. Mea-
suring MIS projects helps determine the best practices for an industry.
Efficiency and Effectiveness Metrics
Efficiency MIS metrics measure the performance of MIS itself, such as throughput, trans-
action speed, and system availability. Effectiveness MIS metrics measure the impact MIS
has on business processes and activities, including customer satisfaction and customer
conversion rates. Efficiency focuses on the extent to which a firm is using its resources
in an optimal way, while effectiveness focuses on how well a firm is achieving its goals
and objectives. Peter Drucker offers a helpful distinction between efficiency and effec-
tiveness: Doing things right addresses efficiency—getting the most from each resource.
FIGURE 2.7
CSF and KPI Metrics
Crucial steps companies
perform to achieve their
goals and objectives and
implement their strategies
• Create high-quality
products
• Retain competitive
advantages
• Reduce product costs
• Increase customer
satisfaction
• Hire and retain the best
business professionals
Critical
Success
Factors
Quantifiable metrics a
company uses to evaluate
progress toward critical
success factors
• Turnover rates of
employees
• Percentage of help desk
calls answered in the first
minute
• Number of product
returns
• Number of new
customers
• Average customer
spending
Key
Performance
Indicators
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51Business Driven MIS Module 1
Doing the right things addresses effectiveness—setting the right goals and objectives and
ensuring they are accomplished. Figure 2.8 describes a few of the common types of effi-
ciency and effectiveness MIS metrics. KPIs that measure MIS projects include both effi-
ciency and effectiveness metrics. Of course, these metrics are not as concrete as market
share or ROI, but they do offer valuable insight into project performance. 4
Large increases in productivity typically result from increases in effectiveness, which
focus on CSFs. Efficiency MIS metrics are far easier to measure, however, so most manag-
ers tend to focus on them, often incorrectly, to measure the success of MIS projects. Con-
sider measuring the success of automated teller machines (ATMs). Thinking in terms
of MIS efficiency metrics, a manager would measure the number of daily transactions,
the average amount per transaction, and the average speed per transaction to determine
the success of the ATM. Although these offer solid metrics on how well the system is
performing, they miss many of the intangible or value-added benefits associated with
ATM effectiveness. Effectiveness MIS metrics might measure how many new customers
joined the bank due to its ATM locations or the ATMs’ ease of use. They can also measure
increases in customer satisfaction due to reduced ATM fees or additional ATM services
such as the sale of stamps and movie tickets, significant time savers and value-added
features for customers. Being a great manager means taking the added viewpoint offered
by effectiveness MIS metrics to analyze all benefits associated with an MIS project.
The Interrelationship Between Efficiency
and Effectiveness MIS Metrics
Efficiency and effectiveness are definitely related. However, success in one area does
not necessarily imply success in the other. Efficiency MIS metrics focus on the tech-
nology itself. While these efficiency MIS metrics are important to monitor, they do not
always guarantee effectiveness. Effectiveness MIS metrics are determined according
BUSINESS DRIVEN DISCUSSION
How do people make decisions? Almost daily you can read about someone
who makes a decision most people would find mind-boggling. Here are a few
examples:
■ A woman in Ohio was charged with child endangerment after police said
she admitted to breast-feeding her child and talking on a cell phone while
driving her other children to school.
■ A woman in South Florida was caught driving while talking on a cell phone
on her left shoulder and eating from a cup of soup in her left hand. The
woman would take her right hand off the wheel to spoon soup, driving with
no hands while she continued to talk on the phone.
■ A man in California was cited for driving while carrying a swimming pool.
He drove with one hand while he held his new swimming pool on the roof
of his car with the other. His three children were leaning out of the car win-
dows, not wearing seat belts, to help hold onto the pool.
■ A woman in Baltimore was charged with diapering her child in the front
seat of the car while driving at 65 miles per hour down the highway. 3
Find an example of a company that found itself in trouble because its
employees made bad decisions. What could the company have done to protect
itself from these types of employee blunders?
Driving
Decisions
APPLY YOUR KNOWLEDGE
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52 Chapter 2 Decisions and Processes: Value Driven Business
to an organization’s goals, strategies, and objectives. Here, it becomes important to
consider a company’s CSFs, such as a broad cost leadership strategy (Walmart, for
example), as well as KPIs such as increasing new customers by 10 percent or reduc-
ing new-product development cycle times to six months. In the private sector, eBay
continuously benchmarks its MIS projects for efficiency and effectiveness. Maintaining
constant website availability and optimal throughput performance are CSFs for eBay.
Figure 2.9 depicts the interrelationships between efficiency and effectiveness. Ideally,
a firm wants to operate in the upper right-hand corner of the graph, realizing both signif-
icant increases in efficiency and effectiveness. However, operating in the upper left-hand
corner (minimal effectiveness with increased efficiency) or the lower right-hand corner
(significant effectiveness with minimal efficiency) may be in line with an organization’s
particular strategies. In general, operating in the lower left-hand corner (minimal effi-
ciency and minimal effectiveness) is not ideal for the operation of any organization.
Benchmarks Regardless of what process is measured, how it is measured, and
whether it is performed for the sake of efficiency or effectiveness, managers must set
benchmarks , or baseline values the system seeks to attain. Benchmarking is a process
of continuously measuring system results, comparing those results to optimal system
FIGURE 2.8
Common Types of Efficiency
and Effectiveness Metrics
Throughput—The amount of information
that can travel through a system at any
point in time.
Efficiency Metrics EffectivenessMetrics
Usability—The ease with which people perform
transactions and/or find information.
Customer satisfaction—Measured by
satisfaction surveys, percentage of existing
customers retained, and increases in revenue
dollars per customer.
Conversion rates—The number of customers
an organization “touches” for the first time and
persuades to purchase its products or services.
This is a popular metric for evaluating the
effectiveness of banner, pop-up, and pop-under
ads on the Internet.
Financial—Such as return on investment (the
earning power of an organization’s assets), cost-
benefit analysis (the comparison of projected
revenues and costs including development,
maintenance, fixed, and variable), and break-
even analysis (the point at which constant
revenues equal ongoing costs).
Transaction speed—The amount of time
a system takes to perform a transaction.
System availability—The number of
hours a system is available for users.
Information accuracy—The extent to
which a system generates the correct
results when executing the same
transaction numerous times.
Response time—The time it takes to
respond to user interactions such as a
mouse click.
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53Business Driven MIS Module 1
performance (benchmark values), and identifying steps and procedures to improve sys-
tem performance. Benchmarks help assess how an MIS project performs over time. For
instance, if a system held a benchmark for response time of 15 seconds, the manager
would want to ensure response time continued to decrease until it reached that point. If
response time suddenly increased to 1 minute, the manager would know the system was
not functioning correctly and could start looking into potential problems. Continuously
measuring MIS projects against benchmarks provides feedback so managers can control
the system.
SUPPORT: ENHANCING DECISION MAKING WITH MIS
Now that we’ve reviewed the essentials of decision making, we are ready to under-
stand the powerful benefits associated with using MIS to support managers making
decisions.
LO 2.3: Classify the different opera-
tional support systems, managerial
support systems, and strategic support
systems, and explain how managers
can use these systems to make deci-
sions and gain competitive advantages.
FIGURE 2.9
The Interrelationships Between
Efficiency and Effectiveness
High
Ef
fic
ie
nc
y
Low
Low HighEffectiveness
Optimal area
in which to
operate
BUSINESS DRIVEN GLOBALIZATION
It is late at night and you are working on your final exam when your computer
crashes. As your blood pressure climbs and your stress level skyrockets, you call
your computer manufacturer’s technical support number. Of course that per-
son tells you the problem has nothing to do with the computer and must have a
different source. What are you going to do?
iYogi.net is a 24/7 online support service that allows technicians to take
remote control of your computer from Gurgaon, India, and try to fix what ails it.
iYogi provides technical support for all Walmart computer customers and sells
its services through Walmart.com and Amazon.com. If the thought of turning
control over to someone you never met half a world away fills you with terror,
it shouldn’t. All iYogi technicians are Microsoft, Cisco, and Hewlett-Packard
certified. 5
Describe the types of decisions iYogi technicians are required to make when
helping a customer with a computer problem. What would potential CSFs and
KPIs for iYogi be? What types of metrics would managers track so they could
control operations?
iYogi Help
Desk Support
APPLY YOUR KNOWLEDGE
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54 Chapter 2 Decisions and Processes: Value Driven Business
A model is a simplified representation or abstraction of reality. Models help man-
agers calculate risks, understand uncertainty, change variables, and manipulate
time to make decisions. MIS support systems rely on models for computational and
analytical routines that mathematically express relationships among variables. For
example, a spreadsheet program, such as Microsoft Office Excel, might contain mod-
els that calculate market share or ROI. MIS have the capability and functionality to
express far more complex modeling relationships that provide information, business
intelligence, and knowledge. Figure 2.10 highlights the three primary types of man-
agement information systems available to support decision making across the com-
pany levels.
Operational Support Systems
Transactional information encompasses all the information contained within a sin-
gle business process or unit of work, and its primary purpose is to support the perfor-
mance of daily operational or structured decisions. Transactional information is created,
for example, when customers are purchasing stocks, making an airline reservation, or
withdrawing cash from an ATM. Managers use transactional information when making
structured decisions at the operational level, such as when analyzing daily sales reports
to determine how much inventory to carry.
Online transaction processing (OLTP) is the capture of transaction and event infor-
mation using technology to (1) process the information according to defined business
rules, (2) store the information, and (3) update existing information to reflect the new
information. During OLTP, the organization must capture every detail of transactions
and events. A transaction processing system (TPS) is the basic business system that
serves the operational level (analysts) and assists in making structured decisions. The
most common example of a TPS is an operational accounting system such as a payroll
system or an order-entry system.
FIGURE 2.10
Primary Types of MIS Systems
for Decision Making
Operational Managerial Strategic
Unstructured
Semistructured
Structured
Transaction
Processing
System
Decision
Support
Systems
Executive
Information
Systems
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55Business Driven MIS Module 1
Using systems thinking, we can see that the inputs for a TPS are source documents ,
the original transaction record. Source documents for a payroll system can include time
sheets, wage rates, and employee benefit reports. Transformation includes common
procedures such as creating, reading, updating, and deleting (commonly referred to as
CRUD) employee records, along with calculating the payroll and summarizing benefits.
The output includes cutting the paychecks and generating payroll reports. Figure 2.11
demonstrates the systems thinking view of a TPS. 6
Managerial Support Systems
Analytical information encompasses all organizational information, and its primary
purpose is to support the performance of managerial analysis or semistructured deci-
sions. Analytical information includes transactional information along with other
information such as market and industry information. Examples of analytical infor-
mation are trends, sales, product statistics, and future growth projections. Managers
use analytical information when making important semistructured decisions, such as
whether the organization should build a new manufacturing plant or hire additional
sales reps.
Online analytical processing (OLAP) is the manipulation of information to cre-
ate business intelligence in support of strategic decision making. Decision support
systems (DSSs) model information using OLAP, which provides assistance in evalu-
ating and choosing among different courses of action. DSSs enable high-level man-
agers to examine and manipulate large amounts of detailed data from different
internal and external sources. Analyzing complex relationships among thousands or
even millions of data items to discover patterns, trends, and exception conditions
is one of the key uses associated with a DSS. For example, doctors may enter symp-
toms into a decision support system so it can help diagnose and treat patients. Insur-
ance companies also use a DSS to gauge the risk of providing insurance to drivers
who have imperfect driving records. One company found that married women who
are homeowners with one speeding ticket are rarely cited for speeding again. Armed
with this business intelligence, the company achieved a cost advantage by lowering
insurance rates to this specific group of customers. The following are common DSS
analysis techniques.
What-If Analysis What-if analysis checks the impact of a change in a variable or
assumption on the model. For example, “What will happen to the supply chain if a hur-
ricane in South Carolina reduces holding inventory from 30 percent to 10 percent?” A
user would be able to observe and evaluate any changes that occurred to the values in
FIGURE 2.11
Systems Thinking Example
of a TPS
Input Process Output
• CRUD
• Calculate
• Summarize
• Reports• Source Documents
Feedback
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56 Chapter 2 Decisions and Processes: Value Driven Business
the model, especially to a variable such as profits. Users repeat this analysis with differ-
ent variables until they understand all the effects of various situations.
Sensitivity Analysis Sensitivity analysis , a special case of what-if analysis, is the
study of the impact on other variables when one variable is changed repeatedly. Sensitiv-
ity analysis is useful when users are uncertain about the assumptions made in estimat-
ing the value of certain key variables. For example, repeatedly changing revenue in small
increments to determine its effects on other variables would help a manager understand
the impact of various revenue levels on other decision factors.
Goal-Seeking Analysis Goal-seeking analysis finds the inputs necessary to
achieve a goal such as a desired level of output. It is the reverse of what-if and sensitiv-
ity analysis. Instead of observing how changes in a variable affect other variables, goal-
seeking analysis sets a target value (a goal) for a variable and then repeatedly changes
other variables until the target value is achieved. For example, goal-seeking analysis
could determine how many customers must purchase a new product to increase gross
profits to $5 million.
Optimization Analysis Optimization analysis , an extension of goal-seeking analy-
sis, finds the optimum value for a target variable by repeatedly changing other variables,
subject to specified constraints. By changing revenue and cost variables in an optimiza-
tion analysis, managers can calculate the highest potential profits. Constraints on rev-
enue and cost variables can be taken into consideration, such as limits on the amount of
raw materials the company can afford to purchase and limits on employees available to
meet production needs.
Figure 2.12 shows the common systems view of a DSS. Figure 2.13 shows how TPSs
supply transactional data to a DSS. The DSS then summarizes and aggregates the
information from the different TPSs, which assist managers in making semistructured
decision.
Strategic Support Systems
Decision making at the strategic level requires both business intelligence and knowl-
edge to support the uncertainty and complexity associated with business strategies. An
executive information system (EIS) is a specialized DSS that supports senior-level exec-
utives and unstructured, long-term, nonroutine decisions requiring judgment, evalua-
tion, and insight. These decisions do not have a right or wrong answer, only efficient and
FIGURE 2.12
Systems Thinking Example
of a DSS
Input Process Output
Feedback
• What-if
• Sensitivity
• Goal seeking
• Optimization
• Forecasts
• Simulations
• Ad hoc reports
• TPS
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57Business Driven MIS Module 1
FIGURE 2.13
Interaction Between
TPS and DSS to Support
Semistructured Decisions
Transaction Processing
Systems Decision Support Systems
Order
Entry Order Processing System
Inventory Tracking System
Distribution System
Decision Support System
Inventory
Data
Shipping
Data
Sales
Data
Manufacturing
Data
Transportation
Data
Managerial
Reports
BUSINESS DRIVEN ETHICS AND SECURITY
What if the person sitting in the cubicle next to you was running a scam that
cost your company $7 billion? An employee at a French bank allegedly used
his inside knowledge of business processes to bypass the system and place
roughly $73 billion in bogus trades that cost the bank more than $7 billion to
unwind.
Findings from the U.S. Secret Service’s examination of 23 incidents con-
ducted by 26 insiders determined that 70 percent of the time, insiders took
advantage of failures in business process rules and authorization mechanisms
to steal from their company. These insiders were authorized and active com-
puter users 78 percent of the time, and a surprising 43 percent used their own
user name and passwords to commit their crimes. 7
This is a daunting reminder that every employee has the potential to become
a knowledgeable insider and, if started on a criminal path, to do tremendous
damage to your company. Many DSSs and EISs contain the business intelli-
gence your company needs to operate effectively, and you need to protect these
assets. What types of sensitive information is housed in a company’s TPS, DSS,
and EIS? What problems could you encounter if one of your employees decided
to steal the information housed in your DSS? How could you protect your EIS
from unethical users? What would you do if you thought the person sharing
your cube was a rogue insider?
The Criminal in
the Cube Next
Door
APPLY YOUR KNOWLEDGE
effective answers. Moving up through the organizational pyramid, managers deal less
with the details (“finer” information) and more with meaningful aggregations of infor-
mation (“coarser” information). Granularity refers to the level of detail in the model or
the decision-making process. The greater the granularity, the deeper the level of detail or
fineness of data (see Figure 2.14 ).
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58 Chapter 2 Decisions and Processes: Value Driven Business
BUSINESS DRIVEN START-UP
Do you enjoy kidnapping your rivals’ team mascots or toilet-papering their frat
houses? If so, you might find your ideal career at College Hunks Hauling Junk.
The company hires college students and recent grads to pick up junk and take it
away. The founder, Nick Friedman, had a goal of capturing that friendly rivalry
so often associated with college life and turning it into profits. When the com-
pany launched in 2005, the haulers from Virginia found their truck had been
lathered in shaving cream and draped with a University of Maryland flag. The
Virginia haulers retaliated, and soon after dead fish were found on the seats of
Maryland’s truck. Friedman decided to use this energy as an incentive instead
of condemning the unorthodox behavior. “We wanted to harness that competi-
tive, prankster enthusiasm and channel it for good,” he says.
Freidman made a bold move and decided that instead of tracking typical key
performance indicators such as revenue, average job size, and customer loyalty, he
would set up his dashboard to track volume of junk collected and amount donated or
recycled. The winning team gains such things as bragging rights and banners, mod-
est monetary prizes, and the right to eat first at the annual company meeting. Most
employees check the dashboard daily to view their own and rivals’ latest standings. 8
Why do you think competition is helping College Hunks Hauling Junk exceed
its revenue goals? If you were to build a team competition dashboard for your
school or your work, what types of metrics would you track? What types of moti-
vators would you use to ensure your team is always in the green? What types
of external information would you want tracked in your dashboard? Could an
unethical person use the information from your dashboard to hurt your team or
your organization? What can you do to mitigate these risks?
Digital
Dashboard for
Tracking Junk
APPLY YOUR KNOWLEDGE
FIGURE 2.14
Information Levels Throughout
an Organization
STRATEGIC
MANAGERIAL
OPERATIONAL
Fine
Coarse
G
ra
nu
la
ri
ty
OLTP
OLAP
Pr
oc
es
si
ng
Transactional
Analytical
Pr
oc
es
se
s
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59Business Driven MIS Module 1
FIGURE 2.15
Interaction Between
a TPS and EIS
Transaction Processing
Systems
Executive
Reports
EIS
Order
Entry Order Processing
System
Inventory Data
Inventory Tracking
System
Shipping Data
Distribution System
Sales
Data
Manufacturing
Data
Transportation
Data
Industry
Outlook
Market
Outlook
Executive Information
Systems
Industry
Information
Stock Market
Information
External Sources of
Information
A DSS differs from an EIS in that an EIS requires data from external sources to sup-
port unstructured decisions (see Figure 2.15 ). This is not to say that DSSs never use
data from external sources, but typically DSS semistructured decisions rely on internal
data only.
Visualization produces graphical displays of patterns and complex relationships in
large amounts of data. Executive information systems use visualization to deliver spe-
cific key information to top managers at a glance, with little or no interaction with the
system. A common tool that supports visualization is a digital dashboard , which tracks
KPIs and CSFs by compiling information from multiple sources and tailoring it to meet
user needs. Following is a list of potential features included in a dashboard designed for
a manufacturing team:
■ A hot list of key performance indicators, refreshed every 15 minutes.
■ A running line graph of planned versus actual production for the past 24 hours.
■ A table showing actual versus forecasted product prices and inventories.
■ A list of outstanding alerts and their resolution status.
■ A graph of stock market prices.
Digital dashboards, whether basic or comprehensive, deliver results quickly. As they
become easier to use, more employees can perform their own analyses without inun-
dating MIS staff with questions and requests for reports. Digital dashboards enable
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employees to move beyond reporting to using information to directly increase business
performance. With them, employees can react to information as soon as it becomes
available and make decisions, solve problems, and change strategies daily instead of
monthly. Digital dashboards offer the following capabilities:
Consolidation Consolidation is the aggregation of data from simple roll-ups to
complex groupings of interrelated information. For example, data for different sales rep-
resentatives can then be rolled up to an office level, then a state level, then a regional
sales level.
Drill-Down Drill-down enables users to view details, and details of details, of infor-
mation. This is the reverse of consolidation; a user can view regional sales data and then
drill down all the way to each sales representative’s data at each office. Drill-down capa-
bility lets managers view monthly, weekly, daily, or even hourly information.
Slice-and-Dice Slice-and-dice is the ability to look at information from different
perspectives. One slice of information could display all product sales during a given pro-
motion. Another slice could display a single product’s sales for all promotions. Slicing
and dicing is often performed along a time axis to analyze trends and find time-based
patterns in the information.
One thing to remember when making decisions is the old saying, “Garbage in, gar-
bage out.” If the transactional data used in the support system are wrong, then the man-
agerial analysis will be wrong and the DSS will simply assist in making a wrong decision
faster. Managers should also ask, “What is the DSS not telling me before I make my final
decision?”
THE FUTURE: ARTIFICIAL INTELLIGENCE
Executive information systems are starting to take advantage of artificial intelligence to
facilitate unstructured strategic decision making. Artificial intelligence (AI) simulates
human thinking and behavior, such as the ability to reason and learn. Its ultimate goal is
to build a system that can mimic human intelligence.
Intelligent systems are various commercial applications of artificial intelligence.
They include sensors, software, and devices that emulate and enhance human capabili-
ties, learn or understand from experience, make sense of ambiguous or contradictory
information, and even use reasoning to solve problems and make decisions effectively.
Intelligent systems perform such tasks as boosting productivity in factories by monitor-
ing equipment and signaling when preventive maintenance is required. They are begin-
ning to show up everywhere:
■ At Manchester Airport in England, the Hefner AI Robot Cleaner alerts passen-
gers to security and nonsmoking rules while it scrubs up to 65,600 square feet of
floor per day. Laser scanners and ultrasonic detectors keep it from colliding with
passengers.
■ Shell Oil’s SmartPump keeps drivers in their cars on cold, wet winter days. It can ser-
vice any automobile built after 1987 that has been fitted with a special gas cap and a
windshield-mounted transponder that tells the robot where to insert the pump.
■ Matsushita’s courier robot navigates hospital hallways, delivering patient files, X-ray
films, and medical supplies.
■ The FireFighter AI Robot can extinguish flames at chemical plants and nuclear reac-
tors with water, foam, powder, or inert gas. The robot puts distance between human
operators and the fire. 9
AI systems increase the speed and consistency of decision making, solve problems
with incomplete information, and resolve complicated issues that cannot be solved
by conventional computing. There are many categories of AI systems; five of the most
familiar are (1) expert systems, (2) neural networks, (3) genetic algorithms, (4) intelligent
agents, and (5) virtual reality (see Figure 2.16 ).
LO 2.4: Describe artificial
intelligence, and identify its
five main types.
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Expert Systems
Expert systems are computerized advisory programs that imitate the reasoning pro-
cesses of experts in solving difficult problems. Typically, they include a knowledge base
containing various accumulated experience and a set of rules for applying the knowledge
base to each particular situation. Expert systems are the most common form of AI in the
business arena because they fill the gap when human experts are difficult to find or retain
or are too expensive. The best-known systems play chess and assist in medical diagnosis.
Neural Networks
A neural network , also called an artificial neural network, is a category of AI that
attempts to emulate the way the human brain works. Neural networks analyze large
quantities of information to establish patterns and characteristics in situations where
the logic or rules are unknown. Neural networks’ many features include:
■ Learning and adjusting to new circumstances on their own.
■ Lending themselves to massive parallel processing.
■ Functioning without complete or well-structured information.
■ Coping with huge volumes of information with many dependent variables.
■ Analyzing nonlinear relationships in information (they have been called fancy
regression analysis systems).
The finance industry is a veteran in the use of neural network technology and has been
relying on various forms for over two decades. It uses neural networks to review loan
applications and create patterns or profiles of applications that fall into two categories—
approved or denied. Here are some examples of neural networks in finance:
■ Citibank uses neural networks to find opportunities in financial markets. By carefully
examining historical stock market data with neural network software, Citibank finan-
cial managers learn of interesting coincidences or small anomalies (called market
inefficiencies). For example, it could be that whenever IBM stock goes up, so does
Unisys stock, or that a U.S. Treasury note is selling for 1 cent less in Japan than in the
United States. These snippets of information can make a big difference to Citibank’s
bottom line in a very competitive financial market.
■ Visa, MasterCard, and many other credit card companies use a neural network
to spot peculiarities in individual accounts and follow up by checking for fraud.
MasterCard estimates neural networks save it $50 million annually.
FIGURE 2.16
Examples of Artificial
Intelligence
Artificial Intelligence
Expert Systems
Example:
Playing chess.
Neural Networks
Example: Credit
card companies
checking for
fraud.
Genetic Algorithms
Example:
Investment
companies in
trading decisions.
Intelligent Agents
Example:
Environmental
scanning and
competitive
intelligence.
Virtual Reality
Example:
Working virtually
around the globe.
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■ Insurance companies along with state compensation funds and other carriers use
neural network software to identify fraud. The system searches for patterns in billing
charges, laboratory tests, and frequency of office visits. A claim for which the diag-
nosis was a sprained ankle but treatment included an electrocardiogram would be
flagged for the account manager. 10
Fuzzy logic is a mathematical method of handling imprecise or subjective informa-
tion. The basic approach is to assign values between 0 and 1 to vague or ambiguous
information. Zero represents information not included, while 1 represents inclusion or
membership. For example, fuzzy logic is used in washing machines that determine by
themselves how much water to use or how long to wash (they continue washing until the
water is clean). In accounting and finance, fuzzy logic allows people to analyze informa-
tion with subjective financial values (intangibles such as goodwill) that are very impor-
tant considerations in economic analysis. Fuzzy logic and neural networks are often
combined to express complicated and subjective concepts in a form that makes it pos-
sible to simplify the problem and apply rules that are executed with a level of certainty.
Genetic Algorithms
A genetic algorithm is an artificial intelligence system that mimics the evolutionary,
survival-of-the-fittest process to generate increasingly better solutions to a problem. A
genetic algorithm is essentially an optimizing system: It finds the combination of inputs
that gives the best outputs. Mutation is the process within a genetic algorithm of ran-
domly trying combinations and evaluating the success (or failure) of the outcome.
Genetic algorithms are best suited to decision-making environments in which thou-
sands, or perhaps millions, of solutions are possible. Genetic algorithms can find and
evaluate solutions with many more possibilities, faster and more thoroughly than a
human. Organizations face decision-making environments for all types of problems that
require optimization techniques, such as the following:
■ Business executives use genetic algorithms to help them decide which combina-
tion of projects a firm should invest in, taking complicated tax considerations into
account.
■ Investment companies use genetic algorithms to help in trading decisions.
■ Telecommunication companies use genetic algorithms to determine the optimal
configuration of fiber-optic cable in a network that may include as many as 100,000
connection points. The genetic algorithm evaluates millions of cable configurations
and selects the one that uses the least amount of cable.
Intelligent Agents
An intelligent agent is a special-purpose knowledge-based information system that
accomplishes specific tasks on behalf of its users. Intelligent agents usually have a graph-
ical representation, such as “Sherlock Holmes” for an information search agent.
One of the simplest examples of an intelligent agent is a shopping bot. A shopping
bot is software that will search several retailer websites and provide a comparison of
each retailer’s offerings including price and availability. Increasingly, intelligent agents
handle the majority of a company’s Internet buying and selling and complete such pro-
cesses as finding products, bargaining over prices, and executing transactions. Intelli-
gent agents also have the capability to handle all supply chain buying and selling.
Another application for intelligent agents is in environmental scanning and com-
petitive intelligence. For instance, an intelligent agent can learn the types of competitor
information users want to track, continuously scan the web for it, and alert users when a
significant event occurs.
Multiagent Systems and Agent-Based Modeling What do cargo transport
systems, book distribution centers, the video game market, and a flu epidemic have in
common with an ant colony? They are all complex adaptive systems. By observing parts
of Earth’s ecosystem, like ant colonies, artificial intelligence scientists can use hardware
and software models that incorporate insect characteristics and behavior to (1) learn
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how people-based systems behave, (2) predict how they will behave under a given set
of circumstances, and (3) improve human systems to make them more efficient and
effective. This process of learning from ecosystems and adapting their characteristics to
human and organizational situations is called biomimicry.
In the past few years, AI research has made much progress in modeling complex orga-
nizations as a whole with the help of multiagent systems. In a multiagent system, groups
of intelligent agents have the ability to work independently and to interact with each
other. Agent-based modeling is a way of simulating human organizations using multiple
intelligent agents, each of which follows a set of simple rules and can adapt to changing
conditions.
Agent-based modeling systems are being used to model stock market fluctuations,
predict the escape routes people seek in a burning building, estimate the effects of inter-
est rates on consumers with different types of debt, and anticipate how changes in con-
ditions will affect the supply chain, to name just a few.
Virtual Reality
Virtual reality is a computer-simulated environment that can be a simulation of the
real world or an imaginary world. Virtual reality is a fast-growing area of artificial intelli-
gence that had its origins in efforts to build more natural, realistic, multisensory human-
computer interfaces. Virtual reality enables telepresence where users can be anywhere
in the world and use virtual reality systems to work alone or together at a remote site.
Typically, this involves using a virtual reality system to enhance the sight and touch of a
human who is remotely manipulating equipment to accomplish a task. Examples range
from virtual surgery, where surgeon and patient may be on opposite sides of the globe,
to the remote use of equipment in hazardous environments such as chemical plants and
nuclear reactors. Augmented reality is the viewing of the physical world with computer-
generated layers of information added to it.
Virtual Workforce At Microsoft’s headquarters in Redmond, Washington, traffic
congestion occurs daily for the 35,000 commuters. To alleviate the congestion Microsoft
is offering its employees the ability to work virtually from home. Over 42 percent of IBM’s
BUSINESS DRIVEN INNOVATION
Humans are not permitted inside Staples’ Denver distribution center. Who is
filling all the orders, you ask? Robots! This 100,000-square-foot space belongs
to 150 orange robots that resemble overstuffed ottomans and race around with
uncanny accuracy. They’re making Staples employees more than twice as pro-
ductive. The robots, or bots, are built by Kiva Systems, a company with a single
critical success factor: Replace the labyrinth of conveyor belts and humans
that most distributors rely on to pack items in the online mail-order business.
Companies using Kiva bots include Walgreens, Zappos, The Gap, and Amazon.
Robots have captured people’s attention for years. From the quirky droids
in Star Wars to the powerful fighting machines in Transformers, they seem
to fascinate everyone. Assume your professor has asked you to participate in
The Robot Challenge, and you must design a robot that will enhance business
operations. It must contain a digital dashboard and provide decision support
capabilities for its owners. Be sure to describe your robot, its functions, how
the digital dashboard works and supports users, and why customers would
purchase your robot. Feel free to include a picture or diagram of how your
robot works. 11
Building Robots
APPLY YOUR KNOWLEDGE
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64 Chapter 2 Decisions and Processes: Value Driven Business
330,000 employees work virtually, saving over $100 million per year in real estate-related
expenses. Working virtually offers several advantages such as fewer cars on the road,
increases in worker productive, and decreased real estate expenses. Drawbacks include
the fear among workers that they will jeopardize their careers by working from home,
and some workers need a busy environment to stay productive. Virtual workers also tend
to feel alone, secluded, and deprived of vital training and mentoring.
section 2.2 Business Processes
L E A R N I N G O U T C O M E S
2.5 Explain the value of business processes for a company, and differentiate between customer-facing
and business-facing processes.
2.6 Demonstrate the value of business process modeling, and compare As-Is and To-Be models.
2.7 Differentiate among automation, streamlining, and reengineering.
2.8 Describe business process management and its value to an organization.
EVALUATING BUSINESS PROCESSES
Most companies pride themselves on providing breakthrough products and services for
customers. But if customers do not receive what they want quickly, accurately, and has-
sle-free, even fantastic offerings will not prevent a company from annoying customers
and ultimately eroding its own financial performance. To avoid this pitfall and protect its
competitive advantage, a company must continually evaluate all the business processes
in its value chain. Recall from Chapter 1 that a business process is a standardized set of
activities that accomplish a specific task, such as processing a customer’s order. Business
processes transform a set of inputs into a set of outputs—goods or services—for another
person or process by using people and tools. Understanding business processes helps a
manager envision how the entire company operates.
Improving the efficiency and effectiveness of its business processes will improve the
firm’s value chain. The goal of this section is to expand on Porter’s value chain analysis
by detailing the powerful value-adding relationships between business strategies and
core business processes. Figure 2.17 illustrates several common business processes.
The processes outlined in Figure 2.17 reflect functional thinking. Some processes,
such as a programming process, may be contained wholly within a single department.
However, most, such as ordering a product, are cross-functional or cross-departmental
processes and span the entire organization. The process of “order to delivery” focuses
on the entire customer order process across functional departments (see Figure 2.18 ).
Another example is “product realization,” which includes not only the way a product is
developed, but also the way it is marketed and serviced. Some other cross-functional
business processes are taking a product from concept to market, acquiring custom-
ers, loan processing, providing post-sales service, claim processing, and reservation
handling.
Customer-facing processes , also called front-office processes, result in a product or
service received by an organization’s external customer. They include fulfilling orders,
communicating with customers, and sending out bills and marketing information.
Business-facing processes , also called back-office processes, are invisible to the external
customer but essential to the effective management of the business; they include goal
setting, day-to-day planning, giving performance feedback and rewards, and allocating
resources. Figure 2.19 displays the different categories of customer-facing and business-
facing processes along with an example of each. 12
A company’s strategic vision should provide guidance on which business processes
are core, that is, which are directly linked to the firm’s critical success factors. Mapping
these core business processes to the value chain reveals where the processes touch the
customers and affect their perceptions of value. This type of map conceptualizes the
LO 2.5: Explain the value of business
processes for a company, and differ-
entiate between customer-facing
and business-facing processes.
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65Business Driven MIS Module 1
FIGURE 2.18
Five Steps in the Order-to-
Delivery Business Process
Marketing Sales OperationsManagement
Accounting and
Finance
Customer
Service
• Create campaign
• Check inventory
Step One • Place order
• Notify production
• Check credit
Step Two
• Manufacture goods
Step Three • Deliver goods
• Bill customer
Step Four
• Support sale
Step Five
FIGURE 2.17
Sample Business Processes
Human Resources
• Hiring employees
• Enrolling employees in health care
• Tracking vacation and sick time
Operations Management
• Ordering inventory
• Creating production schedules
• Manufacturing goods
Marketing and Sales
• Promoting of discounts
• Communicating marketing campaigns
• Attracting customers
• Processing sales
Accounting and Finance
• Creating financial statements
• Paying of Accounts Payable
• Collecting of Accounts Receivable
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66 Chapter 2 Decisions and Processes: Value Driven Business
business as a value delivery system, allowing managers to ensure all core business pro-
cesses are operating as efficiently and effectively as possible.
A business process patent is a patent that protects a specific set of procedures for
conducting a particular business activity. A firm can create a value chain map of the
entire industry to extend critical success factors and business process views beyond its
boundaries. Core processes are business processes, such as manufacturing goods, sell-
ing products, and providing service, that make up the primary activities in a value chain.
Evaluating core processes allowed National Semiconductor to identify the core business
processes required to move assembly plants to Southeast Asia. The map identified logis-
tics and distribution as critical to the success of the move. Thus, to ensure reliable deliv-
ery of its products, National Semiconductor contracted with Federal Express, combining
its outstanding manufacturing process and Federal Express’s exceptional distribution
processes. The move allowed National Semiconductor to save money by closing nine
warehouses while maintaining excellence in logistics and distribution. As this example
demonstrates, changing business processes can generate significant competitive advan-
tages across the value chain. 13
MODELS: MEASURING PERFORMANCE
Business process modeling , or mapping , is the activity of creating a detailed flowchart
or process map of a work process that shows its inputs, tasks, and activities in a struc-
tured sequence. A business process model is a graphic description of a process, show-
ing the sequence of process tasks, which is developed for a specific purpose and from a
selected viewpoint. A set of one or more process models details the many functions of a
system or subject area with graphics and text, and its purpose is to:
■ Expose process detail gradually and in a controlled manner.
■ Encourage conciseness and accuracy in describing the process model.
■ Focus attention on the process model interfaces.
■ Provide a powerful process analysis and consistent design vocabulary. ( Figures 2.20
through Figure 2.23 provide examples of business process modeling.) 14
Business process modeling usually begins with a functional process representation of
what the process problem is, or an As-Is process model. As-Is process models represent
the current state of the operation that has been mapped, without any specific improve-
ments or changes to existing processes. The next step is to build a To-Be process model
that displays how the process problem will be solved or implemented. To-Be process
models show the results of applying change improvement opportunities to the cur-
rent (As-Is) process model. This approach ensures that the process is fully and clearly
understood before the details of a process solution are decided upon. The To-Be process
model shows how the what is to be realized. Figure 2.24 displays the As-Is and To-Be
process models for ordering a hamburger.
LO 2.6: Demonstrate the value of
business process modeling, and
compare As-Is and To-Be models.
FIGURE 2.19
Customer-Facing, Industry-
Specific, and Business-Facing
Processes
Order processing
Customer service
Sales process
Customer billing
Order shipping
Customer-Facing
Processes
Banking—Loan processing
Insurance—Claims processing
Government—Grant allocation
Hotel—Reservation handling
Airline—Baggage handling
Industry-Specific Customer
Facing Processes
Strategic planning
Tactical planning
Budget forecasting
Training
Purchasing raw materials
Business-Facing
Processes
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67Business Driven MIS Module 1
FIGURE 2.20
Online Sales Process Model
Customer
Website Credit Card
Transaction
Customer Information
in Database
WarehouseQuality AssuranceShipping
Customer Service Quality Assurance
FIGURE 2.21
Online Banking Process Model
Automatic
Deposit
Withdraw from Account
Electronic Payment
Paper Check
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68 Chapter 2 Decisions and Processes: Value Driven Business
FIGURE 2.22
Order Fulfillment Process Model
CustomerCall Center
Online Order
Inventory Check
Item in
stock
Item Packed
Customer Notified
of Back Order
Process Payment
Item Shipped
Yes
No
As-Is and To-Be process models are both integral in business process reengineering
projects, since these diagrams are very powerful in visualizing the activities, processes,
and data flow of an organization. Figure 2.25 illustrates an As-Is process model of the
order to delivery process using swim lanes to represent the relevant departments. The
swim lane layout arranges the steps of a business process into a set of rows depicting
the various elements.
You need to be careful not to become inundated in excessive detail when creating an
As-Is process model. The primary goal is to simplify, eliminate, and improve the To-Be
processes. Process improvement efforts focus on defining the most efficient and effec-
tive process identifying all of the illogical, missing, or irrelevant processes.
Investigating business processes can help an organization find bottlenecks, remove
redundant tasks, and recognize smooth-running processes. For example, a florist might
have a key success factor of reducing delivery time. A florist that has an inefficient order-
ing process or a difficult distribution process will be unable to achieve this goal. Tak-
ing down inaccurate orders, incorrect addresses, or shipping delays can cause errors in
the delivery process. Improving order entry, production, or scheduling processes can
improve the delivery process.
Business processes should drive MIS choices and should be based on business strat-
egies and goals (see Figure 2.26 ). Only after determining the most efficient and effec-
tive business process should an organization choose the MIS that supports that business
process. Of course, this does not always happen, and managers may find themselves in
the difficult position of changing a business process because the system cannot sup-
port the ideal solution (see Figure 2.26 ). Managers who make MIS choices and only then
determine how their business processes should perform typically fail.
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69Business Driven MIS Module 1
FIGURE 2.23
Purchasing an Item on eBay
and Selling an Item on eBay
Process Model Decides to Purchase Item
Reviews Auction Listing
Places Bid
Wins Bid
Receives Invoice
Pays Invoice
Receives Item
Rates Seller
Ends Sale
Decides to Sell Item
Lists Item on eBay
Sets Initial Price
Sets Auction Length
Invoices Winning Bid
Receives Payment
Ships Item
Rates Buyer
Ends Sale
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70 Chapter 2 Decisions and Processes: Value Driven Business
FIGURE 2.24
As-Is and To-Be Process
Model for Ordering
a Hamburger
Order
Combo
Meal
Customer
Approaches
Cashier
Customer
Pays
Cashier
To-Be Burger Order ProcessAs-Is Burger Order Process
Order
FriesWant Fries?
Customer
Pays
Cashier
Order
Drink
No
Yes
Yes
No
Order
Burger
Customer
Approaches
Cashier
Want Drink?
FIGURE 2.25
As-Is Process Model for Order
Fulfillment
As-Is Order Fulfillment Process
Cu
st
om
er
Order
Submitted
Order
Generated
Order
Received
Credit
Checked
Credit
OK?
Credit
OK?
Invoice
Prepared
Credit
Issues
Assessed
Order
Canceled
Credit
Approved
Order
Entered
Inventory
Available?
Inventory
Ordered
Order
Shipped
Order
Picked and
Packaged
Process
Payment
Shipped
Order?
Invoice
SentBi
lli
ng
In
ve
nt
or
y
Sh
ip
pi
ng
Sa
le
s
Yes
Yes
No
No
Yes
No
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71Business Driven MIS Module 1
FIGURE 2.26
For Best Results, Business
Processes Should Drive MIS
Choices
SUPPORT: ENHANCING BUSINESS PROCESSES WITH MIS
Workflow includes the tasks, activities, and responsibilities required to execute each
step in a business process. Understanding workflow, customers’ expectations, and the
competitive environment provides managers with the necessary ingredients to design
and evaluate alternative business processes in order to maintain competitive advantages
when internal or external circumstances change.
Alternative business process should be effective (they deliver the intended results) and
efficient (they consume the least amount of resources for the intended value). They should
also be adaptable or flexible and support change as customers, market forces, and tech-
nology shift. Figure 2.27 shows the three primary types of business process change avail-
able to firms and the business areas in which they are most often effective. How does a
company know whether it needs to undertake the giant step of changing core business
processes? Three conditions indicate the time is right to initiate a business process change:
1. There has been a pronounced shift in the market the process was designed to serve.
2. The company is markedly below industry benchmarks on its core processes.
3. To regain competitive advantage, the company must leapfrog competition on key
dimensions. 15
LO 2.7: Differentiate among
automation, streamlining,
and reengineering.
Order to Delivery
Product Realization
Customer
Acquisition
Order to Delivery
Product Realization
Customer
Acquisition
A)
B)
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72 Chapter 2 Decisions and Processes: Value Driven Business
Improving Operational Business Processes—Automation
Improving business processes is critical to staying competitive in today’s electronic
marketplace. Organizations must improve their business processes because custom-
ers are demanding better products and services; if customers do not receive what they
want from one supplier, often they can simply click a mouse to find many other choices.
Business process improvement attempts to understand and measure the current pro-
cess and make performance improvements accordingly. Figure 2.28 displays a typical
business process improvement model. 16
Early adopters of MIS recognized that they could enhance their value chain through
automation, which reduces costs and increases the speed of performing activities. Auto-
mation is the process of computerizing manual tasks, making them more efficient and
effective and dramatically lowering operational costs. Payroll offers an excellent example.
Calculating and tracking payroll for 5,000 employees is a highly labor-intensive process
requiring 30 full-time employees. Every two weeks accounting employees must gather
everyone’s hours worked, cross-check with wage rates, and then calculate the amount
due, minus taxes and other withholding such as pension contributions and insurance
premiums, to create the paychecks. They also track benefits, sick time, and vacation
time. If the payroll process is automated, however, one employee can easily calculate
payroll, track withholding and deductions, and create paychecks for 5,000 people in a
few hours, since everything is performed by the system. Automation improves efficiency
and effectiveness and reduces head count, lowering overall operational costs. Transac-
tion processing systems (TPS) are primarily used to automate business processes.
Figure 2.29 illustrates the basic steps for business process improvement. Organiza-
tions begin by documenting what they currently do, then they establish a way to measure
the process, follow the process, measure the performance, and finally identify improve-
ment opportunities based on the collected information. The next step is to implement
process improvements and measure the performance of the new improved process. The
loop repeats over and over again as it is continuously improved. 17
This method of improving business processes is effective for obtaining gradual, incre-
mental improvement. However, several factors have accelerated the need to radically
improve business processes. The most obvious is technology. New technologies (such as
wireless Internet access) rapidly bring new capabilities to businesses, thereby raising the
FIGURE 2.27
Primary Types of Business
Process Change
Operational Managerial Strategic
Streamlining
Reengineering
Automation
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73Business Driven MIS Module 1
FIGURE 2.29
Steps in Business
Process Improvement
Document As-Is
Process
Establish
Measures Follow Process
Measure
Performance
Identify and
Implement
Improvements
FIGURE 2.28
Business Process
Improvement Model
Identify one
of the steps
in the process
Is the step
necessary?
Can the step be
improved?
Are resources
available to
implement the
change?
Identify
a Process
Remove the
step
Is there an
additional
step?
Keep the
step
Document
improved
step
Model
improved
process
Yes
No
Yes
No
Implement New
Process
Process Improvement Model
No
No
Yes
Yes
competitive bar and the need to improve business processes dramatically. For example,
Amazon.com reinvented the supply chain for selling books online. After gaining from
automation, companies began to look for new ways to use MIS to improve operations,
and managers recognized the benefits of pairing MIS with business processes by stream-
lining. We look at this improvement method next.
Improving Managerial Business Processes—Streamlining
Streamlining improves business process efficiencies by simplifying or eliminating
unnecessary steps. Bottlenecks occur when resources reach full capacity and cannot
handle any additional demands; they limit throughput and impede operations. A com-
puter working at its maximum capacity will be unable to handle increased demand and
will become a bottleneck in the process. Streamlining removes bottlenecks, an important
step if the efficiency and capacity of a business process are being increased. It also elimi-
nates redundancy. Redundancy occurs when a task or activity is unnecessarily repeated,
for example, if both the sales department and the accounting department check cus-
tomer credit.
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74 Chapter 2 Decisions and Processes: Value Driven Business
BUSINESS DRIVEN MIS
The biggest problem with email is that it interferes with workflow. Many
employees stop what they are working on and begin checking new email as
soon as it arrives. If they do not have the time or capacity to answer it imme-
diately, however, they leave it in the in-box, creating a bottleneck. This process
continues all day, and eventually the in-box is overflowing with hundreds of
emails, most of which require a response or action. Employees begin dreading
email and feel stressed because their workflow process is off track, and they do
not know which tasks need to be completed and when.
To streamline workflow, you can designate certain times for email process-
ing (at the top of the hour, or for 30 minutes at three set times a day, for exam-
ple). Turning off email notification also ensures you are not interrupted during
your workflow. When you do begin to check your emails, review them one at a
time from top to bottom, and deal with each one immediately. Either reply, put
a note on your to-do list, forward the email, or delete it. Now you are working far
more efficiently and effectively, and you are less stressed because your in-box
is empty. 18
Choose a process in your life that is inefficient or ineffective and causing you
stress. Using the principles of streamlining, remove the bottlenecks and reduce
redundancies. Be sure to diagram the As-Is process and your newly created
To-Be process.
Streamlining
Your Email
APPLY YOUR KNOWLEDGE
Automating a business process that contains bottlenecks or redundancies will mag-
nify or amplify these problems if they are not corrected first. Here’s an example based on
a common source of tension in an organization. Increasing orders is a standard KPI for
most marketing/sales departments. To meet this KPI, the sales department tends to say
yes to any customer request, such as for rush or custom orders. Reducing cycle time , the
time required to process an order, is a common KPI for operations management. Rush
and custom orders tend to create bottlenecks, causing operations to fall below its bench-
marked cycle time. Removing these bottlenecks, however, can create master streamlined
business processes that deliver both standard and custom orders reliably and profitably.
The goal of streamlining is not only to automate but also to improve by monitoring, con-
trolling, and changing the business process.
FedEx streamlined every business process to provide a CSF of speedy and reliable
delivery of packages. It created one central hub in Memphis, Tennessee, that processed
all its orders. It purchased its own planes to be sure it could achieve the desired level
of service. FedEx combined MIS and traditional distribution and logistics processes to
create a competitive advantage. FedEx soon identified another market segment of cus-
tomers who cared a little less about speed and were willing to trade off early-morning
delivery for delivery any time within the next day at a significantly lower price. The firm
had to reevaluate its strategy and realign its business processes to capture this market
segment. Had Federal Express focused only on improving its traditional delivery process
to handle increased volume faster and more reliably, it could have missed an entire cus-
tomer segment. 19
Improving Strategic Business Processes—Reengineering
The flat world (see Chapter 1) is bringing more companies and more customers into
the marketplace, greatly increasing competition. Wine wholesalers in the United States
must now compete globally, for instance, because customers can just as easily order a
bottle of wine from a winery in France as from them. Companies need breakthrough
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performance and business process changes just to stay in the game. As the rate of
change increases, companies looking for rapid change and dramatic improvement are
turning to business process reengineering (BPR) , the analysis and redesign of workflow
within and between enterprises. Figure 2.30 highlights an analogy to process improve-
ment by explaining the different means of traveling along the same route. A company
could improve the way it travels by changing from foot to horse and then from horse to
car. With a BPR mind-set, however, it would look beyond automating and streamlining
to find a completely different approach. It would ignore the road and travel by air to get
from point A to point B. Companies often follow the same indirect path for doing busi-
ness, not realizing there might be a different, faster, and more direct way.
An organization can reengineer its cross-departmental business processes or an indi-
vidual department’s business processes to help meet its CSFs and KPIs. When selecting
a business process to reengineer, wise managers focus on those core processes that are
critical to performance, rather than marginal processes that have little impact. The effort
to reengineer a business process as a strategic activity requires a different mind-set than
that required in continuous business process improvement programs. Because compa-
nies have tended to overlook the powerful contribution that processes can make to strat-
egy, they often undertake process improvement efforts using their current processes as
the starting point. Managers focusing on reengineering can instead use several criteria
to identify opportunities:
■ Is the process broken?
■ Is it feasible that reengineering of this process will succeed?
■ Does it have a high impact on the agency’s strategic direction?
■ Does it significantly impact customer satisfaction?
■ Is it antiquated?
■ Does it fall far below best-in-class?
■ Is it crucial for productivity improvement?
■ Will savings from automation be clearly visible?
■ Is the return on investment from implementation high and preferably immediate?
BPR relies on a different school of thought than business process improvement. In
the extreme, BPR assumes the current process is irrelevant, does not work, or is broken
and must be overhauled from scratch. Starting from such a clean slate enables business
process designers to disassociate themselves from today’s process and focus on a new
process. It is as if they are projecting themselves into the future and asking: What should
the process look like? What do customers want it to look like? What do other employees
want it to look like? How do best-in-class companies do it? How can new technology
facilitate the process?
Figure 2.31 displays the basic steps in a business process reengineering effort. It
begins with defining the scope and objectives of the reengineering project and then
takes the process designers through a learning process with customers, employees, com-
petitors, and new technology. Given this knowledge base, the designers can create a plan
of action based on the gap between current processes, technologies, and structures and
FIGURE 2.30
Different Ways to Travel the
Same Route
Better, Faster, Cheaper
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their vision of the processes of the future. It is then top management’s job to implement
the chosen solution. 20
System thinking plays a big role in BPR. Automation and streamlining operate depart-
mentally, whereas BPR occurs at the systems level or companywide level and the end-to-
end view of a process.
Creating value for the customer is the leading reason for instituting BPR, and MIS
often plays an important enabling role. Fundamentally new business processes enabled
Progressive Insurance to slash its claims settlement time from 31 days to four hours, for
instance. Typically, car insurance companies follow this standard claims resolution pro-
cess: The customer gets into an accident, has the car towed, and finds a ride home. The
customer then calls the insurance company to begin the claims process, which includes
an evaluation of the damage, assignment of fault, and an estimate of the cost of repairs,
and which usually takes about a month (see Figure 2.32 ). Progressive Insurance’s inno-
vation was to offer a mobile claims process. When a customer has a car accident, he or
she calls in the claim on the spot. The Progressive claims adjuster comes to the accident
site, surveying the scene and taking digital photographs. The adjuster then offers the cus-
tomer on-site payment, towing services, and a ride home. A true BPR effort does more
for a company than simply improve a process by performing it better, faster, and cheaper.
Progressive Insurance’s BPR effort redefined best practices for an entire industry. 21
The Business Process Systems View Leveraging business processes has enor-
mous implications for the business system as a whole. It requires recognition that any
meaningful change within the organization affects the entire organization. Without a
systems view, the identification of business process flaws and implementation of pro-
posed solutions will often fix only symptoms. Many times what can make one process
effective is what makes another process ineffective. Therefore, the redesign of any pro-
cess within an integrated system requires appreciating the impact of the redesign on
other processes. For example, operations management often wants to wait until a truck
is full before sending it out for deliveries because the department’s KPI measures cost-
per-mile-transported. Conversely, the customer satisfaction KPIs measure the ability to
make the order-to-delivery cycle time as short as possible, requiring the truck to leave as
soon as the product is available, whether it is full or not. Changing business processes to
FIGURE 2.31
Business Process
Reengineering Model
Set Project
Scope
Study
Competition
Create New
Processes
Implement
Solution
FIGURE 2.32
Auto Insurance Claims
Processes
Progressive Insurance: Claims Resolution Process
Resolution Cycle Time: 30 minutes–3 hours
Company A: Claims Resolution Process
Resolution Cycle Time: 3–8 weeks
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meet operations management KPIs will thus reduce customer satisfaction KPIs. Chang-
ing business processes to meet customer satisfaction KPIs will lower operations man-
agement KPIs. A systems view, on the other hand, will allow managers to understand the
impact business processes have across the entire organization, so both can be improved.
THE FUTURE: BUSINESS PROCESS MANAGEMENT
Creating a company that can quickly adapt to market, industry, and economic changes to
create a competitive advantage requires a new set of operating rules based on achieving
speed, performance, and improved delivery. Until recently, business process improve-
ment initiatives focused on improving workflow or document-based processes that were
completed by hand. Now, however, business process management (BPM) systems
focus on evaluating and improving processes that include both person-to-person work-
flow and system-to-system communications. BPM systems include advanced features
such as enhanced process modeling, simulation, execution, and monitoring, providing a
high level of flexibility while reducing costs. Think of BPM as a way to build, implement,
and monitor automated processes that span organizational boundaries—a kind of next-
generation workflow. BPM not only allows a business process to be executed more effi-
ciently, but it also provides the tools to measure performance and identify opportunities
for improvement, as well as to easily capture opportunities such as:
■ Bringing processes, people, and information together.
■ Breaking down the barriers between business areas and finding “owners” for the
processes.
■ Managing front-office and back-office business processes.
BPM uniquely offers two types of systems: (1) Customer-facing or front-office BPM
focuses on person-to-person workflow and (2) business-facing or back-office BPM
focuses on system-to-system workflow. With BPM the two systems function as one,
allowing continual improvements to many business processes simultaneously and in
real time. BPM’s unified environment encourages people to observe, think, and provide
feedback, harnessing the power of ideas and insight and promoting systems thinking
throughout the organization. Providing the flexibility for quick BPM change drives effi-
ciency and effectiveness, creating optimal business processes. This ability is the founda-
tion for creating an operation that gives a company competitive advantage.
LO 2.8: Describe business process
management and its value to an
organization.
BUSINESS DRIVEN DEBATE
Trina Thompson, a New York City resident, is filing a lawsuit against Monroe
College stating that she is unable to find employment after graduating with
her bachelor’s degree. Thompson is seeking tuition reimbursement of $70,000
and states that she has been unable to find gainful employment since gradu-
ating because the school’s Office of Career Advancement failed to provide her
with the leads and career advice it promised. Monroe College spokesman Gary
Axelbank says Thompson’s lawsuit is completely without merit and insists it
helps its graduates find jobs. 22
Do you agree that students should be allowed to hold their academic institu-
tions liable for their inability to find a job after graduation? Design the current
(As-Is) business process at your school from the time a student begins his or
her program until graduation. How could your school reengineer the process to
ensure it does not end up in litigation over an individual’s expectation of auto-
matically receiving a job after graduation?
Education
Processes
APPLY YOUR KNOWLEDGE
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78 Chapter 2 Decisions and Processes: Value Driven Business
Learning Outcome 2.1: Explain the importance of decision making for managers at
each of the three primary organization levels along with the associated decision
characteristics.
Decision-making skills are essential for all business professionals, at every company level, who make
decisions that run the business. At the operational level, employees develop, control, and maintain
core business activities required to run the day-to-day operations. Operational decisions are con-
sidered structured decisions, which arise in situations where established processes offer potential
solutions. Structured decisions are made frequently and are almost repetitive in nature; they affect
short-term business strategies.
At the managerial level, employees are continuously evaluating company operations to hone
the firm’s abilities to identify, adapt to, and leverage change. Managerial decisions cover short- and
medium-range plans, schedules, and budgets along with policies, procedures, and business objec-
tives for the firm. These types of decisions are considered semistructured decisions; they occur in
situations in which a few established processes help to evaluate potential solutions, but not enough to
lead to a definite recommended decision.
At the strategic level, managers develop overall business strategies, goals, and objectives as part
of the company’s strategic plan. They also monitor the strategic performance of the organization and
its overall direction in the political, economic, and competitive business environment. Strategic deci-
sions are highly unstructured decisions, occurring in situations in which no procedures or rules exist
to guide decision makers toward the correct choice. They are infrequent, extremely important, and
typically related to long-term business strategy.
Learning Outcome 2.2: Define critical success factors (CSFs) and key performance
indicators (KPIs), and explain how managers use them to measure the success of MIS
projects.
Metrics are measurements that evaluate results to determine whether a project is meeting its goals.
Two core metrics are critical success factors and key performance indicators. CSFs are the crucial
steps companies perform to achieve their goals and objectives and implement their strategies and
include creating high-quality products, retaining competitive advantages, and reducing product costs.
KPIs are the quantifiable metrics a company uses to evaluate progress toward critical success factors.
KPIs are far more specific than CSFs; examples include turnover rates of employees, percentage of
help-desk calls answered in the first minute, and number of products returned.
It is important to understand the relationship between critical success factors and key performance
indicators. CSFs are elements crucial for a business strategy’s success. KPIs measure the progress of
CSFs with quantifiable measurements, and one CSF can have several KPIs. Of course, both categories
will vary by company and industry. Imagine improved graduation rates as a CSF for a college.
Learning Outcome 2.3: Classify the different operational support systems, managerial
support systems, and strategic support systems, and explain how managers can use
these systems to make decisions and gain competitive advantages.
Being able to sort, calculate, analyze, and slice-and-dice information is critical to an organization’s
success. Without knowing what is occurring throughout the organization there is no way that man-
agers and executives can make solid decisions to support the business. The different operational,
managerial, and strategic support systems include:
■ Operational: A transaction processing system (TPS) is the basic business system that serves the
operational level (analysts) in an organization. The most common example of a TPS is an opera-
tional accounting system such as a payroll system or an order-entry system.
L E A R N I N G O U T C O M E R E V I E W
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79Business Driven MIS Module 1
■ Managerial: A decision support system (DSS) models information to support managers and busi-
ness professionals during the decision-making process.
■ Strategic: An executive information system (EIS) is a specialized DSS that supports senior-level
executives within the organization.
Learning Outcome 2.4: Describe artificial intelligence, and identify its five main types.
Artificial intelligence (AI) simulates human thinking and behavior, such as the ability to reason and
learn. The five most common categories of AI are:
1. Expert systems—computerized advisory programs that imitate the reasoning processes of experts
in solving difficult problems.
2. Neural networks—attempts to emulate the way the human brain works.
3. Genetic algorithm—a system that mimics the evolutionary, survival-of-the-fittest process to gen-
erate increasingly better solutions to a problem.
4. Intelligent agents—a special-purpose knowledge-based information system that accomplishes
specific tasks on behalf of its users.
5. Virtual reality—a computer-simulated environment that can be a simulation of the real world or an
imaginary world.
Learning Outcome 2.5: Explain the value of business processes for a company,
and differentiate between customer-facing and business-facing process.
A business process is a standardized set of activities that accomplish a specific task, such as pro-
cessing a customer’s order. Business processes transform a set of inputs into a set of outputs (goods
or services) for another person or process by using people and tools. Without processes, organizations
would not be able to complete activities. Customer-facing processes result in a product or service
that is received by an organization’s external customer. Business-facing processes are invisible to the
external customer but essential to the effective management of the business.
Learning Outcome 2.6: Demonstrate the value of business process modeling,
and compare As-Is and To-Be models.
Business process modeling (or mapping) is the activity of creating a detailed flowchart or process
map of a work process showing its inputs, tasks, and activities, in a structured sequence. A business
process model is a graphic description of a process, showing the sequence of process tasks, which is
developed for a specific purpose and from a selected viewpoint.
Business process modeling usually begins with a functional process representation of what the
process problem is, or an As-Is process model. As-Is process models represent the current state of
the operation that has been mapped, without any specific improvements or changes to existing pro-
cesses. The next step is to build a To-Be process model that displays how the process problem will
be solved or implemented. To-Be process models show the results of applying change improvement
opportunities to the current (As-Is) process model. This approach ensures that the process is fully and
clearly understood before the details of a process solution are decided upon.
Learning Outcome 2.7: Differentiate among automation, streamlining, and reengineering.
Business process improvement attempts to understand and measure the current process and make
performance improvements accordingly. Automation is the process of computerizing manual tasks,
making them more efficient and effective and dramatically lowering operational costs. Streamlining
improves business process efficiencies by simplifying or eliminating unnecessary steps. Bottlenecks
occur when resources reach full capacity and cannot handle any additional demands; they limit
throughput and impede operations. Streamlining removes bottlenecks, an important step if the effi-
ciency and capacity of a business process are being increased. Business process reengineering (BPR)
is the analysis and redesign of workflow within and between enterprises and occurs at the systems
level or companywide level and the end-to-end view of a process.
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80 Chapter 2 Decisions and Processes: Value Driven Business
Learning Outcome 2.8: Describe business process management and its value to an
organization.
Business process management (BPM) systems focus on evaluating and improving processes that
include both person-to-person workflow and system-to-system communications. BPM systems include
advanced features such as enhanced process modeling, simulation, execution, and monitoring, provid-
ing a high level of flexibility while reducing costs.
1. Knowledge: Define the three primary types of decision-making systems, and explain how a cus-
tomer of Actionly might use them to find business intelligence.
2. Comprehension: Describe the difference between transactional and analytical information, and
determine which types Actionly uses to create a customer’s digital dashboard.
3. Application: Illustrate the business process model used by a customer of Actionly following
Twitter tweets.
4. Analysis: Explain business process reengineering and how Actionly used it to create its unique
business model.
5. Synthesis: Formulate different metrics Actionly uses to measure the success of a customer’s
marketing campaign.
6. Evaluation: Argue for or against the following statement: Actionly invades consumer privacy by
taking data from different websites such as Twitter and Flickr without the consent of the customer
that posted the information.
O P E N I N G C A S E Q U E S T I O N S
Analytical information, 55
Analytics, 46
Artificial intelligence (AI), 60
As-Is process model, 66
Augmented reality, 63
Automation, 72
Benchmarking, 52
Benchmarks, 52
Best practices, 50
Bottlenecks, 73
Business-facing process, 64
Business process
improvement, 72
Business process management
(BPM) system, 77
Business process model, 66
Business process modeling
(or mapping), 66
Business process patent, 66
Business process reengineering
(BPR), 75
Consolidation, 60
Core processes, 66
Critical success factors (CSFs), 49
Customer-facing process, 64
Cycle time, 74
Decision support system (DSS), 55
Digital dashboard, 59
Drill-down, 60
Effectiveness MIS metrics, 50
Efficiency MIS metrics, 50
Executive information system
(EIS), 56
Expert system, 61
Fuzzy logic, 62
Genetic algorithm, 62
Goal-seeking analysis, 56
Granularity, 57
Intelligent agent, 62
Intelligent system, 60
Key performance indicators
(KPIs), 49
Managerial level, 46
Market share, 49
Metrics, 49
Model, 54
Mutation, 62
Neural network, 61
Online analytical processing
(OLAP), 55
Online transaction processing
(OLTP), 54
Operational level, 46
Optimization analysis, 56
Project, 48
Redundancy, 73
Return on investment (ROI), 50
Semistructured decision, 48
Sensitivity analysis, 56
Shopping bot, 62
Slice-and-dice, 60
Source document, 55
Strategic level, 48
Streamlining, 73
Structured decision, 46
Swim lane, 68
To-Be process model, 66
Transaction processing system
(TPS), 54
Transactional information, 54
Unstructured decision, 48
Virtual reality, 63
Visualization, 59
What-if analysis, 55
Workflow, 71
K E Y T E R M S
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81Business Driven MIS Module 1
1. Why must business professionals understand how MIS supports decision making and problem
solving?
2. What is the relationship between critical success factors and key performance indicators? How
can a manager use them to understand business operations?
3. What are the three different levels found in a company? What types of decisions are made at
each level?
4. Define transaction processing systems and describe the role they play in a business.
5. Define decision support systems and describe the role they play in a business.
6. Define expert systems and describe the role they play in a business.
7. What are the capabilities associated with digital dashboards?
8. What are the common DSS analysis techniques?
9. How does an electronic spreadsheet program, such as Excel, provide decision support
capabilities?
10. What is the difference between the ability of a manager to retrieve information instantly on
demand using an MIS and the capabilities provided by a DSS?
11. What is artificial intelligence? What are the five types of AI systems? What applications of AI
offer the greatest business value?
12. What is a business process and what role does it play in an organization?
13. Why do managers need to understand business processes? Can you make a correlation
between systems thinking and business processes?
14. Why would a manager need to review an As-Is and To-Be process model?
15. How can a manager use automation, streamlining, and business process reengineering to gain
operational efficiency and effectiveness?
16. Explain the difference between customer-facing processes and business-facing processes.
Which one is more important to an organization?
17. Explain how finding different ways to travel the same road relates to automation, streamlining,
and business process reengineering.
R E V I E W Q U E S T I O N S
C L O S I N G C A S E O N E
Political Micro-Targeting: What Decision Support
Systems Did for Barack Obama
On the day he took the oath of office in 2009, President Barack Obama spoke a word rarely heard
in inaugural addresses— data— referencing indicators of economic and other crises. His use of the
word is perhaps not so surprising. Capturing and analyzing data were crucial to Obama’s rise to
power. Throughout his historic campaign he not only used the Internet for networking and fund-
raising, but he also relied on decision support systems to identify potential swing voters. Obama’s
team carefully monitored contested states and congressional districts, where as few as 2,000 voters
could prove decisive—a tiny fraction of the voting public. Both presidential candidates hired technol-
ogy wizards to help sift through mountains of consumer and demographic details to recognize these
important voters.
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10 “Tribes”
Spotlight Analysis, a Democratic consultancy, used political micro-targeting to analyze neighbor-
hood details, family sizes, and spending patterns to categorize every person of voting age—all
175 million—into 10 “values” tribes. Individual tribe members do not necessarily share the same
race, religion, or income bracket, but they have common mind-sets about political issues: God, com-
munity, responsibility, and opportunity. Spotlight Analysis predicted the influence of a particular mor-
ally guided (but not necessarily religious) tribe of some 14 million voters, dubbed Barn Raisers. Barn
Raisers are of many races, religions, and ethnicities; about 40 percent favor Democrats and 27 per-
cent Republicans. Barn Raisers are slightly less likely to have a college education than Spotlight’s
other swing groups. They are active in community organizations, ambivalent about government, and
deeply concerned about “playing by the rules” and “keeping promises,” to use Spotlight’s definitions.
Spotlight believed the Barn Raisers held the key to the race between Obama and his Republican chal-
lenger, Arizona Senator John McCain.
Political micro-targeting, which depends on MIS to support decision making, is turning govern-
ment segments into sophisticated, intelligent, methodical political machines. In nanoseconds, deci-
sion support systems sort 175 million voters into segments and quickly calculate the potential for
each individual voter to swing from red or purple to blue.
For some, political micro-targeting signals the dehumanization of politics. For others, this type
of sophisticated analysis is a highly efficient way of pinpointing potential voters. For example, the
analysis of a voter in Richmond, Virginia, simply identifies the number of his or her school-age chil-
dren, type of car, zip code, magazine subscriptions, and mortgage balance. Data could even indi-
cate whether the voter has dogs or cats. (Cat owners lean slightly for Democrats, dog owners trend
Republican.) After the analysis, the voter is placed into a political tribe, and analysts can draw conclu-
sions about the issues that matter to him or her and make campaign decisions accordingly. Is this a
bad thing?
Behavioral Grouping
For generations, governments lacked the means to study individual behaviors and simply placed
all citizens into enormous groupings such as Hispanics, Catholics, union members, hunters, soccer
moms, and so on. With the use of sophisticated MIS analysis techniques, companies such as Spotlight
Analysis can group individuals based more on specific behavior and choices, and less on the names,
colors, and clans that mark us from birth.
When Spotlight first embarked on its research, it interviewed thousands of voters the old-fash-
ioned way. The Barn Raisers did not seem significant; the tribe represented about 9 percent of the
electorate. However, when Spotlight’s analysts drilled down or dug deeper, they discovered that Barn
Raisers stood at the epicenter of a political swing. In 2004, 90 percent of them voted for President
Bush, but then the group’s political leanings shifted, with 64 percent saying they voted for Democrats
in the 2006 election. Spotlight surveys showed that Republican political scandals, tax-funded boon-
doggles such as Alaska’s “bridge to nowhere,” and the botched recovery job after Hurricane Katrina
sent them packing.
Suddenly, Spotlight had identified millions of potential swing voters. The challenge then was to
locate them by state. For this, the company analyzed the demographics and buying patterns of the
Barn Raisers it had surveyed personally. Then it began correlating its data with commercially available
data to match profiles. By Spotlight’s count, this approach nailed Barn Raisers three times out of four.
So Democrats could bet that at least three-quarters of them would be likely to welcome an election
appeal stressing honesty and fair play.
Still Swing Voters
Spotlight has not correlated the Barn Raisers to their actual votes, so it’s not clear how well the
company’s strategy worked. However, it is reasonable to presume that amid that sea of humanity
stretched out before the newly inaugurated Obama on the National Mall, at least some were moved
by micro-targeted appeals. And if Obama and his team fail to honor their mathematically honed vows,
the Barn Raisers may abandon them in droves. They are swing voters, after all. 23
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83Business Driven MIS Module 1
Questions
1. Define the three primary types of decision-making systems, and explain how Obama’s campaign
team used them to win votes.
2. Describe the difference between transactional and analytical information, and determine which
types Spotlight Analysis used to identify its 10 tribes.
3. Illustrate the business process model used to identify the 10 tribes.
4. Explain business process reengineering and how Obama’s team used it to develop political
micro-targeting.
5. Formulate different metrics the Obama team used to measure the success of political
micro-targeting.
6. Argue for or against the following statement: Political micro-targeting signals the dehumanization
of politics.
C L O S I N G C A S E T W O
Second Life: Succeeding in Virtual Times
Second Life is a virtual world built and owned by its residents. It is inhabited by millions of residents
from around the world. The three main parts to Second Life are:
■ The World: The world of Second Life is constantly changing and growing. It is filled with hundreds
of games, from multiplayer role-playing games to puzzles and grid-wide contests. There are also
dance clubs, shopping malls, space stations, vampire castles, and movie theaters. To find some-
thing to do at any time of the day or night, residents simply open the Search menu and click on
Events for a listing of discussions, sports, entertainment, games, pageants, education, arts and
culture, and charity/support groups.
■ The Creations: Second Life is dedicated to creativity. Everything in Second Life is resident-cre-
ated, from the strobe lights in the nightclubs to the cars (or spaceships) in driveways. Imagine
tinkering with the steering and handling program of a motorcycle while a friend tweaks the shape
of the fuel tank and gives it a wicked flame paint job, in-world and in real-time, before taking it for
a spin down a newly created road to look for land to buy. Have you ever wondered what it would
be like to have a pair of black leather wings? Build them and give it a go.
■ The Marketplace: The Marketplace currently supports millions of U.S. dollars in monthly transac-
tions. This commerce is transacted with the in-world unit of trade, the Linden dollar, which can
be converted to U.S. dollars at several thriving online Linden dollar exchanges or at LindeX, the
official exchange. Users can make real money in a virtual world because Second Life has a fully
integrated economy designed to reward risk, innovation, and craftsmanship. Residents create
their own virtual goods and services, retain the intellectual property rights of their creations, and
sell them at various in-world venues. Businesses succeed on the ingenuity, artistic ability, entre-
preneurial acumen, and good reputation of their owners.
Businesses on Second Life
Second Life is an exciting venue for collaboration, business ventures, distance learning, new media
studies, and marketing. Business possibilities there are endless; a few examples include:
■ Holding a virtual meeting with sales managers located in Europe and Asia.
■ Presenting new sales initiatives and discussing them with the team real-time.
■ Allowing Second Life residents to interact with company products or services and test new
designs and concepts before they are introduced to the real world.
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■ Selling products and services in Second Life by creating an event to promote the product: a con-
cert, a class, a famous speaker, a party, a contest. Many companies are excited about the numer-
ous ways they can use Second Life to support their business. 24 A few companies paving the way
on Second Life include the following:
1-800-flowers.com
Adidas
Amazon
American Apparel
American Cancer Society
BBC Radio 1
Best Buy Co. Inc.
BMW
Calvin Klein
Circuit City
Cisco
Coca-Cola
Coldwell Banker
Comcast
Crayola
Dell
H&R Block
IBM
Intel
Kraft Food
Lacoste
Major League Baseball
Mazda
Mercedes-Benz
Microsoft
MTV
NASA
National Basketball
Association
NBC
Nissan
NPR
Sony
Sprint
Student Travel Association
Starwood Hotels
Sundance Channel
Toyota
Universal Motown Records
Visa
Warner Bros. Music
Weather Channel
Wired magazine
Xerox
Yahoo
Yankee Stadium
Questions
1. How could financial companies use neural networks in Second Life to help their businesses?
2. How could a company such as Nike use decision support systems on Second Life to help its
business?
3. How could an apparel company use Second Life to build a digital dashboard to monitor virtual
operations?
4. How could a company use Second Life to revamp its customer service process?
5. How could a company use Second Life to revamp its order-entry process?
6. How could a company use Second Life to reinvent its relationships with customers, partners, and
employees?
1. Modeling a Business Process
Do you hate waiting in line at the grocery store? Do you find it frustrating when you go to the video
rental store and cannot find the movie you wanted? Do you get annoyed when the pizza delivery
person brings you the wrong order? This is your chance to reengineer the process that drives you
crazy. Choose a problem you are currently experiencing and reengineer the process to make it
more efficient. Be sure to provide an As-Is and To-Be process model.
2. Revamping Accounts
The accounting department at your company deals with the processing of critical documents that
include invoices, purchase orders, statements, purchase requisitions, financial statements, sales
orders, and price quotes. These documents must arrive at their intended destination in a secure
and efficient manner.
Processing is currently done manually, which causes a negative ripple effect. Documents tend
to be misplaced or delayed, becoming vulnerable to unauthorized changes or exposure of con-
fidential information. In addition, the accounting department incurs costs such as for preprinted
C R I T I C A L B U S I N E S S T H I N K I N G
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forms, inefficient distribution, and storage. Explain automation, streamlining, and business process
reengineering and how they can be used to revamp the accounting department.
3. What Type of System Would You Use?
You have been assigned as senior director for a large manufacturing company. Your first assign-
ment is to decide which type of MIS can best support your decision-making needs. For all of the
following, determine which type of system you would use to help solve the business problem or
make a business decision.
a. You need to analyze daily sales transactions for each region.
b. You need to analyze staffing requirements for each plant.
c. You need to determine which customers are at risk of defaulting on their bills.
d. You need to analyze your competition including prices, discounts, goods, and services.
e. You need to analyze critical success factors and key performance indicators for status on
operations.
f. You need to produce a graphical display of patterns and complex relationships for large
amounts of data.
4. Unstructured Communications
You have just received a job as a business analyst for a large sports marketing company. Your
boss, Sandy Fiero, wants you to evaluate and improve the current corporate communication pro-
cess. With the current process, employees receive a great deal of unstructured information in
the form of emails, including corporate policies, corporate announcements, and human resource
information. You quickly realize that using an email system for communication is causing a great
deal of issues including inaccessible information for any new hires, lost productivity as employees
search through hundreds of emails to find information, and miscommunication as global divisions
of your organization send out regional human resource policies.
To begin analyzing the processes, create a list of issues you might encounter by using email
as a primary communication tool for corporate information. What are the redundancies associated
with an email communication process? What are the bottlenecks with an email communication
process? Document the As-Is process for sending email communications to employees. Then,
reengineer the process and document your suggestions for improving the process and the To-Be
communication process.
5. IGoogle Digital Dashboard
Executives find information from a variety of sources coming across their computers every day.
The digital dashboard containing this information might include their calendar, email, issues such
as production delays or accounts past due, and even financial and industry information. Although
it would be impossible to fit all of an organization’s information into a single screen, it can sum-
marize the data in ways tailored to meet the executive’s needs.
IGoogle is a type of digital dashboard you can create for your own personal view of the world
through Google. IGoogle allows users to create personalized home pages containing Google search
along with a number of Google gadgets that provide access to activities and information from all
over the Internet. If you want one location where you can view Gmail messages, peruse Google
news, review weather forecasts, stock quotes, and movie showtimes, iGoogle is for you. Visit
iGoogle and determine how you could customize your Google home page as a digital dashboard
for your computer.
6. Bot Shopping
For those of us who love (or hate) shopping, a shopping bot can become your best friend.
Regardless of whether you are shopping in a store or online you still have to research products,
compare prices, select a seller, and find the safest way to pay. Shopping in the information age is
easier than ever, especially with the help of a shopping bot. Shopping bots are price comparison
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websites that automatically search the inventory of different vendors to find the lowest possible
price, saving you time and money. Shopping bots will rank the product you are looking for by price
and link you directly to the vendor’s website. Popular shopping bots include mysimon.com , Gomez.
com , Bizrate.com , shopzilla.com , and Google’s shopping bot at www.google.com/products .
Choose a product you are interested in purchasing and use three of the different shopping
bots to compare prices. Did the different shopping bots return the same information and prices?
Which shopping bot was the easiest to use? Will you continue using shopping bots? What are the
advantages and disadvantages for a company using shopping bots to purchase office supplies or
raw materials?
7. Networking Neural
Neural networks are a category of AI that attempts to emulate the way the human brain works. A
neural network could be a great asset for any college student. If a neural network could scan each
brain for all of the students in your course, what types of information would it acquire? How could
you use the student neural network to improve your grades? How could you use the student neural
network to identify trends and new market segments? What would be the risks of using this neural
network for academic improvement? What types of confidentiality and privacy issues would be
encountered with this neural network?
8. Driving Your Business
You have recently opened your own business—choose the business of your dreams and assume
you have it up and running. What types of decision will you need to make to operate your busi-
ness? How can you use MIS to support your decision-making efforts? What types of processes will
you find throughout your business? How can you use MIS to revamp your business process for
efficiency and effectiveness? Overall, how dependent will your business be on MIS? Do you think
you could be just as successful running your business without MIS? Can you name a business that
can operate efficiently and effectively without MIS?
E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. You realize that you need a digital dashboard to help you operate your business. Create a list of
all of the components you would want to track in your digital dashboard that would help you run
your business. Be sure to justify how each component would help you gain insight into the opera-
tions of your business and flag potential issues that could ruin your business. (Be sure to identify
your business and the name of your company as you defined it in Chapter 1.)
2. Explain three customer-facing processes and three business-facing process associated with your
business. Be sure to detail why the process is customer facing or business facing.
3. Your friends have asked you to review the customer ordering process for their restaurant, The
Broadway Café. To make the café as efficient and effective as possible, you want to redesign
processes to remove bottlenecks, reduce redundancies, and streamline workflow. Review The
Broadway Café’s customer ordering process highlighted in the accompanying image and reen-
gineer it for improvements in efficiency and effectiveness. If you are looking for a real challenge,
create your As-Is and To-Be process diagrams using PowerPoint or Visio.
After revamping the ordering process for your friends, you decide to create a To-Be process model
of the most important business processes required for your startup to find success. Create the To-Be
process model for your most critical business process to ensure you know how to operate your startup
in the most efficient and effective manner.
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87Business Driven MIS Module 1
A
B
CD
A Counter A — Food is ordered
Broadway
Café
Process Flow:
Counter B — Beverages are ordered and food is picked up
Counter C — Beverages are picked up
Counter D — Pay for food and beverages
Counter E — Cream, sugar, lids
B
C
D
E
E
PROJECT I Making Business Decisions
You are the vice president of human resources for a large consulting company. You are compiling a
list of questions that you want each job interviewee to answer. The first question on your list is, “How
can MIS enhance your ability to make decisions at our organization?” Prepare a one-page report to
answer this question.
PROJECT I I DSS and EIS
Dr. Rosen runs a large dental conglomerate—Teeth Doctors—that employs more than 700 dentists
in six states. Dr. Rosen is interested in purchasing a competitor called Dentix that has 150 dentists in
three additional states. Before deciding whether to purchase Dentix, Dr. Rosen must consider several
issues:
■ The cost of purchasing Dentix.
■ The location of the Dentix offices.
■ The current number of customers per dentist, per office, and per state.
■ The merger between the two companies.
■ The professional reputation of Dentix.
■ Other competitors.
Explain how Dr. Rosen and Teeth Doctors can benefit from the use of information systems to make
an accurate business decision about whether to purchase Dentix.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
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88 Chapter 2 Decisions and Processes: Value Driven Business
PROJECT I I I Finding Information on Decision Support Systems
You are working on the sales team for a small catering company that maintains 75 employees and
generates $1 million in revenues per year. The owner, Pam Hetz, wants to understand how she can use
decision support systems to help expand her business. Hetz has an initial understanding of DSS and is
interested in learning more about what types are available, how they can be used in a small business, and
the costs associated. In a group, research the website www.dssresources.com and compile a presenta-
tion that discusses DSSs in detail. Be sure to answer all Hetz’s questions on DSS in your presentation.
PROJECT IV Discovering Reengineering Opportunities
In an effort to increase efficiency, your college has hired you to analyze its current business processes
for registering for classes. Analyze the current process and determine which steps are:
■ Broken
■ Redundant
■ Antiquated
Be sure to define how you would reengineer the processes for efficiency.
PROJECT V Dashboard Design
Digital dashboards offer an effective and efficient way to view enterprisewide information at near real
time. According to Nucleus Research, there is a direct correlation between use of digital dashboards
and a company’s return on investment (ROI); hence, all executives should be using or pushing the
development of digital dashboards to monitor and analyze organizational operations.
Design a digital dashboard for a customer tracking and enterprise operations system. Be sure to
address at least four of the following indicators by showing how you would measure it, such as red,
yellow, green status; percentage complete status; and so on.

Customer Tracking System Enterprise Operations
Customers Accounting
Marketing Finance
Order entry Logistics
Collections Production
Sales Distribution
Customer service Manufacturing
Billing Human resources
Credit limits Sales
Transportation Total profit
PROJECT VI Defense Advanced Research Projects Agency (DARPA)
Grand Challenge
The goal of the DARPA Grand Challenge is to save lives by making one-third of ground military
forces autonomous or driverless vehicles by 2015. Created in response to a congressional and U.S.
Department of Defense (DoD) mandate, the DARPA Grand Challenge brings together individuals and
organizations from industry, the research and development (R&D) community, government, the armed
services, and academia and includes students, backyard inventors, and automotive enthusiasts.
The DARPA Grand Challenge 2004 field test of autonomous ground vehicles ran from Barstow,
California, to Primm, Nevada, and offered a $1 million prize. From the qualifying round at the California
Speedway, 15 finalists emerged to attempt the Grand Challenge. However, the prize went unclaimed
when no vehicles were able to complete the difficult desert route.
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89Business Driven MIS Module 1
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.
The DARPA Grand Challenge 2005 was held in the Mojave Desert and offered a $2 million prize
to the team that completed the 132-mile course in the shortest time under 10 hours. The race, over
desert terrain, included narrow tunnels, sharp turns, and a winding mountain pass with a sheer drop-
off on one side and a rock face on the other. Five teams completed the course, and “Stanley,” the
Stanford Racing Team’s car, won the $2 million prize with a time of 6 hours, 53 minutes.
The third DARPA Grand Challenge was an urban challenge on the site of the now-closed George Air
Force Base in Victorville, California. It offered a $2 million prize to the autonomous vehicle that could
cover the 60-mile course in less than 6 hours. The vehicles had to obey stop lights, navigate around
other vehicles, and even merge into heavy traffic. Tartan Racing, a collaborative effort by Carnegie
Mellon University and General Motors Corporation, won the prize with “Boss,” a Chevy Tahoe. The
Stanford Racing Team’s “Junior,” a 2006 Volkswagen Passat, won second prize of $1 million. “Victor
Tango,” a 2005 Ford Escape hybrid from Virginia Tech, won third place along with a $500,000 prize. 25
1. How is the DoD using AI to improve its operations and save lives?
2. Why would the DoD use an event like the DARPA Grand Challenge to further technological innovation?
3. Describe how autonomous vehicles could be used by organizations around the world to improve
business efficiency and effectiveness.
4. The Ansari X is another technological innovation competition focusing on spacecraft. To win the
$10 million Ansari X Prize, a private spacecraft had to be the first to carry the weight equivalent
of three people to an altitude of 62.14 miles twice within two weeks. SpaceShipOne, a privately
built spacecraft, won on October 4, 2004. Describe the potential business impacts of the Ansari X
competition.

Project
Number Project Name Project Type
Plug-In
Focus Area Project Focus Project Skill Set
Page
Number
1 Financial Destiny Excel T2 Personal Budget Introductory Formulas AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory Formulas AYK.4
3 Technology Budget Excel T1, T2 Hardware and
Software
Introductory Formulas AYK.4
4 Tracking Donations Excel T2 Employee
Relationships
Introductory Formulas AYK.4
5 Convert Currency Excel T2 Global Commerce Introductory Formulas AYK.5
6 Cost Comparison Excel T2 Total Cost of
Ownership
Introductory Formulas AYK.5
7 Time Management Excel or
Project
T2 or T12 Project Management Introductory Gantt Charts AYK.6
8 Maximize Profit Excel T2, T4 Strategic Analysis Intermediate Formulas or
Solver
AYK.6
9 Security Analysis Excel T3 Filtering Data Intermediate Conditional
Formatting, Autofilter, Subtotal
AYK.7
10 Gathering Data Excel T3 Data Analysis Intermediate Conditional
Formatting, PivotTable
AYK.8
11 Scanner System Excel T2 Strategic Analysis Intermediate AYK.8
12 Competitive Pricing Excel T2 Profit Maximization Intermediate AYK.9
13 Adequate Acquisitions Excel T2 Break-Even Analysis Intermediate AYK.9
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Rev. Confirming Pages
What’s in IT for Me?
Internet and communication technologies have revolutionized the way business operates, improving upon traditional meth-
ods and even introducing new opportunities and ventures that were simply not possible before. More than just giving orga-
nizations another means of conducting transactions, online business provides the ability to develop and maintain customer
relationships, supplier relationships, and even employee relationships between and within enterprises.
As future managers and organizational knowledge workers, you need to understand the benefits ebusiness can offer an
organization and your career, the challenges that accompany web technologies and their impact on organizational com-
munication and collaboration. You need to be aware of the strategies organizations can use to deploy ebusiness and the
methods of measuring ebusiness success. This chapter will give you this knowledge and help prepare you for success in
tomorrow’s electronic global marketplace.
■ D i s r u p t i v e Te c h n o l o g i e s a n d
We b 1 . 0
■ A d v a n t a g e s o f E b u s i n e s s
■ T h e F o u r E b u s i n e s s M o d e l s
■ E b u s i n e s s To o l s
f o r C o n n e c t i n g a n d
C o m m u n i c a t i n g
■ T h e C h a l l e n g e s o f E b u s i n e s s
SECTION 3.2
WEB 2.0: Business 2.0
SECTION 3.1
WEB 1.0: Ebusiness
■ We b 2 . 0 : A d v a n t a g e s o f
B u s i n e s s 2 . 0
■ N e t w o r k i n g C o m m u n i t i e s w i t h
B u s i n e s s 2 . 0
■ B u s i n e s s 2 . 0 To o l s f o r
C o l l a b o r a t i n g
■ T h e C h a l l e n g e s o f B u s i n e s s 2 . 0
■ We b 3 . 0 : D e f i n i n g t h e N e x t
G e n e r a t i o n o f O n l i n e B u s i n e s s
O p p o r t u n i t i e s
C H A P T E R
C
H
A
P
T
E
R
O
U
T
L
IN
E

Ebusiness: Electronic
Business Value 3
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91Business Driven MIS Module 1
opening case study
Pinterest—Billboards for the Internet
Pinterest has been called the latest addiction for millions of people around the world.
Pinterest, a visual social media network, allows users to create “interest boards” where
they “pin” items of interests found on the web. Terms you need to understand to use
Pinterest include:
■ Pin: A link to an image from a computer or a website. Pins can include captions for other
users. Users upload, or “pin,” photos or videos to boards.
■ Board: Pins live on boards and users can maintain separate boards, which can be cat-
egorized by activity or interests, such as cooking, do-it-yourself activities, fitness, music,
movies, etc.
■ Repin: After pinning an item, it can be repinned by other Pinterest users, spreading the
content virally. Repinning allows users to share items they like with friends and family.
“Pinning” is simply done by clicking on a photo or video that captures the attention of a
user, whether it be by uploading personal photos or repinning a photo or video from a fellow
user. Started in 2010, Pinterest has already attracted over 10 million users with the majority
being women between the ages of 25 and 54. Millions of people visit the website each day
to find what new items will spark their interest as there are always more and more things
to see.
Pinterest is considered a social network, but unlike other social networks, such as
Twitter and Facebook, Pinterest is open to invited users only; meaning it is an invitation-only
website and users must “ask” for an invitation before gaining access. Upon accepting the
invitation, users can gain access to the website and begin inviting their own “friends” with
whom they have connections on Facebook or Twitter. Pinterest’s primary mission is to:
connect everyone in the world through the ‘things’ they find interesting. We think that
a favorite book, toy, or recipe can reveal a common link between two people. With
millions of new pins added every week, Pinterest is connecting people all over the
world based on shared tastes and interests.
Just like on other social networks, Pinterest users can compile a list of people they want
to follow. A user can link a Pinterest board to a Facebook account, allowing instant access
to quickly see which of his or her Facebook friends are on the social network. Adding book-
marks allows the user to pin images to other websites such as a book at Barnes & Noble or
a set of mugs at Pier 1 Imports. The image is automatically linked to the retailer’s website,
and if another users clicks on the image, that user receives additional information on the
product or service. If users pin a specific image of a plate or sweater, they can add the
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92 Chapter 3 Ebusiness: Electronic Business Value
item’s price in the description, which will automatically place a banner ad on the image and
show the listed price. If users are unsure of what they are looking for, they can search for
a specific event or theme such as “twenty-first birthday party” for a whole array of ideas.
Essentially, Pinterest allows users to paint a visual picture. Just imagine a wedding plan-
ner talking to a bride about her upcoming event, and the bride mentions she would like a
“classic modernism” wedding. If the wedding planner was confused on what exactly the
bride meant by classic modernism, she could quickly visit Pinterest to find an entire suite of
photos and videos to spark ideas of how to coordinate the event.
The Business Value of Pinterest
Visual Communication
Pinterest is by far one of the hottest social media spaces available today. Offering all kinds
of valuable information from useful cleaning tips to fantastic recipes to beautiful photos and
videos, the website is extremely valuable for sharing anything visual. Pinterest is in no way
simply a passing fad as companies begin to use the website for social marketing.
One of the best business uses of Pinterest is allowing employees to visually commu-
nicate and brainstorm. Visual communication is a new experience for many employees
and the phrase “A picture is worth a thousand words” can help a company perform many
tasks from generating new products to transforming business processes. In fact, many
companies are using Pinterest to solicit feedback directly from employees, customers, and
suppliers to ensure the company is operating efficiently and effectively. Soliciting feedback
directly from customers allows companies to have a customer service support team handle
problems before they become mainstream issues. Providing customers with a new channel
to post their thoughts and concerns about products or services can provide valuable feed-
back for any company. Companies typically state that they may not respond to every ques-
tion or comment, but that they take each and every concern into account, demonstrating
that they are devoted to creating a bond between themselves and their customers.
Driving Traffic
Pinterest drives traffic—it is that simple! Even though the website operates under an
invitation-only model, it has attracted more than 10 million users in less than two years. That
number might seem small compared to powerhouses such as Facebook, Twitter, or Google,
but it demonstrates there is enough of an audience to send a decent amount of traffic to
any business. The images a business pins up should be linked to the relevant page of its
website. If users are attracted by it, they may click on it to find out more.
Pinterest also drives traffic by providing higher rankings on search engine optimi-
zation as companies appear higher and higher on search lists the more users are pin-
ning to their boards. Linking is one of the key factors search engines consider, and with
Pinterest gaining in popularity, it is also growing as a trustworthy domain. The number of
Pinterest users combined with its ability to increase search rankings will play an important
role when a company is looking to increase visibility and drive traffic to its website. Data
from Shareholic found that Pinterest sent more referral traffic to bloggers than Google 1 ,
YouTube, and LinkedIn combined, falling just behind Twitter.
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93Business Driven MIS Module 1
Product Branding
Pinterest is an extraordinary branding tool, offering a place where companies can create a
presence and community around a product, idea, event, or company. Just like other social
networking websites, Pinterest allows a company to reach out and engage its customers,
vendors, suppliers, and even employees to communicate about its products and services.
Recently the National Football League’s Minnesota Vikings began using Pinterest to create
a following of favorite photos, statistics, and even game-day recipes!
Pinterest recently deployed an iPhone application that allows users to pin photos and
video from their cameras instantly on their boards. Pinterest’s unique competitive advan-
tage is its ability to host billions of images and redirect users to the appropriate sources in
a user-friendly interface.
Pinterest’s Dilemma
Since its inception, Pinterest has been under fire from sites such as Flikr, Photobucket, and
Instagram over attributing credit to those who own the images that are pinned. Many users
are concerned that they may one day be sued for the improper use of an image they pinned.
The Pinterest Terms of Use state, “If you are a copyright owner, or are authorized to act
on behalf of one, or authorized to act under any exclusive right under copyright, please
report alleged copyright infringements taking place on or through the Site by completing the
following DMCA Notice of Alleged Infringement and delivering it to Pinterest’s Designated
Copyright Agent.”
To protect Pinterest from third-party litigation claims (such as those from authors claim-
ing copyright infringement), Pinterest has incorporated the following statement into its
indemnity clause: “You agree to indemnify and hold harmless Pinterest and its officers,
directors, employees and agents, from and against any claims, suits, proceedings, disputes,
demands, liabilities, damages, losses, costs and expenses, including, without limitation,
reasonable legal and accounting fees (including costs of defense of claims, suits or pro-
ceedings brought by third parties), arising out of or in any way related to (i) your access to
or use of the Services or Pinterest Content, (ii) your User Content, or (iii) your breach of any
of these Terms.”
Pinterest is well-aware of the probability that many of the pinned images might be vio-
lating copyright infringement and is attempting to protect itself against any litigation claims
resulting from users intentionally or unintentionally breaking the law through its site. 1
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94 Chapter 3 Ebusiness: Electronic Business Value
section 3.1 Web 1.0: Ebusiness
L E A R N I N G O U T C O M E S
3.1 Compare disruptive and sustaining technologies, and explain how the Internet and WWW caused
business disruption.
3.2 Describe ebusiness and its associated advantages.
3.3 Compare the four ebusiness models.
3.4 Describe the six ebusiness tools for connecting and communicating.
3.5 Identify the four challenges associated with ebusiness.
DISRUPTIVE TECHNOLOGIES AND WEB 1.0
Polaroid, founded in 1937, produced the first instant camera in the late 1940s. The Pola-
roid camera, whose pictures developed themselves, was one of the most exciting techno-
logical advances the photography industry had ever seen. The company eventually went
public, becoming one of Wall Street’s most prominent enterprises, with its stock trading
above $60 per share in 1997. In 2002, the stock dropped to 8 cents and the company
declared bankruptcy. 2
How could a company such as Polaroid, which had innovative technology and a cap-
tive customer base, go bankrupt? Perhaps company executives failed to use Porter’s Five
Forces Model to analyze the threat of substitute products or services. If they had, would
they have noticed the two threats—one-hour film processing and digital cameras—which
eventually stole Polaroid’s market share? Would they have understood that their custom-
ers, people who want instant access to their pictures, would be the first to try these alter-
natives? Could the company have found a way to compete with one-hour film processing
and the digital camera to save Polaroid?
Many organizations face the same dilemma as Polaroid—what’s best for the current
business might not be what’s best for it in the long term. Some observers of our business
environment have an ominous vision of the future—digital Darwinism. Digital Darwinism
implies that organizations that cannot adapt to the new demands placed on them for sur-
viving in the information age are doomed to extinction.
Disruptive versus Sustaining Technology
A disruptive technology is a new way of doing things that initially does not meet the needs
of existing customers. Disruptive technologies tend to open new markets and destroy old
ones. A sustaining technology, on the other hand, produces an improved product cus-
tomers are eager to buy, such as a faster car or larger hard drive. Sustaining technolo-
gies tend to provide us with better, faster, and cheaper products in established markets.
Incumbent companies most often lead sustaining technology to market, but they virtually
never lead in markets opened by disruptive technologies. Figure 3.1 positions companies
expecting future growth from new investments (disruptive technology) and companies
expecting future growth from existing investments (sustaining technology). 3
Disruptive technologies typically enter the low end of the marketplace and eventually
evolve to displace high-end competitors and their reigning technologies. Sony is a perfect
example. Sony started as a tiny company that built portable, battery-powered transistor
radios. The sound quality was poor, but customers were willing to overlook that for the
convenience of portability. With the experience and revenue stream from the portables,
Sony improved its technology to produce cheap, low-end transistor amplifiers that were
suitable for home use and invested those revenues in improving the technology further,
which produced still-better radios. 4
The Innovator’s Dilemma, a book by Clayton M. Christensen, discusses how estab-
lished companies can take advantage of disruptive technologies without hindering
LO 3.1: Compare disruptive and
sustaining technologies, and explain
how the Internet and WWW caused
business disruption.
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95Business Driven MIS Module 1
existing relationships with customers, partners, and stakeholders. Xerox, IBM, Sears,
and DEC all listened to existing customers, invested aggressively in technology, had their
competitive antennae up, and still lost their market-dominant positions. They may have
placed too much emphasis on satisfying customers’ current needs, while neglecting new
disruptive technology to meet customers’ future needs and thus losing market share.
Figure 3.2 highlights several companies that launched new businesses by capitalizing on
disruptive technologies. 5
The Internet and World Wide Web—The Ultimate
Business Disruptors
The Internet is a massive network that connects computers all over the world and allows
them to communicate with one another. Computers connected via the Internet can send
and receive information including text, graphics, voice, video, and software. Originally
the Internet was essentially an emergency military communications system operated
by the U.S. Department of Defense Advanced Research Project Agency (DARPA), which
Ex
pe
ct
ed
R
et
ur
ns
o
n
N
ew
In
ve
st
m
en
ts
Expected Returns on Existing Investments
100
80
60
40
20
10080604020
Dell
Johnson & Johnson
Procter & Gamble
Walmart
Phillips Petroleum
General Motors
Sears
Home Depot
Cisco
FIGURE 3.1
Disruptive and Sustaining
Technologies
FIGURE 3.2
Companies That Capitalized
on Disruptive Technologies
Company Disruptive Technology
Apple iPod, iPhone, iPad
Charles Schwab Online brokerage
Hewlett-Packard Microprocessor-based computers, ink-jet printers
IBM Minicomputers; personal computers
Intel Low-end microprocessors
Intuit QuickBooks software; TurboTax software; Quicken software
Microsoft Internet-based computing; operating system software; SQL and
Access database software
Oracle Database software
Quantum 3.5-inch disks
Sony Transistor-based consumer electronics
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96 Chapter 3 Ebusiness: Electronic Business Value
called the network ARPANET. No one foresaw the dramatic impact it would have on both
business and personal communications. In time, all U.S. universities that had defense-
related funding installed ARPANET computers, forming the first official Internet network.
As users began to notice the value of electronic communications, the purpose of the net-
work started shifting from a military pipeline to a communications tool for scientists.
Millions of corporate, educational, and research networks now connect billions of
computer systems and users in more than 200 countries. Internet users are expected to
top the 2 billion mark, about one-third of the world’s population. 6
Although the Internet was an excellent communication tool for scientists and govern-
ment officials, it was technically challenging for everyday people to operate. This changed
with the inventions of the World Wide Web and web browsers. The World Wide Web (WWW)
provides access to Internet information through documents including text, graphics, audio,
and video files that use a special formatting language called HTML. Hypertext markup
language (HTML) links documents, allowing users to move from one to another simply by
clicking on a hot spot or link. Web browsers, such as Internet Explorer or Mozilla’s Firefox,
allow users to access the WWW. Hypertext transport protocol (HTTP) is the Internet pro-
tocol web browsers use to request and display web pages using universal resource locators.
A universal resource locator (URL) is the address of a file or resource on the web such
as www.apple.com. A domain name identifies a URL address and in the previous example
apple.com is the domain name. URLs use domain names to identify particular websites.
Domain name hosting (web hosting) is a service that allows the owner of a domain name
to maintain a simple website and provide email capacity. An applet is a program that runs
within another application such as a website.
Notice that the Internet and the World Wide Web are not synonymous. The WWW is
just one part of the Internet, and its primary use is to correlate and disseminate informa-
tion. The Internet includes the WWW and also other forms of communication systems
such as email. Figure 3.3 lists the reasons for the massive growth of the WWW. 7
Web 1.0: The Catalyst for Ebusiness
As people began learning about the WWW and the Internet, they understood that it
enabled a company to communicate with anyone, anywhere, at anytime, creating a
new way to participate in business. The competitive advantages for first movers would
be enormous, thus spurring the beginning of the Web 1.0 Internet boom. Web 1.0 (or
Business 1.0) is a term to refer to the World Wide Web during its first few years of
operation between 1991 and 2003. Ecommerce is the buying and selling of goods and
services over the Internet. Ecommerce refers only to online transactions. Ebusiness
includes ecommerce along with all activities related to internal and external busi-
ness operations such as servicing customer accounts, collaborating with partners, and
exchanging real-time information. During Web 1.0, entrepreneurs began creating the
first forms of ebusiness.
Ebusiness opened up a new marketplace for any company willing to move its busi-
ness operations online. A paradigm shift occurs when a new radical form of business
enters the market that reshapes the way companies and organizations behave. Ebusi-
ness created a paradigm shift, transforming entire industries and changing enterprise-
wide business processes that fundamentally rewrote traditional business rules. Deciding
not to make the shift to ebusiness proved fatal for many companies (see Figure 3.4 for an
overview of industries revamped by the disruption of ebusiness.) 8
FIGURE 3.3
Reasons for Growth of the World
Wide Web
The microcomputer revolution made it possible for an average person to own a computer.
Advancements in networking hardware, software, and media made it possible for business computers to be
connected to larger networks at a minimal cost.
Browser software such as Microsoft’s Internet Explorer and Netscape Navigator gave computer users an
easy-to-use graphical interface to find, download, and display web pages.
The speed, convenience, and low cost of email have made it an incredibly popular tool for business and personal
communications.
Basic web pages are easy to create and extremely flexible.
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97Business Driven MIS Module 1
BUSINESS DRIVEN ETHICS AND SECURITY
Did you know you can make a living naming things? Eli Altman has been nam-
ing things since he was six years old and has named more than 400 companies
and brands while working for A Hundred Monkeys, a branding consulting com-
pany. Altman recently noticed an unfamiliar trend in the industry: nonsensical
names such as Flickr, Socializr, Zoomr, Rowdii, Yuuguu, and Oooooc. Why are
names like this becoming popular?
The reason is “domain squatting” or “cyber squatting,” the practice of buy-
ing a domain to profit from a trademarked name. For example, if you wanted to
start a business called Drink, chances are a domain squatter has already pur-
chased drink.com and is just waiting for you to pay big bucks for the right to buy
it. Domain squatting is illegal and outlawed under the 1999 Anticybersquatting
Consumer Protection Act. 9
Do you agree that domain squatting should be illegal? Why or why not? If
you were starting a business and someone were squatting on your domain,
what would you do?
Unethical
Disruption
APPLY YOUR KNOWLEDGE
FIGURE 3.4
Ebusiness Disruption of
Traditional Industries
Industry Business Changes Due to Technology
Auto AutoTrader.com is the world’s largest used-car marketplace, listing millions
of cars from both private owners and dealers. AutoTrader.com actually helps
to increase used-car dealer’s business as it drives millions of qualified leads
(potential used-car buyers) to participating automotive dealers and private
sellers.
Publishing With the Internet, anyone can publish online content. Traditionally, publishers
screened many authors and manuscripts and selected those that had the
best chances of succeeding. Lulu.com turned this model around by providing
self-publishing along with print-on-demand capabilities.
Education and Training Continuing medical education is costly, and just keeping up-to-date with
advances often requires taking training courses and traveling to conferences.
Now continuing education in many fields is moving online, and by 2016 over
50 percent of doctors will be building their skills through online learning.
Companies such as Cisco save millions by moving training to the Internet.
Entertainment The music industry was hit hard by ebusiness, and online music traders such
as iTunes average billions of annual downloads. Unable to compete with
online music, the majority of record stores closed. The next big entertainment
industry to feel the effects of ebusiness will be the multibillion-dollar movie
business. Video rental stores are closing their doors as they fail to compete
with online streaming and home rental delivery companies such as Netflix.
Financial Services Nearly every public efinance company makes money, with online mortgage
service Lending Tree leading the pack. Processing online mortgage applica-
tions is over 50 percent cheaper for customers.
Retail Forrester Research predicts ebusiness retail sales will grow at a 10 percent
annual growth rate through 2014. It forecasts U.S. online retail sales will be
nearly $250 billion, up from $155 billion in 2009. Online retail sales were
recently up 11 percent, compared to 2.5 percent for all retail sales.
Travel Travel site Expedia.com is now the biggest leisure-travel agency, with higher
profit margins than even American Express. The majority of travel agencies
closed as a direct result of ebusiness.
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ADVANTAGES OF EBUSINESS
Both individuals and organizations have embraced ebusiness to enhance productiv-
ity, maximize convenience, and improve communications. Companies today need to
deploy a comprehensive ebusiness strategy, and business students need to understand
its advantages, outlined in Figure 3.5 . Let’s look at each.
Expanding Global Reach
Easy access to real-time information is a primary benefit of ebusiness. Information
richness refers to the depth and breadth of details contained in a piece of textual,
graphic, audio, or video information. Information reach measures the number of peo-
ple a firm can communicate with all over the world. Buyers need information richness
to make informed purchases, and sellers need information reach to properly market
and differentiate themselves from the competition.
Ebusinesses operate 24 hours a day, 7 days a week. This availability directly reduces
transaction costs, since consumers no longer have to spend a lot of time researching
purchases or traveling great distances to make them. The faster delivery cycle for online
sales helps strengthen customer relationships, improving customer satisfaction and ulti-
mately sales.
A firm’s website can be the focal point of a cost-effective communications and mar-
keting strategy. Promoting products online allows the company to precisely target its
customers whether they are local or around the globe. A physical location is restricted by
size and limited to those customers who can get there, while an online store has a global
marketplace with customers and information seekers already waiting in line.
Opening New Markets
Ebusiness is perfect for increasing niche-product sales. Mass customization is the abil-
ity of an organization to tailor its products or services to the customers’ specifications.
For example, customers can order M&M’s in special colors or with customized sayings
such as “Marry Me.” Personalization occurs when a company knows enough about a
customer’s likes and dislikes that it can fashion offers more likely to appeal to that per-
son, say by tailoring its website to individuals or groups based on profile information,
demographics, or prior transactions. Amazon uses personalization to create a unique
portal for each of its customers.
Chris Anderson, editor-in-chief of Wired magazine, describes niche-market ebusi-
ness strategies as capturing the long tail, referring to the tail of a typical sales curve.
This strategy demonstrates how niche products can have viable and profitable business
models when selling via ebusiness. In traditional sales models, a store is limited by shelf
space when selecting products to sell. For this reason, store owners typically purchase
products that will be wanted or needed by masses, and the store is stocked with broad
products as there is not room on the shelf for niche products that only a few custom-
ers might purchase. Ebusinesses such as Amazon and eBay eliminated the shelf-space
dilemma and were able to offer infinite products.
LO 3.2: Describe ebusiness and its
associated advantages.
FIGURE 3.5
Ebusiness Advantages
• Expanding global reach
• Opening new markets
• Reducing costs
• Improving operations
• Improving effectiveness
Ebusiness
Advantages
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Netflix offers an excellent example of the long tail. Let’s assume that an average Block-
buster store maintains 3,000 movies in its inventory, whereas Netflix, without physical
shelf limitations, can maintain 100,000 movies in its inventory. Looking at sales data,
the majority of Blockbuster’s revenue comes from new releases that are rented daily,
whereas older selections are rented only a few times a month and don’t repay the cost
of keeping them in stock. Thus Blockbuster’s sales tail ends at title 3,000 (see Figure 3.6 )
However, Netflix, with no physical limitations, can extend its tail beyond 100,000 (and
with streaming video perhaps 200,000). By extending its tail, Netflix increases sales, even
if a title is rented only a few times. 10
Intermediaries are agents, software, or businesses that provide a trading infrastruc-
ture to bring buyers and sellers together. The introduction of ebusiness brought about
disintermediation, which occurs when a business sells directly to the customer online
and cuts out the intermediary (see Figure 3.7 ). This business strategy lets the company
shorten the order process and add value with reduced costs or a more responsive and
efficient service. The disintermediation of the travel agent occurred as people began
to book their own vacations online, often at a cheaper rate. At Lulu.com anyone can
FIGURE 3.7
Business Value of
Disintermediation
Manufacturer
IBM
Distributor Retailer Customer
Dell
Direct
Dell
Walmart
$1,200
$1,000
$800
FIGURE 3.6
The Long Tail
Products
Long tail
Head
Po
pu
la
rit
y
The more intermediaries
that are cut from the
distribution chain, the
lower the product price.
When Dell decided to sell
its PCs through Walmart
many were surprised,
because Dell’s direct-
to-customer sales model
was the competitive
advantage that had kept
Dell the market leader
for years.
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publish and sell print-on-demand books, online music, and custom calendars, making
the publisher obsolete. 11
In reintermediation, steps are added to the value chain as new players find ways to
add value to the business process. Levi Strauss originally thought it was a good business
strategy to limit all online sales to its own website. A few years later, the company real-
ized it could gain a far larger market share by allowing all retailers to sell its products
directly to customers. As ebusiness matures it has become evident that to serve certain
markets in volume, some reintermediation may be desirable. Cybermediation refers to
the creation of new kinds of intermediaries that simply could not have existed before
the advent of ebusiness, including comparison-shopping sites such as Kelkoo and bank
account aggregation services such as Citibank. 12
Reducing Costs
Operational benefits of ebusiness include business processes that require less time and
human effort or can be eliminated. Compare the cost of sending out 100 direct mail-
ings (paper, postage, labor) to the cost of a bulk email campaign. Think about the cost of
renting a physical location and operating phone lines versus the cost of maintaining an
online site. Switching to an ebusiness model can eliminate many traditional costs asso-
ciated with communicating by substituting systems, such as Live Help, that let custom-
ers chat live with support or sales staff.
Online air travel reservations cost less than those booked over the telephone. Online
ordering also offers the possibility of merging a sales order system with order fulfillment
and delivery so customers can check the progress of their orders at all times. Ebusinesses
can also inexpensively attract new customers with innovative marketing and retain pres-
ent customers with improved service and support. 13
One of the most exciting benefits of ebusiness is its low start-up costs. Today, anyone
can start an ebusiness with just a website and a great product or service. Even a dog-
walking operation can benefit from being an ebusiness.
Improving Operations
Ebusiness has had some of its biggest impacts on customer service. Communication is
often faster, more available, and more effective, encouraging customers to learn more
about the product. Customers can often help themselves, using the content richness
only a website can provide, and they can both shop and pay online without having to
leave the house. Companies can also use email, special messages, and private password
access to special areas for top customers.
Improving Effectiveness
Just putting up a simple website does not create an ebusiness. Ebusiness websites must
create buzz, be innovative, add value, and provide useful information. In short, they
must build a sense of community and collaboration.
MIS measures of efficiency, such as the amount of traffic on a site, don’t tell the whole
story. They do not necessarily indicate large sales volumes, for instance. Many websites
with lots of traffic have minimal sales. The best way to measure ebusiness success is to
use effectiveness MIS metrics, such as the revenue generated by web traffic, number of
new customers acquired by web traffic, and reductions in customer service calls result-
ing from web traffic.
Interactivity measures advertising effectiveness by counting visitor interactions with
the target ad, including time spent viewing the ad, number of pages viewed, and num-
ber of repeat visits to the advertisement. Interactivity measures are a giant step forward
for advertisers, since traditional advertising methods—newspapers, magazines, radio,
and television—provide few ways to track effectiveness. Figure 3.8 displays the ebusi-
ness marketing initiatives allowing companies to expand their reach while measuring
effectiveness. 14
The ultimate outcome of any advertisement is a purchase. Organizations use met-
rics to tie revenue amounts and number of new customers created directly back to the
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websites or banner ads. Through clickstream data they can observe the exact pattern of
a consumer’s navigation through a site. Figure 3.9 displays different types of clickstream
metrics, and Figure 3.10 provides definitions of common metrics based on clickstream
data. To interpret such data properly, managers try to benchmark against other com-
panies. For instance, consumers seem to visit their preferred websites regularly, even
checking back multiple times during a given session. 15
THE FOUR EBUSINESS MODELS
A business model is a plan that details how a company creates, delivers, and generates
revenues. Some models are quite simple: A company produces a good or service and sells
it to customers. If the company is successful, sales exceed costs and the company gener-
ates a profit. Other models are less straightforward, and sometimes it’s not immediately
clear who makes money and how much. Radio and network television are broadcast free
to anyone with a receiver, for instance; advertisers pay the costs of programming.
The majority of online business activities consist of the exchange of products and services
either between businesses or between businesses and consumers. An ebusiness model is a
plan that details how a company creates, delivers, and generates revenues on the Internet.
LO 3.3: Compare the four ebusiness
models.
Marketing via Ebusiness
An associate (affiliate) program allows a business to generate commissions or referral fees when a customer visiting its website clicks on a link to
another merchant’s website. For example, if a customer to a company website clicks on a banner ad to another vendor’s website, the company will
receive a referral fee or commission when the customer performs the desired action, typically making a purchase or completing a form.
A banner ad is a box running across a website that advertises the products and services of another business, usually another ebusiness. The banner
generally contains a link to the advertiser’s website. Advertisers can track how often customers click on a banner ad resulting in a click-through to
their website. Often the cost of the banner ad depends on the number of customers who click on the banner ad. Web-based advertising services can
track the number of times users click the banner, generating statistics that enable advertisers to judge whether the advertising fees are worth pay-
ing. Banner ads are like living, breathing classified ads. Tracking the number of banner ad clicks is an excellent way to understand the effectiveness
of the ad on the website.
A click-through is a count of the number of people who visit one site and click on an advertisement that takes them to the site of the advertiser.
Tracking effectiveness based on click-throughs guarantees exposure to target ads; however, it does not guarantee that the visitor liked the ad, spent
any substantial time viewing the ad, or was satisfied with the information contained in the ad.
A cookie is a small file deposited on a hard drive by a website containing information about customers and their browsing activities. Cookies allow
websites to record the comings and goings of customers, usually without their knowledge or consent.
A pop-up ad is a small web page containing an advertisement that appears outside of the current website loaded in the browser. A pop-under ad is
a form of a pop-up ad that users do not see until they close the current web browser screen.
Viral marketing is a technique that induces websites or users to pass on a marketing message to other websites or users, creating exponential
growth in the message’s visibility and effect. One example of successful viral marketing is Hotmail, which promotes its service and its own advertis-
ers’ messages in every user’s email notes. Viral marketing encourages users of a product or service supplied by an ebusiness to encourage friends
to join. Viral marketing is a word-of-mouth type advertising program.
FIGURE 3.8
Marketing Received Tremendous
Benefits from Ebusiness
FIGURE 3.9
Clickstream Data Metrics Types of Clickstream Data Metrics
The number of page views (i.e., the number of times a particular page has been presented to a visitor).
The pattern of websites visited, including most frequent exit page and most frequent prior website.
Length of stay on the website.
Dates and times of visits.
Number of registrations filled out per 100 visitors.
Number of abandoned registrations.
Demographics of registered visitors.
Number of customers with shopping carts.
Number of abandoned shopping carts.
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Dot-com was the original term for a company operating on the Internet. Ebusiness mod-
els fall into one of the four categories: (1) business-to-business, (2) business-to-consumer,
(3) consumer-to-business, and (4) consumer-to-consumer (see Figure 3.11 ).
Business-to-Business (B2B)
Business-to-business (B2B) applies to businesses buying from and selling to each other
over the Internet. Examples include medical billing service, software sales and licens-
ing, and virtual assistant businesses. B2B relationships represent 80 percent of all online
business and are more complex with greater security needs than the other types. B2B
examples include Oracle and SAP.
Electronic marketplaces, or emarketplaces, are interactive business communities
providing a central market where multiple buyers and sellers can engage in ebusiness
activities. By tightening and automating the relationship between the two parties, they
create structures for conducting commercial exchange, consolidating supply chains,
and creating new sales channels.
Business-to-Consumer (B2C)
Business-to-consumer (B2C) applies to any business that sells its products or services
directly to consumers online. Carfax offers car buyers detailed histories of used vehicles
for a fee. An eshop, sometimes referred to as an estore or etailer, is an online version
METRICS MEASURING WEBSITE SUCCESS
Website Visit Metrics
Stickiness (visit duration time) The length of time a visitor spends on a website.
Raw visit depth (total web pages
exposure per session)
The total number of pages a visitor is exposed to during a single visit to a website.
Visit depth (total unique web pages
exposure per session)
The total number of unique pages a visitor is exposed to during a single visit to a website.
Website Visitor Metrics
Unidentified visitor A visitor is an individual who visits a website. An “unidentified visitor” means that no information about
that visitor is available.
Unique visitor A unique visitor is one who can be recognized and counted only once within a given period of time.
Identified visitor An ID is available that allows a user to be tracked across multiple visits to a website.
Website Hit Metrics
Hits When visitors reach a website, their computer sends a request to the site’s computer server to begin dis-
playing pages. Each element of a requested page is recorded by the website’s server log file as a “hit.”
FIGURE 3.10
Website Metrics
FIGURE 3.11
Ebusiness Models
Ebusiness Term Definition
Business-to-
business (B2B)
Business-to-
consumer (B2C)
Consumer-to-
business (C2B)
Consumer-to-
consumer (C2C)
Applies to businesses buying from and selling
to each other over the Internet.
Applies to any business that sells its products
or services to consumers over the Internet.
Applies to any consumer that sells a product or
service to a business over the Internet.
Applies to sites primarily offering goods and
services to assist consumers interacting with
each other over the Internet.
Business
Business Consumer
Consumer
B2B
C2B
B2C
C2C
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of a retail store where customers can shop at any hour. It can be an extension of an
existing store such as The Gap or operate only online such as Amazon.com. There are
three ways to operate as a B2C: brick-and-mortar, click-and-mortar, and pure play (see
Figure 3.12 ).
Consumer-to-Business (C2B)
Consumer-to-business (C2B) applies to any consumer who sells a product or service
to a business on the Internet. One example is customers of Priceline.com, who set their
own prices for items such as airline tickets or hotel rooms and wait for a seller to decide
whether to supply them. The demand for C2B ebusiness will increase over the next few
years due to customers’ desire for greater convenience and lower prices.
Consumer-to-Consumer (C2C)
Consumer-to-consumer (C2C) applies to customers offering goods and services to each
other on the Internet. A good example of a C2C is an auction where buyers and sellers
solicit consecutive bids from each other and prices are determined dynamically. Craigslist
and eBay are two examples of successful C2C websites, linking like-minded buyers with
sellers. Other types of online auctions include forward auctions where sellers market to
many buyers and the highest bid wins, and reverse auctions where buyers select goods
and services from the seller with the lowest bid.
Ebusiness Forms and Revenue-Generating Strategies
As more and more companies began jumping on the ebusiness bandwagon new forms
of ebusiness began to emerge (see Figure 3.13 ). Many of the new forms of ebusiness went
to market without clear strategies on how they were going to generate revenue. Google
is an excellent example of an ebusiness that did not figure out a way to generate profits
until many years after its launch. 16
Google’s primary line of business is its search engine; however, the company does
not generate revenue from people using its site to search the Internet. It generates
revenue from the marketers and advertisers that pay to place their ads on the site.
About 200 million times each day, people from all over the world access Google to
perform searches. AdWords, a part of the Google site, allows advertisers to bid on
common search terms. The advertisers simply enter in the keywords they want to bid
FIGURE 3.12
Forms of Business-to-Consumer
Operations
Brick-and-Mortar Business
A business that operates in
a physical store without an
Internet presence.
Example: T.J. Maxx
Pure-Play (Virtual) Business
A business that operates on
the Internet only without a
physical store.
Example: Google
Click-and-Mortar Business
A business that operates
in a physical store and on
the Internet.
Example: Barnes & Noble
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on and the maximum amounts they want to pay per click per day. Google then deter-
mines a price and a search ranking for those keywords based on how much other
advertisers are willing to pay for the same terms. Pricing for keywords can range from
5 cents to $10 a click. Paid search is the ultimate in targeted advertising because con-
sumers type in exactly what they want. A general search term such as tropical vaca-
tion costs less than a more specific term such as Hawaiian vacation. Whoever bids
FIGURE 3.13
Ebusiness Forms Form Description Examples
Content providers Generate revenues by providing digital
content such as news, music, photos,
or videos.
Netflix.com , iTunes.com , CNN.com
Infomediaries Provide specialized information on
behalf of producers of goods and
services and their potential customers
Edmunds.com , BizRate.com ,
Bloomberg.com , Zillow.com
Online marketplaces Bring together buyers and sellers of
products and services.
Amazon.com , eBay.com , Priceline.com
Portals Operate central website for users to
access specialized content and other
services.
Google.com , Yahoo.com , MSN.com
Service providers Provide services such as photo shar-
ing, video sharing, online backup and
storage.
Flickr.com , Mapquest.com ,
YouTube.com
Transaction brokers Process online sales transactions. Etrade.com , Charlesschwab.com ,
Fidelity.com
FIGURE 3.14
Different Forms of Searching
Search Engine
Search Engine
Ranking
Search
Optimization
Pay Per Click
Pay Per Call
Pay Per
Conversion
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the most for a term appears in a sponsored advertisement link either at the top or
along the side of the search-results page. 17
A search engine is website software that finds other pages based on keyword matching
similar to Google. Search engine ranking evaluates variables that search engines use to
determine where a URL appears on the list of search results. Search engine optimization
(SEO) combines art along with science to determine how to make URLs more attractive
to search engines resulting in higher search engine ranking (see Figure 3.14 ). The bet-
ter the SEO, the higher the ranking for a website in the list of search engine results. SEO
is critical because most people only view the first few pages of a search result. After that
a person is more inclined to begin a new search than review pages and pages of search
results. Websites can generate revenue through:
■ Pay-per-click : generates revenue each time a user clicks on a link to a retailer’s
website.
■ Pay-per-call : generates revenue each time a user clicks on a link that takes the user
directly to an online agent waiting for a call.
■ Pay-per-conversion : generates revenue each time a website visitor is converted to a
customer.
Ebusinesses must have a revenue model, or a model for making money. For instance,
will it accept advertising, or sell subscriptions or licensing rights? Figure 3.15 lists the dif-
ferent benefits and challenges of various ebusiness revenue models. 18
BUSINESS DRIVEN STARTUP
Rich Aberman and Bill Clerico found themselves in the difficult position of
deciding whether to graduate from college and pursue their dreams of build-
ing their own company or heading off to graduate school and entry-level jobs.
Aberman choose to head off to law school while Clerico choose an entry-level
job as an investment banker. After several months they both decided that it was
now or never if they truly wanted to build their dream business as they were
both becoming more and more comfortable with their new lifestyles. Obviously,
it would become harder and harder to leave their comfortable positions for the
uncertainty of being an entrepreneur.
Aberman left law school and Clerico quit his job and the pair cofounded
WePay, an online funds management company. WePay allows individuals and
groups all over the world to establish an account and collect money in a vari-
ety of ways—from paper checks to credit cards—and then use a debit card to
spend the money in the account. WePay collects transaction fees ranging from
50 cents to 3 percent of credit card payments. Luckily, their decision paid off
and a little over a year after founding the company, Aberman and Clerico had
raised nearly $2 million from high-profile Internet investors. WePay boasts sev-
eral thousand customers ranging from sports teams to fraternities to groups of
roommates managing rent and utilities. 19
Have you thought of starting your own business? What are the advantages
and challenges associated with building your own business early in your
career? Research the Internet and find three examples of highly successful col-
lege start-ups. What do you think were the primary reasons the start-ups found
success? What are the advantages of starting your own business while you are
still in college? What are a few of the challenges you might face if you choose to
start your own business today?
Go for It!
APPLY YOUR KNOWLEDGE
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EBUSINESS TOOLS FOR CONNECTING
AND COMMUNICATING
As firms began to move online, more MIS tools were created to support ebusiness pro-
cesses and requirements. The tools supporting and driving ebusiness are highlighted in
Figure 3.16 and covered below in detail.
Email
Email, short for electronic mail, is the exchange of digital messages over the Internet.
No longer do business professionals have to wait for the mail to receive important docu-
ments as email single-handedly increased the speed of business by allowing the transfer
of documents with the same speed as the telephone. Its chief business advantage is the
ability to inform and communicate with many people simultaneously, immediately, and
with ease. There are no time or place constraints, and users can check, send, and view
emails whenever they require.
An Internet service provider (ISP) is a company that provides access to the Internet
for a monthly fee. Major ISPs in the United States include AOL, AT&T, Comcast, Earthlink,
and Netzero, as well as thousands of local ISPs including regional telephone companies.
Instant Messaging
Real-time communication occurs when a system updates information at the same rate it
receives it. Email was a great advancement over traditional communication methods such
as the U.S. mail, but it did not operate in real time. Instant messaging (IMing) is a service
that enables instant or real-time communication between people. Businesses immedi-
ately saw what they could do:
■ Answer simple questions quickly and easily.
■ Resolve questions or problems immediately.
LO 3.4: Describe the six ebusiness
tools for connecting and
communicating.
FIGURE 3.15
Ebusiness Revenue Models Ebusiness
Revenue Model Benefits Challenges
Advertising fees ■ Well-targeted advertisements can be
perceived as value-added content by
trading participants.
■ Easy to implement
■ Limited revenue potential
■ Overdone or poorly targeted adver-
tisements can be disturbing ele-
ments on the website.
License fees ■ Creates incentives to do many
transactions
■ Customization and back-end integra-
tion lead to lock-in of participants.
■ Up-front fee is a barrier to entry for
participants.
■ Price differentiation is complicated.
Subscription fees ■ Creates incentives to do transactions
■ Price can be differentiated.
■ Possibility to build additional revenue
from new user groups
■ Fixed fee is a barrier to entry for
participants.
Transaction fees ■ Can be directly tied to savings (both
process and price savings)
■ Important revenue source when high
level of liquidity (transaction volume)
is reached
■ If process savings are not completely
visible, use of the system is discour-
aged (incentive to move transactions
offline).
■ Transaction fees likely to decrease
with time
Value-added
services fees
■ Service offering can be
differentiated.
■ Price can be differentiated
■ Possibility to build additional revenue
from established and new user
groups (third parties)
■ Cumbersome process for customers
to continually evaluate new services
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■ Transmit messages as fast as naturally flowing conversation.
■ Easily hold simultaneous IM sessions with multiple people.
■ Eliminate long-distance phone charges.
■ Quickly identifying which employees are at their computers.
Podcasting
Podcasting converts an audio broadcast to a digital music player. Podcasts can increase
marketing reach and build customer loyalty. Companies use podcasts as marketing
communication channels discussing everything from corporate strategies to detailed
product overviews. The senior executive team can share weekly or monthly pod-
casts featuring important issues or expert briefings on new technical or marketing
developments.
Videoconferencing
A videoconference allows people at two or more locations to interact via two-way video
and audio transmissions simultaneously as well as share documents, data, computer
displays, and whiteboards. Point-to-point videoconferences connect two people, and
multipoint conferences connect more than two people at multiple locations.
Videoconferences can increase productivity because users participate without leav-
ing their offices. It can improve communication and relationships, because partici-
pants see each other’s facial expressions and body language, both important aspects of
communication that are lost with a basic telephone call or email. It also reduces travel
expenses, a big win for firms facing economic challenges. Of course, nothing can replace
meeting someone face-to-face and shaking hands, but videoconferencing offers a viable
and cost-effective alternative.
FIGURE 3.16
Ebusiness Tools
Content
Management
System
Email
Podcasting
Videoconferencing
Instant
Messaging
Web
Conferencing
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Web Conferencing
Web conferencing, or a webinar, blends videoconferencing with document sharing
and allows the user to deliver a presentation over the web to a group of geographically
dispersed participants. Regardless of the type of hardware or software the attendees are
running, every participant can see what is on anyone else’s screen. Schools use web con-
ferencing tools such as Illuminate Live to deliver lectures to students, and businesses use
tools such as WebEx to demonstrate products. Web conferencing is not quite like being
there, but professionals can accomplish more sitting at their desks than in an airport
waiting to make travel connections.
Content Management Systems
In the fourth century BC Aristotle catalogued the natural world according to a systematic
organization, and the ancient library at Alexandria was reportedly organized by subject,
connecting like information with like. Today content management systems (CMS) help
companies manage the creation, storage, editing, and publication of their website con-
tent. CMSs are user-friendly; most include web-based publishing, search, navigation,
and indexing to organize information; and they let users with little or no technical exper-
tise make website changes.
A search is typically carried out by entering a keyword or phrase (query) into a text
field and clicking a button or a hyperlink. Navigation facilitates movement from one web
page to another. Content management systems play a crucial role in getting site visitors
to view more than just the home page. If navigation choices are unclear, visitors may hit
the “Back” button on their first (and final) visit to a website. One rule of thumb to remem-
ber is that each time a user has to click to find search information, there is a 50 percent
chance the user will leave the website instead. A key principle of good website design,
therefore, is to keep the number of clicks to a minimum.
Taxonomy is the scientific classification of organisms into groups based on similari-
ties of structure or origin. Taxonomies are also used for indexing the content on the web-
site into categories and subcategories of topics. For example, car is a subtype of vehicle.
Every car is a vehicle, but not every vehicle is a car; some vehicles are vans, buses, and
trucks. Taxonomy terms are arranged so that narrower/more specific/“child” terms
fall under broader/more generic/“parent” terms. Information architecture is the set
of ideas about how all information in a given context should be organized. Many com-
panies hire information architects to create their website taxonomies. A well-planned
taxonomy ensures search and navigation are easy and user-friendly. If the taxonomy is
confusing, the site will soon fail.
THE CHALLENGES OF EBUSINESS
Although the benefits of ebusiness are enticing, developing, deploying, and man-
aging ebusiness systems is not always easy. Figure 3.17 lists the challenges facing
ebusiness. 20
LO 3.5: Identify the four challenges
associated with ebusiness.
FIGURE 3.17
Challenges Facing Ebusiness
Identifying
Limited Market
Segments
Managing
Consumer Trust
Ensuring
Consumer
Protection
Adhering to
Taxation Rules
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Identifying Limited Market Segments
The main challenge of ebusiness is the lack of growth in some sectors due to product
or service limitations. The online food sector has not grown in sales, in part because
food products are perishable and consumers prefer to buy them at the supermarket
as needed. Other sectors with limited ebusiness appeal include fragile or consumable
goods and highly sensitive or confidential businesses such as government agencies.
Managing Consumer Trust
Trust in the ebusiness exchange deserves special attention. The physical separation of
buyer and seller, the physical separation of buyer and merchandise, and customer per-
ceptions about the risk of doing business online provide unique challenges. Internet
marketers must develop a trustworthy relationship to make that initial sale and generate
customer loyalty. A few ways to build trust when working online include being accessible
and available to communicate in person with your customers; using customers’ testimo-
nials that link to your client website or to provide their contact information; accepting
legitimate forms of payment such as credit cards.
Ensuring Consumer Protection
An organization that wants to dominate with superior customer service as a competi-
tive advantage must not only serve but also protect its customers, guarding them against
unsolicited goods and communication, illegal or harmful goods, insufficient informa-
tion about goods and suppliers, invasion of privacy and misuse of personal information,
and online fraud. System security, however, must not make ebusiness websites inflexible
or difficult to use.
Adhering to Taxation Rules
Many believe that U.S. tax policy should provide a level playing field for traditional retail
businesses, mail-order companies, and online merchants. Yet the Internet marketplace
remains mostly free of traditional forms of sales tax, partly because ecommerce law is
vaguely defined and differs from state to state. For now, companies that operate online
must obey a patchwork of rules about which customers are subject to sales tax on their
purchases and which are not.
section 3.2 Web 2.0: Business 2.0
L E A R N I N G O U T C O M E S
3.6 Explain Web 2.0, and identify its four characteristics.
3.7 Explain how Business 2.0 is helping communities network and collaborate.
3.8 Describe the three Business 2.0 tools for collaborating.
3.9 Explain the three challenges associated with Business 2.0.
3.10 Describe Web 3.0 and the next generation of online business.
WEB 2.0: ADVANTAGES OF BUSINESS 2.0
In the mid-1990s the stock market reached an all-time high as companies took advan-
tage of ebusiness and Web 1.0, and many believed the Internet was the wave of the
future. When new online businesses began failing to meet earning expectations, how-
ever, the bubble burst. Some then believed the ebusiness boom was over, but they could
not have been more wrong.
Web 2.0 (or Business 2.0 ) is the next generation of Internet use—a more mature, dis-
tinctive communications platform characterized by new qualities such as collaboration,
LO 3.6: Explain Web 2.0, and identify
its four characteristics.
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sharing, and free. Business 2.0 encourages user participation and the formation of
communities that contribute to the content. In Business 2.0, technical skills are no lon-
ger required to use and publish information to the World Wide Web, eliminating entry
barriers for online business.
Traditional companies tended to view technology as a tool required to perform a pro-
cess or activity, and employees picked up information by walking through the office or
hanging out around the water cooler. Business 2.0 technologies provide a virtual envi-
ronment that, for many new employees, is just as vibrant and important as the physical
environment. Figure 3.18 highlights the common characteristics of Web 2.0. 22
BUSINESS DRIVEN GLOBALIZATION
Kiva’s mission is to connect people through lending for the sake of alleviating
poverty. Kiva is a micro-lending online nonprofit organization that enables
individuals to lend directly to entrepreneurs throughout the world. If you want
to participate in Kiva you simply browse the website ( www.kiva.org ) and choose
an entrepreneur that interests you, make a loan, then track your entrepreneur
for the next 6 to 12 months while he or she builds the business and makes the
funds to repay the loan. When the loan is up you can relend the money to some-
one else who is in need. 21
Kiva is an excellent example of blending ethics and information technology.
How is Kiva operating differently than traditional nonprofits? What are the risks
associated with investing in Kiva? When you invest in Kiva you run three pri-
mary risks: entrepreneur risk, local field partner risk, and country risk. Analyze
each of these risks for potential unethical issues that might arise when donating
to Kiva.
Collaborating for
Nonprofits—Kiva
APPLY YOUR KNOWLEDGE
Web 2.0 Characteristics
Content
Sharing
Through Open
Sourcing
Collaboration
Inside the
Organization
User-
Contributed
Content
Collaboration
Outside the
Organization
FIGURE 3.18
Four Characteristics of Web 2.0
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Content Sharing Through Open Sourcing
An open system consists of nonproprietary hardware and software based on publicly
known standards that allows third parties to create add-on products to plug into or
interoperate with the system. Thousands of hardware devices and software applications
created and sold by third-party vendors interoperate with computers, such as iPods,
drawing software, and mice.
Source code contains instructions written by a programmer specifying the actions to
be performed by computer software. Open source refers to any software whose source
code is made available free (not on a fee or licensing basis as in ebusiness) for any third
party to review and modify. Business 2.0 is capitalizing on open source software. Mozilla,
for example, offers its Firefox web browser and Thunderbird email software free. Mozilla
believes the Internet is a public resource that must remain open and accessible to all; it
continuously develops free products by bringing together thousands of dedicated volun-
teers from around the world. Mozilla’s Firefox now holds over 20 percent of the browser
market and is quickly becoming a threat to Microsoft’s Internet Explorer. How do open
source software companies generate revenues? Many people are still awaiting an answer
to this very important question. 23
User-Contributed Content
Ebusiness was characterized by a few companies or users posting content for the
masses. Business 2.0 is characterized by the masses posting content for the masses.
User-contributed content (or user-generated content ) is created and updated by many
users for many users. Websites such as Flickr, Wikipedia, and YouTube, for example,
move control of online media from the hands of leaders to the hands of users. Netflix
and Amazon both use user-generated content to drive their recommendation tools, and
websites such as Yelp use customer reviews to express opinions on products and ser-
vices. Companies are embracing user-generated content to help with everything from
marketing to product development and quality assurance.
One of the most popular forms of user-generated content is a reputation system,
where buyers post feedback on sellers. EBay buyers voluntarily comment on the qual-
ity of service, their satisfaction with the item traded, and promptness of shipping. Sell-
ers comment about prompt payment from buyers or respond to comments left by the
buyer. Companies ranging from Amazon to restaurants are using reputation systems to
improve quality and enhance customer satisfaction.
Collaboration Inside the Organization
A collaboration system is a set of tools that supports the work of teams or groups by
facilitating the sharing and flow of information. Business 2.0’s collaborative mind-set
generates more information faster from a wider audience. Collective intelligence is
collaborating and tapping into the core knowledge of all employees, partners, and cus-
tomers. Knowledge can be a real competitive advantage for an organization. The most
common form of collective intelligence found inside the organization is knowledge
management (KM), which involves capturing, classifying, evaluating, retrieving, and
sharing information assets in a way that provides context for effective decisions and
actions. The primary objective of knowledge management is to be sure that a compa-
ny’s knowledge of facts, sources of information, and solutions are readily available to all
employees whenever it is needed. A knowledge management system (KMS) supports
the capturing, organization, and dissemination of knowledge (i.e., know-how) through-
out an organization. KMS can distribute an organization’s knowledge base by intercon-
necting people and digitally gathering their expertise.
A great example of a knowledge worker is a golf caddie. Golf caddies give advice such
as, “The rain makes the third hole play 10 yards shorter.” If a golf caddie is good and
gives accurate advice it can lead to big tips. Collaborating with other golf caddies can
provide bigger tips for all. How can knowledge management make this happen? Caddies
could be rewarded for sharing course knowledge by receiving prizes for sharing knowl-
edge. The course manager could compile all of the tips and publish a course notebook
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for distribution to all caddies. The goal of a knowledge management system is that every-
one wins. Here the caddies make bigger tips and golfers improve their play by benefiting
from the collaborative experiences of the caddies, and the course owners win as busi-
ness increases.
KM has assumed greater urgency in American business over the past few years as mil-
lions of baby boomers prepare to retire. When they punch out for the last time, the knowl-
edge they gleaned about their jobs, companies, and industries during their long careers
will walk out with them—unless companies take measures to retain their insights.
Explicit and Tacit Knowledge Not all information is valuable. Individuals must
determine what information qualifies as intellectual and knowledge-based assets.
In general, intellectual and knowledge-based assets fall into one of two categories:
explicit or tacit. As a rule, explicit knowledge consists of anything that can be doc-
umented, archived, and codified, often with the help of MIS. Examples of explicit
knowledge are assets such as patents, trademarks, business plans, marketing research,
and customer lists. Tacit knowledge is the knowledge contained in people’s heads.
The challenge inherent in tacit knowledge is figuring out how to recognize, gener-
ate, share, and manage knowledge that resides in people’s heads. While information
technology in the form of email, instant messaging, and related technologies can help
facilitate the dissemination of tacit knowledge, identifying it in the first place can be a
major obstacle.
Collaboration Outside the Organization
The most common form of collective intelligence found outside the organization is
crowdsourcing, which refers to the wisdom of the crowd. The idea that collective intel-
ligence is greater than the sum of its individual parts has been around for a long time
(see Figure 3.19 ). With Business 2.0 the ability to efficiently tap into its power is emerg-
ing. For many years organizations believed that good ideas came from the top. CEOs
collaborated only with the heads of sales and marketing, the quality assurance expert,
or the road warrior salesman. The organization chart governed who should work with
whom and how far up the chain of command a suggestion or idea would travel. With
Business 2.0 this belief is being challenged, as firms capitalize on crowdsourcing by
opening up a task or problem to a wider group to find better or cheaper results from
outside the box.
With Business 2.0, people can be continuously connected, a driving force behind
collaboration. Traditional ebusiness communications were limited to face-to-face
FIGURE 3.19
Crowdsourcing: The Crowd Is
Smarter Than the Individual
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conversations and one-way technologies that used asynchronous communications, or
communication such as email in which the message and the response do not occur at
the same time. Business 2.0 brought synchronous communication, or communications
that occur at the same time such as IM or chat. Ask a group of college students when they
last spoke to their parents. For most the answer is less than hour ago, as opposed to the
traditional response of a few days ago. In business too, continuous connections are now
expected in today’s collaborative world.
NETWORKING COMMUNITIES WITH BUSINESS 2.0
Social media refers to websites that rely on user participation and user-contributed
content, such as Facebook, YouTube, and Digg. A social network is an application that
connects people by matching profile information. Providing individuals with the ability
to network is by far one of the greatest advantages of Business 2.0. Social networking is
the practice of expanding your business and/or social contacts by constructing a per-
sonal network (see Figure 3.20 ). Social networking sites provide two basic functions. The
first is the ability to create and maintain a profile that serves as an online identity within
the environment. The second is the ability to create connections between other people
within the network. Social networking analysis (SNA) maps group contacts (personal
and professional) identifying who knows each other and who works together. In a com-
pany it can provide a vision of how employees work together. It can also identify key
experts with specific knowledge such as how to solve a complicated programming prob-
lem or launch a new product.
Business 2.0 simplifies access to information and improves the ability to share it. Instead
of spending $1,000 and two days at a conference to meet professional peers, business
LO 3.7: Explain how Business 2.0 is
helping communities network and
collaborate.
BUSINESS DRIVEN INNOVATION
Deciding whether a given site is Web 1.0 or Web 2.0 is not as straightforward
as it appears. Websites do not have version numbers and many are dynamic
enough to be in “permanent beta testing.” Facebook and MySpace are good
Web 2.0 examples, primarily due to their social networking functions and their
reliance on user-generated content. Some sites are easy to identify as Web 1.0
in their approach: Craigslist, for example, emulates an email list server and has
no public user profiles or dynamic pages. Many other sites are hard to catego-
rize. Amazon.com launched in the mid-1990s and has gradually added features
over time. The principal content (product descriptions) is not user-created, but
much of the site’s value is added by user reviews and ratings. Profiles of users do
exist, but social features such as friend links, although present, are not widely
adopted. 24
Review the following websites and categorize them as Web 1.0, Web 2.0, or
both. Be sure to justify your answer with the characteristics that classify the
website as 1.0, 2.0, or both. Why would certain types of businesses choose to
remain Web 1.0 and not offer collaboration or open source capabilities?
■ www.ebay.com ; www.amazon.com ; www.facebook.com ; www.foursquare.
com ; www.paypal.com ; www.vatican.va ; www.twitter.com ; www.irs.gov ;
www.google.com ; www.youtube.com .
■ For the following be sure to use your personal websites as references. www
.Your college’s website.com ; www.Your Visa Card.com ; www.Your Bank.com
Is It Web 1.0 or
Web 2.0?
APPLY YOUR KNOWLEDGE
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people can now use social networks such as LinkedIn to meet new contacts for recruiting,
prospecting, and identifying experts on a topic. With executive members from all the For-
tune 500 companies, LinkedIn has become one of the more useful recruiting tools on the
web.
Social networking sites can be especially useful to employers trying to find job can-
didates with unique or highly specialized skill sets that may be harder to locate in larger
communities. Many employers also search social networking sites to find “dirt” and
character references for potential employees. Keep in mind that what you post on the
Internet stays on the Internet. 26
Social Tagging
Tags are specific keywords or phrases incorporated into website content for means of
classification or taxonomy. An item can have one or more tags associated with it, to allow
for multiple browseable paths through the items, and tags can be changed with minimal
effort (see Figure 3.21 ). Social tagging describes the collaborative activity of marking
shared online content with keywords or tags as a way to organize it for future naviga-
tion, filtering, or search. The entire user community is invited to tag, and thus essentially
defines, the content. Flickr allows users to upload images and tag them with appropriate
keywords. After enough people have done so, the resulting tag collection will identify
images correctly and without bias.
Folksonomy is similar to taxonomy except that crowdsourcing determines the tags
or keyword-based classification system. Using the collective power of a community to
identify and classify content significantly lowers content categorization costs, because
there is no complicated nomenclature to learn. Users simply create and apply tags as
they wish. For example, while cell phone manufacturers often refer to their products as
mobile devices, the folksonomy could include mobile phone, wireless phone, smart-
phone, iPhone, BlackBerry, and so on. All these keywords, if searched, should take a user
to the same site. Folksonomies reveal what people truly call things (see Figure 3.22 ). They
have been a point of discussion on the web because the whole point of having a website
is for your customers to find it. The majority of websites are found through search terms
that match the content. 27
A website bookmark is a locally stored URL or the address of a file or Internet page
saved as a shortcut. Social bookmarking allows users to share, organize, search, and
manage bookmarks. Del.icio.us, a website dedicated to social bookmarking, provides
users with a place to store, categorize, annotate, and share favorites. StumbleUpon is
another popular social bookmarking website that allows users to locate interesting
FIGURE 3.20
Social Network Example 25
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websites based on their favorite subjects. The more you use the service, the more the
system “learns” about your interests and the better it can show you websites that inter-
est you. StumbleUpon represents a new social networking model in which content finds
the users instead of the other way around. StumbleUpon is all about the users and the
content they enjoy. 28
FIGURE 3.22
Folksonomy Example: The User-
Generated Names for Cellular
Phones Cellular
Phone
Mobile
Phone
BlackBerry
iPhone
Cell
FIGURE 3.21
Social Tagging Occurs When
Many Individuals Categorize
Content
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BUSINESS 2.0 TOOLS FOR COLLABORATING
Social networking and collaborating are leading businesses in new directions, and
Figure 3.23 provides an overview of the tools that harness the “power of the people,”
allowing users to share ideas, discuss business problems, and collaborate on solutions.
Blogs
A blog, or Web log, is an online journal that allows users to post their own comments,
graphics, and video. Unlike traditional HTML web pages, blog websites let writers
communicate—and reader’s respond—on a regular basis through a simple yet customizable
interface that does not require any programming.
From a business perspective, blogs are no different from marketing channels such as
video, print, audio, or presentations. They all deliver results of varying kinds. Consider
Sun Microsystem’s Jonathan Schwartz and GM’s Bob Lutz, who use their blogs for mar-
keting, sharing ideas, gathering feedback, press response, and image shaping. Starbucks
has developed a blog called My Starbucks Idea, allowing customers to share ideas, tell
Starbucks what they think of other people’s ideas, and join discussions. Blogs are an ideal
mechanism for many businesses since they can focus on topic areas more easily than
traditional media, with no limits on page size, word count, or publication deadline. 29
LO 3.8: Describe the three Business
2.0 tools for collaborating.
BUSINESS DRIVEN DEBATE
Before the Internet, angry customers could write letters or make phone calls,
but their individual power to find satisfaction or bring about change was rela-
tive weak. Now, disgruntled consumers can create a website or upload a video
bashing a product or service, and their efforts can be instantly seen by millions
of people. Though many companies monitor the Internet and try to respond
to such postings quickly, power has clearly shifted to the consumer. Create an
argument for or against the following statement: “Social networking has given
power to the consumer that benefits society and creates socially responsible
corporations.”
Anti-Social
Networking
APPLY YOUR KNOWLEDGE
FIGURE 3.23
Business 2.0 Communication
and Collaboration Tools

• An online journal
that allows users to
post their own
comments, graphics,
and videos

• Popular business
examples include
Sweet Leaf Tea,
Stoneyfield Farm,
Nuts about
Southwest, Disney
Parks
• Collaborative
website that allows
users to add,
remove, and change
content

• Popular business
examples include
Wikipedia, National
Institute of Health,
Intelopedia,
LexisNexis, Wiki for
Higher Education
• Content from
more than one
source to create a
new product or
service
• Examples include
Zillow, Infopedia,
Trendsmap,
SongDNA,
ThisWeKnow
BLOG WIKI MASHUP
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Microblogs Microblogging is the practice of sending brief posts (140 to 200 charac-
ters) to a personal blog, either publicly or to a private group of subscribers who can read
the posts as IMs or as text messages. The main advantage of microblogging is that posts
can be submitted by a variety of means, such as instant messaging, email, or the web. By
far the most popular microblogging tool is Twitter, which allows users to send microblog
entries called tweets to anyone who has registered to “follow” them. Senders can restrict
delivery to people they want to follow them or, by default, allow open access. Microblog-
ging is covered in detail in Chapter 7. 30
Real Simple Syndication (RSS) Real Simple Syndication (RSS) is a web format
used to publish frequently updated works, such as blogs, news headlines, audio, and
video, in a standardized format. An RSS document or feed includes full or summarized
text, plus other information such as publication date and authorship. News websites,
blogs, and podcasts use RSS, constantly feeding news to consumers instead of having
them search for it. In addition to facilitating syndication, RSS allows a website’s frequent
readers to track updates on the site.
Wikis
A wiki (the word is Hawaiian for quick) is a type of collaborative web page that allows
users to add, remove, and change content, which can be easily organized and reorga-
nized as required. While blogs have largely drawn on the creative and personal goals
of individual authors, wikis are based on open collaboration with any and everybody.
Wikipedia, the open encyclopedia that launched in 2001, has become one of the 10
most popular web destinations, reaching an estimated 217 million unique visitors a
month. 31
A wiki user can generally alter the original content of any article, while the blog user
can only add information in the form of comments. Large wikis, such as Wikipedia, pro-
tect the quality and accuracy of their information by assigning users roles such as reader,
editor, administrator, patroller, policy maker, subject matter expert, content maintainer,
software developer, and system operator. Access to some important or sensitive Wikipe-
dia material is limited to users in these authorized roles. 32
The network effect describes how products in a network increase in value to users
as the number of users increases. The more users and content managers on a wiki, the
greater the network affect because more users attract more contributors, whose work
attracts more users, and so on. For example, Wikipedia becomes more valuable to users
as the number of its contributors increases.
Wikis internal to firms can be vital tools for collecting and disseminating knowl-
edge throughout an organization, across geographic distances, and between functional
business areas. For example, what U.S. employees call a “sale” may be called “an order
booked” in the United Kingdom, an “order scheduled” in Germany, and an “order pro-
duced” in France. The corporate wiki can answer any questions about a business process
or definition. Companies are also using wikis for documentation, reporting, project man-
agement, online dictionaries, and discussion groups. Of course, the more employees who
use the corporate wiki, the greater the network effect and valued added for the company.
Mashups
A mashup is a website or web application that uses content from more than one source
to create a completely new product or service. The term is typically used in the context
of music; putting Jay-Z lyrics over a Radiohead song makes something old new. The
web version of a mashup allows users to mix map data, photos, video, news feeds, blog
entries, and so on to create content with a new purpose. Content used in mashups is
typically sourced from an application programming interface (API), which is a set of
routines, protocols, and tools for building software applications. A programmer then
puts these building blocks together.
Most operating environments, such as Microsoft Windows, provide an API so that
programmers can write applications consistent with them. Many people experiment-
ing with mashups are using Microsoft, Google, eBay, Amazon, Flickr, and Yahoo APIs,
leading to the creation of mashup editors. Mashup editors are WYSIWYG, or What You
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See Is What You Get tools. They provide a visual interface to build a mashup, often allow-
ing the user to drag and drop data points into a web application.
Whoever thought technology could help sell bananas? Dole Organic now places
three-digit farm codes on each banana and creates a mashup using Google Earth and
its banana database. Socially and environmentally conscious buyers can plug the num-
bers into Dole’s website and look at a bio of the farm where the bananas were raised.
The site tells the story of the farm and its surrounding community, lists its organic
certifications, posts some photos, and offers a link to satellite images of the farm in
Google Earth. Customers can personally monitor the production and treatment of their
fruit from the tree to the grocer. The process assures customers that their bananas have
been raised to proper organic standards on an environmentally friendly, holistically
minded plantation. 34
THE CHALLENGES OF BUSINESS 2.0
As much as Business 2.0 has positively changed the global landscape of business, a few
challenges remain in open source software, user-contributed content systems, and col-
laboration systems, all highlighted in Figure 3.24 . We’ll briefly describe each one.
Technology Dependence
Many people today expect to be continuously connected, and their dependence on tech-
nology glues them to their web connections for everything from web conferencing for a
university class or work project to making plans with friends for dinner. If a connection
is down, how will they function? How long can people go without checking email, text
messaging, or listening to free music on Pandora or watching on-demand television? As
society becomes more technology-dependent, outages hold the potential to cause ever-
greater havoc for people, businesses, and educational institutions.
LO 3.9: Explain the three challenges
associated with Business 2.0.
BUSINESS DRIVEN MIS
It’s a common, if not a little morbid, practice for news organizations to pre-
pare obituaries well in advance of celebrities’ actual death. So Bloomberg had a
17-page obituary for Apple’s Steve Jobs ready to run on his death; unfortunately,
the obit was accidently published in 2008 on Bloomberg ’s financial website. The
error occurred despite the markers on the story saying “Hold for Release” and
“Do Not Use.”
In addition to publishing the obituary, Bloomberg also accidentally pub-
lished the list of people its reporters should contact when Steve Jobs does
die. That list includes Microsoft founder Bill Gates, former Vice President Al
Gore (a member of Apple’s board of directors), and Google CEO Eric Schmidt.
Bloomberg caught the mistake and pulled the obituary within minutes, but in
today’s instant information culture, the damage was already done. 33
While Jobs was very much alive in 2008, few stockholders may have gone into
cardiac arrest after reading the obituary. What kind of financial impact could a
story like this have on Apple? With so many different forms of collaboration, how
does a company monitor and track each one to ensure the content is error-free?
Once erroneous content is posted to the Internet or written in a text message,
what can a company do to rectify the situation? What types of safeguards can a
company implement to ensure false information is not posted to a wiki or blog?
When Did Steve
Jobs Actually
Pass Away?
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Information Vandalism
Open source and sharing are both major advantages of Business 2.0, and ironically they
are major challenges as well. Allowing anyone to edit anything opens the door for indi-
viduals to purposely damage, destroy, or vandalize website content. One of the most
famous examples of wiki vandalism occurred when a false biography entry read that
John Seigenthaler Sr. was assistant to Attorney General Robert F. Kennedy in the early
1960s and was thought to have been directly involved in the assassinations of both Ken-
nedy and his brother, President John F. Kennedy. Seigenthaler did work as an assistant to
Robert Kennedy, but he was never involved in the assassinations. Wiki vandalism is a hot
issue and for this reason wiki software can now store all versions of a web page, track-
ing updates and changes and ensuring the site can be restored to its original form if the
site is vandalized. It can also color-code the background ensuring the user understands
which areas have been validated and which areas have not. The real trick to wiki soft-
ware is to determine which statements are true and which are false, a huge issue when
considering how easy and frequently wiki software is updated and changed. 35
Violations of Copyright and Plagiarism
Online collaboration makes plagiarism as easy as clicking a mouse. Unfortunately a great
deal of copyrighted material tends to find its ways to blogs and wikis where many times
blame cannot be traced to a single person. Clearly stated copyright and plagiarism policies
are a must for all corporate blogs and wikis. These topics are discussed in detail in Chapter 4.
WEB 3.0: DEFINING THE NEXT GENERATION
OF ONLINE BUSINESS OPPORTUNITIES
While Web 1.0 refers to static text-based information websites and Web 2.0 is about user-
contributed content, Web 3.0 is based on “intelligent” web applications using natural lan-
guage processing, machine-based learning and reasoning, and intelligent applications.
Web 3.0 is the next step in the evolution of the Internet and web applications. Business
leaders who explore its opportunities will be the first to market with competitive
advantages.
Web 3.0 offers a way for people to describe information such that computers can start
to understand the relationships among concepts and topics. To demonstrate the power
of Web 3.0, let’s look at a few sample relationships, such as Adam Sandler is a come-
dian, Lady Gaga is a singer, and Hannah is friends with Sophie. These are all examples
of descriptions that can be added to web pages allowing computers to learn about rela-
tionships while displaying the information to humans. With this kind of information in
place, there will be a far richer interaction between people and machines with Web 3.0.
Applying this type of advanced relationship knowledge to a company can create new
opportunities. After all, businesses run on information. Where Web 2.0 brings peo-
ple closer together with information using machines, Web 3.0 brings machines closer
together using information. These new relationships unite people, machines, and infor-
mation so a business can be smarter, quicker, more agile, and more successful.
LO 3.10: Describe Web 3.0 and the
next generation of online business.
FIGURE 3.24
Challenges of Business 2.0
Technology Dependence
Information Vandalism
Violations of Copyright
and Plagiarism
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One goal of Web 3.0 is to tailor online searches and requests specifically to users’ pref-
erences and needs. For example, instead of making multiple searches, the user might
type a complex sentence or two in a Web 3.0 browser, such as “I want to see a funny
movie and then eat at a good Mexican restaurant. What are my options?” The Web 3.0
browser will analyze the request, search the web for all possible answers, organize the
results, and present them to the user.
Tim Berners-Lee, one of the founders of the Internet, has described the semantic
web as a component of Web 3.0 that describes things in a way that computers can
understand. The semantic web is not about links between web pages; rather it
describes the relationships between things (such as A is a part of B and Y is a member
of Z) and the properties of things (size, weight, age, price). If information about
music, cars, concert tickets, and so on is stored in a way that describes the informa-
tion and associated resource files, semantic web applications can collect information
from many different sources, combine it, and present it to users in a meaningful way.
Although Web 3.0 is still a bit speculative, some topics and features are certain to be
included in it, such as: 36
■ Integration of legacy devices: the ability to use current devices such as iPhones, lap-
tops, and so on, as credit cards, tickets, and reservations tools.
■ Intelligent applications: the use of agents, machine learning, and semantic web con-
cepts to complete intelligent tasks for users.
■ Open ID: the provision of an online identity that can be easily carried to a variety of
devices (cell phones, PCs) allowing for easy authentication across different websites.
■ Open technologies: the design of websites and other software so they can be easily
integrated and work together.
■ A worldwide database: the ability for databases to be distributed and accessed from
anywhere.
Egovernment: The Government Moves Online
Recent business models that have arisen to enable organizations to take advantage of
the Internet and create value are within egovernment. Egovernment involves the use
of strategies and technologies to transform government(s) by improving the delivery of
services and enhancing the quality of interaction between the citizen-consumer within
all branches of government.
One example of an egovernment portal, FirstGov.gov , the official U.S. gateway to
all government information, is the catalyst for a growing electronic government. Its
BUSINESS DRIVEN DISCUSSION
When you are considering connectivity services for your business, you need to
take continuous access and connectivity seriously. What if one of your employ-
ees is about to close a huge multimillion-dollar deal and loses the Internet
connection, jeopardizing the deal? What if a disgruntled employee decides to
post your business’s collective intelligence on an open-source blog or wiki?
What if your patient scheduling software crashes and you have no idea which
patients are scheduled to which operating rooms with which doctors? These
are far worse scenarios than a teenage boy not gaining access to his email or
Facebook page. What management and technical challenges do you foresee as
people and businesses become increasingly dependent on connectivity? What
can managers do to meet these challenges and prevent problems?
Connectivity
Break-Down
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powerful search engine and ever-growing collection of topical and customer-focused
links connect users to millions of web pages, from the federal government, to local and
tribal governments, to foreign nations around the world. Figure 3.25 highlights specific
egovernment models.
Mbusiness: Supporting Anywhere Business
Internet-enabled mobile devices are quickly outnumbering personal computers. Mobile
business (or mbusiness, mcommerce ) is the ability to purchase goods and services through
a wireless Internet-enabled device. The emerging technology behind mbusiness is a mobile
device equipped with a web-ready micro-browser that can perform the following services:
■ Mobile entertainment—downloads for music, videos, games, voting, ring tones, as
well as text-based messaging services.
■ Mobile sales/marketing—advertising, campaigns, discounts, promotions, and coupons.
■ Mobile banking—manage accounts, pay bills, receive alerts, and transfer funds.
■ Mobile ticketing—purchase tickets for entertainment, transportation, and parking
including the ability to automatically feed parking meters.
■ Mobile payments—pay for goods and services including in-store purchases, home
delivery, vending machines, taxis, gas, and so on.
Organizations face changes more extensive and far reaching in their implications
than anything since the modern industrial revolution occurred in the early 1900s. Tech-
nology is a primary force driving these changes. Organizations that want to survive must
recognize the immense power of technology, carry out required organizational changes
in the face of it, and learn to operate in an entirely different way.
FIGURE 3.25
Extended Ebusiness Models
Business
Business Consumer
Consumer
B2B
conisint.com
C2B
priceline.com
B2C
dell.com
C2C
ebay.com
Government G2Bexport.gov
G2C
medicare.gov
Government
B2G
lockheedmartin.com
C2G
egov.com
G2G
disasterhelp.gov
Learning Outcome 3.1: Compare disruptive and sustaining technologies, and explain how
the Internet and WWW caused business disruption.
Disruptive technologies offer a new way of doing things that initially does not meet the needs of
existing customers. Disruptive technologies redefine the competitive playing fields of their respective
L E A R N I N G O U T C O M E R E V I E W
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markets, open new markets and destroy old ones, and cut into the low end of the marketplace and
eventually evolve to displace high-end competitors and their reigning technologies.
Sustaining technologies produce improved products customers are eager to buy, such as a faster
car or larger hard drive. Sustaining technologies tend to provide us with better, faster, and cheaper
products in established markets and virtually never lead in markets opened by new and disruptive
technologies.
The Internet and WWW caused business disruption by allowing people to communicate and
collaborate in ways that were not possible before the information age. The Internet and WWW
completely disrupted the way businesses operate, employees communicate, and products are
developed and sold.
Learning Outcome 3.2: Describe ebusiness and its associated advantages.
Web 1.0 is a term to refer to the World Wide Web during its first few years of operation between 1991
and 2003. Ebusiness includes ecommerce along with all activities related to internal and external
business operations such as servicing customer accounts, collaborating with partners, and exchang-
ing real-time information. During Web 1.0, entrepreneurs began creating the first forms of ebusiness.
Ebusiness advantages include expanding global reach, opening new markets, reducing costs, and
improving operations and effectiveness.
Learning Outcome 3.3: Compare the four ebusiness models.
■ Business-to-business (B2B) applies to businesses buying from and selling to each other over the
Internet.
■ Business-to-consumer (B2C) applies to any business that sells its products or services to con-
sumers over the Internet.
■ Consumer-to-business (C2B) applies to any consumer that sells a product or service to a busi-
ness over the Internet.
■ Consumer-to-consumer (C2C) applies to sites primarily offering goods and services to assist con-
sumers interacting with each other over the Internet.
The primary difference between B2B and B2C are the customers; B2B customers are other busi-
nesses while B2C markets to consumers. Overall, B2B relations are more complex and have higher
security needs; plus B2B is the dominant ebusiness force, representing 80 percent of all online
business.
Learning Outcome 3.4: Describe the six ebusiness tools for connecting
and communicating.
As firms began to move online, more MIS tools were created to support ebusiness processes and
requirements. The ebusiness tools used to connect and communicate include email, instant messag-
ing, podcasting, content management systems, videoconferencing, and web conferencing.
Learning Outcome 3.5: Identify the four challenges associated with ebusiness.
Although the benefits of ebusiness are enticing, developing, deploying, and managing ebusiness
systems is not always easy. The challenges associated with ebusiness include identifying limited
market segments, managing consumer trust, ensuring consumer protection, and adhering to taxa-
tion rules.
Learning Outcome 3.6: Explain Web 2.0, and identify its four characteristics.
Web 2.0, or Business 2.0, is the next generation of Internet use—a more mature, distinctive
communications platform characterized by new qualities such as collaboration, sharing, and free.
Web 2.0 encourages user participation and the formation of communities that contribute to the
content. In Web 2.0, technical skills are no longer required to use and publish information to
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the World Wide Web, eliminating entry barriers for online business. The four characteristics of
Web 2.0 include:
■ Content sharing through open sourcing.
■ User-contributed content.
■ Collaboration inside the organization.
■ Collaboration outside the organization.
Learning Outcome 3.7: Explain how Business 2.0 is helping communities network
and collaborate.
A social network is an application that connects people by matching profile information. Providing
individuals with the ability to network is by far one of the greatest advantages of Business 2.0. Social
networking is the practice of expanding your business and/or social contacts by constructing a per-
sonal network. Business 2.0 simplifies the way individuals communicate, network, find employment,
and search for information.
Learning Outcome 3.8: Describe the three Business 2.0 tools for collaborating.
The three tools that harness the “power of the people” for Business 2.0 include blogs, wikis, and
mashups. A blog, or web log, is an online journal that allows users to post their own comments,
graphics, and video. Blog websites let writers communicate—and reader’s respond—on a regular
basis through a simple yet customizable interface that does not require any programming. A wiki is
a type of collaborative web page that allows users to add, remove, and change content, which can
be easily organized and reorganized as required. While blogs have largely drawn on the creative and
personal goals of individual authors, wikis are based on open collaboration with any and everybody.
A mashup is a website or web application that uses content from more than one source to create
a completely new product or service. A mashup allows users to mix map data, photos, video, news
feeds, blog entries, and so on to create content with a new purpose.
Learning Outcome 3.9: Explain the three challenges associated with Business 2.0.
As much as Business 2.0 has positively changed the global landscape of business, a few challenges
remain in open source software, user-contributed content systems, and collaboration systems. These
challenges include individuals forming unrealistic dependencies on technology, vandalism of informa-
tion on blogs and wikis, and the violation of copyrights and plagiarism.
Learning Outcome 3.10: Describe Web 3.0 and the next generation of online business.
Web 3.0 is based on “intelligent” web applications using natural language processing, machine-
based learning and reasoning, and intelligent applications. Web 3.0 is the next step in the evolution of
the Internet and web applications. Business leaders who explore its opportunities will be the first to
market with competitive advantages.
Web 3.0 offers a way for people to describe information such that computers can start to under-
stand the relationships among concepts and topics.
1. Knowledge: Do you consider Pinterest a form of disruptive or sustaining technology?
2. Comprehension: Categorize Pinterest as an example of Web 1.0 (ebusiness) or Web 2.0
(Business 2.0).
3. Application: Describe the ebusiness model and revenue model for Pinterest.
4. Analysis: What is open source software and how could Pinterest take advantage of it?
O P E N I N G C A S E Q U E S T I O N S
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5. Synthesis: Create a plan for how a start-up company could take advantage of Web 3.0 and gen-
erate the idea for the next great website that is similar to Pinterest.
6. Evaluation: Evaluate the challenges facing Pinterest and identify ways the company can prepare
to face these issues.
Applet, 96
Application programming interface
(API), 117
Asynchronous communication, 113
Blog, or Web log, 116
Business model, 101
Business-to-business (B2B), 102
Business-to-consumer (B2C), 102
Clickstream data, 101
Collaboration system, 111
Collective intelligence, 111
Consumer-to-business (C2B), 103
Consumer-to-consumer (C2C), 103
Content management system
(CMS), 108
Crowdsourcing, 112
Cybermediation, 100
Digital Darwinism, 94
Disintermediation, 99
Disruptive technology, 94
Domain name hosting (web
hosting), 96
Dot-com, 102
Ebusiness, 96
Ebusiness model, 101
Ecommerce, 96
Egovernment, 120
Eshop (estore or etailer), 102
Explicit knowledge, 112
Folksonomy, 114
Hypertext markup language
(HTML), 96
Hypertext transport protocol
(HTTP), 96
Information architecture, 108
Information reach, 98
Information richness, 98
Instant messaging (sometimes
called IM or IMing), 106
Interactivity, 100
Intermediaries, 99
Internet, 95
Internet service provider (ISP), 106
Knowledge management (KM), 111
Knowledge management system
(KMS), 111
Long tail, 98
Mashup, 117
Mashup editor, 117
Mass customization, 98
Microblogging, 117
Mobile business (mcommerce,
mbusiness), 121
Network effect, 117
Open source, 111
Open system, 111
Paradigm shift, 96
Pay-per-call, 105
Pay-per-click, 105
Pay-per-conversion, 105
Personalization, 98
Podcasting, 107
Real Simple Syndication (RSS), 117
Real-time communication, 106
Reintermediation, 100
Reputation system, 111
Search engine, 105
Search engine optimization
(SEO), 105
Search engine ranking, 105
Semantic web, 120
Social bookmarking, 114
Social media, 113
Social network, 113
Social networking, 113
Social networking analysis
(SNA), 113
Social tagging, 114
Source code, 111
Sustaining technology, 94
Synchronous communication, 113
Tacit knowledge, 112
Tags, 114
Taxonomy, 108
Universal resource locator (URL), 96
User-contributed content (also
referred to as user-generated
content), 111
Videoconference, 107
Web 1.0 (or Business 1.0), 96
Web 2.0 (or Business 2.0), 109
Web browser, 96
Web conferencing (webinar), 109
Website bookmark, 114
Wiki, 117
World Wide Web (WWW), 96
K E Y T E R M S
1. What is the different between sustaining and disruptive technology?
2. Do you consider the Internet and WWW forms of sustaining or disruptive technology?
3. How has the Internet and WWW created a global platform for business?
4. What is the difference between ebusiness and ecommerce?
5. What are the benefits and challenges associated with ebusiness?
6. What are the benefits and challenges associated with Business 2.0?
7. Explain business models and their role in a company. How did ebusiness change traditional busi-
ness models?
R E V I E W Q U E S T I O N S
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8. How can a company use mass customization and personalization to decrease buyer power?
9. How does ebusiness differ from Business 2.0?
10. What are the differences among collective intelligence, knowledge management, and
crowdsourcing?
11. Why is knowledge management critical to a business?
12. What are the benefits and challenges associated with wikis?
13. How do disintermediation, reintermediation, and cybermediation differ?
14. What is the semantic web?
15. How does mbusiness different from ebusiness?
C L O S I N G C A S E O N E
Social Media and Ashton Kutcher
Where celebrities go, fans follow. The truism applies as much in social media as in the real world,
David Karp noticed after famous artists began using his blogging service Tumblr. As a result, encour-
aging celebrities to set up accounts on the site has become “absolutely part of our road map and our
business plan,” Karp says. In fact, he recently hired a full-time employee to help high-profile users
design and manage their blogs.
It’s no secret that well-recognized players in a host of fields—from acting to athletics, music to
politics—are using social media sites to connect with fans and promote their brands. Celebrities
used to seek out promotion “in People magazine or Vogue,” says Robert Passikoff, president of Brand
Keys, a researcher that tracks the value of celebrity brands. “It’s now become a necessity to have a
Facebook page.”
But the benefits go both ways. Sites benefit greatly from the online cavalcade of stars. Oprah
Winfrey’s debut on microblogging service Twitter sent visits to the site skyrocketing 43 percent over
the previous week, according to analytics firm Hitwise. Facebook, Google’s YouTube, Ning, and other
Web 2.0 destinations have also seen swarms of activity around the profile pages of their famous
members. And like Tumblr, social sites are going out of their way to keep the celebrities happy and
coming back.
Obama on MySpace, Facebook, and Twitter
The Obama administration created profile pages on MySpace, Facebook, and Twitter. To accommodate
1600 Pennsylvania Avenue, News Corp.’s MySpace agreed to build ad-free pages and equipped the
profile to get automatic updates from the White House’s official blog. In some cases social networks
give VIPs a heads-up on changes. Facebook worked with the handlers of select celebrity members
to get feedback on the new design of the site before it was opened to the public. “We don’t have a
formalized support program for public figures, but we do offer some support,” says Facebook spokes-
woman Brandee Barker.
Some privileged members of Facebook have also been assigned “vanity URLs,” or short, simple,
personalized web addresses such as www.facebook.com/KatieCouric . Elsewhere the perks of fame
are offered up more casually. Twitter co-founder Biz Stone credits high-profile users like actor Ashton
Kutcher and basketball professional Shaquille O’Neal for bringing attention to the site of 140-character
messages but says the company doesn’t reserve any “special resources” for them. “Sometimes celeb-
rities who love Twitter stop by and say hello,” Stone says. “It’s usually just a quiet tour and a lunchtime
chat but it’s really fun for us.”
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John Legend Taps Tumblr
In addition to their promotional value, social networking celebrities represent a potential revenue
source for these young start-ups. Tumblr helped musician John Legend design a professional-looking
blog that matches the look of his promotional site, created by Sony Music Entertainment. Tumblr’s
Karp says he took that project on at no charge—in part to bring in Legend’s fans but also to explore
whether it makes sense to offer similar services at a cost. “For people who want the reach on our
network, who want to be able to take advantage of our platform, at some point this does turn into a
premium service,” he says.
Ning already collects monthly fees from some of its users, many of whom are celebrities. The site
is free for anyone who wants to build their own social network but charges as much as $55 a month
to users who prefer to keep their pages clear of ads or who want to collect revenue generated by ads
on their pages. Although the service is not exclusive to stars, many of the most successful networks
on Ning draw on the fame of their operators, including hip-hop artists 50 Cent and Q-Tip, rock band
Good Charlotte, and Ultimate Fighting Championship titleholder BJ Penn. “The next generation of
celebrities and social networks is in much richer and deeper collaborations [with fans] than what you
see today on the more general social networks out there,” says Ning CEO Gina Bianchini.
Many big names in business, including Dell CEO Michael Dell, use professional networking site
LinkedIn more as a business tool than to amass legions of followers. Whatever their reasons for being
on the site, LinkedIn uses the fact that executives from all of the 500 biggest companies are among
its members to encourage other businesspeople to join the site, too. 37
Questions
1. Do you consider Facebook, MySpace, and LinkedIn forms of disruptive or sustaining technology?
2. Create a list of the online businesses discussed in the case and determine if they are examples of
Web 1.0 (ebusiness) or Web 2.0 (Business 2.0).
3. Describe the ebusiness model and revenue model for Linked In, MySpace, or Facebook.
4. What is open source software and can a business use it for a social networking platforms?
5. Create a plan for how a start-up company could take advantage of Web 3.0 and generate the idea
for the next great website.
6. Evaluate the challenges facing social networking websites and identify ways companies can pre-
pare to face these issues.
Amazon.com—Not Your Average Bookstore
Jeffrey Bezos, CEO and founder of Amazon.com, is running what some people refer to as the “world’s
biggest bookstore.” The story of Bezos’ virtual bookstore teaches many lessons about online busi-
ness. Out of nowhere, this digital bookstore turned an industry upside down. What happened here
was more than just creating a website. Bezos conceived and implemented an intelligent, global digital
business. Its business is its technology; its technology is its business. Shocking traditional value
chains in the bookselling industry, Amazon opened thousands of virtual bookstores in its first few
months of operation.
Bezos graduated from Princeton and was the youngest vice president at Banker’s Trust in New
York. He had to decide if he would stay and receive his 1994 Wall Street bonus or leave and start
a business on the Internet. “I tried to imagine being 80 years old, looking back on my life. I knew
that I would hardly regret having missed the 1994 Wall Street bonus. But having missed being part
of the Internet boom—that would have really hurt,” stated Bezos. One evening he compiled a list
C L O S I N G C A S E T W O
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of 20 products he believed would sell on the Internet. Books, being small-ticket items that are easy
and inexpensive to ship, were on the top of the list. It was also apparent that no bookstore could
conceivably stock more than a fraction of the 5 million books published annually. Bezos, who had
never sold a book in his life, developed a strategic plan for selling books on the Internet. Amazon
launched three years later. In the fall of 1994, Amazon filled its first book order—personally pack-
aged by Bezos and his wife.
Amazon’s Ebusiness Strategy
Amazon is a pure-play business and does not operate any physical stores. All of its sales occur
through its website. It is consistently pushing the technological envelope in its search to provide a
satisfying, personalized experience for its customers. What started as a human-edited list of product
suggestions morphed into a sophisticated computer-generated recommendation engine. The com-
pany captures the comments and recommendations of buyers for site visitors to read—similar to the
friendly salesperson in a store offering advice on which books to buy. The website tracks customer
traffic, the number of visitors who access the site, how long they stay, what pages they click on, and
so forth. The company uses the information to evaluate buying and selling patterns and the success
of promotions. Amazon has quickly become a model success story for ebusinesses around the globe.
Amazon retains customers with website features such as personalized recommendations, online
customer reviews, and “1-click ordering”—the creation of a true one-stop shopping establishment
where customers can find anything they want to buy online. Through the Amazon.com Auctions,
zShops (independent third-party sellers), and more recently the Amazon.com Marketplace (where
customers can sell used items), the company is able to offer its customers almost everything.
Shaping Amazon’s Future
Amazon released a free web service that enables its business partners (whom Amazon calls “associ-
ates”) to interact with its website. More specifically, this service allows its partners to access catalog
data, to create and populate an Amazon.com shopping cart, and even to initiate the checkout process.
In 16 months, the company has inspired 30,000 associates to invent new ways to extend Amazon’s
visibility on the Internet. With over 30 million customers, Amazon has become a household brand.
Amazon is always looking for new ways to take advantage of ebusiness. Here are a few of its creations:
■ Amazon S3: Amazon launched an online storage service called Amazon Simple Storage Service
(Amazon S3). Any type of data, from 1 byte to 5 gigabytes in size, can be stored on the service and
the customer is charged monthly fees for data stored and transferred.
■ Amazon MP3: The online music store sells downloadable MP3s. Amazon MP3 is selling music
from the top four record labels—EMI, Universal, Warner Music, and Sony BMG—as well as many
independents.
■ Vine: Amazon launched Amazon Vine, which rewards top product reviewers by providing them
with free access to products from vendors participating in the program.
■ Kindle: Amazon launched Amazon Kindle, an ebook reader that downloads content over
“Whispernet,” a free wireless service on the Sprint Nextel network. Initial offerings included
approximately 90,000 books, newspapers, magazines, and blogs. The screen uses E Ink technol-
ogy to reduce battery consumption.
Mobile Amazon
Amazon.com has collaborated with Nokia to pioneer a new territory. With the launch of its Amazon.
com Any-where service, it has become one of the first major online retailers to recognize and do
something about the potential of Internet-enabled wireless devices. As content delivery over wire-
less devices becomes faster, more secure, and scalable, mcommerce will surpass landline ebusiness
(traditional telephony) as the method of choice for digital commerce transactions. According to the
research firm Strategy Analytics, the global mcommerce market was expected to be worth more than
$200 billion by 2005, with some 350 million customers generating almost 14 billion transactions
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annually. Additionally, information activities such as email, news, and stock quotes will progress to
personalized transactions, “one-click” travel reservations, online auctions, and videoconferencing. 38
Questions
1. How has Amazon used technology to revamp the bookselling industry?
2. Is Amazon using disruptive or sustaining technology to run its business?
3. How is Amazon using personalization to keep customers loyal?
4. What is Amazon’s ebusiness model?
5. How can Amazon use mbusiness to increase sales?
6. What are the Web 1.0 characteristics of Amazon.com?
7. What are the Web 2.0 characteristics of Amazon.com?
8. How can Amazon.com use Web 3.0 to create the future bookstore?
1. Anything but Online
Your best friend, Susan Stewart, has started a highly successful custom T-shirt business from your dorm
room. Susan is art major, and each week she creates a limited edition T-shirt focusing on the lyrics from
up-and-coming indie bands. Being an MIS major, you see the advantages Susan could reap by porting
her business to the Internet. Susan, being an art major, does not like technology and does not believe
she needs it to grow her business. Do you agree or disagree that Susan needs to compete online?
How can creating an ebusiness benefit Susan? What are the challenges Susan will face as she moves
her business to the Internet? How could Susan use Web 2.0 to build loyalty among her followers?
2. The Future of Wikipedia
Wikipedia is a multilingual, web-based, free-content encyclopedia project written collaboratively
by volunteers around the world. Since its creation in 2001, it has grown rapidly into one of the
largest reference websites. Some people believe Wikipedia will eventually fail under an assault
by marketers and self-promoting users. Eric Goldman, a professor at the Santa Clara University
School of Law, argues that Wikipedia will see increasingly vigorous efforts to subvert its editorial
process, including the use of automated marketing tools to alter Wikipedia entries to generate
online traffic. The site’s editors will burn out trying to maintain it, he projects, or Wikipedia will
change its open-access architecture and its mission. Do you agree or disagree with Professor
Goldman’s argument? What can Wikipedia do to combat the challenges of information vandalism
and copyright/plagiarism issues? 39
3. Is Facebook Becoming the Whole World’s Social Network?
Facebook’s growth, which we already know is massive, is truly a global phenomenon. Nations
with the fastest membership growth rate are in South America and Asia. Is Facebook becoming
the global phone book? If you review InsideFacebook.com, you’ll find a detailed analysis of the
numerical growth rate of members per nation and the penetration Facebook is achieving among
each nation’s population. Particularly interesting was the monthly growth rate for Indonesia, the
Philippines, Mexico, Argentina, and Malaysia—each of which showed about a 10 percent jump in
Facebook membership in a single month. In a group answer the following: 40
■ What potential business opportunities could be created by a worldwide social media network
or phone book?
■ Facebook, which contains personal data on each member, is becoming the world’s phone
book. What are the implications of a world phone book for social change?
C R I T I C A L B U S I N E S S T H I N K I N G
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129Business Driven MIS Module 1
■ What do you think would be the benefits and challenges of global social networking?
■ How would tags and crowdsourcing be impacted by a global social network?
4. The Toughest College Test You’ll Ever Take
If your professor asked you today to kick your social networking habits, do you think you could do
it? Can you go without Facebook, cell phones, or the Internet for a week? For a day? A University of
Minnesota professor challenged her public relations class to go five days without media or gadgets
that didn’t exist before 1984. Out of the 43 students in the class, just a handful made it even three
days without new technology. Among those who didn’t, one student said, “My mother thought I
died.” How long could you go without any social media? What types of issues might you encounter
without constant connections to your friends? How has social media impacted society? How has
social media impacted businesses? 41
5. Competing with the Big Boys
Provenzo’s Rentals is a small privately owned business that rents sports equipment in Denver,
Colorado. The company specializes in winter rentals including ski, snowboard, and snowmobile
equipment. Provenzo’s has been in business for 20 years and, for the first time, it is experiencing
a decline in rentals. Greg Provenzo, the company’s owner, is puzzled by the recent decreases.
The snowfall for the past two years has been outstanding, and the ski resorts have opened earlier
and closed later than most previous years. Reports say tourism in the Colorado area is up, and
the invention of loyalty programs has significantly increased the number of local skiers. Overall,
business should be booming. The only reason for the decrease in sales might be the fact that big
retailers such as Walmart and Gart’s Sports are now renting winter sports equipment. Provenzo
would like your team’s help in determining how he can use ebusiness and Business 2.0 to help his
company increase sales, decrease costs, and compete with these big retailers.
6. Book’em
You are the CIO of Book’em, a company that creates and sells custom book bags. Book’em cur-
rently holds 28 percent of market share with over 3,000 employees operating in six countries.
You have just finished reading The Long Tail by Chris Andersen and The Innovator’s Dilemma by
Clayton Christensen, and you are interested in determining how you can grow your business while
reducing costs. Summarize each book and explain how Book’em could implement the strategies
explained in each book to create competitive advantages and increase sales.
7. Five Ways Google Docs Speeds Up Collaboration
Google Docs wants you to skip Microsoft Office and collaborate with your group in your browser
for free, especially when you’re not in the same physical space. Visit Google Docs and answer the
following questions.
■ What are five ways the new Google Docs can help your team accomplish work more efficiently,
even when you’re not in the same room together.
■ Is Google Docs open source software? What revenue model is Google Docs following?
■ Why would putting Google Docs and Microsoft Office on your résumé help differentiate your
skills?
■ What other applications does Google create that you are interested in learning to help collaborate
and communicate with peers and co-workers?
8. Secure Collaboration
As the methods and modes of communication continue to evolve, challenges will mount for busi-
nesses trying to secure their data and for law enforcement agencies looking to monitor communi-
cations as part of their investigations. That was the theme of the keynote that Sun Microsystems
chief security officer and renowned cryptographer Whitfield Diffie delivered at the AT&T Cyber
Security Conference.
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E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. To build a sense of community, you have provided a mechanism on your business website where
customers can communicate and post feedback. You review the communication daily to help
understand customer issues and concerns. You log in and find the following anonymous posting:
“I do not recommend visiting this business on Thursdays at 2:00 p.m. because the Children’s
Story Hour is taking place. I hate children, especially in a business. I’m not sure why this busi-
ness encourages people to bring their children. In fact, I recommend that children should be
banned from this business altogether.” How would you respond to the above post? Is the cus-
tomer’s viewpoint ethical? How do you encourage an open line of communication with your cus-
tomers and still maintain an open forum on your website?
Diffie believes that with millions of people joining Second Life and companies building facili-
ties there, it may be that virtual communities will become the preferred communication method
for humans as virtual communities become a growing source of collective intelligence that can
be easily watched and monitored. 42
Who would be interested in monitoring and spying on the collective intelligence of virtual
communities? What is your answer to the following question: As we create new and better ways
to collaborate, what happens to information security?
9. City Council Member Fired for Playing Farmville Game at Work
More than 80 million Facebook users are obsessed with Farmville, and one of the more
devoted players is Bulgaria’s Plovidv City Council member Dimitar Kerin. During council meet-
ings, Kerin would take advantage of the city hall’s laptops and wireless connection to tend
to his farm. This caught the attention of the council chair, who many times scolded Kerin for
his virtual farming, warning him that the game was not allowed during meetings. Kerin kept
on, arguing that he had to catch up with other council members, who achieved higher levels
on the game. Kerin pointed out logically that many other members used city hall for their
Farmville pleasures, and he cited the fact that one councilman had reached level 46, whereas
Kerin was stuck at level 40. Shockingly, council members voted Kerin off the board in a split
20–19 decision, suggesting that perhaps half the council members in Bulgaria’s second-
largest city are committed to the Facebook application. Do you agree with the firing of Dimitar
Kerin? Do you agree that it is inappropriate to use social networking applications at work?
If Dimitar Kerin was fired for playing Farmville, should all other council members who use
social networking applications at work be fired? Have you ever been reprimanded for playing
a game while at school or at work? What could you do differently to ensure this situation does
not happen to you? 43
10. 48 Hour Magazine
That sound you hear, of thousands of writers, designers, and photographers banging their
heads against the wall to the beat of a ticking clock? That’s the sound of 48 Hour Magazine,
an innovative publication that aims to go from inspiration to execution in 48 hours and
begins . . . now. 48 Hour is available to the eager public as a real, printed magazine and as
a website too. What are the limitations of “old media”? How are the editors of the 48 Hour
Magazine using Web 2.0 to overcome these limitations? What are the advantages and disad-
vantages of 48 Hour Magazine’s model? What type of revenue model would you recommend
48 Hour Magazine implement? If you had $50,000 would you invest in the 48 Hour Magazine?
Why or why not? 44
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131Business Driven MIS Module 1
2. Your business needs to take advantage of ebusiness and Business 2.0 strategies if it wants to remain
competitive. Detail how your business could use Web 1.0 and Web 2.0 to increase sales and decrease
costs. Be sure to focus on the different areas of business such as marketing, finance, accounting,
sales, customer service, and human resources. You would like to build a collaboration tool for all of
your customers and events. Answer the questions below as they pertain to your business.
■ What type of collaboration tool would you build?
■ How could you use the tool to facilitate planning, product development, product testing, feed-
back, and so on.
■ What additional benefits could a customer collaboration tool provide that could help you run
your business?
3. The Yankee Group reports that 66 percent of companies determine website success solely by
measuring the amount of traffic. Unfortunately, large amounts of website traffic do not necessar-
ily indicate large sales. Many websites with lots of traffic have minimal sales. The best way to
measure a website’s success is to measure such things as the revenue generated by web traffic,
the number of new customers acquired by web traffic, any reductions in customer service calls
resulting from web traffic. As you deploy your Business 2.0 strategy, you want to build a website
that creates stickiness and a sense of community for your customers. Explain why measuring
web traffic is not a good indicator of web sales or website success. How would you implement
Business 2.0 characteristics to create a sense of community for your customers? How could a
wiki help grow your business? Could you use blogs to create a marketing buzz? What else can
you do to ensure your website finds financial success? 45
PROJECT I Analyzing Websites
Stars Inc. is a large clothing corporation that specializes in reselling clothes worn by celebrities. The
company’s four websites generate 75 percent of its sales. The remaining 25 percent of sales occur
directly through the company’s warehouse. You have recently been hired as the director of sales. The
only information you can find about the success of the four websites follows:
You decide that maintaining four separate websites is expensive and adds little business value. You
want to propose consolidating to one site. Create a report detailing the business value gained by con-
solidating to a single website, along with your recommendation for consolidation. Be sure to include
your website profitability analysis. Assume that at a minimum 10 percent of hits result in a sale, at an
average 30 percent of hits result in a sale, and at a maximum 60 percent of hits result in a sale.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
Website Classic Contemporary New Age Traditional
Traffic analysis 5,000 hits/day 200 hits/day 10,000 hits/day 1,000 hits/day
Stickiness (average) 20 minutes 1 hour 20 minutes 50 minutes
Number of abandoned
shopping carts
400/day 0/day 5,000/day 200/day
Number of unique visitors 2,000/day 100/day 8,000/day 200/day
Number of identified
visitors
3,000/day 100/day 2,000/day 800/day
Average revenue
per sale
$1,000 $ 1,000 $50 $1,300
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PROJECT I I Wiki Your Way
Wikis are web-based tools that make it easy for users to add, remove, and change online content.
Employees at companies such as Intel, Motorola, IBM, and Sony use them for a host of tasks, from
setting internal meeting agendas to posting documents related to new products.
Many companies rely on wikis to engage customers in ongoing discussions about products. Wikis
for Motorola and T-Mobile handsets serve as continually updated user guides. TV networks, including
ABC and CBS, created fan wikis that let viewers interact with each other as they unraveled mysteries
from such shows as Lost and CSI: Crime Scene Investigation. You would like to implement wikis at
your new company, The Consulting Edge, a small computer consulting company catering to mid- and
large-sized businesses. Answer the following questions:
■ How can a wiki help you attract customers and grow your business?
■ How can a wiki help your partners and employees?
■ What ethical and security concerns would you have with the wiki?
■ What could you do to minimize these concerns?
PROJECT I I I Blogging for Dollars
You have purchased a financial investment company, The Financial Level, that caters to individuals
and families. You would like to develop a few blogs for your customers, employees, and partners. The
goals for your customer blog are to gather honest feedback, provide a place for customers to interact,
and help find new opportunities for your businesses. The goals for the employee blog are to gather
knowledge, collect employment feedback, and offer a place where employees can post anonymous
feedback for issues and concerns so you can better manage your staff.
a. Research the Internet and find several customer blogs and employee blogs.
b. Determine the top three blogs for customers and for employees, and critique the blogs for
content, ease of use, and overall value.
c. Design a prototype customer blog and a prototype employee blog for The Financial Level using
Word, PowerPoint, or a tool of your choice.
PROJECT IV 14th Annual Webby Awards Nominees
Who needs the Academy Awards when you can witness the Webby Awards? The Webby Awards
are the leading international awards honoring excellence in interactive design, creativity, usability,
and functionality on the Internet. With nearly 70 categories, website entries make up the major-
ity of Webby winners, nominees, and honorees. Some are beautiful to look at and interact with.
Others are a testament to usability and functionality. And a handful excel across the board. To
be selected among the best is an incredible achievement worthy of praise and perhaps a little
bragging. 46
Visit the latest edition of the Webby Awards at www.webbyawards.com and answer the following
questions:
■ Which nominations were the most surprising?
■ Which nominations were you unfamiliar with but will now use?
■ Were there any examples of Web 1.0 winners?
■ Were there any examples of Web 3.0 winners?
■ List the top five websites you think deserve to win a Webby.
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PROJECT V Creating a Podcast
Podcasting is a form of audio broadcasting on the Internet. The reason it became linked with the iPod
in name was because people download podcasts (audio shows) to listen to on their iPods. However,
you don’t have to listen to podcasts only on iPods; you can use your computer with some music
software such as Windows built-in Media Player or Winamp, or other portable music players (iPod
competitors) such as Creative Zen or iRiver. As long as you have some way to play music on your
computer, you will be able to listen to podcasts.
a. Download Audacity from audacity.sourceforge.net . It is open source, is cross-platform, is free,
and lets you mix multiple audio files. Windows, Mac OS, and Linux/Unix versions are available.
You will also have to download the LAME MP3 encoder, which allows Audacity to export MP3
files. You will see the download link for that on the same page as the Audacity download. Once
you download the LAME MP3 encoder, place it in the Audacity program folder (C:Program\
Files\Audacity\Plug-Ins\). Then, open a .WAV file in Audacity, and select the menu option “File”
then choose “Export As MP3.” When you do, you will see this message: At this Point, browse
to where you placed the “ lame_enc.dll ” file (such as C:Program\Files\Audacity\Plug-Ins). Click
on the “ lame_enc.dll ” file. Once finished, you can now effectively use the Export As MP3 menu
option to create MP3 files.
b. Open Audacity and check the preferences. Make sure your playback and recording device are
set. If you are going to record a stereo signal, set the number of channels to record to 2 (Stereo)
on the Audio I/O preferences. When picking a device to record from, make sure you have set up
all the connections properly, such as plugging a microphone into the Mic Input, and any other
device into the Line In of your sound card.
c. Click on the red “Record” button to begin recording. You can also click on the blue “Pause”
button to pause the recording. Press it again to continue. Click on the yellow “Stop” button
to cease recording. The cursor will return to its previous position, before the recording was
started.
d. MP3 is the standard format for podcasts. When saving, use the minimum bit rate that provides
good results. Here are some suggested settings:
■ 48–56k Mono—sermons, audio books, talk radio.
■ 64k Stereo—music, music and talk combinations.
■ 128k Stereo—good-quality music.
e. Create a two-to-three-minute podcast that you can share with your class about a success-
ful Business 2.0 entrepreneurial company. A few examples include Digg.com, karmaloop.
com, Foursquare.com, Flickr.com. Figure out what will be said (or not said) during the
show. There are almost no limits to what content can be included in podcasts. Podcasting
allows you to create shows, dramatizations, vignettes, commentaries, documentaries, and
any other content imaginable. However, you need to script out your content before you start
to record.
PROJECT VI Photo Story 3—Creating a Video Résumé
Microsoft Photo Story 3 for Windows helps create exciting video stories from pictures. For example,
you could create a video story that features narrated photographs from a family vacation or a video
story that includes pictures and sounds of an athletic race or game. In a few simple steps, you can
import and edit your pictures, add titles, record narration, add background music, and save your story
using the optimal quality settings (profile) for the way your story will be played.
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Download Photo Story 3 from www.microsoft.com/windowsxp/using/digitalphotography/photostory/
default.mspx . Review the requirements section to make sure your computer is able to run this
application. Click the “Continue” button in the Validation Required section to begin the short valida-
tion process. Once validated, you will be sent to a page with specific instructions for obtaining the
download.
When you run Photo Story 3, with the view to making a new project, the first option is to select
“Begin a new story.” After clicking this option, your first task is to “import” pictures. You can import
pictures from your computer, a network folder, or a website. For each story, you can import up to 300
pictures, which can be files with .bmp, .dib, .eps, .gif, .jhif, .jpe, , , .pcd, .pcx, , .psd, .rle,
.tga, and .tif file name extensions.
Your pictures appear in the filmstrip at the bottom of the page. If you import more pictures,
Microsoft Photo Story 3 adds them at the end of the filmstrip.
By clicking on a series of buttons or options, you can remove black borders, add titles to your pic-
ture, add narration and custom motion, and add background music to your story.
Develop a 30-second professional commercial. This is a short description of who you are, what
job you are looking for, and the skills that make you suited for the job. Building a quality 30-second
commercial can be tougher than it sounds. The goal is to be able to contact a stranger and let him or
her know who you are, what your skills are, and why you are approaching the person. Create a list of
words describing your skills and interests. Begin broadly and then narrow your list to skills related to
your current job search.
PROJECT VI I Sticky Wiki
Wiki (Hawaiian for “quick”) is software that allows users to freely create and edit web page content
using any web browser. The most common wiki is Wikipedia. Wikis offer a powerful yet flexible col-
laborative communication tool for developing websites. The best part of a wiki is that it grows and
evolves by the collaborative community adding content—the owner of the wiki does not have to add
all of the content as is typical in a standard web page.
Many sites offer free wiki software such as Socialtext, a group-editable website. As one of the
first wiki companies, Socialtext wikis are designed for anyone that wants to accelerate team com-
munications, better enable knowledge sharing, foster collaboration, and build online communities.
Socialtext also offers WikiWidgets, which make it easy for nontechnical business users to create rich,
dynamic wiki content. Today, more than 3,000 organizations use Socialtext, including Symantec,
Nokia, IKEA, Conde Nast, Ziff-Davis, Kodak, University of Southern California, Boston College, and
numerous others.
Create your own wiki. Wikis can address a variety of needs from student involvement, fraternities
and sororities, group activities, sport team updates, local band highlights, and so on. Choose a free
wiki software vendor from the list below and create a wiki for something you are involved in or excited
about and want to share with others. This could include a student organization, fraternity or sorority,
academic organization, favorite author, book, movie, band, musician, or sports team.
■ www.socialtext.com —easy-to-use, business-grade wikis proven by Fortune 500 companies.
■ www.wetpaint.com —a free easy-to-use wiki building site.
■ www.CentralDesktop.com —Easy-to-use, a wiki for non-techies.
■ www.xwiki.com —Open source and free hosting with professional services.
If you have different wiki software you prefer, feel free to use it to create your wiki.
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135Business Driven MIS Module 1
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.
Project
Number
Project
Name
Project
Type
Plug-In
Focus Area Project Focus
Project
Skill Set
Page
Number
1 Financial
Destiny
Excel T2 Personal
Budget
Introductory
Formulas
AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory
Formulas
AYK.4
3 Technology
Budget
Excel T1, T2 Hardware and
Software
Introductory
Formulas
AYK.4
4 Tracking
Donations
Excel T2 Employee
Relationships
Introductory
Formulas
AYK.4
5 Convert
Currency
Excel T2 Global
Commerce
Introductory
Formulas
AYK.5
6 Cost
Comparison
Excel T2 Total Cost of
Ownership
Introductory
Formulas
AYK.5
7 Time
Management
Excel or
Project
T2 or T12 Project
Management
Introductory
Gantt Charts
AYK.6
8 Maximize
Profit
Excel T2, T4 Strategic
Analysis
Intermediate
Formulas or
Solver
AYK.6
9 Security
Analysis
Excel T3 Filtering Data Intermediate
Conditional
Formatting,
Autofilter,
Subtotal
AYK.7
10 Gathering
Data
Excel T3 Data Analysis Intermediate
Conditional
Formatting,
PivotTable
AYK.8
11 Scanner
System
Excel T2 Strategic
Analysis
Intermediate AYK.8
12 Competitive
Pricing
Excel T2 Profit
Maximization
Intermediate AYK.9
13 Adequate
Acquisitions
Excel T2 Break-Even
Analysis
Intermediate AYK.9
24 Electronic
Resumes
HTML T9, T10, T11 Electronic
Personal
Marketing
Introductory
Structural Tags
AYK.16
25 Gathering
Feedback
Dreamweaver T9, T10, T11 Data Collection Intermediate
Organization of
Information
AYK.16
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Rev. Confirming Pages
What’s in IT for me?
This chapter concerns itself with protecting information from potential misuse. Organizations must ensure they collect,
capture, store, and use information in an ethical manner. This means any type of information they collect and utilize, includ-
ing about customers, partners, and employees. Companies must ensure that personal information collected about someone
remains private. This is not just a nice thing to do. The law requires it. Perhaps more important, information must be kept
physically secure to prevent access and possible dissemination and use by unauthorized sources.
You, the business student, must understand ethics and security because they are the top concerns voiced by custom-
ers today. The way they are handled directly influences a customer’s likelihood of embracing electronic technologies and
conducting business over the web–and thus the company’s bottom line. You can find evidence in recent news reports about
how the stock price of organizations falls dramatically when information privacy and security breaches are made known.
Further, organizations face potential litigation if they fail to meet their ethical, privacy, and security obligations in the handling
of information.
■ I n f o r m a t i o n E t h i c s
■ D e v e l o p i n g I n f o r m a t i o n
M a n a g e m e n t P o l i c i e s
SECTION 4.2
Information Security
SECTION 4.1
Ethics
■ P ro t e c t i n g I n t e l l e c t u a l A s s e t s
■ T h e F i r s t L i n e o f
D e f e n s e — P e o p l e
■ T h e S e c o n d L i n e o f
D e f e n s e — Te c h n o l o g y
C H A P T E R
C
H
A
P
T
E
R
O
U
T
L
IN
E

Ethics and Information Security:
MIS Business Concerns 4
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137Business Driven MIS Module 1
opening case study
To Share—Or Not to Share
People love social networks! Social networks are everywhere and a perfect way to share
vacation photos, family events, and birthday parties with family, friends, and co-workers.
About 40 percent of adults use at least one social media website, and 51 percent of those
use more than one website. The majority of users are between the ages of 18 and 24. The
Pew Research Center found that 89 percent of social network users primarily use the web-
sites to update friends and family, while 57 percent use the websites to make plans with
friends, and 49 percent use the websites to make new friends.
Facebook, MySpace, LinkedIn, Friendster, Urban Chat, and Black Planet are just a few
of more than 100 websites connecting people around the world who are eager to share
everything from photos to thoughts and feelings. But we need to remember that sometimes
you can share too much; there can be too much information. Choosing who you share with
and what you share is something you want to think about for your personal social networks
and corporate social networks. According to Pew Research, more than 40 percent of users
allow open access to their social networking profiles, which allows anyone from anywhere
to view all of their personal information. The remaining 60 percent restrict access to friends,
family, and co-workers. The following are the top 10 things you should consider before
posting information to your social networks.
1: If You Don’t Want to Share It – Don’t Post It
You can select all the privacy settings you want on social networking sites, but the fact is,
if you post it, it has the potential to be seen by someone you don’t want seeing it. You know
all those fun Facebook applications, quizzes, and polls you can’t help but fill out? A study
performed by the University of Virginia found that of the top 150 applications on Facebook,
90 percent were given access to information they didn’t need in order for the application
to function. So when you sign up to find out what sitcom star you most identify with, the
makers of that poll now have access to your personal information. It’s anybody’s guess
where it goes from there. Social networking is all about sharing, so something you think is
in confidence can easily be shared and then shared again, and before you know it, someone
you don’t even know has access to something private. “When in doubt, leave it out” is a
good motto to follow. And always remember that anything you share has the potential to be
leaked in some way.
2: Never Give Out Your Password Hints
Most websites that contain secure personal information require a password and also have
at least one password hint in case you forget. It typically goes like this: You sign up for
something such as online banking and you get a log-in and password and then choose
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a security question for when you forget your password. What’s the name of your first
pet? What’s your mother’s maiden name? What was your high school mascot? What’s the
name of the first street you lived on? Including any of these details on a Facebook wall
or status update may not seem like a big deal, but it could provide an identity thief with
the last piece of the puzzle needed to hack into your bank account. Think before you post
anything that could compromise this information.
3: Never Give Out Your Password
This one really seems like a no-brainer, but if it didn’t happen, then Facebook probably
wouldn’t feel the need to list it in the No. 1 slot on its list of things you shouldn’t share.
Even sharing the password with a friend so he or she can log on and check something for
you can be a risk. This is especially true with couples who feel like there’s enough trust to
share these kinds of things. Here’s another scenario for you: You give your boyfriend your
Facebook password because he wants to help you upload some vacation photos. A couple
of months later, the relationship sours, he turns into a not-so-nice guy, and then there’s a
person out there who doesn’t like you and has your log-in information. Time to cancel your
account and get a new one. If you’d kept that information private, you could simply move on
with your life. Now you have a compromised profile, and if you link to other sites or profiles,
all that information is at risk as well. Keep your password to yourself, no matter what, and
you never have to worry about it.
4: Never Provide Personal Financial Information
You would think that nobody would share things like where they do their banking or what
their stock portfolio looks like, but it happens. It’s easy for an innocent Facebook comment
to reveal too much about your personal finances. Consider this scenario: You’re posting to
a long thread on a friend’s wall about the bank crisis. You say something along the lines of,
“We don’t need to worry because we bank with a teacher’s credit union,” or even, “We put all
our money into blue chip stocks and plan to ride it out.” Again, if you’re one of the 40 percent
who allow open access to your profile, then suddenly identity thieves know where you bank
and where you have the bulk of your investments. It’s easy to forget that what may seem
like a harmless comment on a Facebook wall could reveal a great deal about your personal
finances. It’s best to avoid that kind of talk.
5: Never Give Out Your Address or Phone Numbers
File this one under security risk. If you share your address and phone number on a social
networking site, you open yourself up to threats of identity theft and other personal dangers
such as burglaries. If you post that you’re going on vacation and you have your address
posted, then everyone knows you have an empty house. Identity thieves could pay a visit
to your mailbox and open up a credit card in your name. Burglars could rid your home of
anything of value. Even just posting your phone number gives people with Internet savvy
easy access to your address. Reverse lookup services can supply anyone with your home
address in possession of your phone number.
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6: Never Share Photos of Your Children
Social networking sites are a common place for people to share pictures of their families,
but if you’re one of the 40 percent of users who don’t restrict access to your profile, then
those pictures are there for everyone to see. It’s a sad fact, but a lot of predators use the
Internet to stalk their prey. If you post pictures of your family and combine that with infor-
mation like, “My husband is out of town this weekend” or “Little Johnny is old enough to
stay at home by himself now,” then your children’s safety could be at risk. Nobody ever
thinks it will happen to them until it does, so safety first is a good default mode when using
social networking sites. Just like with other private matters, send family photos only to a
select group of trusted friends and colleagues who you know won’t share them.
7: Never Provide Company Information
You may be dying to tell the world about your new work promotion, but if it’s news that
could be advantageous to one of your company’s competitors, then it’s not something you
should share. News of a planned expansion or a big project role and anything else about
your workplace should be kept private. Sophos, a security software company, found that 63
percent of companies were afraid of what their employees were choosing to share on social
networking sites. If you want to message it out, be selective and send private emails. Many
companies are so serious about not being included in social networking sites that they for-
bid employees from using sites like Facebook at work. Some IT departments even filter the
URLs and block access to these sites so employees aren’t tempted to log on.
8: Never Give Links to Websites
With 51 percent of social network users taking advantage of more than one site, there’s
bound to be some crossover, especially if you have the sites linked. You may post some-
thing you find innocuous on Facebook, but then it’s linked to your LinkedIn work profile
and you’ve put your job at risk. If you link your various profiles, be aware that what you
post in one world is available to the others. In 2009, a case of an employee caught lying on
Facebook hit the news. The employee asked off for a weekend shift because he was ill and
then posted pictures on his Facebook profile of himself at a party that same weekend. The
news got back to his employer easily enough and he was fired. So if you choose to link your
profiles, it’s no longer a “personal life” and “work life” scenario.
9: Keep Your Social Plans to Yourself
Sharing your social plans for everybody to see isn’t a good idea. Unless you’re planning a big
party and inviting all the users you’re connected to, it will only make your other friends feel
left out. There are also some security issues at stake here. Imagine a scenario where a jeal-
ous ex-boyfriend knows that you’re meeting a new date out that night. What’s to keep the ex
from showing up and causing a scene or even potentially getting upset or violent? Nothing.
If you’re planning a party or an outing with a group of friends, send a personal “e-vite” for
their eyes only and nobody is the wiser. If you’re trying to cast a wide net by throwing out an
idea for a social outing, just remember that anyone who has access to your profile sees it.
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10. Do Not Share Personal Conversations
On Facebook, users can send personal messages or post notes, images, or videos to
another user’s wall. The wall is there for all to see, while messages are between the sender
and the receiver, just like an email. Personal and private matters should never be shared
on your wall. You wouldn’t go around with a bullhorn announcing a private issue to the
world, and the same thing goes on the Internet. This falls under the nebulous world of
social networking etiquette. There is no official handbook for this sort of thing, but use your
best judgment. If it’s not something you’d feel comfortable sharing in person with extended
family, acquaintances, work colleagues, or strangers, then you shouldn’t share it on your
Facebook wall. 1
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141Business Driven MIS Module 1
section 4.1 Ethics
L E A R N I N G O U T C O M E S
4.1 Explain the ethical issues in the use of information technology.
4.2 Identify the six epolicies organizations should implement to protect themselves.
INFORMATION ETHICS
Ethics and security are two fundamental building blocks for all organizations. In recent
years, enormous business scandals along with 9/11 have shed new light on the meaning
of ethics and security. When the behavior of a few individuals can destroy billion-dollar
organizations, the value of ethics and security should be evident.
Copyright is the legal protection afforded an expression of an idea, such as a song,
book, or video game. Intellectual property is intangible creative work that is embod-
ied in physical form and includes copyrights, trademarks, and patents. A patent is an
exclusive right to make, use, and sell an invention and is granted by a government to
the inventor. As it becomes easier for people to copy everything from words and data to
music and video, the ethical issues surrounding copyright infringement and the viola-
tion of intellectual property rights are consuming the ebusiness world. Technology poses
new challenges for our ethics — the principles and standards that guide our behavior
toward other people.
The protection of customers’ privacy is one of the largest, and murkiest, ethical issues
facing organizations today. Privacy is the right to be left alone when you want to be,
to have control over your personal possessions, and not to be observed without your
consent. Privacy is related to confidentiality, which is the assurance that messages and
information remain available only to those authorized to view them. Each time employ-
ees make a decision about a privacy issue, the outcome could sink the company.
Trust among companies, customers, partners, and suppliers is the support structure
of ebusiness. Privacy is one of its main ingredients. Consumers’ concerns that their pri-
vacy will be violated because of their interactions on the web continue to be one of the
primary barriers to the growth of ebusiness.
Information ethics govern the ethical and moral issues arising from the development
and use of information technologies, as well as the creation, collection, duplication, distri-
bution, and processing of information itself (with or without the aid of computer technolo-
gies). Ethical dilemmas in this area usually arise not as simple, clear-cut situations but as
clashes among competing goals, responsibilities, and loyalties. Inevitably, there will be more
than one socially acceptable or “correct” decision. The two primary areas concerning soft-
ware include pirated software and counterfeit software. Pirated software is the unauthor-
ized use, duplication, distribution, or sale of copyrighted software. Counterfeit software
is software that is manufactured to look like the real thing and sold as such. Digital rights
management is a technological solution that allows publishers to control their digital
media to discourage, limit, or prevent illegal copying and distribution. Figure 4.1 contains
examples of ethically questionable or unacceptable uses of information technology. 2
LO 4.1: Explain the ethical issues in
the use of information technology.
FIGURE 4.1
Ethically Questionable or
Unacceptable Information
Technology Use
Individuals copy, use, and distribute software.
Employees search organizational databases for sensitive corporate and personal information.
Organizations collect, buy, and use information without checking the validity or accuracy of the information.
Individuals create and spread viruses that cause trouble for those using and maintaining IT systems.
Individuals hack into computer systems to steal proprietary information.
Employees destroy or steal proprietary organization information such as schematics, sketches, customer
lists, and reports.
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BUSINESS DRIVEN DISCUSSION
A high school principal decided it was a good idea to hold a confidential con-
versation about teachers, salaries, and student test scores on his cellular phone
in a local Starbucks. Not realizing that one of the student’s parents was sitting
next to him, the principal accidentally divulged sensitive information about his
employees and students. The irate parent soon notified the school board about
the principal’s inappropriate behavior and a committee was formed to decide
how to handle the situation. 3
With the new wave of collaboration tools, electronic business, and the
Internet, employees are finding themselves working outside the office and
beyond traditional office hours. Advantages associated with remote workers
include increased productivity, decreased expenses, and boosts in morale as
employees are given greater flexibility to choose their work location and hours.
Unfortunately, disadvantages associated with remote workers include new
forms of ethical challenges and information security risks.
In a group, discuss the following statement: Information does not have any
ethics. If you were elected to the committee to investigate the principal’s inap-
propriate Starbucks phone conversation, what types of questions would you
want answered? What type of punishment, if any, would you enforce on the
principal? What types of policies would you implement across the school dis-
trict to ensure this scenario is never repeated? Be sure to highlight how remote
workers impact business along with any potential ethical challenges and infor-
mation security issues.
Information—
Does It Have
Ethics?
APPLY YOUR KNOWLEDGE
142 Chapter 4 Ethics and Information Security: MIS Business Concerns
Unfortunately, few hard and fast rules exist for always determining what is ethical.
Many people can either justify or condemn the actions in Figure 4.1 , for example. Know-
ing the law is important but that knowledge will not always help, because what is legal
might not always be ethical, and what might be ethical is not always legal. For example,
Joe Reidenberg received an offer for AT&T cell phone service. AT&T used Equifax, a
credit reporting agency, to identify potential customers such as Joe Reidenberg. Over-
all, this seemed like a good business opportunity between Equifax and AT&T wireless.
Unfortunately, the Fair Credit Reporting Act (FCRA) forbids repurposing credit informa-
tion except when the information is used for “a firm offer of credit or insurance.” In other
words, the only product that can be sold based on credit information is credit. A repre-
sentative for Equifax stated, “As long as AT&T Wireless (or any company for that matter)
is offering the cell phone service on a credit basis, such as allowing the use of the service
before the consumer has to pay, it is in compliance with the FCRA.” However, the ques-
tion remains—is it ethical? 4
Figure 4.2 shows the four quadrants where ethical and legal behaviors intersect. The
goal for most businesses is to make decisions within quadrant I that are both legal and
ethical. There are times when a business will find itself in the position of making a deci-
sion in quadrant III, such as hiring child labor in foreign countries, or in quadrant II
where a business might pay a foreigner who is in the process of getting her immigration
status approved because the company is in the process of hiring the person. A business
should never find itself operating in quadrant IV. Ethics are critical to operating a suc-
cessful business today.
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FIGURE 4.2
Acting Ethically and Acting
Legally Are Not Always the
Same Thing
UNETHICAL
ETHICAL
LEGAL ILLEGAL
Quadrant III
Legal but Unethical
Quadrant IV
Illegal and Unethical
Quadrant I
Legal and Ethical
Quadrant II
Illegal but Ethical
BUSINESS DRIVEN ETHICS AND SECURITY
Ethics. It’s just one tiny word, but it has monumental impact on every area of
business. From the magazines, blogs, and newspapers you read to the courses
you take, you will encounter ethics as it is a hot topic in today’s electronic world.
Technology has provided so many incredible opportunities, but it has also pro-
vided those same opportunities to unethical people. Discuss the ethical issues
surrounding each of the following situations (yes, these are true stories):
■ A student raises her hand in class and states, “I can legally copy any DVD I
get from Netflix because Netflix purchased the DVD and the copyright only
applies to the company who purchased the product.”
■ A student stands up the first day of class before the professor arrives and
announces that his fraternity scans textbooks and he has the textbook for
this course on his thumb drive, which he will gladly sell for $20. Several
students pay on the spot and upload the scanned textbook to their PCs. One
student takes down the student information and contacts the publisher
about the incident.
■ A senior marketing manager is asked to monitor his employee’s email
because there is a rumor that the employee is looking for another job.
■ A vice president of sales asks her employee to burn all of the customer data
onto an external hard drive because she made a deal to provide customer
information to a strategic partner.
■ A senior manager is asked to monitor his employee’s email to discover if she
is sexually harassing another employee.
■ An employee is looking at the shared network drive and discovers his boss’s
entire hard drive, including his email backup, has been copied to the net-
work and is visible to all.
■ An employee is accidently copied on an email listing the targets for the next
round of layoffs.
Is IT Really
Worth the Risk?
APPLY YOUR KNOWLEDGE
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Established Information-Related Laws
Privacy Act—1974 Restricts what information the federal government can collect; allows people to access and correct infor-
mation on themselves; requires procedures to protect the security of personal information; and forbids
the disclosure of name-linked information without permission.
Family Education Rights and
Privacy Act—1974
Regulates access to personal education records by government agencies and other third parties and
ensures the right of students to see their own records.
Cable Communications Act—1984 Requires written or electronic consent from viewers before cable TV providers can release viewing
choices or other personally identifiable information.
Electronic Communications
Privacy Act—1986
Allows the reading of communications by a firm and says that employees have no right to privacy when
using their companies’ computers.
Computer Fraud and Abuse
Act—1986
Prohibits unauthorized access to computers used for financial institutions, the U.S. government, or inter-
state and international trade.
The Bork Bill (officially known as the
Video Privacy Protection Act, 1988)
Prohibits the use of video rental information on customers for any purpose other than that of marketing
goods and services directly to the customer.
Communications Assistance for Law
Enforcement Act—1994
Requires that telecommunications equipment be designed so that authorized government agents are able
to intercept all wired and wireless communications being sent or received by any subscriber. The act also
requires that subscriber call-identifying information be transmitted to a government when and if required.
Freedom of Information Act—1967,
1975, 1994, and 1998
Allows any person to examine government records unless it would cause an invasion of privacy. It was
amended in 1974 to apply to the FBI, and again in 1994 to allow citizens to monitor government activities
and information gathering, and once again in 1998 to access government information on the Internet.
Health Insurance Portability and
Accountability Act (HIPAA)—1996
Requires that the health care industry formulate and implement regulations to keep patient information
confidential.
Identity Theft and Assumption
Deterrence Act—1998
Strengthened the criminal laws governing identity theft making it a federal crime to use or transfer identi-
fication belonging to another. It also established a central federal service for victims.
USA Patriot Act—2001 and 2003 Allows law enforcement to get access to almost any information, including library records, video rentals,
bookstore purchases, and business records when investigating any act of terrorist or clandestine intel-
ligence activities. In 2003, Patriot II broadened the original law.
Homeland Security Act—2002 Provided new authority to government agencies to mine data on individuals and groups including emails
and website visits; put limits on the information available under the Freedom of Information Act; and gave
new powers to government agencies to declare national health emergencies.
Sarbanes-Oxley Act—2002 Sought to protect investors by improving the accuracy and reliability of corporate disclosures and requires
companies to (1) implement extensive and detailed policies to prevent illegal activity within the company,
and (2) to respond in a timely manner to investigate illegal activity.
Fair and Accurate Credit
Transactions Act—2003
Included provisions for the prevention of identity theft including consumers’ right to get a credit report
free each year, requiring merchants to leave all but the last five digits of a credit card number off a
receipt, and requiring lenders and credit agencies to take action even before a victim knows a crime has
occurred when they notice any circumstances that might indicate identity theft.
CAN-Spam Act—2003 Sought to regulate interstate commerce by imposing limitations and penalties on businesses sending
unsolicited email to consumers. The law forbids deceptive subject lines, headers, return addresses, etc.,
as well as the harvesting of email addresses from websites. It requires businesses that send spam to
maintain a do-not-spam list and to include a postal mailing address in the message.
144 Chapter 4 Ethics and Information Security: MIS Business Concerns
Information Does Not Have Ethics, People Do
Information itself has no ethics. It does not care how it is used. It will not stop itself from
spamming customers, sharing itself if it is sensitive or personal, or revealing details to
third parties. Information cannot delete or preserve itself. Therefore, it falls to those who
own the information to develop ethical guidelines about how to manage it. Information
management examines the organizational resource of information and regulates its defini-
tions, uses, value, and distribution ensuring it has the types of data/information required
to function and grow effectively. Information governance is a method or system of gov-
ernment for information management or control. Information compliance is the act of
conforming, acquiescing, or yielding information. Information property is an ethical issue
that focuses on who owns information about individuals and how information can be sold
and exchanged. A few years ago the ideas of information management, governance, and
FIGURE 4.3
Established Information-
Related Laws
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145Business Driven MIS Module 1
compliance were relatively obscure. Today, these concepts are a must for virtually every
company, both domestic and global, primarily due to the role digital information plays
in corporate legal proceedings or litigation. Frequently, digital information serves as key
evidence in legal proceedings and it is far easier to search, organize, and filter than paper
documents. Digital information is also extremely difficult to destroy, especially if it is on a
corporate network or sent via email. In fact, the only reliable way to truly obliterate digital
information is to destroy the hard drives where the file was stored. Ediscovery (or electronic
discovery ) refers to the ability of a company to identify, search, gather, seize, or export digital
information in responding to a litigation, audit, investigation, or information inquiry. As the
importance of ediscovery grows, so does information governance and information compli-
ance. The Child Online Protection Act (COPA) was passed to protect minors from access-
ing inappropriate material on the Internet. Figure 4.3 provides an overview of some of the
important laws individuals and firms must follow in managing and protecting information. 5
DEVELOPING INFORMATION MANAGEMENT POLICIES
Treating sensitive corporate information as a valuable resource is good management.
Building a corporate culture based on ethical principles that employees can understand
and implement is responsible management. Organizations should develop written poli-
cies establishing employee guidelines, employee procedures, and organizational rules
for information. These policies set employee expectations about the organization’s prac-
tices and standards and protect the organization from misuse of computer systems and
IT resources. If an organization’s employees use computers at work, the organization
should, at a minimum, implement epolicies. Epolicies are policies and procedures that
address information management along with the ethical use of computers and the Inter-
net in the business environment. Figure 4.4 displays the epolicies a firm should imple-
ment to set employee expectations.
Ethical Computer Use Policy
In a case that illustrates the perils of online betting, a leading Internet poker site reported
that a hacker exploited a security flaw to gain an insurmountable edge in high-stakes,
no-limit Texas hold-’em tournaments—the ability to see his opponents’ hole cards. The
cheater, whose illegitimate winnings were estimated at between $400,000 and $700,000
by one victim, was an employee of AbsolutePoker.com and hacked the system to show
that it could be done. Regardless of what business a company operates—even one that
many view as unethical—the company must protect itself from unethical employee
behavior. 6 Cyberbulling includes threats, negative remarks, or defamatory comments
transmitted via the Internet or posted on the website. A threat is an act or object that
poses a danger to assets. Click-fraud is the abuse of pay-per-click, pay-per-call, and pay-
per-conversion revenue models by repeatedly clicking on a link to increase charges or
costs for the advertiser. Competitive click-fraud is a computer crime where a competi-
tor or disgruntled employee increases a company’s search advertising costs by repeat-
edly clicking on the advertiser’s link.
LO 4.2: Identify the six epolicies
organizations should implement to
protect themselves.
FIGURE 4.4
Overview of Epolicies
Ethical
Computer Use
Policy
Email Privacy
Policy
Social Media
Policy
Workplace
Monitoring
Policy
Information
Privacy Policy
Acceptable
Use Policy
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146 Chapter 4 Ethics and Information Security: MIS Business Concerns
Cyberbullying and click-fraud are just a few examples of the many types of unethical
computer use found today.
One essential step in creating an ethical corporate culture is establishing an ethical
computer use policy. An ethical computer use policy contains general principles to
guide computer user behavior. For example, it might explicitly state that users should
refrain from playing computer games during working hours. This policy ensures the
users know how to behave at work and the organization has a published standard to deal
with infractions. For example, after appropriate warnings, the company may terminate
an employee who spends significant amounts of time playing computer games at work.
Organizations can legitimately vary in how they expect employees to use computers,
but in any approach to controlling such use, the overriding principle should be informed
consent. The users should be informed of the rules and, by agreeing to use the system on
that basis, consent to abide by them.
Managers should make a conscientious effort to ensure all users are aware of the pol-
icy through formal training and other means. If an organization were to have only one
epolicy, it should be an ethical computer use policy because that is the starting point and
the umbrella for any other policies the organization might establish.
Information Privacy Policy
An organization that wants to protect its information should develop an information
privacy policy, which contains general principles regarding information privacy. Visa cre-
ated Inovant to handle all its information systems including its coveted customer informa-
tion, which details how people are spending their money, in which stores, on which days,
and even at what time of day. Just imagine what a sales and marketing department could
do if it gained access to this information. For this reason, Inovant bans the use of Visa’s
customer information for anything outside its intended purpose—billing. Innovant’s pri-
vacy specialists developed a strict credit card information privacy policy, which it follows.
Now Inovant is being asked if it can guarantee that unethical use of credit card infor-
mation will never occur. In a large majority of cases, the unethical use of information
happens not through the malicious scheming of a rogue marketer, but rather uninten-
tionally. For instance, information is collected and stored for some purpose, such as
record keeping or billing. Then, a sales or marketing professional figures out another
way to use it internally, share it with partners, or sell it to a trusted third party. The infor-
mation is “unintentionally” used for new purposes. The classic example of this type of
unintentional information reuse is the Social Security number, which started simply as a
way to identify government retirement benefits and then was used as a sort of universal
personal ID, found on everything from drivers’ licenses to savings accounts.
Acceptable Use Policy
An acceptable use policy (AUP) requires a user to agree to follow it to be provided access
to corporate email, information systems, and the Internet. Nonrepudiation is a contrac-
tual stipulation to ensure that ebusiness participants do not deny (repudiate) their online
actions. A nonrepudiation clause is typically contained in an acceptable use policy. Many
businesses and educational facilities require employees or students to sign an acceptable
use policy before gaining network access. When signing up with an email provider, each
customer is typically presented with an AUP, which states the user agrees to adhere to
certain stipulations. Users agree to the following in a typical acceptable use policy:
■ Not using the service as part of violating any law.
■ Not attempting to break the security of any computer network or user.
■ Not posting commercial messages to groups without prior permission.
■ Not performing any nonrepudiation.
Some organizations go so far as to create a unique information management policy focus-
ing solely on Internet use. An Internet use policy contains general principles to guide the
proper use of the Internet. Because of the large amounts of computing resources that Inter-
net users can expend, it is essential that such use be legitimate. In addition, the Internet
contains numerous materials that some believe are offensive, making regulation in the
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147Business Driven MIS Module 1
workplace a requirement. Cybervandalism is the electronic defacing of an existing web-
site. Typosquatting is a problem that occurs when someone registers purposely misspelled
variations of well-known domain names. These variants sometimes lure consumers who
make typographical errors when entering a URL. Website name stealing is the theft of a
website’s name that occurs when someone, posing as a site’s administrator, changes the
ownership of the domain name assigned to the website to another website owner. These
are all examples of unacceptable Internet use. Internet censorship is government attempts
to control Internet traffic, thus preventing some material from being viewed by a country’s
citizens. Generally, an Internet use policy:
■ Describes the Internet services available to users.
■ Defines the organization’s position on the purpose of Internet access and what
restrictions, if any, are placed on that access.
■ Describes user responsibility for citing sources, properly handling offensive material,
and protecting the organization’s good name.
■ States the ramifications if the policy is violated.
Email Privacy Policy
An email privacy policy details the extent to which email messages may be read by oth-
ers. Email is so pervasive in organizations that it requires its own specific policy. Most
working professionals use email as their preferred means of corporate communications.
While email and instant messaging are common business communication tools, there
are risks associated with using them. For instance, a sent email is stored on at least three
or four computers (see Figure 4.5 ). Simply deleting an email from one computer does
not delete it from the others. Companies can mitigate many of the risks of using elec-
tronic messaging systems by implementing and adhering to an email privacy policy.
One major problem with email is the user’s expectations of privacy. To a large extent,
this expectation is based on the false assumption that email privacy protection exists
somehow analogous to that of U.S. first-class mail. Generally, the organization that owns
the email system can operate the system as openly or as privately as it wishes. Surveys
indicate that the majority of large firms regularly read and analyze employees’ email
looking for confidential data leaks such as unannounced financial results or the sharing
BUSINESS DRIVEN GLOBALIZATION
The Google debate over operations in China is an excellent example of types
of global ethical and security issues U.S. companies face as they expand opera-
tions around the world. Google’s systems were targeted by highly sophisticated
hacker attacks aimed at obtaining proprietary information including personal
data belonging to Chinese human rights activists who use Google’s Gmail ser-
vice. Google, which originally agreed to filter search results based on Chinese
government censorship rules, decided to unfilter search results after what
it called an infiltration of its technology and the email accounts of Chinese
human-rights activists. China called Google’s plan to defy government censor-
ship rules unfriendly and irresponsible and demanded Google shut down all
operations in China.
Why would China want to filer search results? Do you agree or disagree with
China’s censorship rules? Do you think Google was acting ethically when it agreed
to implement China’s censorship rules? Why do companies operating abroad
need to be aware of the different ethical perspective found in other cultures? 7
Censoring Google
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of trade secrets that result in the violation of an email privacy policy and eventual ter-
mination of the employee. That means that if the organization wants to read everyone’s
email, it can do so. Basically, using work email for anything other than work is not a good
idea. A typical email privacy policy:
■ Defines legitimate email users and explains what happens to accounts after a person
leaves the organization.
■ Explains backup procedure so users will know that at some point, even if a message
is deleted from their computer, it is still stored by the company.
■ Describes the legitimate grounds for reading email and the process required before
such action is performed.
■ Discourages sending junk email or spam to anyone who does not want to receive it.
■ Prohibits attempting to mail bomb a site. A mail bomb sends a massive amount of
email to a specific person or system that can cause that user’s server to stop functioning.
■ Informs users that the organization has no control over email once it has been trans-
mitted outside the organization.
Spam is unsolicited email. It plagues employees at all levels within an organization,
from receptionist to CEO, and clogs email systems and siphons MIS resources away from
legitimate business projects. An anti-spam policy simply states that email users will not
send unsolicited emails (or spam). It is difficult to write anti-spam policies, laws, or soft-
ware because there is no such thing as a universal litmus test for spam. One person’s
spam is another person’s newsletter. End users have to decide what spam is, because it
can vary widely not just from one company to the next, but from one person to the next. A
user can opt out of receiving emails by choosing to deny permission to incoming emails.
Teergrubing is an antispamming approach where the receiving computer launches
a return attack against the spammer, sending email messages back to the computer that
originated the suspected spam.
Social Media Policy
Did you see the YouTube video showing two Domino’s Pizza employees violating health
codes while preparing food by passing gas on sandwiches? Millions of people did and
the company took notice when disgusted customers began posting negative comments
all over Twitter. Not having a Twitter account, corporate executives at Domino’s did
not know about the damaging tweets until it was too late. The use of social media can
FIGURE 4.5
Email Is Stored on Multiple
Computers
Sender’s
Computer Sender’s Email
Provider’s Server
Recipient’s
ComputerRecipient’s Email
Provider’s Server
Email Message
Email Message Email Message
Email Message
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BUSINESS DRIVEN MIS
The Canadian Broadcasting Company (CBC) has issued a social networking
policy directing journalists to avoid adding sources or contacts as friends on
social networking sites such as Facebook or LinkedIn. Basic rules state that
reporters never allow one source to view what another source says and report-
ers want to ensure private conversations with sources remain private. Adding
sources as “friends” can compromise a journalist’s work by allowing friends
to view other friends in the network. It may also not be in a journalist’s best
interest to become a “friend” in a source’s network. The CBC also discourages
posting any political preferences in personal profiles, commenting on bulletin
boards or people’s “Facebook wall.”
This might seem like common sense, but for employees who do not spend
countless hours on the Internet, using social networking sites can be confusing
and overwhelming. Why is it critical for any new hire to research and review all
policies, especially social media policies? Research three companies you would
like to work for upon graduation, and detail the types of social media policies
that the company currently has or should implement. 9
Sources Are
Not Friends
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149Business Driven MIS Module 1
contribute many benefits to an organization, and implemented correctly it can become
a huge opportunity for employees to build brands. But there are also tremendous risks as
a few employees representing an entire company can cause tremendous brand damage.
Defining a set of guidelines implemented in a social media policy can help mitigate that
risk. Companies can protect themselves by implementing a social media policy outlin-
ing the corporate guidelines or principles governing employee online communications.
Having a single social media policy might not be enough to ensure the company’s online
reputation is protected. Additional, more specific, social media policies a company
might choose to implement include: 8
■ Employee online communication policy detailing brand communication.
■ Employee blog and personal blog policies.
■ Employee social network and personal social network policies.
■ Employee Twitter, corporate Twitter, and personal Twitter policies.
■ Employee LinkedIn policy.
■ Employee Facebook usage and brand usage policy.
■ Corporate YouTube policy.
Organizations must protect their online reputations and continuously monitor blogs,
message boards, social networking sites, and media sharing sites. However, monitor-
ing the hundreds of different social media sites can quickly become overwhelming. To
combat these issues, a number of companies specialize in online social media moni-
toring; for example, Trackur.com creates digital dashboards allowing executives to view
at a glance the date published, source, title, and summary of every item tracked. The
dashboard not only highlights what’s being said, but also the influence of the particular
person, blog, or social media site.
Workplace Monitoring Policy
Increasingly, employee monitoring is not a choice; it is a risk-management obliga-
tion. Michael Soden, CEO of the Bank of Ireland, issued a mandate stating that com-
pany employees could not surf illicit websites with company equipment. Next, he hired
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Hewlett-Packard to run the MIS department and illicit websites were discovered on
Soden’s own computer, forcing Soden to resign. Monitoring employees is one of the big-
gest challenges CIOs face when developing information management policies. 10
Physical security is tangible protection such as alarms, guards, fireproof doors,
fences, and vaults. New technologies make it possible for employers to monitor many
aspects of their employees’ jobs, especially on telephones, computer terminals, through
electronic and voice mail, and when employees are using the Internet. Such monitor-
ing is virtually unregulated. Therefore, unless company policy specifically states other-
wise (and even this is not assured), your employer may listen, watch, and read most of
your workplace communications. Workplace MIS monitoring tracks people’s activi-
ties by such measures as number of keystrokes, error rate, and number of transactions
processed (see Figure 4.6 for an overview). The best path for an organization planning
to engage in employee monitoring is open communication including an employee
monitoring policy stating explicitly how, when, and where the company monitors its
employees. Several common stipulations an organization can follow when creating an
employee monitoring policy include:
■ Be as specific as possible stating when and what (email, IM, Internet, network activ-
ity, etc.) will be monitored.
■ Expressly communicate that the company reserves the right to monitor all
employees.
■ State the consequences of violating the policy.
■ Always enforce the policy the same for everyone.
Many employees use their company’s high-speed Internet access to shop, browse,
and surf the web. Most managers do not want their employees conducting personal
business during working hours, and they implement a Big Brother approach to
employee monitoring. Many management gurus advocate that organizations whose
corporate cultures are based on trust are more successful than those whose corporate
cultures are based on mistrust. Before an organization implements monitoring tech-
nology, it should ask itself, “What does this say about how we feel about our employ-
ees?” If the organization really does not trust its employees, then perhaps it should
find new ones. If an organization does trust its employees, then it might want to treat
them accordingly. An organization that follows its employees’ every keystroke might
be unwittingly undermining the relationships with its employees, and it might find the
effects of employee monitoring are often worse than lost productivity from employee
web surfing.
FIGURE 4.6
Internet Monitoring Technologies Common Internet Monitoring Technologies
Key logger, or
key trapper, software
A program that records every keystroke and mouse click.
Hardware key logger A hardware device that captures keystrokes on their journey from the keyboard
to the motherboard.
Cookie A small file deposited on a hard drive by a website containing information about
customers and their web activities. Cookies allow websites to record the comings
and goings of customers, usually without their knowledge or consent.
Adware Software that generates ads that install themselves on a computer when a person
downloads some other program from the Internet.
Spyware (sneakware
or stealthware)
Software that comes hidden in free downloadable software and tracks online
movements, mines the information stored on a computer, or uses a computer’s
CPU and storage for some task the user knows nothing about.
Web log Consists of one line of information for every visitor to a website and is usually
stored on a web server.
Clickstream Records information about a customer during a web surfing session such as
what websites were visited, how long the visit was, what ads were viewed, and
what was purchased.
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section 4.2 Information Security
L E A R N I N G O U T C O M E S
4.3 Describe the relationships and differences between hackers and viruses.
4.4 Describe the relationship between information security policies and an information security plan.
4.5 Provide an example of each of the three primary information security areas: (1) authentication and
authorization, (2) prevention and resistance, and (3) detection and response.
PROTECTING INTELLECTUAL ASSETS
To accurately reflect the crucial interdependence between MIS and business processes,
we should update the old business axiom “Time is money” to say “Uptime is money.”
Downtime refers to a period of time when a system is unavailable. Unplanned downtime
can strike at any time for any number of reasons, from tornadoes to sink overflows to net-
work failures to power outages (see Figure 4.7 ). Although natural disasters may appear to
be the most devastating causes of MIS outages, they are hardly the most frequent or most
expensive. Figure 4.8 demonstrates that the costs of downtime are not only associated
LO 4.3: Describe the relationships
and differences between hackers
and viruses.
BUSINESS DRIVEN DEBATE
New technologies make it possible for employers to monitor many aspects of
their employees’ jobs, especially on telephones, computer terminals, through
electronic and voice mail, and when employees are using the Internet. Such
monitoring is virtually unregulated. Therefore, unless company policy specifi-
cally states otherwise (and even this is not assured), your employer may listen,
watch, and read most of your workplace communications.
Employers are taking monitoring activity a step further and monitoring
employees, and employees’ spouses, at home and on weekends. Yes, you read
that correctly. Numerous employees have been fired for smoking cigarettes on
the weekend in the privacy of their own home. As health care costs escalate,
employers are increasingly seeking to regulate employee behavior—at home
as well as in the workplace. Weyco, an insurance benefits administrator in
Michigan, initiated a program requiring mandatory breath tests to detect for
nicotine, and any employee testing positive would be sent home without pay
for one month. If the employee failed the nicotine test a second time, that per-
son would be fired—no matter how long the employee had been with the com-
pany. Weyco’s smoking prohibition does not stop with employees but extends
to spouses also who must pass monthly nicotine tests. A positive test means
the employee must pay a monthly fee of $80 until the spouse takes a smoking-
cessation program and tests nicotine-free. 11
Do you agree that companies have the right to hold employees accountable
for actions they perform on weekends in the privacy of their own homes? If you
were the CEO of Weyco, what would be your argument supporting its smoking
prohibition policies? Do you think Weyco’s monitoring practices are ethical?
Do you think Weyco’s monitoring practices are legal?
Fired for Smoking
on the Weekend
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Sources of Unplanned Downtime
Bomb threat Frozen pipe Snowstorm
Burst pipe Hacker Sprinkler malfunction
Chemical spill Hail Static electricity
Construction Hurricane Strike
Corrupted data Ice storm Terrorism
Earthquake Insects Theft
Electrical short Lightning Tornado
Epidemic Network failure Train derailment
Equipment failure Plane crash Smoke damage
Evacuation Power outage Vandalism
Explosion Power surge Vehicle crash
Fire Rodents Virus
Flood Sabotage Water damage (various)
Fraud Shredded data Wind
FIGURE 4.7
Sources of Unplanned
Downtime
Financial Performance
Revenue recognition
Cash flow
Payment guarantees
Credit rating
Stock price
Revenue
Direct loss
Compensatory payments
Lost future revenue
Billing losses
Investment losses
Lost productivity
Damaged Reputation
Customers
Suppliers
Financial markets
Banks
Business partners
Other Expenses
Temporary employees
Equipment rentals
Overtime costs
Extra shipping charges
Travel expenses
Legal obligations
Know your cost of
downtime per hour,
per day, per week.
FIGURE 4.8
The Cost of Downtime
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153Business Driven MIS Module 1
with lost revenues, but also with financial performance, damage to reputations, and
even travel or legal expenses. A few questions managers should ask when determining
the cost of downtime are: 12
■ How many transactions can the company afford to lose without significantly harm-
ing business?
■ Does the company depend upon one or more mission-critical applications to con-
duct business?
■ How much revenue will the company lose for every hour a critical application is
unavailable?
■ What is the productivity cost associated with each hour of downtime?
■ How will collaborative business processes with partners, suppliers, and customers
be affected by an unexpected IT outage?
■ What is the total cost of lost productivity and lost revenue during unplanned
downtime?
The reliability and resilience of IT systems have never been more essential for suc-
cess as businesses cope with the forces of globalization, 24/7 operations, government
and trade regulations, global recession, and overextended IT budgets and resources. Any
unexpected downtime in today’s business environment has the potential to cause both
short- and long-term costs with far-reaching consequences.
Information security is a broad term encompassing the protection of information
from accidental or intentional misuse by persons inside or outside an organization.
Information security is the primary tool an organization can use to combat the threats
associated with downtime. Understanding how to secure information systems is critical
to keeping downtime to a minimum and uptime to a maximum. Hackers and viruses are
two of the hottest issues currently facing information security.
Security Threats Caused by Hackers and Viruses
Hackers are experts in technology who use their knowledge to break into computers
and computer networks, either for profit or just motivated by the challenge. Smoking is
not just bad for a person’s health; it seems it is also bad for company security as hack-
ers regularly use smoking entrances to gain building access. Once inside they pose as
employees from the MIS department and either ask for permission to use an employee’s
computer to access the corporate network, or find a conference room where they sim-
ply plug-in their own laptop. Drive-by hacking is a computer attack where an attacker
accesses a wireless computer network, intercepts data, uses network services, and/or
sends attack instructions without entering the office or organization that owns the net-
work. Figure 4.9 lists the various types of hackers for organizations to be aware of, and
Figure 4.10 shows how a virus is spread.
One of the most common forms of computer vulnerabilities is a virus. A virus is soft-
ware written with malicious intent to cause annoyance or damage. Some hackers create
and leave viruses causing massive computer damage. Figure 4.11 provides an overview
of the most common types of viruses. Two additional computer vulnerabilities include
adware and spyware. Adware is software that, while purporting to serve some useful
Common Types of Hackers
■ Black-hat hackers break into other people’s computer systems and may just look around or may steal and destroy information.
■ Crackers have criminal intent when hacking.
■ Cyberterrorists seek to cause harm to people or to destroy critical systems or information and use the Internet as a weapon of mass destruction.
■ Hactivists have philosophical and political reasons for breaking into systems and will often deface the website as a protest.
■ Script kiddies or script bunnies find hacking code on the Internet and click-and-point their way into systems to cause damage or spread viruses.
■ White-hat hackers work at the request of the system owners to find system vulnerabilities and plug the holes.
FIGURE 4.9
Types of Hackers
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function and often fulfilling that function, also allows Internet advertisers to display
advertisements without the consent of the computer user. Spyware is a special class
of adware that collects data about the user and transmits it over the Internet without
the user’s knowledge or permission. Spyware programs collect specific data about the
user, ranging from general demographics such as name, address, and browsing habits to
credit card numbers, Social Security numbers, and user names and passwords. Not all
adware programs are spyware and used correctly it can generate revenue for a company
allowing users to receive free products. Spyware is a clear threat to privacy. Figure 4.12
displays a few additional weapons hackers use for launching attacks. 13
Organizational information is intellectual capital. Just as organizations protect their
tangible assets—keeping their money in an insured bank or providing a safe working
environment for employees—they must also protect their intellectual capital, everything
from patents to transactional and analytical information. With security breaches and
viruses on the rise and computer hackers everywhere, an organization must put in place
strong security measures to survive.
Backdoor programs open a way into the network for future attacks.
Denial-of-service attack (DoS) floods a website with so many requests for service that it slows down or
crashes the site.
Distributed denial-of-service attack (DDoS) attacks from multiple computers that flood a website with so
many requests for service that it slows down or crashes. A common type is the Ping of Death, in which thou-
sands of computers try to access a website at the same time, overloading it and shutting it down.
Polymorphic viruses and worms change their form as they propagate.
Trojan-horse virus hides inside other software, usually as an attachment or a downloadable file.
Worm spreads itself, not only from file to file, but also from computer to computer. The primary difference
between a virus and a worm is that a virus must attach to something, such as an executable file, to spread.
Worms do not need to attach to anything to spread and can tunnel themselves into computers.
FIGURE 4.11
Common Forms of Viruses
FIGURE 4.10
How Computer Viruses Spread
A hacker creates a
virus and attaches
it to a program,
document, or
website.
Thinking the file is legitimate,
the user downloads it and the
virus infects other files and
programs on the computer.
Quickly the virus spreads in
email attachments and shared
files to co-workers and friends.
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THE FIRST LINE OF DEFENSE—PEOPLE
Organizations today are able to mine valuable information such as the identity of the top
20 percent of their customers, who usually produce 80 percent of revenues. Most organi-
zations view this type of information as intellectual capital and implement security mea-
sures to prevent it from walking out the door or falling into the wrong hands. At the same
time, they must enable employees, customers, and partners to access needed information
electronically. Organizations address security risks through two lines of defense; the first
is people, the second technology.
Surprisingly, the biggest problem is people as the majority of information security
breaches result from people misusing organizational information. Insiders are legiti-
mate users who purposely or accidentally misuse their access to the environment and
cause some kind of business-affecting incident. For example, many individuals freely
give up their passwords or write them on sticky notes next to their computers, leaving the
door wide open for hackers. Through social engineering, hackers use their social skills
to trick people into revealing access credentials or other valuable information. Dumpster
diving, or looking through people’s trash, is another way hackers obtain information.
Information security policies identify the rules required to maintain information
security, such as requiring users to log off before leaving for lunch or meetings, never
sharing passwords with anyone, and changing passwords every 30 days. An information
security plan details how an organization will implement the information security poli-
cies. The best way a company can safeguard itself from people is by implementing and
communicating its information security plan. This becomes even more important with
Web 2.0 and as the use of mobile devices, remote workforce, and contractors are growing.
A few details managers should consider surrounding people and information security
policies include defining the best practices for 14
■ Applications allowed to be placed on the corporate network, especially various file
sharing applications (Kazaz), IM software, and entertainment or freeware created by
unknown sources (iPhone applications).
■ Corporate computer equipment used for personal reason on personal networks.
■ Password creation and maintenance including minimum password length, charac-
ters to be included while choosing passwords, and frequency for password changes.
■ Personal computer equipment allowed to connect to the corporate network.
LO 4.4: Describe the relationship
between information security policies
and an information security plan.
FIGURE 4.12
Hacker Weapons
Elevation of privilege is a process by which a user misleads a system into granting unauthorized rights, usually for the purpose of compromising or
destroying the system. For example, an attacker might log onto a network by using a guest account and then exploit a weakness in the software that
lets the attacker change the guest privileges to administrative privileges.
Hoaxes attack computer systems by transmitting a virus hoax, with a real virus attached. By masking the attack in a seemingly legitimate message,
unsuspecting users more readily distribute the message and send the attack on to their co-workers and friends, infecting many users along the way.
Malicious code includes a variety of threats such as viruses, worms, and Trojan horses.
Packet tampering consists of altering the contents of packets as they travel over the Internet or altering data on computer disks after penetrating a
network. For example, an attacker might place a tap on a network line to intercept packets as they leave the computer. The attacker could eavesdrop
or alter the information as it leaves the network.
A sniffer is a program or device that can monitor data traveling over a network. Sniffers can show all the data being transmitted over a network,
including passwords and sensitive information. Sniffers tend to be a favorite weapon in the hacker’s arsenal.
Spoofing is the forging of the return address on an email so that the message appears to come from someone other than the actual sender. This is
not a virus but rather a way by which virus authors conceal their identities as they send out viruses.
Splogs (spam blogs) are fake blogs created solely to raise the search engine rank of affiliated websites. Even blogs that are legitimate are plagued
by spam, with spammers taking advantage of the Comment feature of most blogs to comments with links to spam sites.
Spyware is software that comes hidden in free downloadable software and tracks online movements, mines the information stored on a computer,
or uses a computer’s CPU and storage for some task the user knows nothing about.
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■ Virus protection including how often the system should be scanned and how fre-
quently the software should be updated. This could also include if downloading
attachments is allowed and practices for safe downloading from trusted and untrust-
worthy sources.
THE SECOND LINE OF DEFENSE—TECHNOLOGY
Once an organization has protected its intellectual capital by arming its people with
a detailed information security plan, it can begin to focus on deploying technology to
help combat attackers. Destructive agents are malicious agents designed by spammers
and other Internet attackers to farm email addresses off websites or deposit spyware on
machines. Figure 4.13 displays the three areas where technology can aid in the defense
against attacks.
People: Authentication and Authorization
Identity theft is the forging of someone’s identity for the purpose of fraud. The
fraud is often financial, because thieves apply for and use credit cards or loans in
the victim’s name. Two means of stealing an identity are phishing and pharming.
Information secrecy is the category of computer security that addresses the protec-
tion of data from unauthorized disclosure and confirmation of data source authentic-
ity. Phishing is a technique to gain personal information for the purpose of identity
theft, usually by means of fraudulent emails that look as though they came from legit-
imate businesses. The messages appear to be genuine, with official-looking formats
and logos, and typically ask for verification of important information such as pass-
words and account numbers, ostensibly for accounting or auditing purposes. Since
the emails look authentic, up to one in five recipients responds with the information
and subsequently becomes a victim of identity theft and other fraud. Figure 4.14 dis-
plays a phishing scam attempting to gain information for Bank of America; you should
never click on emails asking you to verify your identity as companies will never contact
you directly asking for your user name or password. 15 Phishing expedition is a mas-
querading attack that combines spam with spoofing. The perpetrator sends millions
of spam emails that appear to be from a respectable company. The emails contain a
link to a website that is designed to look exactly like the company’s website. The vic-
tim is encouraged to enter his or her username, password, and sometimes credit card
information. Spear phishing is a phishing expedition in which the emails are carefully
designed to target a particular person or organization. Vishing (or voice phishing) is a
LO 4.5: Provide an example of each
of the three primary information
security areas: (1) authentication
and authorization, (2) prevention and
resistance, and (3) detection and
response.
Attacks
Data
Authentication
and
Authorization
Prevention and
Resistance
Detection
and
Response
People
FIGURE 4.13
Three Areas of Information
Security
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phone scam that attempts to defraud people by asking them to call a bogus telephone
number to “confirm” their account information.
Pharming reroutes requests for legitimate websites to false websites. For example, if
you were to type in the URL to your bank, pharming could redirect to a fake site that col-
lects your information. A zombie is a program that secretly takes over another computer
for the purpose of launching attacks on other computers. Zombie attacks are almost
impossible to trace back to the attacker. A zombie farm is a group of computers on which
a hacker has planted zombie programs. A pharming attack uses a zombie farm, often by
an organized crime association, to launch a massive phishing attack.
Authentication and authorization technologies can prevent identity theft, phishing,
and pharming scams. Authentication is a method for confirming users’ identities. Once
a system determines the authentication of a user, it can then determine the access privi-
leges (or authorization) for that user. Authorization is the process of providing a user
with permission including access levels and abilities such as file access, hours of access,
and amount of allocated storage space. Authentication and authorization techniques fall
into three categories; the most secure procedures combine all three:
1. Something the user knows, such as a user ID and password.
2. Something the user has, such as a smart card or token.
3. Something that is part of the user, such as a fingerprint or voice signature.
FIGURE 4.14
Bank of America Phishing Scam
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Something the User Knows Such as a User ID and Password The first
type of authentication, using something the user knows, is the most common way to
identify individual users and typically consists of a unique user ID and password. How-
ever, this is actually one of the most ineffective ways for determining authentication
because passwords are not secure. All it typically takes to crack one is enough time.
More than 50 percent of help-desk calls are password related, which can cost an orga-
nization significant money, and a social engineer can coax a password from almost
anybody.
Something the User Has Such as a Smart Card or Token The second type of
authentication, using something the user has, offers a much more effective way to identify
individuals than a user ID and password. Tokens and smart cards are two of the primary
forms of this type of authentication. Tokens are small electronic devices that change user
passwords automatically. The user enters his or her user ID and token-displayed pass-
word to gain access to the network. A smart card is a device about the size of a credit
card, containing embedded technologies that can store information and small amounts
of software to perform some limited processing. Smart cards can act as identification
instruments, a form of digital cash, or a data storage device with the ability to store an
entire medical record.
BUSINESS DRIVEN INNOVATION
As our online world continues to explode, people are finding the number of user
names and passwords they need to remember growing exponentially. For this
reason many users will assign the same password for every log-on, choose easy
to remember names and dates, or simply write down their passwords on sticky
notes and attach them to their computers. Great for the person who needs to
remember 72 different passwords, but not so great for system security.
Of course the obvious answer is to deploy biometrics across the board, but
once you start reviewing the costs associated with biometrics you quickly realize
that this is not feasible. What is coming to the rescue to help with the password
nightmare we have created? The doodle. Background Draw-a-Secret (BDAS) is
a new program created by scientists at Newcastle University in England. BDAS
begins by recording the number of strokes it takes a user to draw a doodle and
when the user wants to gain access to the system he simply redraws the doo-
dle on a touchpad and it is matched against the stored prototype. If the doodle
matches, the user is granted access. Doodles are even described as being far
more anonymous, therefore offering greater security, than biometrics.
You are probably thinking that you’ll end up right back in the same posi-
tion having to remember all 72 of your password doodles. The good news is
that with doodle passwords you don’t have to remember a thing. The doodle
password can be displayed to users, and they simply have to redraw it since the
system analyzes how the user draws or the user’s unique hand strokes, not the
actual doodle (similar to handwriting recognition technologies). 16
If you were going to deploy doodle passwords to your organization, what
issues and concerns do you think might occur? Do you agree that doodles are
easier to remember than text passwords? Do you agree that doodles offer the
most effective way to manage authentication and authorization, even greater
than biometrics? What types of unethical issues do you think you might
encounter with doodle passwords?
Doodling
Passwords
APPLY YOUR KNOWLEDGE
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Something That Is Part of the User Such as a Fingerprint or Voice
Signature The third kind of authentication, something that is part of the user, is by
far the best and most effective way to manage authentication. Biometrics (narrowly
defined) is the identification of a user based on a physical characteristic, such as a fin-
gerprint, iris, face, voice, or handwriting. Unfortunately, biometric authentication can be
costly and intrusive.
Data: Prevention and Resistance
Prevention and resistance technologies stop intruders from accessing and reading data
by means of content filtering, encryption, and firewalls. Time bombs are computer
viruses that wait for a specific date before executing their instructions. Content filtering
occurs when organizations use software that filters content, such as emails, to prevent
the accidental or malicious transmission of unauthorized information. Organizations
can use content filtering technologies to filter email and prevent emails containing sen-
sitive information from transmitting, whether the transmission was malicious or acci-
dental. It can also filter emails and prevent any suspicious files from transmitting such
as potential virus-infected files. Email content filtering can also filter for spam, a form of
unsolicited email.
Encryption scrambles information into an alternative form that requires a key or
password to decrypt. If there were a security breach and the stolen information were
encrypted, the thief would be unable to read it. Encryption can switch the order of char-
acters, replace characters with other characters, insert or remove characters, or use a
mathematical formula to convert the information into a code. Companies that transmit
sensitive customer information over the Internet, such as credit card numbers, frequently
use encryption. To decrypt information is to decode it and is the opposite of encrypt.
Cryptography is the science that studies encryption, which is the hiding of messages so
that only the sender and receiver can read them. The National Institute of Standards and
Technology (NIST) introduced an advanced encryption standard (AES) designed to
keep government information secure.
Some encryption technologies use multiple keys. Public key encryption (PKE) uses
two keys: a public key that everyone can have and a private key for only the recipient
(see Figure 4.15 ). The organization provides the public key to all customers, whether end
consumers or other businesses, who use that key to encrypt their information and send
it via the Internet. When it arrives at its destination, the organization uses the private key
to unscramble it.
Public keys are becoming popular to use for authentication techniques consisting
of digital objects in which a trusted third party confirms correlation between the user
and the public key. A certificate authority is a trusted third party, such as VeriSign,
that validates user identities by means of digital certificates. A digital certificate is a
FIGURE 4.15
Public Key Encryption (PKE)
Public Key
Encrypted Information
Public Key
Encrypted Information
Public Key
Encrypted Information
Originating Business
Sends the same
public key to all
customers
Uses a private key
to decrypt the
information received
•
•
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data file that identifies individuals or organizations online and is comparable to a digi-
tal signature.
A firewall is hardware and/or software that guard a private network by analyzing
incoming and outgoing information for the correct markings. If they are missing, the
firewall prevents the information from entering the network. Firewalls can even detect
computers communicating with the Internet without approval. As Figure 4.16 illustrates,
organizations typically place a firewall between a server and the Internet. Think of a
firewall as a gatekeeper that protects computer networks from intrusion by providing a
filter and safe transfer points for access to and from the Internet and other networks. It
screens all network traffic for proper passwords or other security codes and allows only
authorized transmissions in and out of the network.
Firewalls do not guarantee complete protection, and users should enlist additional
security technologies such as antivirus software and antispyware software. Antivirus
software scans and searches hard drives to prevent, detect, and remove known viruses,
adware, and spyware. Antivirus software must be frequently updated to protect against
newly created viruses.
Attack: Detection and Response
Cyberwar is an organized attempt by a country’s military to disrupt or destroy infor-
mation and communication systems for another country. Cyberterrorism is the use
of computer and networking technologies against persons or property to intimidate or
coerce governments, individuals, or any segment of society to attain political, religious,
or ideological goals. With so many intruders planning computer attacks, it is critical
that all computer systems are protected. The presence of an intruder can be detected
by watching for suspicious network events such as bad passwords, the removal of highly
classified data files, or unauthorized user attempts. Intrusion detection software (IDS)
features full-time monitoring tools that search for patterns in network traffic to identify
intruders. IDS protects against suspicious network traffic and attempts to access files
and data. If a suspicious event or unauthorized traffic is identified, the IDS will gen-
erate an alarm and can even be customized to shut down a particularly sensitive part
of a network. After identifying an attack, an MIS department can implement response
tactics to mitigate the damage. Response tactics outline procedures such as how long
a system under attack will remain plugged in and connected to the corporate network,
FIGURE 4.16
Sample Firewall Architecture
Connecting Systems Located in
Chicago, New York, and Boston
Server Firewall
Chicago
InternetDatabase
Firewall Server
New York
Firewall Server
Boston
Database
Database
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BUSINESS DRIVEN START-UP
Have you ever seen a LifeLock advertisement? If so, you know the Social Security
number of LifeLock CEO Todd Davis because he posts it in all ads daring hack-
ers to try to steal his identity. Davis has been a victim of identity theft at least 13
times. The first theft occurred when someone used his identity to secure a $500
loan from a check-cashing company. Davis discovered the crime only after the
company called his wife’s cell phone to recover the unpaid debt. 17
If you were starting an identity theft prevention company, do you think it
would be a good idea to post your Social Security number in advertisements?
Why or why not? What do you think happened that caused Davis’ identity to
be stolen? What types of information security measure should LifeLock imple-
ment to ensure Davis’ Social Security number is not stolen again? If you were
LifeLock’s CEO, what type of marketing campaign would you launch next?
LifeLock:
Keeping Your
Identity Safe
APPLY YOUR KNOWLEDGE
Learning Outcome 4.1: Explain the ethical issues in the use of information technology.
Information ethics govern the ethical and moral issues arising from the development and use of
information technologies, as well as the creation, collection, duplication, distribution, and processing
of information itself (with or without the aid of computer technologies). Ethical dilemmas in this area
usually arise not as simple, clear-cut situations but as clashes between competing goals, responsibili-
ties, and loyalties. Inevitably, there will be more than one socially acceptable or “correct” decision. For
this reason, acting ethically and legally are not always the same.
Learning Outcome 4.2: Identify the six epolicies organizations should implement
to protect themselves.
1. An ethical computer use policy contains general principles to guide computer user behavior. For
example, it might explicitly state that users should refrain from playing computer games during
working hours.
2. An information privacy policy contains general principles regarding information privacy.
3. An acceptable use policy (AUP) is a policy that a user must agree to follow in order to be provided
access to corporate email, information systems, and to the Internet.
4. An email privacy policy details the extent to which email messages may be read by others.
L E A R N I N G O U T C O M E R E V I E W
when to shut down a compromised system, and how quickly a backup system will be up
and running.
Guaranteeing the safety of organization information is achieved by implementing
the two lines of defense: people and technology. To protect information through people,
firms should develop information security policies and plans that provide employees
with specific precautions they should take in creating, working with, and transmitting the
organization’s information assets. Technology-based lines of defense fall into three cat-
egories: authentication and authorization; prevention and resistance; and detection and
response.
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5. A social media policy outlines the corporate guidelines or principles governing employee online
communications.
6. An employee monitoring policy states explicitly how, when, and where the company monitors its
employees.
Learning Outcome 4.3: Describe the relationships and differences between hackers
and viruses.
Hackers are experts in technology who use their knowledge to break into computers and computer net-
works, either for profit or just motivated by the challenge. A virus is software written with malicious intent to
cause annoyance or damage. Some hackers create and leave viruses causing massive computer damage.
Learning Outcome 4.4: Describe the relationship between information security policies
and an information security plan.
Information security policies identify the rules required to maintain information security, such as
requiring users to log off before leaving for lunch or meetings, never sharing passwords with anyone,
and changing passwords every 30 days. An information security plan details how an organization
will implement the information security policies. The best way a company can safeguard itself from
people is by implementing and communicating its information security plan.
Learning Outcome 4.5: Provide an example of each of the three primary information
security areas: (1) authentication and authorization, (2) prevention and resistance, and
(3) detection and response.
Authentication and authorization: Authentication is a method for confirming users’ identities. Once
a system determines the authentication of a user, it can then determine the access privileges (or
authorization) for that user. Authorization is the process of providing a user with permission including
access levels and abilities such as file access, hours of access, and amount of allocated storage space.
Prevention and resistance: Content filtering occurs when organizations use software that filters
content, such as emails, to prevent the accidental or malicious transmission of unauthorized infor-
mation. Encryption scrambles information into an alternative form that requires a key or password
to decrypt. In a security breach, a thief is unable to read encrypted information. A firewall is hard-
ware and/or software that guard a private network by analyzing incoming and outgoing informa-
tion for the correct markings.
Detection and response: Intrusion detection software (IDS) features full-time monitoring tools
that search for patterns in network traffic to identify intruders.
1. Knowledge: Define information ethics and information security and explain why each is critical to
any business.
2. Comprehension: Identify two epolicies that a business could implement to ensure the protection
of sensitive corporate data.
3. Application: Demonstrate how a business can use authentication and authorization technologies
to prevent information theft.
4. Analysis: Analyze how a business can use prevention and resistance technologies to safeguard
its employees from hackers and viruses.
5. Synthesis: Propose a plan to implement information security plans to ensure your critical infor-
mation is safe and protected.
6. Evaluate: Evaluate the information security issues facing a business and identify its three biggest
concerns.
O P E N I N G C A S E Q U E S T I O N S
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1. What are ethics and why are they important to a company?
2. What is the relationship between information management, governance, and compliance?
3. Why are epolicies important to a company?
4. What is the correlation between privacy and confidentiality?
5. What is the relationship between adware and spyware?
6. What are the positive and negative effects associated with monitoring employees?
7. What is the relationship between hackers and viruses?
8. Why is security a business issue, not just a technology issue?
9. What are the growing issues related to employee communication methods and what can a
company do to protect itself?
10. How can a company participating in ebusiness keep its information secure?
11. What technologies can a company use to safeguard information?
12. Why is ediscovery important to a company?
13. What are the reasons a company experiences downtime?
14. What are the costs associated with downtime?
R E V I E W Q U E S T I O N S
Acceptable use policy (AUP), 146
Adware, 153
Advanced encryption standard
(AES), 159
Anti-spam policy, 148
Antivirus software, 160
Authentication, 157
Authorization, 157
Biometrics, 159
Black-hat hackers, 153
Certificate authority, 159
Child Online Protection Act
(COPA), 145
Click-fraud, 145
Competitive click-fraud, 145
Confidentiality, 141
Content filtering, 159
Copyright, 141
Counterfeit software, 141
Cracker, 153
Cryptography, 159
Cyberterrorists, 153
Cyberbullying, 145
Cybervandalism, 147
Cyberterrorism, 160
Cyberwar, 160
Decrypt, 159
Destructive agents, 157
Digital certificate, 159
Digital rights management, 141
Downtime, 151
Drive-by hacking, 153
Dumpster diving, 155
Ediscovery (or electronic
discovery), 145
Email privacy policy, 147
Employee monitoring policy, 150
Encryption, 159
Epolicies, 145
Ethical computer use policy, 146
Ethics, 141
Firewall, 160
Hackers, 153
Hactivists, 153
Identity theft, 156
Information compliance, 144
Information ethics, 141
Information governance, 144
Information management, 144
Information property, 144
Information secrecy, 156
Information privacy policy, 146
Information security, 153
Information security plan, 155
Information security policies, 155
Insiders, 155
Intellectual property, 141
Internet censorship, 147
Internet use policy, 146
Intrusion detection software
(IDS), 160
Mail bomb, 148
Nonrepudiation, 146
Opt out, 148
Patent, 141
Pharming, 157
Pharming attack, 157
Phishing, 156
Phishing expedition, 156
Physical security, 150
Pirated software, 141
Privacy, 141
Public key encryption (PKE), 159
Script kiddies or script
bunnies, 153
Smart card, 158
Spear phishing, 156
Social engineering, 155
Social media policy, 149
Spam, 148
Spyware, 154
Teergrubing, 148
Threat, 142
Time bomb, 159
Tokens, 158
Typosquatting, 147
Virus, 153
Vishing (voice phishing), 156
Website name stealing, 147
White-hat hackers, 153
Workplace MIS monitoring, 150
Zombie, 157
Zombie farm, 157
K E Y T E R M S
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C L O S I N G C A S E O N E
E-Espionage
BusinessWeek magazine probed the rising attacks on America’s most sensitive computer networks,
uncovering startling security gaps. The email message addressed to a Booz Allen Hamilton executive
from the Pentagon was mundane—a shopping list of weaponry India wanted to buy. But the missive was
a brilliant fake. Lurking beneath the description of aircraft, engines, and radar equipment was an insidi-
ous piece of computer code, known as Poison Ivy, designed to suck sensitive data out of the $4 billion
consulting firm’s computer network.
The Pentagon had not sent the email. Its origin is unknown, but the message traveled through
Korea on its way to Booz Allen. Its authors knew enough about the “sender” and “recipient” to craft
a message unlikely to arouse suspicion. Had the Booz Allen executive clicked on the attachment, his
every keystroke would have been reported back to a mysterious master at the Internet address cyber-
syndrome.3322.org, which is registered through an obscure company headquartered on the banks of
China’s Yangtze River.
The email aimed at Booz Allen paints a vivid picture of the alarming new capabilities of America’s
cyberenemies. The email message was sent to John F. “Jack” Mulhern, vice president for international
military assistance programs at Booz Allen. In the high-tech world of weapons sales, Mulhern’s spe-
cialty, the email looked authentic enough. “Integrate U.S., Russian, and Indian weapons and avionics,”
the email noted, describing the Indian government’s expectations for its fighter jets. “Source code
given to India for indigenous computer upgrade capability.” Such lingo could easily be understood
by Mulhern. The 62-year-old former U.S. Naval officer and 33-year veteran of Booz Allen’s military
consulting business is an expert in helping to sell U.S. weapons to foreign governments.
The email was more convincing because of its apparent sender: Stephen J. Moree, a civilian who
worked for a group that reported to the office of then-Air Force Secretary Michael W. Wynne. Among
its duties, Moree’s unit evaluated the security of selling U.S. military aircraft to other countries. There
would be little reason to suspect anything seriously amiss in Moree passing along the highly technical
document with “India MRCA Request for Proposal” in the subject line. The Indian government had just
released the request a week earlier, on August 28, and the language in the email closely tracked the
request. Making the message appear more credible still, it referred to upcoming Air Force communi-
qués and a “Team Meeting” to discuss the deal.
But the correspondence from Moree to Jack Mulhern was a fake. An analysis of the email’s path
and attachment, conducted for BusinessWeek by three cybersecurity specialists, shows it was sent
by an unknown attacker, bounced through an Internet address in South Korea, relayed through a
Yahoo! server in New York, and finally made its way to Mulhern’s Booz Allen in-box. The analysis also
shows the code—known as malware, for malicious software—tracks keystrokes on the computers
of people who open it. A separate program disables security measures such as password protection
on Microsoft Access database files, a program often used by large organizations such as the U.S.
defense industry to manage big batches of data.
Global Threats
The U.S. government and its sprawl of defense contractors have been the victims of an unprec-
edented rash of similar attacks, say current and former U.S. government officials. “It’s espionage
on a massive scale,” said Paul B. Kurtz, a former high-ranking national security official. Government
agencies reported 12,986 cybersecurity incidents to the U.S. Homeland Security Department in one
fiscal year, triple the number from two years earlier. Incursions on the military’s networks were up
55 percent, said Lieutenant General Charles E. Croom, head of the Pentagon’s Joint Task Force for
Global Network Operations. Private targets such as Booz Allen are just as vulnerable and pose just
as much potential security risk. “They have our information on their networks. They’re building our
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weapon systems. You wouldn’t want that in enemy hands,” Croom said. Cyber attackers “are not deny-
ing, disrupting, or destroying operations—yet. But that doesn’t mean they don’t have the capability.”
Poison Ivy
Commercial computer security firms have dubbed the malicious code hidden inside the email attachment
Poison Ivy, and it has a devious—and worrisome—capability known as a RAT, a remote administration
tool. RAT gives the attacker control over the host PC, capturing screen shots and perusing files. It lurks in
the background of Microsoft Internet Explorer browsers while users surf the web. Then it phones home to
its “master” at an Internet address currently registered under the name cybersyndrome.3322.org .
The digital trail to cybersyndrome.3322.org , followed by analysts at BusinessWeek ’s request, leads
to one of China’s largest free domain-name-registration and email services. Called 3322.org, it is reg-
istered to a company called Bentium in the city of Changzhou, an industrial hub outside Shanghai. A
range of security experts say that 3322.org provides names for computers and servers that act as the
command and control centers for more than 10,000 pieces of malicious code launched at government
and corporate networks in recent years. Many of those PCs are in China; the rest could be anywhere.
The founder of 3322.org, a 37-year-old technology entrepreneur named Peng Yong, says his com-
pany merely allows users to register domain names. “As for what our users do, we cannot completely
control it,” Peng said. The bottom line: If Poison Ivy infected Jack Mulhern’s computer at Booz Allen,
any secrets inside could be seen in China. And if it spread to other computers, as malware often does,
the infection opens windows on potentially sensitive information there, too.
Many security experts worry the Internet has become too unwieldy to be tamed. New threats
appear every day, each seemingly more sophisticated than the previous one. The Defense Department,
whose Advanced Research Projects Agency (DARPA) developed the Internet in the 1960s, is beginning
to think it created a monster. “You don’t need an Army, a Navy, an Air Force to beat the U.S.,” said
General William T. Lord, commander of the Air Force Cyber Command, a unit formed to upgrade Air
Force computer defenses. “You can be a peer force for the price of the PC on my desk.” 18
Questions
1. Define information ethics and information security and explain why each is critical to any govern-
ment operation.
2. Identify two epolicies the government should implement to help combat cyberterrorism.
3. Demonstrate how the government can use authentication and authorization technologies to pre-
vent information theft.
4. Analyze how the government can use prevention and resistance technologies to safeguard its
employees from hackers and viruses.
5. Propose a plan for how the government can implement information security plans to ensure its
critical information is safe and protects.
6. Evaluate the information security issues facing the government and identify its three biggest
concerns.
Hacker Hunters
Hacker hunters are the new breed of crime fighter. They employ the same methodology used to fight
organized crime in the 1980s—informants and the cyberworld equivalent of wiretaps. Daniel Larking,
a 20-year veteran who runs the FBI’s Internet Crime Complaint Center, taps online service providers to
help track down criminal hackers. Leads supplied by the FBI and eBay helped Romanian police round
C L O S I N G C A S E T W O
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up 11 members of a gang that set up fake eBay accounts and auctioned off cell phones, laptops, and
cameras they never intended to deliver.
The FBI unleashed Operation Firewall, targeting the ShadowCrew, a gang whose members were
schooled in identity theft, bank account pillage, and selling illegal goods on the Internet. ShadowCrew’s
4,000 gang members lived in a dozen countries and across the United States. For months, agents
had been watching their every move through a clandestine gateway into their website, shadowcrew.
com. One member turned informant and called a group meeting, ensuring the members would be at
home on their computers during a certain time, when the Secret Service issued orders to move in
on the gang. The move was synchronized around the globe to prevent gang members from warning
each other via instant messages. Twenty-eight gang members in eight states and six countries were
arrested, most still at their computers. Authorities seized dozens of computers and found 1.7 million
credit card numbers and more than 18 million email accounts.
ShadowCrew’s Operations
The alleged ringleaders of ShadowCrew included Andres Mantovani, 23, a part-time community col-
lege student in Arizona, and David Appleyard, 45, a former New Jersey mortgage broker. Mantovani
and Appleyard allegedly were administrators in charge of running the website and recruiting mem-
bers. The site created a marketplace for more than 4,000 gang members who bought and sold hot
information and merchandise. The website was open for business 24 hours a day, but since most of
the members held jobs, the busiest time was from 10 p.m. to 2 a.m. on Sundays. Hundreds of gang
members would meet online to trade credit card information, passports, and even equipment to make
fake identity documents. Platinum credit cards cost more than gold ones, and discounts were offered
for package deals. One member known as “Scarface” sold 115,695 stolen credit card numbers in a
single trade. Overall, the gang made more than $4 million in credit card purchases over two years.
ShadowCrew was equivalent to an eBay for the underworld. The site even posted crime tips on how
to use stolen credit cards and fake IDs at big retailers.
The gang stole credit card numbers and other valuable information through clever tricks. One of
the favorites was sending millions of phishing emails—messages that appeared to be from legitimate
companies such as Yahoo!—designed to steal passwords and credit card numbers. The gang also
hacked into corporate databases to steal account data. According to sources familiar with the inves-
tigation, the gang cracked the networks of 12 unidentified companies that were not even aware their
systems had been breached.
Police Operations
Brian Nagel, an assistant director at the Secret Service, coordinated the effort to track the ShadowCrew.
Allies included Britain’s national high-tech crimes unit, the Royal Canadian Mounted Police, and the
Bulgarian Interior Ministry. Authorities turned one of the high-ranking members of the gang into a
snitch and had the man help the Secret Service set up a new electronic doorway for ShadowCrew
members to enter their website. The snitch spread the word that the new gateway was a more secure
way to the website. It was the first-ever tap of a private computer network. “We became shadowcrew.
com ,” Nagel said. Mantovani and Appleyard were slated for trial. Authorities anticipated making addi-
tional arrests. 19
Questions
1. What types of technology could big retailers use to prevent identity thieves from purchasing
merchandise?
2. What can organizations do to protect themselves from hackers looking to steal account data?
3. Authorities frequently tap online service providers to track down hackers. Do you think it is ethical
for authorities to tap an online service provider and read people’s email? Why or why not?
4. Do you think it was ethical for authorities to use one of the high-ranking officials to trap other gang
members? Why or why not?
5. In a team, research the Internet and find the best ways to protect yourself from identity theft.
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1. Cheerleader Charged $27,750 for File Sharing 37 Songs
A federal appeals court is ordering a university student to pay the Recording Industry Association
of America $27,750—$750 a track—for file sharing 37 songs when she was a high school cheer-
leader. Have you ever illegally copied or downloaded a song or movie? If you have and you were
forced to pay $750 per track, how much would you owe? What is the difference between file shar-
ing and Internet radio streaming? Do you agree or disagree with the federal appeals decision? Why
or why not? Why is claiming a lack of copyright knowledge not a good defense against illegally
sharing movies or music? If you do not have a good understanding of information laws, what can
you do to ensure you are never placed in a federal lawsuit for violating information laws? 20
2. Police Records Found in Old Copy Machine
Copy machines made after 2002 all contain a hard drive that stores a copy of every document the
machine has ever scanned, printed, copied, or faxed. If the hard drive is not erased or scrubbed
when the copy machine is resold, all of that digital information is still maintained inside the
machine. The Buffalo, New York, Police Sex Crimes Division recently sold several copy machines
without scrubbing the hard drives. The hard drives yielded detailed domestic violence complaints
and a list of wanted sex offenders. A machine from the Buffalo Police Narcotics Unit contained
targets in a major drug raid, and a copier once used by a New York construction company stored
95 pages of pay stubs with names, addresses, and Social Security numbers. 21
Who do you think should be held responsible for the information issues caused at the Buffalo
police department? What types of ethical issues and information security issues are being vio-
lated? What types of epolicies could a company implement to ensure these situations do not
occur? What forms of information security could a company implement to ensure these situations
do not occur? How does this case support the primary reason why ediscovery is so important to
litigation?
3. Firewall Decisions
You are the CEO of Inverness Investments, a medium-size venture capital firm that specializes in
investing in high-tech companies. The company receives more than 30,000 email messages per
year. On average, there are two viruses and three successful hackings against the company each
year, which result in losses to the company of about $250,000. Currently, the company has antivi-
rus software installed but does not have any firewalls.
Your CIO is suggesting implementing 10 firewalls for a total cost of $80,000. The estimated life
of each firewall is about three years. The chances of hackers breaking into the system with the
firewalls installed are about 3 percent. Annual maintenance costs on the firewalls are estimated
around $15,000. Create an argument for or against supporting your CIO’s recommendation to
purchase the firewalls. Are there any considerations in addition to finances?
4. Preventing Identity Theft
The FBI states that identity theft is one of the fastest-growing crimes. If you are a victim of iden-
tity theft, your financial reputation can be ruined, making it impossible for you to cash a check
or receive a bank loan. Learning how to avoid identity theft can be a valuable activity. Using the
Internet, research the most current ways the government recommends for you to to prevent iden-
tity theft.
5. Discussing the Three Areas of Information Security
Great Granola Inc. is a small business operating out of northern California. The company spe-
cializes in selling homemade granola, and its primary sales vehicle is through its website. The
company is growing exponentially and expects its revenues to triple this year to $12 million.
C R I T I C A L B U S I N E S S T H I N K I N G
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The company also expects to hire 60 additional employees to support its growth. Joan Martin,
the CEO, is aware that if her competitors discover the recipe for her granola, or who her primary
customers are, it could easily ruin her business. Martin has hired you to draft a document discuss-
ing the different areas of information security, along with your recommendations for providing a
secure ebusiness environment.
6. Spying on Email
Technology advances now allow individuals to monitor computers that they do not even have
physical access to. New types of software can capture an individual’s incoming and outgoing email
and then immediately forward that email to another person. For example, if you are at work and
your child is home from school and she receives an email from John at 3:00 p.m., at 3:01 p.m. you
can receive a copy of that email sent to your email address. If she replies to John’s email, within
seconds you will again receive a copy of what she sent to John. Describe two scenarios (other than
those described here) for the use of this type of software: one in which the use would be ethical
and one in which it would be unethical.
7. Stealing Software
The software industry fights against pirated software on a daily basis. The major centers of soft-
ware piracy are in places such as Russia and China where salaries and disposable income are
comparatively low. People in developing and economically depressed countries will fall behind the
industrialized world technologically if they cannot afford access to new generations of software.
Considering this, is it reasonable to blame someone for using pirated software when it could cost
him or her two months’ salary to purchase a legal copy? Create an argument for or against the
following statement: Individuals who are economically less fortunate should be allowed access
to software free of charge in order to ensure that they are provided with an equal technological
advantage.
E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. Providing employees with computer access is one of the perks offered by your business.
Employees enjoy checking their personal email and surfing the Internet on their breaks. So far,
computer access has been a cherished employee benefit. When you came into work this morning
you found the following anonymous letter from one of your employees on your desk. “I received a
highly inappropriate joke from a fellow employee that I found extremely offensive. The employee
who sent the joke was Debbie Fernandez and I believe she should be reprimanded for her inap-
propriate actions. Signed—a disturbed employee.” What would you do? What could you have
done to ensure situations such as these would be easily handled if they did arise? What could
you do to ensure such situations do not happen in the future and if they do all employees are
aware of the ramifications of inappropriate emails? (Be sure to identify your business and the
name of your company.)
2. The local community has always been a big part of your grandfather’s business and he knew
almost everyone in the community. Your grandfather attended all types of community events and
would spend hours talking with friends and neighbors soliciting feedback and ideas on his busi-
ness. As you know, data are important to any business. In fact, data are an essential business
asset. You have decided to start tracking detailed customer information for all business events
from fund-raising to promotions. Since you took over the business you have been collecting more
and more event data to help you run marketing campaigns across events and optimize the event
schedules. One day, a sophisticated businessman walks into your business and asks to speak
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169Business Driven MIS Module 1
to the owner. He introduces himself as Lance Smith and says that he would like to talk to you in
private. Smith is retiring and is closing his business that was located just down the street, and
he wants to sell you his detailed customer information. Smith would like a large sum of money to
sell you his confidential customer contact information and sales reports for the past 20 years. He
says he has more than 10,000 customers in his unique database. What do you do?
3. Yesterday you had an interesting conversation with one of your loyal customers, Dan Martello.
He asked you the following question: “If I find a digital camera on the street is it OK to look at the
contents, or am I invading the owner’s privacy?” You have a lengthy debate and decided that in
some scenarios it is an invasion of privacy to be looking at someone else’s photos and is similar to
looking in their windows. In other scenarios, it is not an invasion of privacy if you do not know the
person and it is the primary way to identify the owner to return the camera, similar to looking in a
wallet. As you are cleaning your business, you find a 30 gigabyte thumb drive and you know that it
probably belongs to one of your valuable customers and contains their sensitive information. What
do you do? What security concerns are associated with the thumb drive? How could information
security policies or an information security plan help your business with this type of situation?
PROJECT I Grading Security
Making The Grade is a nonprofit organization that helps students learn how to achieve better grades
in school. The organization has 40 offices in 25 states and more than 2,000 employees. The company
wants to build a website to offer its services online. Making The Grade’s online services will pro-
vide parents seven key pieces of advice for communicating with their children to help them achieve
academic success. The website will offer information on how to maintain open lines of communica-
tion, set goals, organize academics, regularly track progress, identify trouble spots, get to know their
child’s teacher, and celebrate their children’s successes.
You and your team work for the director of information security. Your team’s assignment is to
develop a document discussing the importance of creating information security polices and an infor-
mation security plan. Be sure to include the following:
■ The importance of educating employees on information security.
■ A few samples of employee information security policies specifically for Making The Grade.
■ Other major areas the information security plan should address.
■ Signs the company should look for to determine if the website is being hacked.
■ The major types of attacks the company should expect to experience.
PROJECT I I Eyes Everywhere
The movie Minority Report chronicled a futuristic world where people are uniquely identifiable by their
eyes. A scan of each person’s eyes gives or denies them access to rooms, computers, and anything
else with restrictions. The movie portrayed a black market in new eyeballs to help people hide from
the authorities. (Why did they not just change the database entry instead? That would have been
much easier, but a lot less dramatic.)
The idea of using a biological signature is entirely plausible because biometrics is currently being
used and is expected to gain wider acceptance in the near future because forging documents has
become much easier with the advances in computer graphics programs and color printers. The next
time you get a new passport, it may incorporate a chip that has your biometric information encoded
on it. Office of Special Investigations agents with fake documents found that it was relatively easy to
enter the United States from Canada, Mexico, and Jamaica, by land, sea, and air.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
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The task of policing the borders is daunting. Some 500 million foreigners enter the country every
year and go through identity checkpoints. More than 13 million permanent-resident and border-cross-
ing cards have been issued by the U.S. government. Also, citizens of 27 countries do not need visas to
enter this country. They are expected to have passports that comply with U.S. specifications that will
also be readable at the border.
In the post-9/11 atmosphere of tightened security, unrestricted border crossing is not acceptable.
The Department of Homeland Security is charged with securing the nation’s borders, and as part of
this plan, new entry/exit procedures were instituted at the beginning of 2003. An integrated system,
using biometrics, will be used to identify foreign visitors to the United States and reduce the likelihood
of terrorists entering the country.
Early in 2003, after 6 million biometric border-crossing cards had been issued, a pilot test con-
ducted at the Canadian border detected more than 250 imposters. The testing started with two bio-
metric identifiers: photographs for facial recognition and fingerprint scans. As people enter and leave
the country, their actual fingerprints and facial features are compared to the data on the biometric
chip in the passport.
In a group, discuss the following:
a. How do you feel about having your fingerprints, facial features, and perhaps more of your
biometric features encoded in documents such as your passport? Explain your answer.
b. Would you feel the same way about having biometric information on your driver’s license as on
your passport? Why or why not?
c. Is it reasonable to have different biometric identification requirements for visitors from differ-
ent nations? Explain your answer. What would you recommend as criteria for deciding which
countries fall into what categories?
d. The checkpoints U.S. citizens pass through upon returning to the country vary greatly in the
depth of the checks and the time spent. The simplest involves simply walking past the border
guards who may or may not ask you your citizenship. The other end of the spectrum requires
that you put up with long waits in airports where you have to line up with hundreds of other
passengers while each person is questioned and must produce a passport to be scanned.
Would you welcome biometric information on passports if it would speed the process, or do
you think that the disadvantages of the reduction in privacy, caused by biometric information,
outweigh the advantages of better security and faster border processing? Explain your answer.
PROJECT I I I Setting Boundaries
Even the most ethical people sometimes face difficult choices. Acting ethically means behaving in a
principled fashion and treating other people with respect and dignity. It is simple to say, but not so
simple to do since some situations are complex or ambiguous. The important role of ethics in our lives
has long been recognized. As far back as 44 B.C., Cicero said that ethics are indispensable to anyone
who wants to have a good career. Having said that, Cicero, along with some of the greatest minds
over the centuries, struggled with what the rules of ethics should be.
Our ethics are rooted in our history, culture, and religion, and our sense of ethics may shift over time.
The electronic age brings with it a new dimension in the ethics debate—the amount of personal informa-
tion that we can collect and store, and the speed with which we can access and process that information.
In a group, discuss how you would react to the following situations:
a. A senior marketing manager informs you that one of her employees is looking for another job
and she wants you to give her access to look through her email.
b. A vice president of sales informs you that he has made a deal to provide customer information
to a strategic partner, and he wants you to copy all of the customer information to a thumb drive.
c. You are asked to monitor your employee’s email to discover whether he is sexually harassing
another employee.
d. You are asked to install a video surveillance system in your office to find out whether employ-
ees are taking office supplies home with them.
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171Business Driven MIS Module 1
e. You are looking on the shared network drive and discover that your boss’s entire hard drive has
been copied to the network for everyone to view. What do you do?
f. You have been accidentally copied on an email from the CEO, which details who will be the
targets of the next round of layoffs. What do you do?
PROJECT IV Contemplating Sharing
Bram Cohen created BitTorrent which allows users to upload and download large amounts of data.
Cohen demonstrated his program at the world hacker conference, as a free, open source project
aimed at computer users who need a cheap way to swap software online. Soon many TV and movie
fanatics began using the program to download copyrighted materials. As a result of the hacker con-
ference, more than 20 million people downloaded the BitTorrent program and began sharing movies
and television shows across the Internet.
There is much debate surrounding the ethics of peer-to-peer networking. Do you believe BitTorrent
is ethical or unethical? Justify your answer.
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.
Project
Number
Project
Name
Project
Type
Plug-In
Focus Area
Project
Focus
Project
Skill Set
Page
Number
1 Financial Destiny Excel T2 Personal Budget Introductory Formulas AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory Formulas AYK.4
3 Technology Budget Excel T1, T2 Hardware and Software Introductory Formulas AYK.4
4 Tracking Donations Excel T2 Employee Relationships Introductory Formulas AYK.4
5 Convert Currency Excel T2 Global Commerce Introductory Formulas AYK.5
6 Cost Comparison Excel T2 Total Cost of Ownership Introductory Formulas AYK.5
7 Time Management Excel or Project T2 or T12 Project Management Introductory Gantt Charts AYK.6
8 Maximize Profit Excel T2, T4 Strategic Analysis Intermediate Formulas or
Solver
AYK.6
9 Security Analysis Excel T3 Filtering Data Intermediate Conditional
Formatting, Autofilter,
Subtotal
AYK.7
10 Gathering Data Excel T3 Data Analysis Intermediate Conditional
Formatting, PivotTable
AYK.8
11 Scanner System Excel T2 Strategic Analysis Intermediate AYK.8
12 Competitive Pricing Excel T2 Profit Maximization Intermediate AYK.9
13 Adequate Acquisitions Excel T2 Break-Even Analysis Intermediate AYK.9
24 Electronic Resumes HTML T9, T10, T11 Electronic Personal
Marketing
Introductory Structural Tags AYK.16
25 Gathering Feedback Dreamweaver T9, T10, T11 Data Collection Intermediate Organization
of Information
AYK.16
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1 3
2
module 2 Technical Foundations of MIS
MODULE ONE:
Business Driven MIS
MODULE TWO:
Technical Foundations
of MIS
MODULE THREE:
Enterprise MIS
MODULE 2 CONCENTRATES on the technical foundations of MIS. The power of
MIS comes from its ability to carry, house, and support information. And information is power to
an organization. This module highlights this point and raises awareness of the significance of
information to organizational success. Understanding how the MIS infrastructure supports busi-
ness operations, how business professionals access and analyze information to make business
decisions, and how wireless and mobile technologies can make information continuously and
instantaneously available are important for strategically managing any company, large or small.
Thus, these are the primary learning outcomes of Module 2.
The module begins by reviewing the role of MIS in supporting business growth, operations,
and performance. We quickly turn to the need for MIS to be sustainable given today’s focus
on being “green,” and then dive into databases, data warehousing, networking, and wireless
technologies—all fundamental components of MIS infrastructures. A theme throughout the
module is the need to leverage and yet safeguard the use of information as key to the survival of
any company. Information must be protected from misuse and harm, especially with the contin-
ued use, development, and exploitation of the Internet and the web.
Module 2: TECHNICAL FOUNDATIONS OF MIS
CHAPTER 5: Infrastructures: Sustainable Technologies
CHAPTER 6: Data: Business Intelligence
CHAPTER 7: Networks: Mobile Business
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What’s in IT for me?
Why do you, as a business student, need to understand the underlying technology of any company? Most people think “that
technical stuff” is something they will never personally encounter and for that reason do not need to know anything about
MIS infrastructures. Well, those people will be challenged in the business world. When your database fails and you lose all
of your sales history, you will personally feel the impact when you are unable to receive your bonus. When your computer
crashes and you lose all of your confidential information, not to mention your emails, calendars, and messages, then you
will understand why everyone needs to learn about MIS infrastructures. You never want to leave the critical task of backing
up your data to your MIS department. You want to personally ensure that your information is not only backed up, but also
safeguarded and recoverable. For these reasons, business professionals in the 21st century need to acquire a base-level
appreciation of what MIS can and cannot do for their company. Understanding how MIS supports growth, operations, profit-
ability, and most recently sustainability, is crucial whether one is new to the workforce or a seasoned Fortune 500 employee.
One of the primary goals of this chapter is to create a more level playing field between you as a business professional and
the MIS specialists with whom you will work. After reading it you should have many of the skills you need to assist in analyz-
ing current and even some future MIS infrastructures; in recommending needed changes in processes; and in evaluating
alternatives that support a company’s growth, operations, and profits.
■ M I S a n d t h e E n v i ro n m e n t
■ S u p p o r t i n g t h e E n v i ro n m e n t :
S u s t a i n a b l e M I S I n f r a s t r u c t u re
SECTION 5.2
Building Sustainable MIS
Infrastructures
■ T h e B u s i n e s s B e n e f i t s o f a
S o l i d M I S I n f r a s t r u c t u re
■ S u p p o r t i n g O p e r a t i o n s :
I n f o r m a t i o n M I S I n f r a s t r u c t u re
■ S u p p o r t i n g C h a n g e : A g i l e M I S
I n f r a s t r u c t u re
SECTION 5.1
MIS Infrastructures
Infrastructures:
Sustainable Technologies
C H A P T E R
5
C
H
A
P
T
E
R
O
U
T
L
IN
E

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174 Chapter 5 Infrastructures: Sustainable Technologies
opening case study
Pandora’s Music Box
Napster was one of the first service providers for sharing online music. Many other
companies have attempted to legally jump into the online music business, and most found
little success. However, Pandora, the Internet radio site, is becoming the exception. Pandora
provides users with the ability to choose specific artists or categories of music and then
creates individualized playlists. Based on user feedback to Pandora’s suggestions of similar
tracks, the site “learns” what selections each listener prefers for his or her playlist and uses
that information to generate a unique customized listening experience for each.
At the heart of Pandora’s business is the Music Genome Project (MGP), a computerized
jukebox of more than 700,000 works by 80,000 artists, with new ones added every day.
Each selection within the MGP is categorized by hundreds of characteristics, including art-
ist and genre and covering the qualities of melody, harmony, rhythm, form, composition,
and lyrics. For example, if someone is looking for a song with a certain tempo or wants to
know what the lyrics are about, Pandora can supply that information. The company has 50
employees whose sole job is to listen to and analyze music along with assigning more than
400 characteristics to each track.
Computing Merges with Connectivity
Pandora is a perfect example of cloud computing as a result of three major trends:
1. The marriage of computing and connectivity can now occur without having to be teth-
ered to a single location. It’s among the biggest disruptive forces of modern times; one
that will redefine business models for decades to come.
2. The mobile Internet is now pervasive.
3. The availability of low-cost, always-on computers—smartphones—that allow sophisti-
cated software to conduct complex tasks on the go.
Pandora is strategically planning to reach a broad, global market by embedding itself in all
sorts of Internet-enabled electronic devices that can access its services directly through the
cloud. Pandora’s music offerings are now being embedded in everything from thin LED tele-
visions to Blu-ray players to digital frames. Customers are listening to Pandora through their
Blu-ray players, iPods, iPhones, and BlackBerrys, and soon cars will come with Pandora
preinstalled.
The Pandora team envisions Pandora playing everywhere, allowing users to create as
many as 100 stations, allowing for a nearly infinite list of musical opportunities. Since its
founding in 2000, Pandora has registered more than 50 million listeners and adds thou-
sands more every day.
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175Technical Foundations of MIS Module 2
A basic membership, which includes an occasional advertisement or two, is free.
Members are allowed 40 hours a month to listen to their personal stations. If users want
more than 40 hours, they can purchase unlimited playing time for 99 cents per month.
Users can upgrade even further to a Pandora One account for $36 a year that includes
unlimited playing time, no advertisements, and a higher-quality sound.
What drives Pandora’s business? Other than its valued customer base, it is the com-
pany’s solid MIS infrastructure that supports its growth, operations, and profits. So far,
Pandora’s investment in MIS infrastructure has delivered wonderful results as well as future
opportunities. The company can now develop new applications that support its core func-
tions more rapidly than ever. And since Pandora is located in the cloud, the company has
created an MIS infrastructure that is accessible, available, flexible, scalable, reliable, and
usable and that performs to meet the needs of its growing customer community. 1
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176 Chapter 5 Infrastructures: Sustainable Technologies
section 5.1 MIS Infrastructures
L E A R N I N G O U T C O M E S
5.1 Explain MIS infrastructure and its three primary types.
5.2 Identify the three primary areas associated with an information MIS infrastructure.
5.3 Describe the characteristics of an agile MIS infrastructure.
THE BUSINESS BENEFITS OF A SOLID
MIS INFRASTRUCTURE
Management information systems have played a significant role in business strategies,
affected business decisions and processes, and even changed the way companies oper-
ate. What is the foundation supporting all of these systems that enable business growth,
operations, and profits? What supports the volume and complexity of today’s user and
application requirements? What protects systems from failures and crashes? It is the
MIS infrastructure , which includes the plans for how a firm will build, deploy, use, and
share its data, processes, and MIS assets. A solid MIS infrastructure can reduce costs,
improve productivity, optimize business operations, generate growth, and increase
profitability.
Briefly defined, hardware consists of the physical devices associated with a com-
puter system, and software is the set of instructions the hardware executes to carry
out specific tasks. In today’s business environment, most hardware and software is run
via a network. A network is a communications system created by linking two or more
devices and establishing a standard methodology in which they can communicate. As
more companies need to share more information, the network takes on greater impor-
tance in the infrastructure. Most companies use a specific form of network infrastruc-
ture called a client and server network. A client is a computer designed to request
information from a server. A server is a computer dedicated to providing informa-
tion in response to requests. A good way to understand this is when someone uses a
web browser (this would be the client) to access a website (this would be a server that
would respond with the web page being requested by the client). Anyone not familiar
with the basics of hardware, software, or networks should review Appendix A, “Hard-
ware and Software,” and Appendix B, “Networks and Telecommunications,” for more
information.
In the physical world, a detailed blueprint would show how public utilities, such as
water, electricity, and gas support the foundation of a building. MIS infrastructure is
similar as it shows in detail how the hardware, software, and network connectivity sup-
port the firm’s processes. Every company, regardless of size, relies on some form of MIS
infrastructure, whether it is a few personal computers networked together sharing an
Excel file or a large multinational company with thousands of employees interconnected
around the world.
An MIS infrastructure is dynamic; it continually changes as the business needs
change. Each time a new form of Internet-enabled device, such as an iPhone or Black-
Berry, is created and made available to the public, a firm’s MIS infrastructure must
be revised to support the device. This moves beyond just innovations in hardware to
include new types of software and network connectivity. An enterprise architect is
a person grounded in technology, fluent in business, and able to provide the impor-
tant bridge between MIS and the business. Firms employ enterprise architects to help
manage change and dynamically update MIS infrastructure. Figure 5.1 displays the
three primary areas where enterprise architects focus when maintaining a firm’s MIS
infrastructure.
LO 5.1: Explain MIS infrastructure
and its three primary types.
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177Technical Foundations of MIS Module 2
■ Supporting operations: Information MIS infrastructure identifies where and how
important information, such as customer records, is maintained and secured.
■ Supporting change: Agile MIS Infrastructure includes the hardware, software,
and telecommunications equipment that, when combined, provides the underlying
foundation to support the organization’s goals.
■ Supporting the environment: Sustainable MIS infrastructure identifies ways that
a company can grow in terms of computing resources while simultaneously becom-
ing less dependent on hardware and energy consumption.
SUPPORTING OPERATIONS: INFORMATION MIS
INFRASTRUCTURE
Imagine taking a quick trip to the printer on the other side of the room, and when you
turn around you find that your laptop has been stolen. How painful would you find this
experience? What types of information would you lose? How much time would it take
you to recover all of that information? A few things you might lose include music, mov-
ies, emails, assignments, saved passwords, not to mention that all-important 40-page
paper that took you more than a month to complete. If this sounds painful then you want
to pay particular attention to this section and learn how to eliminate this pain.
An information MIS infrastructure identifies where and how important information
is maintained and secured. An information infrastructure supports day-to-day business
operations and plans for emergencies such as power outages, floods, earthquakes, mali-
cious attacks via the Internet, theft, and security breaches to name just a few. Managers
must take every precaution to make sure their systems are operational and protected
LO 5.2: Identify the three primary
areas associated with an information
MIS infrastructure.
FIGURE 5.1
MIS Infrastructures
MIS Infrastructure
Information MIS
Infrastructure
Supports
Operations
Agile MIS
Infrastructure
Supports
Change
Sustainable MIS
Infrastructure
Supports
Sustainability
Backup
Recovery
Disaster Recovery
Business Continuity
Planning
Accessibility
Availability
Maintainability
Portability
Reliability
Scalability
Usability
Grid Computing
Cloud Computing
Virtualization
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around the clock every day of the year. Losing a laptop or experiencing bad weather in
one part of the country simply cannot take down systems required to operate core busi-
ness processes. In the past, someone stealing company information would have to carry
out boxes upon boxes of paper. Today, as data storage technologies grow in capabilities
while shrinking in size, a person can simply walk out the front door of the building with
the company’s data files stored on a thumb drive or external hard drive. Today’s man-
agers must act responsibly to protect one of their most valued assets, information. To
support continuous business operations, an information infrastructure provides three
primary elements:
■ Backup and recovery plan.
■ Disaster recovery plan.
■ Business continuity plan (see Figure 5.2 ).
Backup and Recovery Plan
Each year businesses lose time and money because of system crashes and failures. One
way to minimize the damage of a system crash is to have a backup and recovery strategy
in place. A backup is an exact copy of a system’s information. Recovery is the ability to
get a system up and running in the event of a system crash or failure that includes restor-
ing the information backup. Many different types of backup and recovery media are
available, including maintaining an identical replica or redundant of the storage server,
external hard drives, thumb drives, and even DVDs. The primary differences between
them are speed and cost.
Fault tolerance is the ability for a system to respond to unexpected failures or system
crashes as the backup system immediately and automatically takes over with no loss of
service. For example, fault tolerance enables a business to support continuous business
operations if there is a power failure or flood. Fault tolerance is an expensive form of
backup, and only mission-critical applications and operations use it. Failover , a specific
type of fault tolerance, occurs when a redundant storage server offers an exact replica of
the real-time data, and if the primary server crashes, the users are automatically directed
to the secondary server or backup server. This is a high-speed and high-cost method of
backup and recovery. Failback occurs when the primary machine recovers and resumes
operations, taking over from the secondary server.
FIGURE 5.2
Areas of Support Provided by
Information Infrastructure
Able to recover information
or systems in the event of a
catastrophic disaster such
as a fire or flood
•
Creates a way for a company
to recover and restore
partially or completely
interrupted critical functions
within a predetermined time
after a disaster or extended
disruption
•
Business Continuity
Planning
Backup: Provides an exact
copy of a system’s
information
•
Recovery: Able to get a
system up and running after
a crash
•
Backup and
Recovery
Disaster Recovery
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Using DVDs or thumb drives to store your data offers a low-speed and low-cost
backup method. It is a good business practice to back up data at least once a week using
a low-cost method. This will alleviate the pain of having your laptop stolen or your sys-
tem crash as you will still have access to your data, and it will only be a few days old.
Deciding how often to back up information and what media to use is a critical deci-
sion. Companies should choose a backup and recovery strategy in line with their goals
and operational needs. If the company deals with large volumes of critical informa-
tion, it will require daily, perhaps hourly, backups to storage servers. If it relies on small
amounts of noncritical information, then it might require only weekly backups to exter-
nal hard drives or thumb drives. A company that backs up on a weekly basis is taking
the risk that, if a system crash occurs, it could lose a week’s worth of work. If this risk is
acceptable, a weekly backup strategy will work. If it is unacceptable, the company needs
more frequent backup.
Disaster Recovery Plan
Disasters such as power outages, fires, floods, hurricanes, and even malicious activities
such as hackers and viruses strike companies every day. Disasters can have the following
effects on companies and their business operations.
■ Disrupting communications: Most companies depend on voice and data communi-
cations for daily operational needs. Widespread communications outages, from either
direct damage to the infrastructure or sudden spikes in usage related to an outside
disaster, can be as devastating to some firms as shutting down the whole business.
■ Damaging physical infrastructures: Fire and flood can directly damage buildings,
equipment, and systems, making structures unsafe and systems unusable. Law
enforcement officers and firefighters may prohibit business professionals from enter-
ing a building, thereby restricting access to retrieve documents or equipment.
■ Halting transportation: Disasters such as floods and hurricanes can have a deep
effect on transportation. Disruption to major highways, roads, bridges, railroads, and
airports can prevent business professionals from reporting to work or going home,
slow the delivery of supplies, and stop the shipment of products.
■ Blocking utilities: Public utilities, such as the supply of electric power, water, and
natural gas, can be interrupted for hours or days even in incidents that cause no
direct damage to the physical infrastructure. Buildings are often uninhabitable and
systems unable to function without public utilities.
BUSINESS DRIVEN START-UP
Think how horrible it would be to finish your term paper at 4 a.m. and find out
that your computer has a virus and you just lost your entire document. Or per-
haps you submit your final paper, which is worth 50 percent of your grade, and
then head off to Colorado for winter break. You return to find that you failed the
course, and you frantically check email to find out what happened. A message
from your professor informs you that your document was corrupt and couldn’t
be opened and that you had 24 hours to resend the file, which you missed
because you were skiing down the slopes.
Have you ever experienced having a file corrupted? If so, what could you
have done to recover from this situation? Do you think your instructor ever
receives corrupted files? How did the file become corrupted? Do you think your
instructor would be suspicious if you submitted a corrupted file? How could an
instructor prove that your file was purchased from this site?
I Don’t Have a
Temperature,
but I’m Positive
I Have a Virus
APPLY YOUR KNOWLEDGE
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These effects can devastate companies by causing them to cease operations for hours,
days, or longer and risk losing customers whom they cannot then supply. Therefore,
to combat these disasters a company can create a disaster recovery plan , which is a
detailed process for recovering information or a system in the event of a catastrophic
disaster. This plan includes such factors as which files and systems need to have back-
ups and their corresponding frequency and methods along with the strategic location
of the storage in a separate physical site that is geographically dispersed. A company
might strategically maintain operations in New York and San Francisco, ensuring that
a natural disaster would not impact both locations. A disaster recovery plan also fore-
sees the possibility that not only the computer equipment but also the building where
employees work may be destroyed. A hot site is a separate and fully equipped facil-
ity where the company can move immediately after a disaster and resume business. A
cold site is a separate facility that does not have any computer equipment but is a place
where employees can move after a disaster. A warm site is a separate facility with com-
puter equipment that requires installation and configuration. Figure 5.3 outlines these
resources that support disaster recovery.
A disaster recovery plan usually has a disaster recovery cost curve to support it. A
disaster recovery cost curve charts (1) the cost to the company of the unavailability of
information and technology and (2) the cost to the company of recovering from a disas-
ter over time. Figure 5.4 displays a disaster recovery cost curve and shows that the best
recovery plan in terms of cost and time is where the two lines intersect. Creating such a
curve is no small task. Managers must consider the cost of losing information and tech-
nology within each department or functional area, and across the whole company. Dur-
ing the first few hours of a disaster, those costs may be low, but they rise over time. With
those costs in hand, a company must then determine the costs of recovery.
FIGURE 5.3
Sites to Support Disaster
Recovery
A separate and fully
equipped facility where
the company can move
immediately after a
disaster and resume
business.
Hot Site
A separate facility that
does not have any
computer equipment,
but is a place where
employees can move
after a disaster.
Cold Site
A separate facility
with computer
equipment that
requires installation and
configuration.
Warm Site
FIGURE 5.4
Disaster Recovery Cost Curve
D
ol
la
rs
Time from Disaster to Recovery
The optimal disaster
recovery plan in terms
of cost and time
The cost to your organization of
the unavailability of information
and technology
The cost to your organization
to recover from a disaster
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181Technical Foundations of MIS Module 2
On April 18, 1906, San Francisco was rocked by an earthquake that destroyed large
sections of the city and claimed the lives of more than 3,000 inhabitants. More than a
century later, a rebuilt and more durable San Francisco serves as a central location for
major MIS corporations as well as a major world financial center. Managers of these cor-
porations are well aware of the potential disasters that exist along the San Andreas Fault
and actively update their business continuity plans anticipating such issues as earth-
quakes and floods. The Union Bank of California is located in the heart of downtown
San Francisco and maintains a highly detailed and well-developed business continuity
plan. The company employs hundreds of business professionals scattered around the
world that coordinate plans for addressing the potential loss of a facility, business pro-
fessionals, or critical systems so that the company can continue to operate if a disaster
happens. Its disaster recovery plan includes hot sites where staff can walk in and start
working exactly as if they were in their normal location. It would be a matter of minutes,
not hours, for the Union Bank of California to be up and running again in the event of a
disaster. 2
Business Continuity Plan
An emergency is a sudden, unexpected event requiring immediate action due to poten-
tial threat to health and safety, the environment, or property. Emergency preparedness
ensures a company is ready to respond to an emergency in an organized, timely, and
effective manner. Natural disasters and terrorist attacks are on the minds of business
professionals who take safeguarding their information assets seriously. Disaster recov-
ery plans typically focus on systems and data, ignoring cross-functional and intraorgani-
zational business processes that can be destroyed during an emergency. For this reason
many companies are turning to a more comprehensive and all-encompassing emer-
gency preparedness plan known as business continuity planning (BCP) , which details
how a company recovers and restores critical business operations and systems after a
disaster or extended disruption. BCP includes such factors as identifying critical sys-
tems, business processes, departments, and the maximum amount of time the business
can continue to operate without functioning systems. BCP contains disaster recovery
plans along with many additional plans, including prioritizing business impact analysis,
emergency notification plans, and technology recovery strategies (see Figure 5.5 ).
FIGURE 5.5
Business Continuity Planning
Focus Areas
Disaster
Recovery
Plan
Technology
Recovery
Strategies
Emergency
Notification
Services
Business
Impact
Analysis
Business
Continuity
Planning
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182 Chapter 5 Infrastructures: Sustainable Technologies
Business Impact Analysis A business impact analysis identifies all critical
business functions and the effect that a specific disaster may have upon them. A busi-
ness impact analysis is primarily used to ensure a company has made the right deci-
sions about the order of recovery priorities and strategies. For example, should the
accounting department have its systems up and running before the sales and market-
ing departments? Will email be the first system for recovery to ensure employees can
communicate with each other and outside stakeholders such as customers, suppli-
ers, and partners? The business impact analysis is a key part of BCP as it details the
order in which functional areas should be restored, ensuring the most critical are
focused on first.
Emergency Notification Services A business continuity plan typically includes
an emergency notification service , that is, an infrastructure built for notifying people in
the event of an emergency. Radio stations’ occasional tests of the national Emergency
Alert System are an example of a very large-scale emergency notification system. A firm
will implement an emergency notification service to warn employees of unexpected
events and provide them with instructions about how to handle the situation. Emer-
gency notification services can be deployed through the firm’s own infrastructure,
supplied by an outside service provider on company premises, or hosted remotely by
an outside service provider. All three methods provide notification using a variety of
methods such as email, voice notification to a cell phone, and text messaging. The noti-
fications can be sent to all the devices selected, providing multiple means in which to
get critical information to those who need it.
Technology Recovery Strategies Companies create massive amounts of data
vital to their survival and continued operations. A technology failure occurs when the
ability of a company to operate is impaired because of a hardware, software, or data out-
age. Technology failures can destroy large amounts of vital data, often causing incidents ,
unplanned interruption of a service. An incident record contains all of the details of an
incident. Incident management is the process responsible for managing how incidents
are identified and corrected. Technology recovery strategies focus specifically on priori-
tizing the order for restoring hardware, software, and data across the organization that
best meets business recovery requirements. A technology recovery strategy details the
order of importance for recovering hardware, software, data centers, and networking (or
connectivity). If one of these four vital components is not functioning, the entire system
will be unavailable, shutting down cross-functional business processes such as order
management and payroll. Figure 5.6 displays the key areas a company should focus on
when developing technology recovery strategies.
FIGURE 5.6
Key Areas of Technology
Recovery Strategies
Technology
Recovery
Strategies
NETWORKING
(Wireless, LAN,
Fiber, Cable)
SOFTWARE
(Applications
such as Email,
Payroll, Instant
Messaging)
DATA CENTER
(Climate Control,
Power Supply,
Security)
HARDWARE
(Servers,
Computers,
Wireless
Devices)
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SUPPORTING CHANGE: AGILE MIS INFRASTRUCTURE
Agile MIS infrastructure includes the hardware, software, and telecommunications
equipment that, when combined, provides the underlying foundation to support the
organization’s goals. If a company grows by 50 percent in a single year, its infrastructure
and systems must be able to handle a 50 percent growth rate. If they cannot, they can
severely hinder the company’s ability not only to grow but also to function.
The future of a company depends on its ability to meet its partners, suppliers, and cus-
tomers any time of the day in any geographic location. Imagine owning an ebusiness and
everyone on the Internet is tweeting and collaborating about how great your business
idea is and how successful your company is going to be. Suddenly, you have 5 million
global customers interested in your website. Unfortunately, you did not anticipate this
many customers so quickly, and the system crashes. Users typing in your URL find a
blank message stating the website is unavailable and to try back soon. Or even worse,
they can get to your website but it takes three minutes to reload each time they click on
a button. The buzz soon dies about your business idea as some innovative web-savvy
fast follower quickly copies your idea and creates a website that can handle the massive
number of customers. The characteristics of agile MIS infrastructures can help ensure
your systems can meet and perform under any unexpected or unplanned changes.
Figure 5.7 lists the seven abilities of an agile infrastructure.
Accessibility
Accessibility refers to the varying levels that define what a user can access, view, or per-
form when operating a system. Imagine the people at your college accessing the main
student information system. Each person that accesses the system will have different
needs and requirements; for example, a payroll employee will need to access vacation
information and salary information, or a student will need to access course information
and billing information. Each system user is provided with an access level that details
which parts of the system the user can and cannot access and what the user can do
when in the system. For example, you would not want your students to be able to view
payroll information or professor’s personal information; also, some users can only view
LO 5.3: Describe the characteristics
of an agile MIS infrastructure.
BUSINESS DRIVEN MIS
Backup and recovery are essential for any computer system. How painful would
it be if someone stole your laptop right now? How much critical information
would you lose? How many hours would it take you to re-create your data?
Perhaps that will motivate you to implement a backup procedure. How many
of you have a disaster recovery plan? Disaster recovery is needed when your
best friend dumps a grande latte on your computer or you accidently wash your
thumb drive.
Disaster recovery plans are crucial for any business, and you should ensure
that your company has everything it needs to continue operations if there is
ever a disaster, such as 9/11. You need to decide which disasters are worth wor-
rying about and which ones are probably never going to occur. For example,
if you live in Colorado, chances are good you don’t have to worry about hur-
ricanes, but avalanches are another story.
How often does a company need to back up its data? Where should the
backup be stored? What types of disasters should companies in your state pre-
pare for in case of an emergency? Why is it important to test the backup? What
could happen to a company if it failed to create a disaster recovery plan?
Disaster
Recovery
APPLY YOUR KNOWLEDGE
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184 Chapter 5 Infrastructures: Sustainable Technologies
information and are not allowed to create or delete information. Top-level MIS employ-
ees require administrator access , or unrestricted access to the entire system. Adminis-
trator access can perform functions such as resetting passwords, deleting accounts, and
shutting down entire systems.
Tim Berners-Lee, W3C director and inventor of the World Wide Web, stated, “the
power of the web is in its universality. Access by everyone regardless of disability is an
essential aspect.” Web accessibility means that people with disabilities, including visual,
auditory, physical, speech, cognitive, and neurological disabilities, can use the web. The
web accessibility initiative (WAI) brings together people from industry, disability orga-
nizations, government, and research labs from around the world to develop guidelines
and resources to help make the web accessible to people with disabilities, including
auditory, cognitive, neurological, physical, speech, and visual disabilities. The goal of
WAI is to allow people to access the full potential of the web, enabling people with dis-
abilities to participate equally. For example, Apple includes screen magnification and
VoiceOver on its iPhone, iPad, and iPod, which allows the blind and visually impaired to
use the devices.
Availability
In a 24/7/365 ebusiness environment, business professionals need to use their systems
whenever they want from wherever they want. Availability refers to the time frames
when the system is operational. A system is called unavailable when it is not operat-
ing and cannot be used. High availability occurs when a system is continuously opera-
tional at all times. Availability is typically measured relative to “100 percent operational”
or “never failing.” A widely held but difficult-to-achieve standard of availability for a
system is known as “five 9s” (99.999 percent) availability. Some companies have sys-
tems available around the clock to support ebusiness operations, global customers, and
online suppliers.
FIGURE 5.7
Agile MIS Infrastructure
Characteristics
• The system is operational during different time frames.
• The system functions correctly and provides accurate
information.
• The system can “scale up” or adapt to the increased
demands of growth.
• The system is easy to learn and efficient and satisfying
to use.
• Varying levels allow system users to access,
view, or perform operational functions.AccessibilityAccessibilityAcAccecessssibibililitityyAcAccecessssibibililitityyAccessibility
Availability
Reliability
Scalability
Usability
Maintainability
• The system is available to operate on different devices
or software platforms.
• The system quickly transforms to support environmental
changes.
Portability
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185Technical Foundations of MIS Module 2
Sometimes systems must be taken down for maintenance, upgrades, and fixes, which
are completed during downtime . One challenge with availability is determining when to
schedule system downtime if the system is expected to operate continuously. Performing
maintenance during the evening might seem like a great idea, but evening in one city is
morning somewhere else in the world, and business professionals scattered around the
globe may not be able to perform specific job functions if the systems they need are unavail-
able. This is where companies deploy failover systems so they can take the primary system
down for maintenance and activate the secondary system to ensure continuous operations.
Maintainability
Companies must watch today’s needs, as well as tomorrow’s, when designing and building
systems that support agile infrastructures. Systems must be flexible enough to meet all types
of company changes, environmental changes, and business changes. Maintainability
(or flexibility) refers to how quickly a system can transform to support environmental
changes. Maintainability helps to measure how quickly and effectively a system can be
changed or repaired after a failure. For example, when starting a small business you might
not consider that you will have global customers, a common mistake. When building
your systems, you might not design them to handle multiple currencies and different lan-
guages, which might make sense if the company is not currently performing international
business. Unfortunately, when the first international order arrives, which happens easily
with ebusiness, the system will be unable to handle the request because it does not have
the flexibility to be easily reconfigured for a new language or currency. When the company
does start growing and operating overseas, the system will need to be redeveloped, which
is not an easy or cheap task, to handle multiple currencies and different languages.
Building and deploying flexible systems allow easy updates, changes, and reconfigu-
rations for unexpected business or environmental changes. Just think what might have
happened if Facebook had to overhaul its entire system to handle multiple languages.
Another social networking business could easily have stepped in and become the pro-
vider of choice. That certainly would not be efficient or effective for business operations.
Portability
Portability refers to the ability of an application to operate on different devices or soft-
ware platforms, such as different operating systems. Apple’s iTunes is readily available to
users of Mac computers and also users of PC computers, smartphones, iPods, iPhones,
iPads, and so on. It is also a portable application. Because Apple insists on compatibil-
ity across its products, both software and hardware, Apple can easily add to its product,
device, and service offerings without sacrificing portability. Many software develop-
ers are creating programs that are portable to all three devices—the iPhone, iPod, and
iPad—which increases their target market and they hope their revenue.
Reliability
Reliability (or accuracy) ensures a system is functioning correctly and providing accu-
rate information. Inaccuracy can occur for many reasons, from the incorrect entry of
information to the corruption of information during transmissions. Many argue that the
information contained in Wikipedia is unreliable. Because the Wikipedia entries can be
edited by any user, there are examples of rogue users inaccurately updating information.
Many users skip over Google search findings that correlate to Wikipedia for this reason.
Housing unreliable information on a website can put a company at risk of losing custom-
ers, placing inaccurate supplier orders, or even making unreliable business decisions. A
vulnerability is a system weakness, such as a password that is never changed or a sys-
tem left on while an employee goes to lunch, that can be exploited by a threat. Reliable
systems ensure that vulnerabilities are kept at a minimum to reduce risk.
Scalability
Estimating company growth is a challenging task, in part because growth can occur in
a number of different forms—the firm can acquire new customers, new product lines,
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or new markets. Scalability describes how well a system can scale up, or adapt to the
increased demands of growth. If a company grows faster than anticipated, it might expe-
rience a variety of problems, from running out of storage space to taking more time to
complete transactions. Anticipating expected, and unexpected, growth is key to building
scalable systems that can support that development.
Performance measures how quickly a system performs a process or transaction. Per-
formance is a key component of scalability as systems that can’t scale suffer from perfor-
mance issues. Just imagine your college’s content management system suddenly taking
five minutes to return a page after a button is pushed. Now imagine if this occurs during
your midterm exam and you miss the two-hour deadline because the system is so slow.
Performance issues experienced by firms can have disastrous business impacts causing
loss of customers, loss of suppliers, and even loss of help-desk employees. Most users
will wait only a few seconds for a website to return a request before growing frustrated
and either calling the support desk or giving up and moving on to another website.
Capacity represents the maximum throughput a system can deliver; for example,
the capacity of a hard drive represents its size or volume. Capacity planning deter-
mines future environmental infrastructure requirements to ensure high-quality system
performance. If a company purchases connectivity software that is outdated or too
slow to meet demand, its employees will waste a great deal of time waiting for systems
to respond to user requests. It is cheaper for a company to design and implement agile
infrastructure that envisions growth requirements than to update all the equipment after
the system is already operational. If a company with 100 workers merges with another
company and suddenly there are 400 people using the system, performance time could
suffer. Planning for increases in capacity can ensure systems perform as expected. Wait-
ing for a system to respond to requests is not productive.
Web 2.0 is a big driver for capacity planning to ensure agile infrastructures can meet
the business’s operational needs. Delivering videos over the Internet requires enough
bandwidth to satisfy millions of users during peak periods such as Friday and Saturday
evenings. Video transmissions over the Internet cannot tolerate packet loss (blocks of
data loss), and allowing one additional user to access the system could degrade the
video quality for every user.
BUSINESS DRIVEN MIS
Do you know how Google makes so much money? Unlike traditional busi-
nesses, Google does not make money from the users of its service. Google
makes money by charging the companies that want to appear in the sponsored
section of a search result. After performing a Google search, you will notice
three sections on the resulting page. Along the top and side are the sponsored
search results, and the middle lists the organic search results. Google’s innova-
tive marketing program, called AdWords, allows companies to bid on common
search terms, and the highest bidder is posted first in the sponsored search
results. Every time a user clicks on a sponsored link, the company that owns the
link has to pay Google. This is also called pay-per-click and can cost anywhere
from a few cents to a few dollars for each click. A general search term such as
“tropical vacation” costs less than a more specific search term like “Hawaiian
vacation.” Whichever company bids the most for the search term appears at the
top of the sponsored section. Clicking on the links in the organic search results
does not incur any charges for the company that owns the link.
Rank the agile infrastructure ab-“ilities” for Google from most important to
least important in terms of supporting Google’s MIS infrastructure and busi-
ness operations. Be sure to provide the justification behind your ranking.
Ranking the
Ab-“ilities”
APPLY YOUR KNOWLEDGE
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Usability
Usability is the degree to which a system is easy to learn and efficient and satisfying to
use. Providing hints, tips, shortcuts, and instructions for any system, regardless of its ease
of use, is recommended. Apple understood the importance of usability when it designed
the first iPod. One of the iPod’s initial attractions was the usability of the click wheel.
One simple and efficient button operates the iPod, making it usable for all ages. And to
ensure ease of use, Apple also made the corresponding iTunes software intuitive and
easy to use. Serviceability is how quickly a third party can change a system to ensure it
meets user needs and the terms of any contracts, including agreed levels of reliability,
maintainability, or availability. When using a system from a third party, it is important to
ensure the right level of serviceability for all users, including remote employees.
section 5.2 Building Sustainable MIS Infrastructures
L E A R N I N G O U T C O M E S
5.4 Identify the environmental impacts associated with MIS.
5.5 Explain the three components of a sustainable MIS infrastructure along with their business benefits.
MIS AND THE ENVIRONMENT
The general trend in MIS is toward smaller, faster, and cheaper devices. Gordon Moore,
co-founder of Intel, the world’s largest producer of computer chips or microprocessors,
observed in 1965 that continued advances in technological innovation made it possible
to reduce the size of a computer chip (the brains of a computer, or even a cell phone
now) while doubling its capacity every two years. His prediction that this trend would
continue has come to be known as Moore’s Law , which refers to the computer chip per-
formance per dollar doubles every 18 months. Although Moore originally assumed a
two-year period, many sources today refer to the 18-month figure.
Moore’s Law is great for many companies as they can acquire large amounts of MIS
equipment for cheaper and cheaper costs. As ebusinesses continue to grow, companies
equip their employees with multiple forms of electronic devices ranging from laptops
to cell phones to iPads. This is great for supporting a connected corporation, significant
unintended side effects include our dependence upon fossil fuels and increased need
for safe disposal of outdated computing equipment. Concern about these side effects
has led many companies to turn to an ecological practice known as sustainable MIS.
Sustainable, or green, MIS describes the production, management, use, and disposal
of technology in a way that minimizes damage to the environment. Sustainable MIS
LO 5.4: Identify the environmental
impacts associated with MIS.
BUSINESS DRIVEN DEBATE
Thanks to Moore’s Law, computing devices are getting smaller, cheaper, and
faster every year, allowing innovative companies to create new devices that are
smaller and more powerful than current devices. Just look at desktop, laptop,
notebook, and tablet computers. These are all different devices allowing users
to connect and compute around the globe. Moore’s Law has been accurate
about computing power roughly doubling every 18 months. Do you agree or
disagree that Moore’s Law will continue to apply for the next 20 years? Why or
why not?
Laptop?
Notebook?
Netbook?
Tablet?
APPLY YOUR KNOWLEDGE
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BUSINESS DRIVEN ETHICS AND SECURITY
By some estimates, there may be as many as 1 billion surplus or obsolete com-
puters and monitors in the world. Consider California, where 6,000 computers
become surplus every day. If not disposed of properly, this enormous ewaste
stream, which can contain more than 1,000 different toxic substances, is harm-
ful to human beings and the environment. Beryllium is found in computer
motherboards, chromium in floppy disks, lead in batteries and computer mon-
itors, and mercury in alkaline batteries. One of the most toxic chemicals known
is cadmium, found in many old laptops and computer chips.
In poorer countries, where the United States and Europe export some of
their ewaste, the full impact of the environmental damage is quickly being
realized. These areas have little use for obsolete electronic equipment so local
recyclers resell some parts and burn the rest in illegal dumps, often near resi-
dential areas, releasing toxic and carcinogenic substances into the air, land,
and water. 3
Have you ever participated in ewaste? What can you do to ensure you are
safely disposing of electronic equipment including batteries? What can gov-
ernments do to encourage companies to safely dispose of ewaste? What can be
done to protect poorer countries from receiving ewaste? Create a list of the ways
you can safely dispose of cell phones, computers, printers, ink cartridges, MP3
players, and batteries. What could you do to inform citizens of the issues associ-
ated with ewaste and educate them on safe disposal practices?
Ewaste and the
Environment
APPLY YOUR KNOWLEDGE
is a critical part of corporate social responsibility , that is, companies’ acknowledged
responsibility to society. Building sustainable MIS infrastructures is a core initiative and
critical success factor for socially responsible corporations. Figure 5.8 displays the three
primary side effects of businesses’ expanded use of technology.
Increased Electronic Waste
Moore’s Law has made technological devices smaller, cheaper, and faster, allowing
more people from all income levels to purchase computing equipment. This increased
demand is causing numerous environmental issues. Ewaste refers to discarded, obso-
lete, or broken electronic devices. Ewaste includes CDs, DVDs, thumb drives, printer
cartridges, cell phones, iPods, external hard drives, TVs, VCRs, DVD players, micro-
waves, and so on. Some say one human year is equivalent to seven years of technological
advancements. A personal computer has a life expectancy of only three to five years and
a cell phone is less than two years.
Sustainable MIS disposal refers to the safe disposal of MIS assets at the end of their
life cycle. It ensures that ewaste does not end up in landfills causing environmental
issues. A single computer contains more than 700 chemicals; some are toxic, such as
mercury, lead, and cadmium. If a computer ends up in a landfill, the toxic substances
it contains can leach into our land, water, and air. Recycling costs from $15 to $50 for a
monitor or computer. Many companies, including public schools and universities, sim-
ply can’t afford the recycling costs. 4
Ewaste also occurs when unused equipment stored in attics, basements, and stor-
age facilities never reaches a recycling center. Retrieving the silver, gold, and other valu-
able metals from these devices is more efficient and less environmentally harmful than
removing it from its natural environment.
Currently, less than 20 percent of ewaste in the United States is recycled; however,
even recycling does not guarantee the equipment is disposed of safely. While some
recyclers process the material ethically, others ship it to countries such as China and
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189Technical Foundations of MIS Module 2
India, where environmental enforcement is weak. This action poses its own global
environmental problems.
Increased Energy Consumption
Energy consumption is the amount of energy consumed by business processes and
systems. Huge increases in technology use have greatly amplified energy consumption.
The energy consumed by a computer is estimated to produce as much as 10 percent
of the amount of carbon dioxide produced by an automobile. Computer servers in the
United States account for about 1 percent of the total energy needs of the country. Put
in perspective, this is roughly equivalent to the energy consumption of Mississippi.
Computers consume energy even when they are not being used. For convenience and
to allow for automatic updates and backup, the majority of computer equipment is never
completely shut down. It draws energy 24 hours a day.
Increased Carbon Emissions
The major human-generated greenhouse gases, such as carbon emissions from energy
use, are very likely responsible for the increases in climatic temperature over the past half a
century. Additional temperature increases are projected over the next hundred years, with
serious consequences for Earth’s environment, if carbon emissions , including the carbon
dioxide and carbon monoxide produced by business processes and systems, are not reduced.
In the United States, coal provides more than 50 percent of electrical power. When left
on continuously, a single desktop computer and monitor can consume at least 100 watts
of power per hour. To generate that much energy 24 hours a day for a year would require
approximately 714 pounds of coal. When that coal is burned, it releases on average
5 pounds of sulfur dioxide, 5 pounds of nitrogen oxides, and 1,852 pounds (that is almost
a ton) of carbon dioxide. 5
SUPPORTING THE ENVIRONMENT: SUSTAINABLE
MIS INFRASTRUCTURE
Combating ewaste, energy consumption, and carbon emissions requires a firm to focus
on creating sustainable MIS infrastructures. A sustainable MIS infrastructure identifies
ways that a company can grow in terms of computing resources while simultaneously
becoming less dependent on hardware and energy consumption. The components of a
sustainable MIS infrastructure are displayed in Figure 5.9 .
Grid Computing
When a light is turned on, the power grid delivers exactly what is needed, instantly.
Computers and networks can now work that way using grid computing. Grid computing
is a collection of computers, often geographically dispersed, that are coordinated to
LO 5.5: Explain the three
components of a sustainable MIS
infrastructure along with their
business benefits.
FIGURE 5.8
Three Pressures Driving
Sustainable MIS Infrastructures
Increased
Energy
Consumption
Increased
Carbon
Emissions
Increased
Electronic
Waste
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solve a common problem. With grid computing a problem is broken into pieces and
distributed to many machines, allowing faster processing than could occur with a single
system. Computers typically use less than 25 percent of their processing power, leav-
ing more than 75 percent available for other tasks. Innovatively, grid computing takes
advantage of this unused processing power by linking thousands of individual com-
puters around the world to create a “virtual supercomputer” that can process intensive
tasks. Grid computing makes better use of MIS resources, allowing greater scalability
as systems can easily grow to handle peaks and valleys in demand, become more cost
efficient, and solve problems that would be impossible to tackle with a single computer
(see Figure 5.10 ). 6
BUSINESS DRIVEN DISCUSSION
Cheap electricity is great for keeping business costs down, but it often means
relying on coal for power. Facebook recently commissioned a new comput-
ing facility in Oregon and is using power from PacifiCorp, a utility that gets
the majority of its energy from coal-fired power stations, which are major con-
tributors of greenhouse gas emissions. As more and more people subscribe to
Facebook, its energy needs are increasing almost exponentially.
Do you agree that Facebook made a wise business decision in selecting a
utility provider that uses coal-fired power stations? What alternative sources
of energy could Facebook have used to power its computing facility? Do you
think Facebook’s core customers care about the environment? What types of
business challenges might Facebook encounter if it continues using coal-fired
power stations?
Facebook’s
Energy Use
APPLY YOUR KNOWLEDGE
FIGURE 5.9
Sustainable MIS Infrastructure
Components
Grid
Computing
Virtualized
Computing
Cloud
Computing
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The uses of grid computing are numerous, including the creative environment of
animated movies. DreamWorks Animation used grid computing to complete many of
its hit films including Antz, Shrek, Madagascar, and How to Train Your Dragon. The
third Shrek film required more than 20 million computer hours to make (compared to
5 million for the first Shrek and 10 million for the second). At peak production times,
DreamWorks dedicated more than 4,000 computers to its Shrek grid, allowing it to
complete scenes in days and hours instead of months. With the increased grid com-
puting power, the DreamWork’s animators were able to add more realistic movement
to water, fire, and magic scenes (see Figure 5.11 ). With grid computing a company can
work faster or more efficiently, providing a potential competitive advantage and addi-
tional cost savings. 7
FIGURE 5.10
Grid Computing Example
FIGURE 5.11
Making Shrek 2 with Grid
Computing
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Solving the Energy Issue with Smart Grids A smart grid delivers electricity
using two-way digital technology. It is meant to solve the problem of the world’s outdated
electrical grid, making it more efficient and reliable by adding the ability to remotely mon-
itor, analyze, and control the transmission of power. The current U.S. power grid is said to
have outlived its life expectancy by as much as 30 years. Smart grids provide users with
real-time usage monitoring, allowing them to choose off-peak times for noncritical or less
urgent applications or processes. Residents of Boulder, Colorado, can monitor their use of
electricity and control appliances remotely due to the city’s large-scale smart grid system.
Xcel Energy has installed 21,000 smart grid meters since the $100 million program started
several years ago. Energy use by early adopters is down as much as 45 percent. 8
Virtualized Computing
Most computers and even servers typically run only one operating system, such as Win-
dows or Mac OS, and only one application. When a company invests in a large system such
as inventory management, it dedicates a single server to house the system. This ensures the
system has enough capacity to run during peak times and to scale to meet demand. Also,
many systems have specific hardware requirements along with detailed software require-
ments, making it difficult to find two systems with the same requirements that could share
the same machine. Through the use of virtualization, computers can run multiple operat-
ing systems along with multiple software applications—all at the same time. Virtualization
creates multiple “virtual” machines on a single computing device. A good analogy is a
computer printer. In the past you had to purchase a fax machine, copy machine, answering
machine, and computer printer separately. This was expensive, required enough energy to
run four separate machines, not to mention created additional amounts of ewaste. Today,
you can buy a virtualized computer printer that functions as a fax machine, answering
machine, and copy machine all on one physical machine, thereby reducing costs, power
requirements, and ewaste. Virtualization is essentially a form of consolidation that can
benefit sustainable MIS infrastructures in a variety of ways, for example:
■ By increasing availability of applications that can give a higher level of performance
depending on the hardware used.
■ By increasing energy efficiency by requiring less hardware to run multiple systems
or applications.
■ By increasing hardware usability by running multiple operating systems on a single
computer.
Originally, computers were designed to run a single application on a single operating
system. This left most computers vastly underutilized (as mentioned earlier, 75 percent of
most computing power is available for other tasks). Virtualization allows multiple virtual
computers to exist on a single machine, which allows it to share its resources, such as mem-
ory and hard disk space, to run different applications and even different operating systems.
Mac computers have the ability to run both the Apple operating system and the Windows
PC operating system, with the use of virtualization software (see Figure 5.12 ). Unfortu-
nately, virtualization, at least at the moment, is not available for a PC to run Mac software.
Virtualization is also one of the easiest and quickest ways to achieve a sustainable MIS
infrastructure because it reduces power consumption and requires less equipment that
needs to be manufactured, maintained, and later disposed of safely. Managers no lon-
ger have to assign servers, storage, or network capacity permanently to single applica-
tions. Instead, they can assign the hardware resources when and where they are needed,
achieving the availability, flexibility, and scalability a company needs to thrive and grow.
Also, by virtually separating the operating system and applications from the hardware,
if there is a disaster or hardware failure, it is easy to port the virtual machine to a new
physical machine allowing a company to recovery quickly from disasters. One of the
primary uses of virtualization is for performing backup, recovery, and disaster recovery.
Using virtual servers or a virtualization service provider, such as Google, Microsoft, or
Amazon, to host disaster recovery is more sustainable than a single company incurring
the expense of having redundant physical systems. Also, these providers’ data centers
are built to withstand natural disasters and are typically located far away from big cities.
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BUSINESS DRIVEN INNOVATION
Virtualization is a challenging concept to understand. The formal definition is
that it creates multiple “virtual” machines on a single computing device. OK,
let’s try that again in English. Imagine you have three cell phones, one for the
company you work for, one for a company you are starting on the side, and one
for personal calls. For the most part the phones are idle and they seldom ever
ring at the same time. Since the phones are idle the majority of the time, you
notice that it is a waste of time and resources to support idle time, especially
when you are paying for cell service on each phone. You decide to use virtual-
ization to help your situation.
Essentially, this would put three virtual cell phones on one device. The indi-
vidual services and application for each phone would be independently stored
on the one device. From the device’s perspective, it sees three separate virtual
phones. This saves time and money in expenses and maintenance. You could
even use virtualization to turn your cell phone into a scanner. Visit ScanR.com
and for just $5 a month you can use the camera on your phone to scan docu-
ments. Take a photo of any document, business card, or whiteboard and upload
it to ScanR’s website and in minutes it is returned to you in a digital file. Could
be helpful if your friend has to miss class and you want to copy your lecture
notes. 9
Virtualization is a hot topic these days as more and more businesses are
focusing on social responsibility and attempting to find ways to reduce their
carbon footprints. Create an analogy similar to the cell phone that demon-
strates virtualization. What are the potential environmental impacts associated
with virtualization? What are the business advantages of virtualization? What
are the business risks associated with virtualization?
Virtualization for
Your Cell Phone
APPLY YOUR KNOWLEDGE
FIGURE 5.12
Virtualization Allows an Apple
Macintosh Computer to Run OS
X and Windows 7
MAC OS X
Running
Mac
software
Sharing memory and hard disk
space
WINDOWS 7
Running
Windows 7
software
Apple Macintosh Computer
Virtual Data Centers A data center is a facility used to house management infor-
mation systems and associated components, such as telecommunications and stor-
age systems. Data centers, sometimes referred to as server farms, consume power and
require cooling and floor space while working to support business growth without
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disrupting normal business operations and the quality of service. The amount of data a
data center stores has grown exponentially over the years as our reliance on information
increases. Backups, graphics, documents, presentations, photos, audio and video files
all contribute to the ever-expanding information footprint that requires storage. One of
the most effective ways to limit the power consumption and cooling requirements of a
data center is to consolidate parts of the physical infrastructure, particularly by reduc-
ing the number of physical servers through virtualization. For this reason, virtualization
is having a profound impact on data centers as the sheer number of servers a company
requires to operate decreases, thereby boosting growth and performance while reducing
environmental impact, as shown in Figure 5.13 . Google, Microsoft, Amazon, and Yahoo!
have all created data centers along the Columbia River in the northwestern United States.
In this area, each company can benefit from affordable land, high-speed Internet access,
plentiful water for cooling, and even more important, inexpensive electricity. These fac-
tors are critical to today’s large-scale data centers, whose sheer size and power needs far
surpass those of the previous generation. Microsoft’s data center in Quincy, Washington,
is larger than 10 football fields and is powered entirely by hydroelectricity, power gener-
ated from flowing water rather than from the burning of coal or other fossil fuel. 11
If we take a holistic and integrated approach to overall company growth, the benefits
of integrating information MIS infrastructures, environmental MIS infrastructures, and
sustainable MIS infrastructures become obvious. For example, a company could easily
create a backup of its software and important information in one or more geographically
FIGURE 5.13
Ways for Data Centers to
Become Sustainable
Stores greater
amounts of
information in
less space
Reduce energy
consumption
Resources are
inexpensive,
clean, and
available
Carbon
Emissions
Floor
Space
Geographic
Location
BUSINESS DRIVEN GLOBALIZATION
Google is considering constructing a floating data center three to seven miles
offshore that could be both powered and cooled by the ocean. It would consist
of containers stacked with servers, data storage systems, and networking equip-
ment on barges or other platforms and could be located close to users wherever
it is not feasible, cost-effective, or efficient to build on land. Bringing the data
closer to the user allows the data to arrive quicker. And since the ocean is a rent-
free space, data centers can be as large as 100,000 square feet without real estate
fees. The ocean can provide two critical factors that support a sustainable MIS
infrastructure—water for cooling and power. 10
What are the advantages and disadvantages of housing data centers in the
ocean? Do you foresee any issues for these data centers with natural disas-
ters? What types of security issues would Google encounter with a floating data
center? Do you agree that it is good business sense to house a data center on a
barge in the ocean? Why or why not?
Data Centers on
the High Seas
APPLY YOUR KNOWLEDGE
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dispersed locations using cloud computing. This would be far cheaper than building its
own hot and cold sites in different areas of the country. In the case of a security breach,
failover can be deployed as a virtual machine in one location of the cloud can be shut
down as another virtual machine in a different location on the cloud comes online.
Cloud Computing
Imagine a cyclical business that specializes in Halloween decorations and how its sales
trends and orders vary depending on the time of year. The majority of sales occur in
September and October, and the remaining 10 months have relatively small sales and
small system usage. The company does not want to invest in massive expensive serv-
ers that sit idle 10 months of the year just to meet its capacity spikes in September and
October. The perfect solution for this company is cloud computing, which makes it
easier to gain access to the computing power that was once reserved for large corpora-
tions. Small to medium-size companies no longer have to make big capital investments
to access the same powerful systems that large companies run.
According to the National Institute of Standards and Technology (NIST) cloud
computing is a model for enabling ubiquitous, convenient, on-demand network
access to a shared pool of configurable computing resources (e.g., networks, servers,
storage, applications, and services) that can be rapidly provisioned and released with
minimal management effort or service provider interaction. Cloud computing offers
new ways to store, access, process, and analyze information and connect people and
resources from any location in the world where an Internet connection is available.
As shown in Figure 5.14 , users connect to the cloud from their personal computers or
portable devices using a client, such as a web browser. To these individual users, the
cloud appears as their personal application, device, or document. It is like storing all
of your software and documents “in the cloud,” and all you need is a device to access
the cloud. No more hard drives, software, or processing power—that is all located in
the cloud, transparent to the users. Users are not physically bound to a single com-
puter or network; they can access their programs and documents from wherever they
are, whenever they need to. Just think of having your hard drive located in the sky and
you can access your information and programs using any device from wherever you
are. The best part is that even if your machine crashes, is lost, or is stolen, the informa-
tion hosted in the cloud is safe and always available.
FIGURE 5.14
Cloud Computing Example
Amazon EC2 Windows Live
MozyFacebook
Gmail
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Multi-tenancy in the cloud means that a single instance of a system serves multi-
ple customers. In the cloud, each customer is called a tenant and multiple tenants can
access the same system. Multi-tenancy helps to reduce operational costs associated with
implementing large systems as the costs are dispersed across many tenants as opposed to
single-tenancy , in which each customer or tenant must purchase and maintain an indi-
vidual system. With a multi-tenancy cloud approach, the service provider only has one
place to update its system. With a single-tenancy cloud approach, the service provider
would have to update its system in every company where the software was running. The
cloud fabric is the software that makes possible the benefits of cloud computing, such
as multi-tenancy. A cloud fabric controller is an individual who monitors and provi-
sions cloud resources, similar to a server administrator at an individual company. Cloud
fabric controllers provision resources, balance loads, manage servers, update systems,
and ensure all environments are available and operating correctly. Cloud fabric is the
primary reason cloud computing promotes all of the seven abilities, allowing a business
to make its data and applications accessible, available, maintainable, portable, reliable,
scalable, and usable. Figure 5.15 displays the benefits of cloud computing.
The cloud offers a company higher availability, greater reliability, and improved
accessibility—all with affordable high-speed access. For flexibility, scalability, and cost
efficiency, cloud computing is quickly becoming a viable option for companies of all
sizes. With the cloud, you could simply purchase a single license for software such as
Microsoft Office or Outlook at a far discounted rate and not worry about the hassle of
installing and upgrading the software on your computer. No more worries that you don’t
have enough memory to run a new program because the hardware is provided in the
cloud, along with the software. You simply pay to access the program. Think of this the
same way you do your telephone service. You simply pay to access a vendor’s service,
and you do not have to pay for the equipment required to carry the call around the globe.
You also don’t have to worry about scalability because the system automatically handles
peak loads, which can be spread out among the systems in the cloud.
Because additional cloud resources are always available, companies no longer have
to purchase systems for infrequent computing tasks that need intense processing power,
such as preparing tax returns during tax season or increased sales transactions during
certain holiday seasons. If a company needs more processing power, it is always there in
the cloud—and available on a cost-efficient basis.
With cloud computing, individuals or businesses pay only for the services they need,
when they need them, and where, much as we use and pay for electricity. In the past,
a company would have to pay millions of dollars for the hardware, software, and net-
working equipment required to implement a large system such as payroll or sales man-
agement. A cloud computing user can simply access the cloud and request a single
license to a payroll application. The user does not have to incur any hardware, software,
FIGURE 5.15
Benefits of Cloud Computing
ON-DEMAND SELF-SERVICE
Users can increase storage
and processing power as
needed
RAPID ELASTICITY
Storage, network bandwidth,
and computing capacity can
be increased or decreased
immediately, allowing for
optimal scalability
MEASURED SERVICE
Clients can monitor and
measure transactions and
use of resources
BROAD NETWORK ACCESS
All devices can access
data and applications
MULTI-TENANCY
Customers share pooled
computing resources
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or networking expenses. As the business grows and the user requires more employees
to have access to the system, the business simply purchases additional licenses. Rather
than running software on a local computer or server, companies can now reach to the
cloud to combine software applications, data storage, and considerable computing
power. Utility computing offers a pay-per-use revenue model similar to a metered ser-
vice such as gas or electricity. Many cloud computing service providers use utility com-
puting cloud infrastructures, which are detailed in Figure 5.16 .
Infrastructure as a Service (IaaS) Infrastructure as a Service (IaaS) delivers
hardware networking capabilities, including the use of servers, networking, and stor-
age, over the cloud using a pay-per-use revenue model. With IaaS the customer rents the
hardware and provides its own custom applications or programs. IaaS customers save
money by not having to spend a large amount of capital purchasing expensive servers,
which is a great business advantage considering some servers cost more than $100,000.
The service is typically paid for on a usage basis, much like a basic utility service such
as electricity or gas. IaaS offers a cost-effective solution for companies that need their
computing resources to grow and shrink as business demand changes. This is known as
dynamic scaling , which means the MIS infrastructure can be automatically scaled up or
down based on needed requirements.
Currently the most popular IaaS operation is Amazon’s Elastic Compute Cloud, gener-
ally known as Amazon EC2, or simply EC2. EC2 provides a web interface through which
customers can load and run their own applications on Amazon’s computers. Customers
control their own operating environment, so they can create, run, and stop services as
needed, which is why Amazon describes EC2 as elastic. IaaS is a perfect fit for compa-
nies with research-intensive projects that need to process large amounts of information
at irregular intervals, such as those in the scientific or medical fields. Cloud computing
services offer these companies considerable cost savings where they can perform testing
and analysis at levels that are not possible without access to additional and very costly
computing infrastructure.
Software as a Service (SaaS) Software as a Service (SaaS) delivers applica-
tions over the cloud using a pay-per-use revenue model. Before its introduction, com-
panies often spent huge amounts of money implementing and customizing specialized
applications to satisfy their business requirements. Many of these applications were
difficult to implement, expensive to maintain, and challenging to use. Usability was
one of the biggest drivers for creating interest in and success for cloud computing
service providers.
FIGURE 5.16
Cloud Service Delivery Models
• Example: Amazon EC2
• Offers computer hardware and networking
equipment on a pay-per-use basisInfrastructureas a Service
Software as a
Service
Platform as a
Service
• Example: Salesforce.com
• Offers applications on a pay-per-use basis
• Example: Google Application Engine
• Offers hardware, networking, and
applications on a pay-per-use basis.
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SaaS offers a number of advantages; the most obvious is tremendous cost savings.
The software is priced on a per-use basis with no up-front costs, so companies get the
immediate benefit of reducing capital expenditures. They also get the added benefits of
scalability and flexibility to test new software on a rental basis.
Salesforce.com is one of the most popular SaaS providers. Salesforce.com built and
delivered a sales automation application, suitable for the typical salesperson, that auto-
mates functions such as tracking sales leads and prospects and forecasting. Tapping the
power of SaaS can provide access to a large-scale, secure infrastructure, along with any
needed support, which is especially valuable for a start-up or small company with few
financial resources.
Platform as a Service (PaaS) Platform as a Service (PaaS) supports the deploy-
ment of entire systems including hardware, networking, and applications using a
pay-per-use revenue model. PaaS is a perfect solution for a business as it passes on to
the service provider the headache and challenges of buying, managing, and maintaining
web development software. With PaaS the development, deployment, management, and
maintenance is based entirely in the cloud and performed by the PaaS provider, allow-
ing the company to focus resources on its core initiatives. Every aspect of development,
including the software needed to create it and the hardware to run it, lives in the cloud.
PaaS helps companies minimize operational costs and increase productivity by provid-
ing all the following without up-front investment:
■ Increased security.
■ Access to information anywhere and anytime.
■ Centralized information management.
■ Easy collaboration with partners, suppliers, and customers.
■ Increased speed to market with significantly less cost .
One of the most popular PaaS services is Google’s Application Engine, which builds
and deploys web applications for a company. Google’s Application Engine is easy to build,
easy to maintain, and easy to scale as a company’s web-based application needs grow.
Google’s Application Engine is free and offers a standard storage limit and enough pro-
cessing power and network usage to support a web application serving about 5 million
page views a month. When a customer scales beyond these initial limits, it can pay a fee
to increase capacity and performance. This can turn into some huge costs savings for a
small business that does not have enough initial capital to buy expensive hardware and
software for its web applications. Just think, a two-person company can access the same
computing resources as Google. That makes good business sense. Regardless of which
cloud model a business chooses, it can select from four different cloud computing envi-
ronments—public, private, community, and hybrid (see Figure 5.17 ).
FIGURE 5.17
Cloud Computing Environments
PUBLIC CLOUD
Amazon Web Services
(AWS), Windows Azure, and
Google Cloud Connect
PRIVATE CLOUD
Bank or sensitive
information
COMMUNITY CLOUD
All Colorado State
government organizations
HYBRID CLOUD
Cloud bursting
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Public Cloud Public cloud promotes massive, global, and industrywide applications
offered to the general public. In a public cloud, customers are never required to provision,
manage, upgrade, or replace hardware or software. Pricing is utility-style and custom-
ers pay only for the resources they use. A few great examples of public cloud computing
include Amazon Web Services (AWS), Windows Azure, and Google Cloud Connect.
Private Cloud Private cloud serves only one customer or organization and can be
located on the customer’s premises or off the customer’s premises. A private cloud is the
optimal solution for an organization such as the government that has high data secu-
rity concerns and values information privacy. Private clouds are far more expensive than
public clouds because costs are not shared across multiple customers.
Community Cloud Community cloud serves a specific community with common
business models, security requirements, and compliance considerations. Community
clouds are emerging in highly regulated industries such as financial services and phar-
maceutical companies.
Hybrid Cloud Hybrid cloud includes two or more private, public, or community
clouds, but each cloud remains separate and is only linked by technology that enables data
and application portability. For example, a company might use a private cloud for critical
applications that maintain sensitive data and a public cloud for nonsensitive data appli-
cations. The usage of both private and public clouds together is an example of a hybrid
cloud. Cloud bursting is when a company uses its own computing infrastructure for
normal usage and accesses the cloud when it needs to scale for peak load requirements,
ensuring a sudden spike in usage does not result in poor performance or system crashes.
Deploying an MIS infrastructure in the cloud forever changes the way an organiza-
tion’s MIS systems are developed, deployed, maintained, and managed. Moving to the
cloud is a fundamental shift from moving from a physical world to a logical world, mak-
ing irrelevant the notion of which individual server applications or data reside on. As a
result, organizations and MIS departments need to change the way they view systems
and the new opportunities to find competitive advantages.
Learning Outcome 5.1: Explain MIS infrastructure and its three primary types.
The three primary areas where enterprise architects focus when maintaining a firm’s MIS
infrastructure are:
■ Supporting operations: Information MIS infrastructure identifies where and how important
information, such as customer records, is maintained and secured.
■ Supporting change: Agile MIS infrastructure includes the hardware, software, and telecommu-
nications equipment that, when combined, provides the underlying foundation to support the
organization’s goals.
■ Supporting the environment: Sustainable MIS infrastructure identifies ways that a company
can grow in terms of computing resources while simultaneously becoming less dependent on
hardware and energy consumption.
Learning Outcome 5.2: Identify the three primary areas associated with an information
MIS infrastructure.
The three primary areas an information infrastructure provides to support continuous business
operations are:
■ Backup and recovery: A backup is an exact copy of a system’s information. Recovery is the ability
to get a system up and running in the event of a system crash or failure that includes restoring the
information backup.
L E A R N I N G O U T C O M E R E V I E W
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■ Disaster recovery plan: This plan provides a detailed process for recovering information or a
system in the event of a catastrophic disaster.
■ Business continuity plan: This details how a company recovers and restores critical business
operations and systems after a disaster or extended disruption.
Learning Outcome 5.3: Describe the characteristics of an agile MIS infrastructure.
■ Accessibility refers to the varying levels that define what a user can access, view, or perform
when operating a system.
■ Availability refers to the time frames when the system is operational.
■ Maintainability (or flexibility) refers to how quickly a system can transform to support environ-
mental changes.
■ Portability refers to the ability of an application to operate on different devices or software plat-
forms, such as different operating systems.
■ Reliability (or accuracy) ensures a system is functioning correctly and providing accurate
information.
■ Scalability describes how well a system can “scale up” or adapt to the increased demands of
growth.
■ Usability is the degree to which a system is easy to learn and efficient and satisfying to use.
Learning Outcome 5.4: Identify the environmental impacts associated with MIS.
Increased energy consumption, increased electronic waste, and increased carbon emissions are all
associated with MIS. Ewaste refers to discarded, obsolete, or broken electronic devices. Sustainable
MIS disposal refers to the safe disposal of MIS assets at the end of their life cycle.
Learning Outcome 5.5: Explain the three components of a sustainable MIS infrastructure
along with their business benefits.
The components of a sustainable MIS infrastructure include:
■ Grid computing: A collection of computers, often geographically dispersed, that are coordinated to
solve a common problem.
■ Cloud computing: The use of resources and applications hosted remotely on the Internet. The
term comes (at least in part) from the image of a cloud to represent the Internet or some large
networked environment.
■ Virtualized computing: The creation of multiple “virtual” machines on a single computing
device.
1. Knowledge: List the ways that an agile MIS infrastructure supports Pandora’s business.
2. Comprehension: Describe the reasons Pandora would create a disaster recovery plan and a
business continuity plan.
3. Application: Apply the concepts of cloud computing to Pandora’s business model.
4. Analysis: Analyze how Pandora is using sustainable MIS infrastructures.
5. Synthesis: Develop a way that Pandora could benefit from grid computing.
6. Evaluate: Assess the use of virtualization to support Pandora’s business growth while helping the
environment.
O P E N I N G C A S E Q U E S T I O N S
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201Technical Foundations of MIS Module 2
Accessibility, 183
Administrator access, 184
Agile MIS infrastructure, 177
Availability, 184
Backup, 178
Business continuity planning
(BCP), 181
Business impact analysis, 182
Capacity, 186
Capacity planning, 186
Carbon emissions, 189
Client, 177
Cloud bursting, 199
Cloud computing, 195
Cloud fabric, 196
Cloud fabric controller, 196
Cold site, 180
Community cloud, 199
Corporate social
responsibility, 188
Data center, 193
Disaster recovery cost curve, 180
Disaster recovery plan, 180
Dynamic scaling, 197
Emergency, 181
Emergency notification service, 182
Emergency preparedness, 181
Energy consumption, 189
Enterprise architect, 176
Ewaste, 188
Failback, 178
Failover, 178
Fault tolerance, 178
Grid computing, 189
Hardware, 176
High availability, 184
Hot site, 180
Hybrid cloud, 199
Incident, 182
Incident management, 182
Incident record, 182
Information MIS
infrastructure, 177
Infrastructure as a Service (IaaS), 197
Maintainability (or flexibility), 185
MIS infrastructure, 176
Moore’s Law, 187
Multi-tenancy, 196
Network, 176
Performance, 186
Platform as a Service (PaaS), 198
Portability, 185
Private cloud, 199
Public cloud, 199
Recovery, 178
Reliability (or accuracy), 185
Scalability, 186
Server, 176
Serviceability, 187
Single-tenancy, 196
Smart grid, 192
Software, 176
Software as a Service (SaaS), 197
Sustainable MIS disposal, 188
Sustainable MIS
infrastructure, 177
Sustainable, or green, MIS, 187
Technology failure, 182
Technology recovery strategy, 182
Unavailable, 184
Usability, 187
Utility computing, 197
Virtualization, 192
Vulnerability, 185
Warm site, 180
Web accessibility, 184
Web accessibility initiative
(WAI), 184
K E Y T E R M S
1. How often should a business back up its data?
2. Why is it important to ensure backups are working and can be restored?
3. What is the difference between a disaster recovery plan and a business continuity plan?
4. What are the three forms of MIS infrastructures and what do they support?
5. List the characteristics of an agile MIS infrastructure and explain why they are all critical for
supporting change.
6. Explain what capacity planning is and how it can help a business prepare for growth.
7. Explain the difference between fault tolerance and failover.
8. Compare the differences among a hot, cold, and warm site.
9. What is Moore’s Law and how does it affect companies?
10. List the business benefits of using grid computing.
11. Identify the benefits and challenges of cloud computing
12. What is a data center and why would a business develop one.
13. List and describe the three most popular cloud computing delivery models.
14. Why would a company want to use virtualization?
15. Explain why a business today would want to follow sustainable MIS practices.
16. Explain why ebusiness is contributing to the three pressures driving sustainable MIS
infrastructures.
R E V I E W Q U E S T I O N S
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UPS Invests $1 Billion to Go Green
United Parcel Service (UPS) will make about $1 billion in technology investments to improve the effi-
ciency of its operations, with the goal of cutting billions more from its costs over the long term. One of
its main goals is to improve the speed and efficiency of its delivery operations. To achieve that, UPS
is equipping its vans with sensors that allow it to collect data about things such as fuel consumption,
chosen routes, and how much time its engines spend idling. Reducing fuel consumption will help UPS
not only to cut costs, but also to be more environmentally responsible. A big portion of the company’s
costs comes from transporting packages by air. In fact, UPS is the world’s ninth-largest airline, so it is
trying to conserve aircraft fuel as well by lowering flight speeds and better planning to avoid duplica-
tion of routes. But a lot of fuel is also burned by its trucks, and the sensors being implemented there
could save the company millions of dollars.
UPS is installing about 200 sensors in its vehicles—in the brakes, engine box, and on the
exterior—to collect data and pinpoint opportunities where drivers can adjust their driving to maximize
fuel efficiency. The company wants to reduce idle time of its delivery trucks, as each hour spent idling
burns about a gallon of fuel.
The company is also installing equipment to track the routes drivers take to deliver packages.
Every morning the drivers are briefed on the data captured by the sensors and how they could drive
differently to save fuel. UPS wants to optimize the number of times a vehicle has to start, stop,
reverse, turn, or back up.
Green Data Center
The company is also investing in more efficient cooling technologies at its two data centers, which
are in Mahwah, New Jersey, and Alpharetta, Georgia. During the winter, the company can shut off its
chiller equipment and use outside air for cooling.
The Alpharetta data center has a 650,000-gallon water tank outside for cooling and a heat
exchanger to faster dissipate the heat captured in the fluid. The water flows in a circular motion
around the data center, cooling the equipment, and the heat exchanger helps lower the temperature
of the hot exhaust water more quickly.
UPS is also investing in faster server processors, allowing it to consolidate existing servers through
virtualization. That helps lower energy costs and also reduces the physical footprint of its servers.
And the company has been consolidating smaller server rooms that were scattered around the world.
These changes are saving UPS around $400,000 each year. 12
Questions
1. Why do you think UPS is embracing sustainable technologies?
2. How is UPS developing a sustainable MIS infrastructure?
3. What business benefits will UPS gain from virtualization?
4. What role does each characteristics of an agile MIS infrastructure play in helping UPS to operate
its business?
5. How could UPS benefit from cloud or grid computing?
6. What types of ethical issues might UPS encounter with the tracking technology it has placed in
its trucks?
7. What types of security issues might UPS encounter with the tracking technology it has placed in
its trucks?
C L O S I N G C A S E O N E
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Turning Ewaste into Gold
During the 2010 Winter Olympic Games in Vancouver, champions were not just taking home gold,
silver, or bronze medals—they were also playing a role in reducing electronic waste. For the first time
in Olympic history, each medal, more than 1,000 of them, was made with a tiny bit of the more than
140,000 tons of ewaste that otherwise would have been sent to landfills. The medals are the first
containing metal salvaged from televisions, circuit boards, computer monitors, and electronic waste.
The so-called urban ore was supplied by Teck Resources Ltd., Canada’s largest base-metals pro-
ducer, which provided gold, silver, and copper used to make the medals. Historically, Olympic medals
have been made from mined mineral deposits; this is the first time that recycled materials have been
added to them. First-place winners get gold-plated medals that are 92.5 percent silver. The second-
place prizes are also 92.5 percent silver, while the third-place bronze medals are mostly copper.
All the medals have some ewaste materials from Teck’s electronic recycling program located in
Trail, British Columbia. Teck mixed gold, silver, and copper from the program with metals mined from
the ground. The company said it couldn’t provide the exact percentage of mined versus recycled
material in the finished medals. Each gold medal contained a little more than 1.5 percent of ewaste
materials, while each copper medal contained just over 1 percent, and the silver medals contained
only small pieces. The ewaste came from old computer monitor’s glass, various computer parts, and
other surplus or discarded technologies.
Several different processing methods were used to extract the materials. First, the company
shredded the equipment to separate out the various metals, glass, and other usable parts. To remove
the metals that could not be recovered by the shredding process, the parts were fed into a furnace
operating at a temperature greater than 2,000 degrees (Fahrenheit). The materials were then com-
bined with other metals to create the medals. Each medal was hand-cropped, ensuring no two are
alike, another first in Olympic history. The medals, designed by Canadian artist Corrine Hunt, were
also the first nonflat medals made for the Games, with a wavy form to represent the ocean and
mountain snowdrifts, both characteristic of Vancouver’s environment. In addition to representing the
athletes’ outstanding achievements, the 2010 Olympic medals gave new life to the precious metals
recoverable from ewaste. 13
Questions
1. Why would the Olympics benefit from creating a strong environmental MIS infrastructure?
2. How can the Olympics help support ethical ewaste initiatives?
3. Why would a sporting event like the Olympics be concerned with reducing its carbon footprint?
4. What could the Olympics do to help shed light on global environmental MIS issues?
5. How could Moore’s Law enable future Olympic medals to be made from more ewaste?
C L O S I N G C A S E T W O
1. Universities Are Switching to Gmail
Schools around the world are moving to cloud computing applications such as Google Docs &
Spreadsheets and Google Calendar. Yale had planned to move from its own email system to Google
Mail, but at the last minute decided to cancel the project. The reason was because school admin-
istrators and faculty members did not believe the move could support their business requirements.
C R I T I C A L B U S I N E S S T H I N K I N G
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Do you agree or disagree that Google Gmail would be unable to replace a university’s private email
system? What are the advantages and disadvantages of a private email system? What are the
advantages and disadvantages of using a cloud application such as Google Gmail? What choice
would you make if you were the primary decision maker for choosing your school’s email system? 14
2. Desktop Virtualization
Every day users are becoming more comfortable with accessing and storing information in the cloud.
This creates increased demand on MIS personnel to help manage, control, and provide access to that
information—not just on company-issued computers, but on any number of devices, including per-
sonal ones. More and more employees want to be able to utilize their own computing devices—cell
phones, netbooks, laptops—instead of company-issued ones. For instance, many students graduat-
ing from college have been exposed to Macs and may even own one, yet they are finding PCs as the
standard computer of choice for most companies. Do you think it is a good business practice to allow
your employees to use their personal devices for work-related business? What are the challenges
of allowing users to port business applications to their personal devices? What are the challenges of
allowing users to connect to corporate systems with personal devices?
3. iTunes in the Cloud
Apple is considering a cloud version of its iTunes software that could possibly provide a host of
new services for its users as they would no longer be required to save iTunes to their computers as
it would reside in the cloud. With cloud computing, the software for iTunes would reside in central-
ized servers in data centers, rather than on a specific user computer. What would be the benefits
to customers if they could host iTunes in the clouds and access it using a variety of devices? What
would be your fears if you were to use iTunes in the cloud?
4. Sustainable Departments
Energy prices and global warming are discussed daily in the news as the environmental impact of
ewaste is just beginning to be recognized. Sustainability and corporate social responsibility need
to be taken seriously by all managers as everyone should take an active role in helping to preserve
the environment. List the different departments in a business and the types of environmental
issues they typically encounter. Which department do you think creates the most ewaste? Which
department uses the greatest amount of electricity or has the largest carbon footprint? What can
each department do to help combat its environmental issues? Why do all managers, and for that
matter all employees, need to be aware of environmental issues and ways they can create sus-
tainable MIS infrastructures?
5. Making the Smart Grid Smart
ISO, a regional electricity company in New England, has launched an $18 million project in part
because of an $8 million three-year federal grant. The project is designed to speed up the instal-
lation of 30 smart-grid devices covering every state in New England. The smart-grid devices will
provide control room operators at ISO with enhanced tools to monitor and measure performance of
the region’s electrical grid, allowing the company to improve its ability to detect and address prob-
lems on the system. System status information coming into ISO will increase from once every four
seconds to 30 times per second. Would you invest in ISO if you had the chance? Why or why not?
If you were awarded an $8 million three-year federal grant, what type of sustainable infrastructure
would you create? 15
6. Planning for Disaster Recovery
You are the new senior analyst in the MIS department at Beltz, a large snack food manufactur-
ing company. The company is located on the beautiful shoreline in Charleston, North Carolina.
The company’s location is one of its best and worst features. The weather and surroundings are
beautiful, but the threat of hurricanes and other natural disasters is high. What types of information
should be contained in Beltz’s disaster recovery plan that will minimize any risks involved with a
natural disaster?
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7. Comparing Backup and Recovery Systems
Research the Internet to find three different vendors of backup and recovery systems. Compare
and contrast the three systems and determine which one you would recommend if you were
installing a backup and recovery system for a medium-sized business, with 3,500 employees,
that maintains information on the stock market. Compile your findings in a presentation that you
can give to your class that details the three systems’ strengths and weaknesses, along with your
recommendation.
8. Cool Schools
Very large computers and data centers incur huge energy costs keeping electronic components
cooled. Where is your school’s data center located? How big is it? What security measures does
the facility enforce? Can you get a tour of it? If it is on campus, how is the facility cooled? How
is the power supplied? Heating and cooling computer systems are certainly a big issue. Think of
ways you could reuse the heat from a data center, such as sending it to a college dorm. Could
alternative resources, such as a nearby river or a lake, provide added cooling? What unanticipated
environmental issues could this create?
9. Box.net in the Cloud
Box.net was started by two college students, Aaron Levie and Dylan Smith, who needed a secure
place to collaborate on group projects. The two immediately understood the value of cloud com-
puting, and they created Box.net to allow them to share ideas and collaborate on documents
in a virtual work space located in the cloud. They knew the cloud would allow them to access
their documents from anywhere and on any device and that there was no chance of their papers
being stolen or accidently destroyed. Levie and Smith recognized the business opportunity of
their site and jumped at turning Box.net into a real business. Explain how Box.net could help
you if you were working on a project with four other students. What would be the challenges of
using Box.net? 16
E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. On your way to work this morning, you stopped for gas. When you were inside paying, some-
one broke into your car and stole your computer bag. You did not notice until you arrived at
your business and began looking for your bag. As you begin to realize all of the data you just
lost—customer lists, profit and loss analysis, tax returns, email, sales information, payroll
files, and so on—you begin to wonder when you last backed up your hard drive. Now that
you have been stung by a painful data loss experience, you realize the importance of having
a backup strategy. Create a detailed backup strategy and disaster recovery plan for your
business. Be sure to include details such as the types of backup you will perform, frequency
of backups, and location of backups. (Be sure to identify your business and the name of your
company.)
2. Rank the characteristics of an agile MIS infrastructure in order of importance to your business
and be sure to provide detailed information on each characteristic and your justification for its
ranking.
3. Cloud computing is a business driven MIS infrastructure that supports growth, operations, and
profits. It helps today’s businesses innovate by using resources and applications hosted remotely
as a shared service on the Internet. You have decided to research the different types of cloud
computing services. Create a report listing the types of services your business should implement
and the advantages and disadvantages of each.
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PROJECT I Ranking MIS characteristics
In a group, review the list of MIS infrastructure characteristics that support growth and rank them in
order of their impact on a company’s success, using 1 to indicate the biggest impact and 7 the least.
PROJECT I I Designing a Company Infrastructure
Components of an MIS infrastructure include everything from documentation to business concepts
to software and hardware. Deciding which components to implement and how to implement them
can be a challenge. New MIS components are released daily, and business needs continually change.
An MIS infrastructure that meets your company’s needs today may not meet those needs tomorrow.
Building an MIS infrastructure that is accessible, available, flexible, reliable, scalable, usable, and
performs well is key to your company’s growth, operations, and profitability.
You are the manager for a large clothing company called Xedous. You are responsible for develop-
ing the initial MIS infrastructure. Create a list of questions you will need answered to develop it. Here
are examples of a few of the questions you might ask:
■ What are the company’s growth expectations?
■ Will systems be able to handle additional users?
■ How long will information be stored in the systems?
■ How much customer history must be stored?
■ What are the company’s business hours?
■ What are the company’s backup requirements?
PROJECT I I I Recycle Your Cell Phone
For all those excited to get a new iPhone with its numerous applications and cool games, what are
you going to do with your old cell phone? You can help the environment and recycle your phone, PDA,
charger, and batteries. Recycling cell phones helps to save energy and keep reusable materials out of
landfills. Cell phones are made of plastic, copper, and precious metals, which require energy to extract
and manufacture. If you decide to recycle your cell phone be sure to terminate the service, delete any
contacts or stored information, and take out the SIM card.
If your old cell phone is still working, you might also want to consider donating it to charity. Many
programs will accept working cell phones that they donate to people in need, such as survivors of
domestic violence, because old cell phones can still dial 911 even after the service is disconnected. To
find local agencies where you can donate your cell phone, visit ncadv.org. Cell phones are only a small
percentage of the total computer equipment organizations replace each year. What happens to all of
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
MIS Infrastructure Characteristics Business Impact
Accessibility
Availability
Maintainability
Portability
Reliability
Scalability
Usability
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those old laptops, notebooks, servers, and monitors? What is the environmental impact of throwing a
computer system into a landfill? What can companies do to recycle their computer equipment? What
can the government do to help motivate companies and individuals to recycle?
PROJECT IV Back on Your Feet
You are working for GetSmart, a document creation company for legal professionals. Due to the highly
sensitive nature of their work, employees must store all information on the network drive and are not
allowed to back up the data to a CD, flash drive, or any other type of external storage, including home
computers. The company has been following this policy for the past three years without any problems.
You return to work Monday morning after a long weekend to find that the building was struck by light-
ning, destroying several servers. Unfortunately, the backup network also failed, so all the data from
your department have been lost.
Because of this loss, the MIS manager and four colleagues who developed the company backup
policy were fired.
You have been placed on a committee with several of your peers to revamp the backup and
recovery policies and create a new disaster recovery plan. You must create policies and procedures
that will preserve the sensitive nature of the documents, while ensuring the company is safe from
disasters. Be sure to address a worst-case scenario where the entire building is lost.
PROJECT V Growing, Growing, Gone
You are the founder of Black Pearl, a small comic book start-up. The good news is Black Pearl is tre-
mendously successful, with 34 employees in a functional and creative office in downtown Chicago.
The comics you produce are of extremely high quality. The artwork is unmatched, and fans find the
story lines compelling. Black Pearl comics are quickly becoming classics with extremely loyal cus-
tomers. You produce all the comics and sell them in your store and via the Internet to individuals all
over the United States.
You had a vision when you started Black Pearl. You knew the potential of your business model to
revamp the comic industry. You purchased high-end computers and customizable software to support
your operations. Now, you are faced with a new dilemma. You have a large international following
and you have decided to pursue international opportunities. You would like to open stores in Japan,
France, and Brazil over the next year. To determine whether this is possible you need to evaluate if
your MIS infrastructure is agile enough to support international requirements. Brainstorm all of the
business nuances that will be different when working with international companies and customers.
Create a list of questions your MIS department will need to answer to determine if your system is agile
enough to support international business.
PROJECT VI Excuses, Excuses, Excuses
Here are a few examples of the strangest and most unusual excuses employees use when
missing work.
■ I have a sunburn.
■ I’m not sure why but I woke up in Canada.
■ I was caught selling an alligator.
■ I was locked in the trunk of an abandoned car.
■ I have a note from my mom that I could not go to work yesterday.
■ I’m just not into it today.
■ I was riding my motorcycle and I accidentally hit a nun.
■ Some person threw poison ivy at me and now I have a rash on my face.
■ I need to stay home as I am convinced I can catch my spouse having an affair.
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■ I was chasing a seagull and fell down and had to go to the hospital.
■ I have a migraine from eating too many jalapeño peppers.
This chapter focuses on MIS infrastructures, the main building blocks that function together to con-
trol the entire organization’s systems. If your systems cannot operate, then your organization cannot
work, similar to how your health controls your ability to work. Attempting to do business with an
organization when its systems have crashed, Internet access is down, or wireless network is malfunc-
tioning is very frustrating. When these types of issues occur, companies do not want to broadcast that
they are experiencing technical difficulties because of hackers, an unpaid utility bill, or squirrels got
into the data center and ate through all of the wires (yes, that has really happened).
How many times have you called a company and the customer service representative has stated
that the system is down or that the system is really slow today? How many times have you missed
submitting an assignment because your Internet service was down? Why is it important for an organi-
zation to have its systems available 24 hours a day, 7 days a week, and 365 days a year? Why would
a company hide the real reason that its systems are malfunctioning? What could happen if customers
were informed that the systems were down due to hackers? How can an organization safeguard its
systems?
PROJECT VI I Ewaste Not, Want Not
On Earth Day every year many people, including corporate citizens, devote themselves to recycling
and reducing, along with identifying items they can repurpose. Companies, such as Dell and Microsoft,
two producers of materials that eventually become ewaste, have joined forces with an electronics
recycling program run by Goodwill Industries International. Goodwill reports that the program has
diverted about 96 million pounds in electronics from landfills. 17
Assisting in a similar effort are office supply stores Office Depot and Staples that offer their own
sorting and recycling services for used electronics. Apple has even jumped on this bandwagon, allow-
ing customers to turn their old products in to retail locations when they buy something new.
There are so many opportunities to reduce ewaste. Make a list of how the popular technology
manufacturers are already trying to reduce ewaste. Would starting a company that helped people
locate used computers or other technologies for reuse be a worthwhile venture? Why or why not?
Create a list of new alternatives any company could adopt to reuse, recycle, and reduce ewaste.
PROJECT VI I I One Laptop Per Child
The One Laptop Per Child (OLPC) project intends to create a $100 laptop for distribution to the world’s
poorest children. The machine, called the OLPC or XO laptop, has a rubberized keyboard and an ultra-
bright screen readable in daylight; when flipped, it converts to an electronic book reader. To keep the
cost as low as possible (at $175 it is currently a bit more than the target), the computer has a host of
free software and other tools to support learning opportunities. A special type of networking allows
machines within a hundred feet or so to communicate with each other and relays a single Internet
connection for them to use (where the Internet is available). The XO is targeted at communities where
power generation is unreliable or nonexistent; it gets its power via a hand crank, pull cord, or foot
pedal. 18
Do you agree that the One Laptop Per Child project will help educate children around the world?
How does the XO computer provide learning opportunities for children in poor regions of the world?
What issues could these children encounter if they have an XO laptop? How will cloud computing play
an important role in the XO laptop, especially in terms of keeping costs low and data safe? What do
you think the typical environment will be like where the XO laptop will be used? What issues will users
of the XO laptop encounter that are not common in the United States? What can the creators of the XO
laptop do to ensure its functionality even in the most extreme environments?
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209Technical Foundations of MIS Module 2
Project
Number Project Name Project Type Plug-In Focus Area Project Level Skill Set Page Number
8 Book Boxes Excel T2, T4 Strategic Analysis Intermediate Formulas or Solver AYK.6
9 Security Analysis Excel T3 Filtering Data Intermediate Conditional
Formatting,
Autofilter, Subtotal
AYK.7
10 Gathering Data Excel T3 Data Analysis Intermediate Conditional
Formatting
AYK.8
11 Splashem Excel T2 Strategic Analysis Intermediate Formulas AYK.8
12 Bill’s Boots Excel T2 Profit
Maximization
Intermediate Formulas AYK.9
13 Adequate
Acquisitions
Excel T2 Break Even
Analysis
Intermediate Formulas AYK.9
15 Assessing
the Value of
Information
Excel T3 Data Analysis Intermediate PivotTable AYK.10
16 Growth, Trends,
and Forecasts
Excel T2, T3 Data Forecasting Advanced Average, Trend,
Growth
AYK.11
18 Formatting Grades Excel T3 Data Analysis Advanced If, LookUp AYK.12
22 Gizmo Turnover Excel T3 Data Mining Advanced PivotTable AYK.15
24 Mountain Cycle Excel T4 Business Analysis Advanced Goal Seek AYK.16
25 Lutz Motors Excel T4 Sales Analysis Advanced Scenario Manager AYK.16
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Excel projects to incorporate into your class, try any of the following after reading
this chapter.
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What’s in IT for me?
This chapter introduces the concepts of information and data and their relative importance to business professionals and
firms. It distinguishes between data stored in transactional databases and powerful business intelligence gleaned from data
warehouses. Students who understand how to access, manipulate, summarize, sort, and analyze data to support decision
making find success. Information has power, and understanding that power will help you compete in the global marketplace.
This chapter will provide you with an overview of database fundamentals and the characteristics associated with high-
quality information. It will also explain how the various bits of data stored across multiple, operational databases can be
transformed in a centralized repository of summarized information in a data warehouse, which can be used for discovering
business intelligence.
You, as a business student, need to understand the differences between transactional data and summarized information
and the different types of questions you could use a transactional database to answer versus a data warehouse. You need
to be aware of the complexity of storing data in databases and the level of effort required to transform operational data
into meaningful, summarized information. You need to realize the power of information and the competitive advantage a
data warehouse brings an organization in terms of facilitating business intelligence. Armed with the power of information,
business students will make smart, informed, and data-supported managerial decisions.
■ T h e B u s i n e s s B e n e f i t s o f
H i g h – Q u a l i t y I n f o r m a t i o n
■ S t o r i n g I n f o r m a t i o n U s i n g
a R e l a t i o n a l D a t a b a s e
M a n a g e m e n t S y s t e m
■ U s i n g a R e l a t i o n a l D a t a b a s e
f o r B u s i n e s s A d v a n t a g e s
■ D r i v i n g We b s i t e s w i t h D a t a
SECTION 6.2
Business Intelligence
SECTION 6.1
Data, Information,
and Databases
■ T h e B u s i n e s s B e n e f i t s o f
D a t a Wa re h o u s i n g
■ P e r f o r m i n g B u s i n e s s A n a l y s i s
w i t h D a t a M a r t s
■ U n c o v e r i n g Tre n d s a n d
P a t t e r n s w i t h D a t a M i n i n g
■ S u p p o r t i n g D e c i s i o n s w i t h
B u s i n e s s I n t e l l i g e n c e

C H A P T E R
C
H
A
P
T
E
R
O
U
T
L
IN
E

Data: Business Intelligence 6
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211Technical Foundations of MIS Module 2
opening case study
Informing Information
Since the beginning of time, man has been using pictures and images to communicate,
moving from caveman drawings to hieroglyphics to the Internet. Today, it is easier than ever
to paint a picture worth 100,000 words, thanks to technological advances. The primary
advantages are databases and data warehouses that capture enormous amounts of data.
Informing means accessing large amounts of data from different management informa-
tion systems. According to a recent analysis of press releases by PR Newswire, an article
or advertisement that uses visual images can significantly improve the number of views a
message generates. This can be a true competitive advantage in the digital age.
An infographic (or information graphic) displays information graphically so it can be
more easily understood. Infographics cut straight to the point by taking complex information
and presenting it in a simple visual format. Infographics can present the results of large
data analysis, looking for patterns and relationships that monitor changes in variables over
time. Because infographics can easily become overwhelming, users need to be careful to
not display too much data or the resulting infographics can result in information overload.
Effective infographics can achieve outstanding results for marketing, advertising, and public
relations. According to PR Newswire, infographics gain the greatest competitive advantage
when they have the following:
■ Survey results that are too hard to understand in text format.
■ Statistical data that are not interesting for readers.
■ Comparison research where the impact can be far more dramatic when presented
visually.
■ Messages for multilingual audiences.
■ Any information that can use a visual element to make it more interesting (see
Figures 6.1 , 6.2 , and 6.3 for examples). 1
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212 Chapter 6 Data: Business Intelligence
FIGURE 6.1
Hotels.com Travel Infographic
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213Technical Foundations of MIS Module 2
FIGURE 6.2
Emerson’s Food Waste
Infographic
FIGURE 6.3
SC Johnson Consumer
Environmental Behaviors
Infographic
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214 Chapter 6 Data: Business Intelligence
section 6.1 Data, Information, and Databases
L E A R N I N G O U T C O M E S
6.1 Explain the four primary traits that determine the value of information.
6.2 Describe a database, a database management system, and the relational database model.
6.3 Identify the business advantages of a relational database.
6.4 Explain the business benefits of a data-driven website.
THE BUSINESS BENEFITS OF HIGH-QUALITY
INFORMATION
Information is powerful. Information can tell an organization how its current opera-
tions are performing and help it estimate and strategize about how future operations
might perform. The ability to understand, digest, analyze, and filter information is key to
growth and success for any professional in any industry. Remember that new perspec-
tives and opportunities can open up when you have the right data that you can turn into
information and ultimately business intelligence.
Information is everywhere in an organization. Managers in sales, marketing, human
resources, and management need information to run their departments and make
daily decisions. When addressing a significant business issue, employees must be able
to obtain and analyze all the relevant information so they can make the best decision
possible. Information comes at different levels, formats, and granularities. Information
granularity refers to the extent of detail within the information (fine and detailed or
coarse and abstract). Employees must be able to correlate the different levels, formats,
and granularities of information when making decisions. For example, a company might
be collecting information from various suppliers to make needed decisions, only to find
that the information is in different levels, formats, and granularities. One supplier might
send detailed information in a spreadsheet, while another supplier might send summary
information in a Word document, and still another might send a collection of informa-
tion from emails. Employees will need to compare these different types of information
for what they commonly reveal to make strategic decisions. Figure 6.4 displays the vari-
ous levels, formats, and granularities of organizational information.
Successfully collecting, compiling, sorting, and finally analyzing information from
multiple levels, in varied formats, and exhibiting different granularities can provide
tremendous insight into how an organization is performing. Exciting and unexpected
results can include potential new markets, new ways of reaching customers, and even
new methods of doing business. After understanding the different levels, formats, and
granularities of information, managers next want to look at the four primary traits that
help determine the value of information (see Figure 6.5 ).
Information Type: Transactional and Analytical
As discussed previously in the text, the two primary types of information are transac-
tional and analytical. Transactional information encompasses all of the information
contained within a single business process or unit of work, and its primary purpose is to
support daily operational tasks. Organizations need to capture and store transactional
information to perform operational tasks and repetitive decisions such as analyzing daily
sales reports and production schedules to determine how much inventory to carry. Con-
sider Walmart, which handles more than 1 million customer transactions every hour,
and Facebook, which keeps track of 400 million active users (along with their photos,
friends, and web links). In addition, every time a cash register rings up a sale, a deposit
or withdrawal is made from an ATM, or a receipt is given at the gas pump, capturing and
storing of the transactional information are required.
LO 6.1: Explain the four primary
traits that determine the value of
information.
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215Technical Foundations of MIS Module 2
Analytical information encompasses all organizational information, and its primary
purpose is to support the performing of managerial analysis tasks. Analytical informa-
tion is useful when making important decisions such as whether the organization should
build a new manufacturing plant or hire additional sales personnel. Analytical informa-
tion makes it possible to do many things that previously were difficult to accomplish,
such as spot business trends, prevent diseases, and fight crime. For example, credit card
companies crunch through billions of transactional purchase records to identify fraudu-
lent activity. Indicators such as charges in a foreign country or consecutive purchases of
gasoline send a red flag highlighting potential fraudulent activity.
Walmart was able to use its massive amount of analytical information to identify
many unusual trends, such as a correlation between storms and Pop-Tarts. Yes, Walmart
FIGURE 6.4
Levels, Formats, and
Granularities of Organizational
Information
Information Granularities
Detail (Fine), Summary, Aggregate
(Coarse)
• Individual knowledge,
goals, and strategies
Departmental goals,
revenues, expenses,
processes, and strategies
Enterprise revenues,
expenses, processes, and
strategies
Letters, memos, faxes, emails, reports,
marketing materials, and training materials
•
Product, strategy, process, financial,
customer, and competitor
•
Sales, marketing, industry, financial,
competitor, customer, and order
spreadsheets
•
Customer, employee, sales, order,
supplier, and manufacturer databases
•
Reports for each salesperson, product, and part
Reports for all sales personnel, all products, and
all parts
Reports across departments, organizations, and
companies
•
•
•
•
•
Information Levels
Individual, Department, Enterprise
Information Formats
Document, Presentation, Spreadsheet,
Database
FIGURE 6.5
The Four Primary Traits of the
Value of Information Information Type
Information Timeliness
Information Quality
Information Governance
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216 Chapter 6 Data: Business Intelligence
discovered an increase in the demand for Pop-Tarts during the storm season. Armed
with the valuable information the retail chain was able to stock up on Pop-Tarts that
were ready for purchase when customers arrived. Figure 6.6 displays different types of
transactional and analytical information.
Information Timeliness
Timeliness is an aspect of information that depends on the situation. In some firms or
industries, information that is a few days or weeks old can be relevant, while in others
information that is a few minutes old can be almost worthless. Some organizations, such
as 911 response centers, stock traders, and banks, require up-to-the-second informa-
tion. Other organizations, such as insurance and construction companies, require only
daily or even weekly information.
Real-time information means immediate, up-to-date information. Real-time systems
provide real-time information in response to requests. Many organizations use real-time
systems to uncover key corporate transactional information. The growing demand for
real-time information stems from organizations’ need to make faster and more effective
decisions, keep smaller inventories, operate more efficiently, and track performance more
carefully. Information also needs to be timely in the sense that it meets employees’ needs,
but no more. If employees can absorb information only on an hourly or daily basis, there
is no need to gather real-time information in smaller increments.
Most people request real-time information without understanding one of the biggest
pitfalls associated with real-time information—continual change. Imagine the following
scenario: Three managers meet at the end of the day to discuss a business problem. Each
manager has gathered information at different times during the day to create a picture of
the situation. Each manager’s picture may be different because of the time differences.
Their views on the business problem may not match because the information they are
basing their analysis on is continually changing. This approach may not speed up deci-
sion making, and it may actually slow it down. Business decision makers must evaluate
the timeliness for the information for every decision. Organizations do not want to find
themselves using real-time information to make a bad decision faster.
Information Quality
Business decisions are only as good as the quality of the information used to make them.
Information inconsistency occurs when the same data element has different values.
Take for example the amount of work that needs to occur to update a customer who had
changed her last name due to marriage. Changing this information in only a few organi-
zational systems will lead to data inconsistencies causing customer 123456 to be associ-
ated with two last names. Information integrity issues occur when a system produces
FIGURE 6.6
Transactional versus Analytical
Information
Packing Slip
Airline Ticket
Sales
Receipt
Database
Transactional Information
Trends
Sales
Projections
Analytical Information
Future
Growth
Product
Statistics
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217Technical Foundations of MIS Module 2
incorrect, inconsistent, or duplicate data. Data integrity issues can cause managers to
consider the system reports invalid and will make decisions based on other sources.
To ensure your systems do not suffer from data integrity issues, review Figure 6.7 for
the five characteristics common to high-quality information: accuracy, completeness,
consistency, timeliness, and uniqueness. Figure 6.8 provides an example of several
problems associated with using low-quality information including:
1. Completeness. The customer’s first name is missing.
2. Another issue with completeness. The street address contains only a number and not a
street name.
3. Consistency. There may be a duplication of information since there is a slight dif-
ference between the two customers in the spelling of the last name. Similar street
addresses and phone numbers make this likely.
FIGURE 6.7
Five Common Characteristics of
High-Quality Information
Accurate
Complete
Consistent
Timely
Unique
• Is there an incorrect value in the information?
• Example: Is the name spelled correctly? Is the dollar amount
recorded properly?
• Is a value missing from the information?
• Example: Is the address complete including street, city, state,
and zip code?
• Is aggregate or summary information in agreement with detailed
information?
• Example: Do all total columns equal the true total of the individual item?
• Is the information current with respect to business needs?
• Example: Is information updated weekly, daily, or hourly?
• Is each transaction and event represented only once in the
information?
• Example: Are there any duplicate customers?
FIGURE 6.8
Example of Low-Quality
Information
113
114
115
116
Smith
Jones
Roberts
Robert
First
Name City
Jeff
Jenny
Jenny
1. Missing information
(no first name)
3. Probable duplicate information
(similar names, same
address, phone number)
4. Potential wrong information
(are the phone and fax numbers
the same or is this an error?)
5. Inaccurate information
(invalid email)
6. Incomplete information
(missing area codes)
Street
123 S. Main
12A
1244 Colfax
1244 Colfax
Denver
Denver
Denver
Denver
State
CO
CO
CO
CO
Zip
80210
80224
85231
85231
Phone
(303) 777-1258
(303) 666-6868
759-5654
759-5654
Fax
(303) 777-5544
(303) 666-6868
853-6584
853-6584
Email
ssmith@aol.com
(303) 666-6868
jr@msn.com
jr@msn.com
ID
Last
Name
2. Incomplete information
(no street)
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BUSINESS DRIVEN MIS
Real People magazine is geared toward working individuals and provides arti-
cles and advice on everything from car maintenance to family planning. The
magazine is currently experiencing problems with its distribution list. More
than 30 percent of the magazines mailed are returned because of incorrect
address information, and each month it receives numerous calls from angry
customers complaining that they have not yet received their magazines. Below
is a sample of Real People ’s customer information. Create a report detailing all
the issues with the information, potential causes of the information issues, and
solutions the company can follow to correct the situation.
Determining
Information
Quality Issues
APPLY YOUR KNOWLEDGE
ID First Name Middle Initial Last Name Street City State Zip Code
433 M J Jones 13 Denver Denver CO 87654
434 Margaret J Jones 13 First Ave. Denver CO 87654
434 Brian F Hoover Lake Ave. Columbus OH 87654
435 Nick H Schweitzer 65 Apple Lane San Francisco OH 65664
436 Richard A 567 55th St. New York CA 98763
437 Alana B Smith 121 Tenny Dr. Buffalo NY 142234
438 Trevor D Darrian 90 Fresrdestil Dallas TX 74532
218 Chapter 6 Data: Business Intelligence
4. Accuracy. This may be inaccurate information because the customer’s phone and fax
numbers are the same. Some customers might have the same number for phone and
fax, but the fact that the customer also has this number in the email address field is
suspicious.
5. Another issue with accuracy. There is inaccurate information because a phone num-
ber is located in the email address field.
6. Another issue with completeness. The information is incomplete because there is not
a valid area code for the phone and fax numbers.
Nestlé uses 550,000 suppliers to sell more than 100,000 products in 200 countries.
However, due to poor information, the company was unable to evaluate its business effec-
tively. After some analysis, it found that it had 9 million records of vendors, customers, and
materials, half of which were duplicated, obsolete, inaccurate, or incomplete. The analy-
sis discovered that some records abbreviated vendor names while other records spelled
out the vendor names. This created multiple accounts for the same customer, making it
impossible to determine the true value of Nestlé’s customers. Without being able to iden-
tify customer profitability, a company runs the risk of alienating its best customers. 2
Knowing how low-quality information issues typically occur can help a company
correct them. Addressing these errors will significantly improve the quality of company
information and the value to be extracted from it. The four primary reasons for low-quality
information are:
1. Online customers intentionally enter inaccurate information to protect their privacy.
2. Different systems have different information entry standards and formats.
3. Data-entry personnel enter abbreviated information to save time or erroneous infor-
mation by accident.
4. Third-party and external information contains inconsistencies, inaccuracies, and errors.
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219Technical Foundations of MIS Module 2
Understanding the Costs of Using Low-Quality Information Using the
wrong information can lead managers to make erroneous decisions. Erroneous decisions
in turn can cost time, money, reputations, and even jobs. Some of the serious business
consequences that occur due to using low-quality information to make decisions are:
■ Inability to accurately track customers.
■ Difficulty identifying the organization’s most valuable customers.
■ Inability to identify selling opportunities.
■ Lost revenue opportunities from marketing to nonexistent customers.
■ The cost of sending nondeliverable mail.
■ Difficulty tracking revenue because of inaccurate invoices.
■ Inability to build strong relationships with customers.
Understanding the Benefits of Using High-Quality Information High-
quality information can significantly improve the chances of making a good decision
and directly increase an organization’s bottom line. One company discovered that even
with its large number of golf courses, Phoenix, Arizona, is not a good place to sell golf
clubs. An analysis revealed that typical golfers in Phoenix are tourists and convention-
eers who usually bring their clubs with them. The analysis further revealed that two
of the best places to sell golf clubs in the United States are Rochester, New York, and
Detroit, Michigan. Equipped with this valuable information, the company was able to
strategically place its stores and launch its marketing campaigns.
High-quality information does not automatically guarantee that every decision made
is going to be a good one, because people ultimately make decisions and no one is per-
fect. However, such information ensures that the basis of the decisions is accurate. The
success of the organization depends on appreciating and leveraging the true value of
timely and high-quality information.
Information Governance
Information is a vital resource and users need to be educated on what they can and can-
not do with it. To ensure a firm manages its information correctly, it will need special pol-
icies and procedures establishing rules on how the information is organized, updated,
maintained, and accessed. Every firm, large and small, should create an information
policy concerning data governance. Data governance refers to the overall management
of the availability, usability, integrity, and security of company data. A company that sup-
ports a data governance program has a defined a policy that specifies who is accountable
for various portions or aspects of the data, including its accuracy, accessibility, consis-
tency, timeliness, and completeness. The policy should clearly define the processes con-
cerning how to store, archive, back up, and secure the data. In addition, the company
should create a set of procedures identifying accessibility levels for employees. Then, the
firm should deploy controls and procedures that enforce government regulations and
compliance with mandates such as Sarbanes-Oxley.
STORING INFORMATION USING A RELATIONAL
DATABASE MANAGEMENT SYSTEM
The core component of any system, regardless of size, is a database and a database
management system. Broadly defined, a database maintains information about vari-
ous types of objects (inventory), events (transactions), people (employees), and places
(warehouses). A database management system (DBMS) creates, reads, updates, and
deletes data in a database while controlling access and security. Managers send requests
to the DBMS, and the DBMS performs the actual manipulation of the data in the data-
base. Companies store their information in databases, and managers access these sys-
tems to answer operational questions such as how many customers purchased Product
A in December or what were the average sales by region. There are two primary tools
available for retrieving information from a DBMS. First is a query-by-example (QBE)
LO 6.2: Describe a database, a
database management system,
and the relational database model.
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220 Chapter 6 Data: Business Intelligence
tool that helps users graphically design the answer to a question against a database.
Second is a structured query language (SQL) that asks users to write lines of code to
answer questions against a database. Managers typically interact with QBE tools, and
MIS professionals have the skills required to code SQL. Figure 6.9 displays the relation-
ship between a database, a DBMS, and a user. Some of the more popular examples of
DBMS include MySQL, Microsoft Access, SQL Server, FileMaker, Oracle, and FoxPro.
A data element (or data field) is the smallest or basic unit of information. Data ele-
ments can include a customer’s name, address, email, discount rate, preferred shipping
method, product name, quantity ordered, and so on. Data models are logical data struc-
tures that detail the relationships among data elements using graphics or pictures.
Metadata provides details about data. For example, metadata for an image could
include its size, resolution, and date created. Metadata about a text document could con-
tain document length, data created, author’s name, and summary. Each data element is
given a description, such as Customer Name; metadata is provided for the type of data
(text, numeric, alphanumeric, date, image, binary value) and descriptions of potential
predefined values such as a certain area code; and finally the relationship is defined. A
data dictionary compiles all of the metadata about the data elements in the data model.
Looking at a data model along with reviewing the data dictionary provides tremendous
insight into the database’s functions, purpose, and business rules.
DBMS use three primary data models for organizing information—hierarchical, net-
work, and the relational database, the most prevalent. A relational database model
stores information in the form of logically related two-dimensional tables. A relational
BUSINESS DRIVEN DEBATE
Without a data governance policy, a company might be leaving its data vulner-
able to hackers and theft. Consider TJX Co., the parent company of T.J. Maxx,
which had 45 million credit and debit card numbers stolen from its data sys-
tems. The credit card industry provides security rules that mandate vendors
encrypt credit card data and limit storage of credit card numbers from point-
of-sale terminals. T.J. Maxx did not have a data governance policy adhering to
these stipulations and was actively storing the customer information and credit
card numbers for years. 3
Who do you think is to blame for the T.J. Maxx credit card data theft—the
company for not implementing the proper data governance policies or the
hackers?
Securing Credit
Card Data
APPLY YOUR KNOWLEDGE
FIGURE 6.9
Relationship of Database,
DBMS, and User
Customers
Orders
Products
Distributors
DBMSDatabase
1. Enter New
Customer
2. Find Customer
Order
3. Enter New
Products
User
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221Technical Foundations of MIS Module 2
database management system allows users to create, read, update, and delete data in
a relational database. Although the hierarchical and network models are important, this
text focuses only on the relational database model.
Storing Data Elements in Entities and Attributes
For flexibility in supporting business operations, managers need to query or search for
the answers to business questions such as which artist sold the most albums during a
certain month. The relationships in the relational database model help managers extract
this information. Figure 6.10 illustrates the primary concepts of the relational database
model—entities, attributes, keys, and relationships. An entity (also referred to as a table)
stores information about a person, place, thing, transaction, or event. The entities, or
tables, of interest in Figure 6.10 are TRACKS, RECORDINGS, MUSICIANS, and CATEGO-
RIES. Notice that each entity is stored in a different two-dimensional table (with rows
and columns).
Attributes ( also called columns or fields) are the data elements associated with an
entity. In Figure 6.10 the attributes for the entity TRACKS are TrackNumber, TrackTitle,
TrackLength, and RecordingID. Attributes for the entity MUSICIANS are MusicianID, Musi-
cianName, MusicianPhoto, and MusicianNotes. A record is a collection of related data ele-
ments (in the MUSICIANS table these include “3, Lady Gaga, gag , Do not bring young
kids to live shows”). Each record in an entity occupies one row in its respective table.
Creating Relationships Through Keys
To manage and organize various entities within the relational database model, you use
primary keys and foreign keys to create logical relationships. A primary key is a field (or
group of fields) that uniquely identifies a given record in a table. In the table RECORD-
INGS, the primary key is the field RecordingID that uniquely identifies each record in the
table. Primary keys are a critical piece of a relational database because they provide a way
of distinguishing each record in a table; for instance, imagine you need to find information
FIGURE 6.10
Primary Concepts of the
Relational Database Model
Attributes
1
2
3
4
5
6
Pop
R&B
Rock
Country
Blues
Classical
Entities Foreign keys
TRACKS
TrackNumber TrackTitle TrackLength RecordingID
1 I Won’t 3:45 1
RECORDINGS
RecordingID RecordingTitle MuscianID CategoryID
1 Breakthrough 1 1Primary
keys
3 You Got Me 4:00 1
4 Fallin For you 3:35 1
1 I Gotta Feelin 4:49 2
2 Imma Be 4:17 2
2 The E.N.D. 2 1
3
4
5
3 Boom Boom Pow 4:11 2
4 Meet Me Halfway 4:44 2
6
Monkey Business
Elephunk
The Fame Monster
Raymond v. Raymond
2
2
3
4
1
1
1
2
MUSICIANS
MusicianID MusicianName MusicianPhoto MusicianNotes
1 Colby Caillat Colby Next concert in Boston 7/1/2011
CategoryID CategoryName
2 Black Eyed Peas BYP.bmp New album due 12/25/2011
3 Lady Gaga Gaga Do not bring young kids to live shows
4 Usher Usher.bmp Current album #1 on Billboard
Records
2 Begin Again 4:14 1
CATEGORIES
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BUSINESS DRIVEN START-UP
Living in a cramped dorm room is a common college occurrence. This was the
experience of Ryan Dickerson, a Syracuse University student, who found him-
self wedged into a tiny dorm room with only enough room to fit a bed, desk, and
chair. Spotting an entrepreneurial opportunity, Dickerson innovatively created
a hybrid bed and couch, calling his new product the Rylaxer. During the day the
Rylaxer functioned as a couch and during the night it transformed into a bed,
solving his limited space issue. The Rylaxer is made of environmentally friendly
foam and is available in two sizes and a variety of colors. Of course, you can
pay extra for a custom cover with your school’s name, Greek letters, or favorite
sports team’s logo. 4
Why would a spreadsheet be ineffective for running Dickerson’s business?
Why would he want to create a database to support his business needs? If you
were building the Rylaxer database, what are a few of the entities and associated
attributes you might create? Why would you want to create primary and foreign
keys? How will you use these keys to turn data into information?
The Rylaxer
APPLY YOUR KNOWLEDGE
222 Chapter 6 Data: Business Intelligence
on a customer named Steve Smith. Simply searching the customer name would not be an
ideal way to find the information because there might be 20 customers with the name Steve
Smith. This is the reason the relational database model uses primary keys to uniquely iden-
tify each record. Using Steve Smith’s unique ID allows a manager to search the database to
identify all information associated with this customer.
A foreign key is a primary key of one table that appears as an attribute in another table
and acts to provide a logical relationship between the two tables. For instance, Black Eyed
Peas in Figure 6.10 is one of the musicians appearing in the MUSICIANS table. Its pri-
mary key, MusicianID, is “2.” Notice that MusicianID also appears as an attribute in the
RECORDINGS table. By matching these attributes, you create a relationship between the
MUSICIANS and RECORDINGS tables that states the Black Eyed Peas (MusicianID 2)
have several recordings including The E.N.D., Monkey Business, and Elepunk. In essence,
MusicianID in the RECORDINGS table creates a logical relationship (who was the musi-
cian that made the recording) to the MUSICIANS table . Creating the logical relationship
between the tables allows managers to search the data and turn it into useful information.
USING A RELATIONAL DATABASE FOR BUSINESS
ADVANTAGES
Many business managers are familiar with Excel and other spreadsheet programs they
can use to store business data. Although spreadsheets are excellent for supporting some
data analysis, they offer limited functionality in terms of security, accessibility, and flex-
ibility and can rarely scale to support business growth. From a business perspective,
relational databases offer many advantages over using a text document or a spreadsheet,
as displayed in Figure 6.11 .
Increased Flexibility
Databases tend to mirror business structures, and a database needs to handle changes
quickly and easily, just as any business needs to be able to do. Equally important, data-
bases need to provide flexibility in allowing each user to access the information in
whatever way best suits his or her needs. The distinction between logical and physical
views is important in understanding flexible database user views. The physical view of
information deals with the physical storage of information on a storage device.
LO 6.3: Identify the business
advantages of a relational database.
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223Technical Foundations of MIS Module 2
The logical view of information focuses on how individual users logically access infor-
mation to meet their own particular business needs.
In the database illustration from Figure 6.10 , for example, one user could perform
a query to determine which recordings had a track length of four minutes or more. At
the same time, another user could perform an analysis to determine the distribution of
recordings as they relate to the different categories. For example, are there more R&B
recordings than rock, or are they evenly distributed? This example demonstrates that
while a database has only one physical view, it can easily support multiple logical views
that provides for flexibility.
Consider another example—a mail-order business. One user might want a report pre-
sented in alphabetical format, in which case last name should appear before first name.
Another user, working with a catalog mailing system, would want customer names
appearing as first name and then last name. Both are easily achievable, but different logi-
cal views of the same physical information.
Increased Scalability and Performance
In its first year of operation, the official website of the American Family Immigration
History Center, www.ellisisland.org , generated more than 2.5 billion hits. The site offers
immigration information about people who entered America through the Port of New
York and Ellis Island between 1892 and 1924. The database contains more than 25 mil-
lion passenger names that are correlated to 3.5 million images of ships’ manifests. 5
The database had to be scalable to handle the massive volumes of information and
the large numbers of users expected for the launch of the website. In addition, the data-
base needed to perform quickly under heavy use. Some organizations must be able to
support hundreds or thousands of users including employees, partners, customers, and
suppliers, who all want to access and share the same information. Databases today scale
to exceptional levels, allowing all types of users and programs to perform information-
processing and information-searching tasks.
Reduced Information Redundancy
Information redundancy is the duplication of data, or the storage of the same data
in multiple places. Redundant data can cause storage issues along with data integrity
issues, making it difficult to determine which values are the most current or most accu-
rate. Employees become confused and frustrated when faced with incorrect informa-
tion causing disruptions to business processes and procedures. One primary goal of a
database is to eliminate information redundancy by recording each piece of information
in only one place in the database. This saves disk space, makes performing information
updates easier, and improves information quality.
FIGURE 6.11
Business Advantages of a
Relational Database
Increased
Flexibility
Increased
Scalability
and
Performance
Increased
Information
Security
Increased
Information
Integrity
Reduced
Information
Redundance
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224 Chapter 6 Data: Business Intelligence
Increased Information Integrity (Quality)
Information integrity is a measure of the quality of information. Integrity constraints
are rules that help ensure the quality of information. The database design needs to con-
sider integrity constraints. The database and the DBMS ensures that users can never vio-
late these constraints. There are two types of integrity constraints: (1) relational and (2)
business critical.
Relational integrity constraints are rules that enforce basic and fundamental infor-
mation-based constraints. For example, a relational integrity constraint would not allow
someone to create an order for a nonexistent customer, provide a markup percentage
that was negative, or order zero pounds of raw materials from a supplier. A business rule
defines how a company performs certain aspects of its business and typically results
in either a yes/no or true/false answer. Stating that merchandise returns are allowed
within 10 days of purchase is an example of a business rule. Business-critical integrity
constraints enforce business rules vital to an organization’s success and often require
more insight and knowledge than relational integrity constraints. Consider a supplier
of fresh produce to large grocery chains such as Kroger. The supplier might implement
a business-critical integrity constraint stating that no product returns are accepted after
15 days past delivery. That would make sense because of the chance of spoilage of the
produce. Business-critical integrity constraints tend to mirror the very rules by which an
organization achieves success.
The specification and enforcement of integrity constraints produce higher-quality infor-
mation that will provide better support for business decisions. Organizations that establish
specific procedures for developing integrity constraints typically see an increase in accu-
racy that then increases the use of organizational information by business professionals.
Increased Information Security
Managers must protect information, like any asset, from unauthorized users or misuse.
As systems become increasingly complex and highly available over the Internet on many
different devices, security becomes an even bigger issue. Databases offer many security
features including passwords to provide authentication, access levels to determine who
can access the data, and access controls to determine what type of access they have to
the information.
For example, customer service representatives might need read-only access to cus-
tomer order information so they can answer customer order inquiries; they might not
have or need the authority to change or delete order information. Managers might
require access to employee files, but they should have access only to their own employ-
ees’ files, not the employee files for the entire company. Various security features of
databases can ensure that individuals have only certain types of access to certain types
of information.
Security risks are increasing as more and more databases and DBMS systems are
moving to data centers run in the cloud. The biggest risks when using cloud computing
are ensuring the security and privacy of the information in the database. Implement-
ing data governance policies and procedures that outline the data management require-
ments can ensure safe and secure cloud computing.
DRIVING WEBSITES WITH DATA
A content creator is the person responsible for creating the original website content. A
content editor is the person responsible for updating and maintaining website content.
Static information includes fixed data incapable of change in the event of a user action.
Dynamic information includes data that change based on user actions. For example,
static websites supply only information that will not change until the content editor
changes the information. Dynamic information changes when a user requests infor-
mation. A dynamic website changes information based on user requests such as movie
ticket availability, airline prices, or restaurant reservations. Dynamic website informa-
tion is stored in a dynamic catalog , or an area of a website that stores information about
products in a database.
LO 6.4: Explain the business benefits
of a data-driven website.
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225Technical Foundations of MIS Module 2
Websites change for site visitors depending on the type of information they request.
Consider, for example, an automobile dealer. The dealer would create a database con-
taining data elements for each car it has available for sale including make, model, color,
year, miles per gallon, a photograph, and so on. Website visitors might click on Porsche
and then enter their specific requests such as price range or year made. Once the user hits
“go” the website automatically provides a custom view of the requested information. The
dealer must create, update, and delete automobile information as the inventory changes.
A data-driven website is an interactive website kept constantly updated and relevant
to the needs of its customers using a database. Data-driven capabilities are especially
useful when a firm needs to offer large amounts of information, products, or services.
Visitors can become quickly annoyed if they find themselves buried under an avalanche
of information when searching a website. A data-driven website can help limit the
amount of information displayed to customers based on unique search requirements.
Companies even use data-driven websites to make information in their internal data-
bases available to customers and business partners.
There are a number of advantages to using the web to access company databases. First,
web browsers are much easier to use than directly accessing the database using a custom-
query tool. Second, the web interface requires few or no changes to the database model.
Finally, it costs less to add a web interface in front of a DBMS than to redesign and rebuild
the system to support changes. Additional data-driven website advantages include:
■ Easy to manage content: Website owners can make changes without relying on MIS
professionals; users can update a data-driven website with little or no training.
■ Easy to store large amounts of data: Data-driven websites can keep large volumes
of information organized. Website owners can use templates to implement changes
for layouts, navigation, or website structure. This improves website reliability, scal-
ability, and performance.
■ Easy to eliminate human errors: Data-driven websites trap data-entry errors, elimi-
nating inconsistencies while ensuring all information is entered correctly.
BUSINESS DRIVEN ETHICS AND SECURITY
Peter Warden is not your typical Facebook user. He is a young entrepreneur
from Boulder, Colorado, who used the online social networking site’s data
to illustrate people’s interests and common names across the United States.
Warden collected data from more than 200 million Facebook profiles, and then
he created a visualization map showing connections between locations that
share friends.
Warden gathered the data from public profiles using “crawling” software
similar to what search engines use to find content. Analyzing these data could
provide useful information, such as displaying links between people with simi-
lar income, employment, and social connections. When Facebook learned
what Warden was doing, the company threatened to sue him unless he deleted
the data immediately. Warden did not have the funds required to fight the law-
suit and was forced to comply with Facebook’s request and deleted the data. 6
Do you agree or disagree that Warden’s use of the information was unethi-
cal? Do you agree with Facebook’s decision to have Warden delete all the data
he collected? What other social networking sites could Warden use to collect
public information? How much of your personal information do you think is
available to the public for data collection efforts such as Warden’s?
Facebook
Fiasco
APPLY YOUR KNOWLEDGE
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226 Chapter 6 Data: Business Intelligence
FIGURE 6.13
BI in a Data-Driven Website
Web Page
Database
1
2
PivotTable3
FIGURE 6.12
Zappos.com —A Data-Driven
Website
Search
query
Zappos Web Server
Results
Database
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227Technical Foundations of MIS Module 2
Zappos credits its success as an online shoe retailer to its vast inventory of nearly 3
million products available through its dynamic data-driven website. The company built
its data-driven website catering to a specific niche market: consumers who were tired
of finding that their most-desired items were always out of stock at traditional retailers.
Zappos’ highly flexible, scalable, and secure database helped it rank as the most-available
Internet retailer. Figure 6.12 displays Zappos data-driven website illustrating a user que-
rying the database and receiving information that satisfies the user’s request. 7
Companies can gain valuable business knowledge by viewing the data accessed and
analyzed from their website. Figure 6.13 displays how running queries or using ana-
lytical tools, such as a PivotTable, on the database that is attached to the website can
offer insight into the business, such as items browsed, frequent requests, items bought
together, and so on.
section 6.2 Business Intelligence
L E A R N I N G O U T C O M E S
6.5 Define a data warehouse, and provide a few reasons it can make a manager more effective.
6.6 Explain ETL and the role of a data mart in business.
6.7 Define data mining, and explain the three common forms for mining structured and unstructured data.
6.8 Identify the advantages of using business intelligence to support managerial decision making.
THE BUSINESS BENEFITS OF DATA WAREHOUSING
In the 1990s as organizations began to need more timely information about their busi-
ness, they found that traditional management information systems were too cumber-
some to provide relevant information efficiently and efficiently. Most of the systems were
in the form of operational databases that were designed for specific business functions,
such as accounting, order entry, customer service, and sales, and were not appropriate
for business analysis for the reasons shown in Figure 6.14 .
During the latter half of the 20th century, the numbers and types of operational
databases increased. Many large businesses found themselves with information scat-
tered across multiple systems with different file types (such as spreadsheets, databases,
and even word processing files), making it almost impossible for anyone to use the
information from multiple sources. Completing reporting requests across operational
systems could take days or weeks using antiquated reporting tools that were ineffective
for running a business. From this idea, the data warehouse was born as a place where
relevant information could be stored and accessed for making strategic queries and
reports.
A data warehouse is a logical collection of information, gathered from many different
operational databases, that supports business analysis activities and decision-making
tasks. The primary purpose of a data warehouse is to combine information, more specifi-
cally, strategic information, throughout an organization into a single repository in such a
way that the people who need that information can make decisions and undertake busi-
ness analysis. A key idea within data warehousing is to collect information from multiple
systems in a common location that uses a universal querying tool. This allows opera-
tional databases to run where they are most efficient for the business, while providing
a common location using a familiar format for the strategic or enterprisewide reporting
information.
Data warehouses go even a step further by standardizing information. Gender, for
instance can be referred to in many ways (Male, Female, M/F, 1/0), but it should be
standardized on a data warehouse with one common way of referring to each data ele-
ment that stores gender (M/F). Standardizing of data elements allows for greater accu-
racy, completeness, and consistency as well as increases the quality of the information
LO 6.5: Define a data warehouse,
and provide a few reasons it can
make a manager more effective.
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228 Chapter 6 Data: Business Intelligence
in making strategic business decisions. The data warehouse then is simply a tool that
enables business users, typically managers, to be more effective in many ways, including:
■ Developing customer profiles.
■ Identifying new-product opportunities.
■ Improving business operations.
■ Identifying financial issues.
■ Analyzing trends.
■ Understanding competitors.
■ Understanding product performance.
PERFORMING BUSINESS ANALYSIS WITH DATA MARTS
Businesses collect a tremendous amount of transactional information as part of their
routine operations. Marketing, sales, and other departments would like to analyze these
data to understand their operations better. While databases store the details of all trans-
actions (for instance, the sale of a product) and events (hiring a new employee), data
warehouses store that same information but in an aggregated form more suited to sup-
porting decision-making tasks. Aggregation, in this instance, can include totals, counts,
averages, and the like.
The data warehouse modeled in Figure 6.15 compiles information from internal
databases (or transactional and operational databases) and external databases through
extraction, transformation, and loading. Extraction, transformation, and loading
(ETL) is a process that extracts information from internal and external databases, trans-
forms it using a common set of enterprise definitions, and loads it into a data warehouse.
The data warehouse then sends portions (or subsets) of the information to data marts.
A data mart contains a subset of data warehouse information. To distinguish between
LO 6.6: Explain ETL and the role of a
data mart in business.
FIGURE 6.14
Reasons Business Analysis
Is Difficult from Operational
Databases
Every department had its own method for recording
data so when trying to share information, data did
not match and users did not get the data they really
needed.
Inconsistent
Data Definitions
•
Managers need to perform cross-functional analysis
using data from all departments, which differed in
granularities, formats, and levels.
Lack of Data
Standards
•

The data, if available, were often incorrect or
incomplete. Therefore, users could not rely on the
data to make decisions.
Poor Data
Quality
•
Users could not get the data they needed; what was
collected was not always useful for intended
purposes.
Inadequate Data
Usefulness
•
Most data stored in operational databases did not
allow users direct access; users had to wait to have
their queries or questions answered by MIS
professionals who could code SQL.
Ineffective
Direct Data
Access
•
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229Technical Foundations of MIS Module 2
data warehouses and data marts, think of data warehouses as having a more organiza-
tional focus and data marts as having a functional focus. Figure 6.15 provides an illustra-
tion of a data warehouse and its relationship to internal and external databases, ETL,
and data marts.
Multidimensional Analysis
A relational database contains information in a series of two-dimensional tables. In a
data warehouse and data mart, information contains layers of columns and rows. For this
reason, most data warehouses and data marts are multidimensional databases. A dimen-
sion is a particular attribute of information. Each layer in a data warehouse or data mart
represents information according to an additional dimension. An information cube is
the common term for the representation of multidimensional information. Figure 6.16
displays a cube (cube a) that represents store information (the layers), product informa-
tion (the rows), and promotion information (the columns).
After creating a cube of information, users can begin to slice-and-dice the cube to drill
down into the information. The second cube (cube b) in Figure 6.16 displays a slice rep-
resenting promotion II information for all products at all stores. The third cube (cube c)
in Figure 6.16 displays only information for promotion III, product B, at store 2. By using
multidimensional analysis, users can analyze information in a number of ways and with
any number of dimensions. Users might want to add dimensions of information to a
current analysis including product category, region, and even forecasted versus actual
weather. The true value of a data warehouse is its ability to provide multidimensional
analysis that allows users to gain insights into their information.
Data warehouses and data marts are ideal for off-loading some of the querying against
a database. For example, querying a database to obtain an average of sales for Product
B at Store 2 while Promotion III is under way might create a considerable processing
FIGURE 6.15
Data Warehouse Model
Marketing Sales
Inventory Billing
• Marketing information
• Inventory information
• Sales information
• Billing information
• Competitor information
• Industry information
• Mailing list information
• Stock market analysis
Internal Databases
Data Warehouse
Industry
information
Stock
market
analysis
External Databases
Marketing
data mart
Inventory
data mart
Sales
data mart
Competitor
information
Mailing
lists
ETL
ETL
ETL
ETL
ETL
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230 Chapter 6 Data: Business Intelligence
burden for a database, increasing the time it takes another person to enter a new sale
into the same database. If an organization performs numerous queries against a data-
base (or multiple databases), aggregating that information into a data warehouse will be
beneficial.
Information Cleansing or Scrubbing
Maintaining quality information in a data warehouse or data mart is extremely impor-
tant. To increase the quality of organizational information and thus the effectiveness of
decision making, businesses must formulate a strategy to keep information clean. Infor-
mation cleansing or scrubbing is a process that weeds out and fixes or discards incon-
sistent, incorrect, or incomplete information.
Specialized software tools exist that use sophisticated procedures to analyze, stan-
dardize, correct, match, and consolidate data warehouse information. This step is vitally
important because data warehouses often contain information from several different
databases, some of which can be external to the organization. In a data warehouse,
information cleansing occurs first during the ETL process and again once the informa-
tion is in the data warehouse. Companies can choose information cleansing software
from several different vendors including Oracle, SAS, Ascential Software, and Group 1
Software. Ideally, scrubbed information is accurate and consistent.
Looking at customer information highlights why information cleansing is neces-
sary. Customer information exists in several operational systems. In each system, all the
details could change—from the customer ID to contact information—depending on the
business process the user is performing (see Figure 6.17 ).
Figure 6.18 displays a customer name entered differently in multiple operational sys-
tems. Information cleansing allows an organization to fix these types of inconsistencies
in the data warehouse. Figure 6.19 displays the typical events that occur during informa-
tion cleansing.
Achieving perfect information is almost impossible. The more complete and accu-
rate a company wants its information to be, the more it costs (see Figure 6.20 ). Compa-
nies may also trade accuracy for completeness. Accurate information is correct, while
complete information has no blanks. A birth date of 2/31/10 is an example of complete
but inaccurate information (February 31 does not exist). An address containing Denver,
Colorado, without a zip code is an example of accurate information that is incomplete.
Many firms complete data quality audits to determine the accuracy and completeness
of its data. Most organizations determine a percentage of accuracy and completeness
high enough to make good decisions at a reasonable cost, such as 85 percent accurate
and 65 percent complete.
FIGURE 6.16
A Cube of Information for
Performing a Multidimensional
Analysis on Three Stores
for Five Products and Four
Promotions
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube a
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube b
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube c
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
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UNCOVERING TRENDS AND PATTERNS WITH DATA MINING
Companies are collecting more data than ever. Historically, data were housed function-
ally in systems that were unable to talk to each other, such as customer service, finance,
and human resources. Data mining is the process of analyzing data to extract informa-
tion not offered by the raw data alone. Data mining can also begin at a summary infor-
mation level (coarse granularity) and progress through increasing levels of detail (drilling
down), or the reverse (drilling up). Companies use data-mining techniques to compile
LO 6.7: Define data mining, and
explain the three common forms for
mining structured and unstructured
data.
FIGURE 6.17
Contact Information in
Operational Systems
Billing
Contact: Hans Hultgren 555-1211
Customer Service
Contact: Anne Logan 555-1288
Contact: Deborah Walbridge 555-6543
The billing system has “accounts
payable” customer contact information
The customer service system has the
“product user” customer contact information
Marketing
Contact: Paul Bauer 555-2211
Contact: Don McCubbrey 555-3434
Sales
Contact: Paul Bauer 555-2211
Contact: Don McCubbrey 555-3434
The marketing and sales system has “decision maker”customer contact information.
FIGURE 6.18
Standardizing a Customer Name
in Operational Systems
Customers:
JD0021 Jane Doe
BL0557 Bob Lake
JS0288 Judy Smith
PB0092 Pat Burton
Customers:
10622FA Susan Brown
10472FB Judie R Smithe
10772FA Patti Burten
10922MC Larry Trump
Customers:
000980 Burton, Tricia
02670 Smith, Judie
000466 Burton, Patricia
006777 Lake, RobertP.
Sales
Customer Service
Billing
Customers:
10001 Jane Doe
10002 Robert P.Lake
10003 Judie R.Smith
10004 Patricia Burton
Customer Information
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232 Chapter 6 Data: Business Intelligence
a complete picture of their operations, all within a single view, allowing them to identify
trends and improve forecasts. Consider Best Buy, which used data-mining tools to iden-
tify that 7 percent of its customers accounted for 43 percent of its sales, so the company
reorganized its stores to accommodate those customers. 8
To perform data mining, users need data-mining tools. Data-mining tools use a
variety of techniques to find patterns and relationships in large volumes of information
that predict future behavior and guide decision making. Data mining uncovers trends
and patterns, which analysts use to build models that, when exposed to new informa-
tion sets, perform a variety of information analysis functions. Data-mining tools for data
warehouses help users uncover business intelligence in their data. Some of the key areas
where businesses are using data mining include:
■ Analyzing customer buying patterns to predict future marketing and promotion
campaigns.
■ Building budgets and other financial information.
FIGURE 6.19
Information Cleansing Activities
Missing records or attributes
Cleansing
Missing keys or other required data
Redundant records
Erroneous relationships or references
Inaccurate or incomplete data
FIGURE 6.20
The Cost of Accurate and
Complete Information
C
om
pl
et
en
es
s
100%Accuracy
Complete but
with known
errors
Not very useful
May be a proto-
type only
Perfect
information
Pricey
Very incomplete
but accurate
Quality Management
10
0%
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Rev. Confirming Pages
233Technical Foundations of MIS Module 2
BUSINESS DRIVEN GLOBALIZATION
Congratulations! You have just been hired as a consultant for Integrity
Information Inc., a start-up business intelligence consulting company. Your
first job is to help work with the sales department in securing a new client, The
Warehouse. The Warehouse has been operating in the United States for more
than a decade, and its primary business is to sell wholesale low-cost products.
The Warehouse is interested in hiring Integrity Information Inc. to clean up the
data that are stored in its U.S. database. To determine how good your work is,
the client would like your analysis of the following spreadsheet. The Warehouse
is also interested in expanding globally and wants to purchase several inde-
pendent wholesale stores located in Australia, Thailand, China, Japan, and
the United Kingdom. Before the company moves forward with the venture, it
wants to understand what types of data issues it might encounter as it begins to
transfer data from each global entity to the data warehouse. Please create a list
detailing the potential issues The Warehouse can anticipate encountering as it
consolidates the global databases into a single data warehouse. 9

Integrity
Information Inc.
APPLY YOUR KNOWLEDGE
CUST ID First Name Last Name Address City State Zip Phone
Last Order
Date
233620 Christopher Lee 12421 W Olympic Blvd Los Angeles CA 75080-1100 (972)680-7848 4/18/2014
233621 Bruce Brandwen 268 W 44th St New York PA 10036-3906 (212)471-6077 5/3/2014
233622 Glr Johnson 4100 E Dry Creek Rd Littleton CO 80122-3729 (303)712-5461 5/6/2014
233623 Dave Owens 466 Commerce Rd Staunton VA 24401-4432 (540)851-0362 3/19/2014
233624 John Coulbourn 124 Action St Maynard MA 1754 (978)987-0100 4/24/2014
233629 Dan Gagliardo 2875 Union Rd Cheektowaga NY 14227-1461 (716)558-8191 5/4/2014
23362 Damanceee Allen 1633 Broadway New York NY 10019-6708 (212)708-1576
233630 Michael Peretz 235 E 45th St New York NY 10017-3305 (212)210-1340 4/30/2014
233631 Jody Veeder 440 Science Dr Madison WI 53711-1064 (608)238-9690
X227
3/27/2014
233632 Michael Kehrer 3015 SSE Loop 323 Tyler TX 75701 (903)579-3229 4/28/2014
233633 Erin Yoon 3500 Carillon Pt Kirkland WA 98033-7354 (425)897-7221 3/25/2014
233634 Madeline Shefferly 4100 E Dry Creek Rd Littleton CO 80122-3729 (303)486-3949 3/33/2014
233635 Steven Conduit 1332 Enterprise Dr West Chester PA 19380-5970 (610)692-5900 4/27/2014
233636 Joseph Kovach 1332 Enterprise Dr West Chester PA 19380-5970 (610)692-5900 4/28/2014
233637 Richard Jordan 1700 N Philadelphia PA 19131-4728 (215)581-6770 3/19/2014
233638 Scott Mikolajczyk 1655 Crofton Blvd Crofton MD 21114-1387 (410)729-8155 4/28/2014
233639 Susan Shragg 1875 Century Park E Los Angeles CA 90067-2501 (310)785-0511 4/29/2014
233640 Rob Ponto 29777 Telegraph Rd Southfield MI 48034-1303 (810)204-4724 5/5/2014
233642 Lauren Butler 1211 Avenue Of The
Americas
New York NY 10036-8701 (212)852-7494 4/22/2014
233643 Christopher Lee 12421 W Olympic Blvd Los Angeles CA 90064-1022 (310)689-2577 3/25/2014
233644 Michelle Decker 6922 Hollywood Blvd Hollywood CA 90028-6117 (323)817-4655 5/8/2014
233647 Natalia Galeano 1211 Avenue Of
The Americas
New York NY 10036-8701 (646)728-6911 4/23/2014
233648 Bobbie Orchard 4201 Congress St Charlotte NC 28209-4617 (704)557-2444 5/11/2014
233650 Ben Konfino 1111 Stewart Ave Bethpage NY 11714-3533 (516)803-1406 3/19/2014
233651 Lenee Santana 1050 Techwood Dr NW Atlanta GA 30318-KKRR (404)885-2000 3/22/2014
233652 Lauren Monks 7700 Wisconsin Ave Bethesda MD 20814-3578 (301)771-4772 3/19/2005
233653 Mark Woolley 10950 Washington Blvd Culver City CA 90232-4026 (310)202-2900 4/20/2014
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234 Chapter 6 Data: Business Intelligence
■ Detecting fraud by identifying deceptive spending patterns.
■ Finding the best customers who spend the most money.
■ Keeping customers from leaving or migrating to competitors.
■ Promoting and hiring employees to ensure success for both the company and the
individual.
Data mining enables these companies to determine relationships among such inter-
nal factors as price, product positioning, or staff skills, and external factors such as eco-
nomic indicators, competition, and customer demographics. In addition, it enables
companies to determine the impact on sales, customer satisfaction, and corporate prof-
its and to drill down into summary information to view detailed transactional data. With
data mining, a retailer could use point-of-sale records of customer purchases to send
targeted promotions based on an individual’s purchase history. By mining demographic
data from comment or warranty cards, the retailer could develop products and promo-
tions to appeal to specific customer segments.
Netflix uses data mining to analyze each customer’s film-viewing habits to provide
recommendations for other customers with Cinematch, its movie recommendation
system. Using Cinematch, Netflix can present customers with a number of additional
movies they might want to watch based on the customer’s current preferences. Netflix’s
innovative use of data mining provides its competitive advantage in the movie rental
industry. 10
Data mining uses specialized technologies and functionalities such as query tools,
reporting tools, multidimensional analysis tools, statistical tools, and intelligent agents.
Data mining approaches decision making with a few different activities in mind including:
■ Classification—assigns records to one of a predefined set of classes.
■ Estimation—determines values for an unknown continuous variable behavior or
estimated future value.
■ Affinity grouping—determines which things go together.
■ Clustering—segments a heterogeneous population of records into a number of more
homogeneous subgroups.
Data mining occurs on structured data that are already in a database or a spread-
sheet. Unstructured data do not exist in a fixed location and can include text docu-
ments, PDFs, voice messages, emails, and so on. Text mining analyzes unstructured data
to find trends and patterns in words and sentences. Text mining a firm’s customer sup-
port email might identify which customer service representative is best able to handle
the question, allowing the system to forward it to the right person. Web mining analyzes
unstructured data associated with websites to identify consumer behavior and website
navigation. Three common forms for mining structured and unstructured data are:
■ Cluster analysis
■ Association detection
■ Statistical analysis.
Cluster Analysis
Cluster analysis is a technique used to divide information sets into mutually exclusive
groups such that the members of each group are as close together as possible to one
another and the different groups are as far apart as possible. Cluster analysis segments
customer information to help organizations identify customers with similar behavioral
traits, such as clusters of best customers or onetime customers. Cluster analysis also has
the ability to uncover naturally occurring patterns in information (see Figure 6.21 ).
A great example of using cluster analysis in business is to create target-marketing
strategies based on zip codes. Evaluating customer segments by zip code allows a busi-
ness to assign a level of importance to each segment. Zip codes offer valuable insight
into such things as income levels, demographics, lifestyles, and spending habits. With
target marketing, a business can decrease its costs while increasing the success rate of
the marketing campaign.
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235Technical Foundations of MIS Module 2
Association Detection
Association detection reveals the relationship between variables along with the nature
and frequency of the relationships. Many people refer to association detection algo-
rithms as association rule generators because they create rules to determine the likeli-
hood of events occurring together at a particular time or following each other in a logical
progression. Percentages usually reflect the patterns of these events; for example, “55
percent of the time, events A and B occurred together,” or “80 percent of the time that
items A and B occurred together, they were followed by item C within three days.”
BUSINESS DRIVEN DISCUSSION
Often criticized for accruing large amounts of data about people, Google is now
giving users an easy way to find out what information it stores about them. The
company provides a service called Google Dashboard that summarizes the
data that it collects in users’ accounts on their products such as Gmail, Picasa
Reader, and YouTube. Using the Dashboard, users can then adjust their privacy
settings for the various Google applications, even allowing users to review and
delete recent Google searches. 11
Google Dashboard is giving users what they want—control over their own
data. How is Google using data mining to collect information on users? What
privacy issues does Google create by the massive amounts of personal data it
stores? Will the Dashboard prevent Google from tracking users across the web
if it wants to?
Google
Dashboard
APPLY YOUR KNOWLEDGE
FIGURE 6.21
Example of Cluster Analysis
−3
−2
−1
0
1
2
−2 −1 0 1 2 3
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236 Chapter 6 Data: Business Intelligence
One of the most common forms of association detection analysis is market basket
analysis. Market basket analysis analyzes such items as websites and checkout scanner
information to detect customers’ buying behavior and predict future behavior by iden-
tifying affinities among customers’ choices of products and services (see Figure 6.22 ).
Market basket analysis is frequently used to develop marketing campaigns for cross-sell-
ing products and services (especially in banking, insurance, and finance) and for inven-
tory control, shelf-product placement, and other retail and marketing applications.
Statistical Analysis
Statistical analysis performs such functions as information correlations, distributions,
calculations, and variance analysis. Data-mining tools offer knowledge workers a wide
range of powerful statistical capabilities so they can quickly build a variety of statistical
models, examine the models’ assumptions and validity, and compare and contrast the
various models to determine the best one for a particular business issue.
Forecasting is a common form of statistical analysis. Time-series information is time-
stamped information collected at a particular frequency. Formally defined, forecasts
are predictions based on time-series information. Examples of time-series information
include web visits per hour, sales per month, and calls per day. Forecasting data-mining
tools allow users to manipulate the time series for forecasting activities.
When discovering trends and seasonal variations in transactional information, use
a time-series forecast to change the transactional information by units of time, such as
transforming weekly information into monthly or seasonal information or hourly infor-
mation into daily information. Companies base production, investment, and staffing
decisions on a host of economic and market indicators in this manner. Forecasting mod-
els allow organizations to consider all sorts of variables when making decisions.
SUPPORTING DECISIONS WITH BUSINESS
INTELLIGENCE
Many organizations today find it next to impossible to understand their own strengths
and weaknesses, let alone their biggest competitors, because the enormous volume of
organizational data is inaccessible to all but the MIS department. Organization data
include far more than simple structured data elements in a database; the set of data also
includes unstructured data such as voice mail, customer phone calls, text messages,
video clips, along with numerous new forms of data, such as tweets from Twitter.
LO 6.8: Identify the advantages
of using business intelligence to
support managerial decision making.
FIGURE 6.22
Market Basket Analysis
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Rev. Confirming Pages
237Technical Foundations of MIS Module 2
The Problem: Data Rich, Information Poor
An ideal business scenario would be as follows: As a business manager on his way to
meet with a client reviews historical customer data, he realizes that the client’s order-
ing volume has substantially decreased. As he drills down into the data, he notices the
client had a support issue with a particular product. He quickly calls the support team
to find out all of the information and learns that a replacement for the defective part
can be shipped in 24 hours. In addition, he learns that the client has visited the website
and requested information on a new product line. Armed with all this information, the
business manager is prepared for a productive meeting with his client. He now under-
stands the client’s needs and issues, and he can address new sales opportunities with
confidence.
For many companies the above example is simply a pipe dream. Attempting to gather
all of the client information would actually take hours or even days to compile. With
so much data available, it is surprisingly hard for managers to get information, such as
inventory levels, past order history, or shipping details. Managers send their information
requests to the MIS department where a dedicated person compiles the various reports.
In some situations, responses can take days, by which time the information may be out-
dated and opportunities lost. Many organizations find themselves in the position of
being data rich and information poor. Even in today’s electronic world, managers strug-
gle with the challenge of turning their business data into business intelligence.
The Solution: Business Intelligence
Employee decisions are numerous and they include providing service information,
offering new products, and supporting frustrated customers. Employees can base their
decisions on data, experience, or knowledge and preferably a combination of all three.
BUSINESS DRIVEN INNOVATION
Gone are the days of staring at boring spreadsheets and trying to understand
how the data correlate. With innovative data visualization tools, managers can
arrange different ways to view the data, providing new forms of pattern rec-
ognition not offered by simply looking at numbers. Slate, a news publication,
developed a new data visualization tool called News Dots that offers readers a
different way of viewing the daily news through trends and patterns. The News
Dots tool scans about 500 stories a day from major publications and then tags
the content with important keywords such as people, places, companies, and
topics. Surprisingly, the majority of daily news overlaps as the people, places,
and stories are frequently connected. Using News Dots you can visualize how
the news fits together, almost similar to a giant social network. News Dots uses
circles (or dots) to represent the tagged content and arranges them according
to size. The more frequently a certain topic is tagged, the larger the dot and its
relationship to other dots. The tool is interactive and users simply click on a
dot to view which stories mention that topic and which other topics it connects
to in the network such as a correlation among the U.S. government, Federal
Reserve, Senate, bank, and Barack Obama. 12
How can data visualization help identify trends? What types of business intel-
ligence could you identify if your college used a data visualization tool to analyze
student information? What types of business intelligence could you identify if you
used a data visualization tool to analyze the industry where you plan to compete?
News Dots
APPLY YOUR KNOWLEDGE
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238 Chapter 6 Data: Business Intelligence
Business intelligence can provide managers with the ability to make better decisions. A
few examples of how different industries use business intelligence include:
■ Airlines: Analyze popular vacation locations with current flight listings.
■ Banking: Understand customer credit card usage and nonpayment rates.
■ Health care: Compare the demographics of patients with critical illnesses.
■ Insurance: Predict claim amounts and medical coverage costs.
■ Law enforcement: Track crime patterns, locations, and criminal behavior.
■ Marketing: Analyze customer demographics.
■ Retail: Predict sales, inventory levels, and distribution.
■ Technology: Predict hardware failures.
Figure 6.23 displays how organizations using BI can find the cause to many issues and
problems simply by asking “Why?” The process starts by analyzing a report such as sales
amounts by quarter. Managers will drill down into the report looking for why sales are
up or why sales are down. Once they understand why a certain location or product is
experiencing an increase in sales, they can share the information in an effort to raise
enterprisewide sales. Once they understand the cause for a decrease in sales, they can
take effective action to resolve the issue. Here are a few examples of how managers can
use BI to answer tough business questions:
■ Where has the business been? Historical perspective offers important variables for
determining trends and patterns.
■ Where is the business now? Looking at the current business situation allows man-
agers to take effective action to solve issues before they grow out of control.
■ Where is the business going? Setting strategic direction is critical for planning and
creating solid business strategies.
Ask a simple question—such as who is my best customer or what is my worst-sell-
ing product—and you might get as many answers as you have employees. Databases,
data warehouses, and data marts can provide a single source of “trusted” data that can
answer questions about customers, products, suppliers, production, finances, fraud, and
even employees. They can also alert managers to inconsistencies or help determine the
cause and effects of enterprisewide business decisions. All business aspects can benefit
from the added insights provided by business intelligence, and you, as a business stu-
dent, will benefit from understanding how MIS can help you make intelligent decisions.
Visual Business Intelligence
Informing is accessing large amounts of data from different management information
systems. Infographics (information graphics) displays information graphically so
FIGURE 6.23
How BI Can Answer Tough
Customer Questions
Why are sales below target?
Why did we sell less in the West?
Why did X sales drop?
Why did customer
complaints increase?
Because we sold less
in the Western region.
Because sales of product X
dropped.
Because customer
complaints increased.
Because late deliveries went up
60 percent.
AnswerQuestion
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239Technical Foundations of MIS Module 2
it can be easily understood. Infographics can present the results of large data analysis
looking for patterns and relationships that monitor changes in variables over time. Data
visualization describes technologies that allow users to “see” or visualize data to trans-
form information into a business perspective. Data visualization tools move beyond
Excel graphs and charts into sophisticated analysis techniques such as pie charts, con-
trols, instruments, maps, time-series graphs, and more. Data visualization tools can help
uncover correlations and trends in data that would otherwise go unrecognized. Business
intelligence dashboards track corporate metrics such as critical success factors and key
performance indicators and include advanced capabilities such as interactive controls
allowing users to manipulate data for analysis. The majority of business intelligence soft-
ware vendors offer a number of different data visualization tools and business intelli-
gence dashboards.
Learning Outcome 6.1: Explain the four primary traits that determine the value of
information.
Information is data converted into a meaningful and useful context. Information can tell an organiza-
tion how its current operations are performing and help it estimate and strategize about how future
operations might perform. It is important to understand the different levels, formats, and granularities
of information along with the four primary traits that help determine the value of information, which
include (1) information type: transactional and analytical; (2) information timeliness; (3) information
quality; (4) information governance.
Learning Outcome 6.2: Describe a database, a database management system, and the
relational database model.
A database maintains information about various types of objects (inventory), events (transactions),
people (employees), and places (warehouses). A database management system (DBMS) creates,
reads, updates, and deletes data in a database while controlling access and security. A DBMS pro-
vides methodologies for creating, updating, storing, and retrieving data in a database. In addition, a
DBMS provides facilities for controlling data access and security, allowing data sharing, and enforcing
data integrity. The relational database model allows users to create, read, update, and delete data in
a relational database.
Learning Outcome 6.3: Identify the business advantages of a relational database.
Many business managers are familiar with Excel and other spreadsheet programs they can use to
store business data. Although spreadsheets are excellent for supporting some data analysis, they
offer limited functionality in terms of security, accessibility, and flexibility and can rarely scale to sup-
port business growth. From a business perspective, relational databases offer many advantages over
using a text document or a spreadsheet, including increased flexibility, increased scalability and per-
formance, reduced information redundancy, increased information integrity (quality), and increased
information security.
Learning Outcome 6.4: Explain the business benefits of a data-driven website.
A data-driven website is an interactive website kept constantly updated and relevant to the needs of
its customers using a database. Data-driven capabilities are especially useful when the website offers
a great deal of information, products, or services because visitors are frequently annoyed if they are
buried under an avalanche of information when searching a website. Many companies use the web to
make some of the information in their internal databases available to customers and business partners.
L E A R N I N G O U T C O M E R E V I E W
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Learning Outcome 6.5: Define a data warehouse, and provide a few reasons it can make
a manager more effective.
A data warehouse is a logical collection of information, gathered from many different operational
databases, that supports business analysis and decision making. The primary value of a data ware-
house is to combine information, more specifically, strategic information, throughout an organization
into a single repository in such a way that the people who need that information can make decisions
and undertake business analysis.
Learning Outcome 6.6: Explain ETL and the role of a data mart in business.
Extraction, transformation, and loading (ETL) is a process that extracts information from internal and
external databases, transforms it using a common set of enterprise definitions, and loads it into a data
warehouse. The data warehouse then sends portions (or subsets) of the information to data marts. A
data mart contains a subset of data warehouse information. To distinguish between data warehouses
and data marts, think of data warehouses as having a more organizational focus and data marts as
having a functional focus.
Learning Outcome 6.7: Define data mining, and explain the three common forms for
mining structured and unstructured data.
Data mining is the process of analyzing data to extract information not offered by the raw data alone.
Data mining can also begin at a summary information level (coarse granularity) and progress through
increasing levels of detail (drilling down), or the reverse (drilling up). Data mining occurs on structured
data that are already in a database or a spreadsheet. Unstructured data do not exist in a fixed location
and can include text documents, PDFs, voice messages, emails, and so on. Three common forms for min-
ing structured and unstructured data are cluster analysis, association detection, and statistical analysis.
Learning Outcome 6.8: Identify the advantages of using business intelligence to support
managerial decision making.
Many organizations today find it next to impossible to understand their own strengths and weak-
nesses, let alone their biggest competitors, due to enormous volumes of organizational data being
inaccessible to all but the MIS department. Organization data include far more than simple structured
data elements in a database; the set of data also includes unstructured data such as voice mail,
customer phone calls, text messages, video clips, along with numerous new forms of data, such as
tweets from Twitter. Managers today find themselves in the position of being data rich and information
poor, and they need to implement business intelligence systems to solve this challenge.
1. Knowledge: List the reasons a business would want to display information in a graphic or visual
format.
2. Comprehension: Describe how a business could use a business intelligence digital dashboard to
gain an understanding of how the business is operating.
3. Application: Explain how a marketing department could use data visualization tools to help with
the release of a new product.
4. Analysis: Categorize the five common characteristics of high-quality information and rank them
in order of importance for Hotels.com .
5. Synthesis: Develop a list of some possible entities and attributes located in the Hotels.com database.
6. Evaluate: Assess how Hotels.com is using BI to identify trends and change associated business
processes.
O P E N I N G C A S E Q U E S T I O N S
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Rev. Confirming Pages
241Technical Foundations of MIS Module 2
Association detection, 235
Attribute 221
Business-critical integrity
constraint, 224
Business rule, 224
Business intelligence
dashboard 239
Cluster analysis, 234
Content creator, 224
Content editor, 224
Data dictionary, 220
Data element (or data
field), 220
Data governance, 219
Data mart, 228
Data mining, 231
Data model, 220
Data quality audit, 230
Data visualization, 239
Data visualization tools, 239
Data warehouse, 227
Database, 219
Database management system
(DBMS), 219
Data-driven website, 225
Data-mining tool, 232
Dynamic catalog, 224
Dynamic information, 224
Entity, 221
Extraction, transformation, and
loading (ETL), 228
Forecasts, 236
Foreign key, 222
Infographic (or information
graphic), 238
Information cleansing or
scrubbing, 230
Information cube, 229
Information granularity, 214
Information inconsistency, 216
Information integrity, 224
Information integrity
issues, 216
Information redundancy, 223
Informing, 238
Integrity constraint, 224
Logical view of
information, 223
Market basket analysis, 236
Metadata, 220
Physical view of
information, 222
Primary key, 221
Query-by-example (QBE)
tool, 219
Real-time information, 216
Real-time system, 216
Record, 221
Relational database management
system, 220–221
Relational database model, 220
Relational integrity
constraint, 224
Static information, 224
Statistical analysis, 236
Structured data, 234
Structured query language
(SQL), 220
Text mining, 234
Time-series information, 236
Unstructured data, 234
Web mining, 234
K E Y T E R M S
1. How does a database turn data elements into information?
2. Why does a business need to be concerned with the quality of its data?
3. How can data governance help protect a business from hackers?
4. Why would a company care about the timeliness of its data?
5. What are the five characteristics common to high-quality information?
6. What is data governance and its importance to a company?
7. What are the four primary traits that help determine the value of information?
8. What is the difference between an entity and an attribute?
9. What are the advantages of a relational database?
10. What are the advantages of a data-driven website?
11. What is a data warehouse and why would a business want to implement one?
12. Why would you need to use multidimensional analysis?
13. What is the purpose of information cleansing (or scrubbing)?
14. Why would a department want a data mart instead of just accessing the entire data
warehouse?
15. Why would a business be data rich, but information poor?
R E V I E W Q U E S T I O N S
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C L O S I N G C A S E O N E
Data Visualization: Stories for the Information Age
At the intersection of art and algorithm, data visualization schematically abstracts information to bring
about a deeper understanding of the data, wrapping it in an element of awe. While the practice of
visually representing information is arguably the foundation of all design, a newfound fascination with
data visualization has been emerging. After The New York Times and The Guardian recently opened
their online archives to the public, artists rushed to dissect nearly two centuries worth of information,
elevating this art form to new prominence.
For artists and designers, data visualization is a new frontier of self-expression, powered by the
proliferation of information and the evolution of available tools. For enterprise, it is a platform for dis-
playing products and services in the context of the cultural interaction that surrounds them, reflecting
consumers’ increasing demand for corporate transparency.
“Looking at something ordinary in a new way makes it extraordinary,” says Aaron Koblin, one
of the more recent pioneers of the discipline. As technology lead of Google’s Creative Labs in San
Francisco, he spearheaded the search giant’s Chrome Experiments series designed to show off the
speed and reliability of the Chrome browser.
Forget Pie Charts and Bar Graphs
Data visualization has nothing to do with pie charts and bar graphs. And it’s only marginally related to
“infographics,” information design that tends to be about objectivity and clarification. Such represen-
tations simply offer another iteration of the data—restating it visually and making it easier to digest.
Data visualization, on the other hand, is an interpretation, a different way to look at and think about
data that often exposes complex patterns or correlations.
Data visualization is a way to make sense of the ever-increasing stream of information with which
we’re bombarded and provides a creative antidote to the analysis paralysis that can result from the
burden of processing such a large volume of information. “It’s not about clarifying data,” says Koblin.
“It’s about contextualizing it.”
Today algorithmically inspired artists are reimagining the art-science continuum through work that
frames the left-brain analysis of data in a right-brain creative story. Some use data visualization as a
bridge between alienating information and its emotional impact—see Chris Jordan’s portraits of global
mass culture. Others take a more technological angle and focus on cultural utility—the Zoetrope proj-
ect offers a temporal and historical visualization of the ephemeral web. Still others are pure artistic
indulgence—like Koblin’s own Flight Patterns project, a visualization of air traffic over North America.
How Business Can Benefit
There are real implications for business here. Most cell phone providers, for instance, offer a statement
of a user’s monthly activity. Most often it’s an overwhelming table of various numerical measures of
how much you talked, when, with whom, and how much it cost. A visual representation of this data
might help certain patterns emerge, revealing calling habits and perhaps helping users save money.
Companies can also use data visualization to gain new insight into consumer behavior. By observ-
ing and understanding what people do with the data—what they find useful and what they dismiss as
worthless—executives can make the valuable distinction between what consumers say versus what
they do. Even now, this can be a tricky call to make from behind the two-way mirror of a traditional
qualitative research setting.
It’s essential to understand the importance of creative vision along with the technical mastery of
software. Data visualization isn’t about using all the data available, but about deciding which patterns
and elements to focus on, building a narrative, and telling the story of the raw data in a different,
compelling way.
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Ultimately, data visualization is more than complex software or the prettying up of spreadsheets.
It’s not innovation for the sake of innovation. It’s about the most ancient of social rituals: storytelling.
It’s about telling the story locked in the data differently, more engagingly, in a way that draws us in,
makes our eyes open a little wider and our jaw drop ever so slightly. And as we process it, it can
sometimes change our perspective altogether. 13
Questions
1. Identify the effects poor information might have on a data visualization project.
2. How does data visualization use database technologies?
3. How could a business use data visualization to identify new trends?
4. What is the correlation between data mining and data visualization?
5. Is data visualization a form of business intelligence? Why or why not?
6. What security issues are associated with data visualization?
7. What might happen to a data visualization project if it failed to cleanse or scrub its data?
Zillow
Zillow.com is an online web-based real estate site helping homeowners, buyers, sellers, renters,
real estate agents, mortgage professionals, property owners, and property managers find and share
information about real estate and mortgages. Zillow allows users to access, anonymously and free of
charge, the kinds of tools and information previously reserved for real estate professionals. Zillow’s
databases cover more than 90 million homes, which represents 95 percent of the homes in the United
States. Adding to the sheer size of its databases, Zillow recalculates home valuations for each prop-
erty every day, so it can provide historical graphs on home valuations over time. In some areas, Zillow
is able to display 10 years of valuation history, a value-added benefit for many of its customers. This
collection of data represents an operational data warehouse for anyone visiting the website.
As soon as Zillow launched its website, it immediately generated a massive amount of traffic. As
the company expanded its services, the founders knew the key to its success would be the site’s abil-
ity to quickly process and manage massive amounts of data, in real time. The company identified a
need for accessible, scalable, reliable, secure databases that would enable it to continue to increase
the capacity of its infrastructure indefinitely without sacrificing performance. Zillow’s traffic continues
to grow despite the weakened real estate market; the company is experiencing annual traffic growth
of 30 percent and about a third of all U.S. mortgage professionals visit the site in a given month.
Data Mining and Business Intelligence
Zestimate values on Zillow use data-mining features for spotting trends across property valuations.
Data mining also allows the company to see how accurate Zestimate values are over time. Zillow has
also built the industry’s first search by monthly payment, allowing users to find homes that are for
sale and rent based on a monthly payment they can afford. Along with the monthly payment search,
users can also enter search criteria such as the number of bedrooms or bathrooms.
Zillow also launched a new service aimed at changing the way Americans shop for mortgages.
Borrowers can use Zillow’s new Mortgage Marketplace to get custom loan quotes from lenders
without having to give their names, addresses, phone numbers, or Social Security numbers, or field
unwanted telephone calls from brokers competing for their business. Borrowers reveal their identi-
ties only after contacting the lender of their choice. The company is entering a field of established
mortgage sites such as LendingTree.com and Experian Group’s Lowermybills.com , which charge
C L O S I N G C A S E T W O
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mortgage companies for borrower information. Zillow, which has an advertising model, says it does
not plan to charge for leads.
For mortgage companies, the anonymous leads come free; they can make a bid based on infor-
mation provided by the borrower, such as salary, assets, credit score, and the type of loan. Lenders
can browse borrower requests and see competing quotes from other brokers before making a bid. 14
Questions
1. List the reasons Zillow would need to use a database to run its business.
2. Describe how Zillow uses business intelligence to create a unique product for its customers.
3. How could the marketing department at Zillow use a data mart to help with the release of a new
product launch?
4. Categorize the five common characteristics of high-quality information and rank them in order of
importance to Zillow.
5. Develop a list of some possible entities and attributes of Zillow’s mortgage database.
6. Assess how Zillow uses a data-driven website to run its business.
1. Information—Business Intelligence or a Diversion from the Truth?
President Obama used part of his commencement address at Virginia’s Hampton University to
criticize the flood of incomplete information or downright incorrect information that flows in the
24-hour news cycle. The president said, “You’re coming of age in a 24/7 media environment
that bombards us with all kinds of content and exposes us to all kinds of arguments, some of
which don’t always rank all that high on the truth meter. With iPods and iPads and Xboxes and
PlayStations—none of which I know how to work—information becomes a distraction, a diver-
sion, a form of entertainment, rather than a tool of empowerment, rather than the means of
emancipation.” 15
Do you agree or disagree with President Obama’s statement? Who is responsible for verifying
the accuracy of online information? What should happen to companies that post inaccurate infor-
mation? What should happen to individuals who post inaccurate information? What should you
remember when reading or citing sources for online information?
2. Illegal Database Access
Goldman Sachs has been hit with a $3 million lawsuit by a company that alleges the brokerage
firm stole intellectual property from its database that had market intelligence facts. The U.S. District
Court for the Southern District of New York filed the lawsuit in 2010 claiming Goldman Sachs
employees used other people’s access credentials to log into Ipreo’s proprietary database, dubbed
Bigdough. Offered on a subscription basis, Bigdough provides detailed information on more than
80,000 contacts within the financial industry. Ipreo complained to the court that Goldman Sachs
employees illegally accessed Bigdough at least 264 times in 2008 and 2009. 16
Do you agree or disagree with the lawsuit? Should Goldman Sachs be held responsible for
rogue employees’ behavior? What types of policies should Goldman Sachs implement to ensure
this does not occur again?
3. Data Storage
Information is one of the most important assets of any business. Businesses must ensure information
accuracy, completeness, consistency, timeliness, and uniqueness. In addition, business must have a
reliable backup service. In part thanks to cloud computing, there are many data hosting services on
the Internet. These sites offer storage of information that can be accessed from anywhere in the world.
C R I T I C A L B U S I N E S S T H I N K I N G
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These data hosting services include Hosting ( www.hosting.com ), Mozy ( www.mozy.com ), My
Docs Online ( www.mydocsonline.com ), and Box ( www.box.net ). Visit a few of these sites along
with a several others you find through research. Which sites are free? Are there limits to how much
you can store? If so, what is the limit? What type of information can you store (video, text, photos,
etc.)? Can you allow multiple users with different passwords to access your storage area? Are you
contractually bound for a certain duration (annual, etc.)? Are different levels of services provided
such as personal, enterprise, work group? Does it make good business sense to store business
data on the Internet? What about personal data?
4. Gathering Business Intelligence
When considering new business opportunities, you need knowledge about the competition. One of
the things many new business owners fail to do is to gather business intelligence on their com-
petitors, such as how many there are and what differentiates each of them. You may find there are
too many and that they would be tough competition for you. Or, you may find that there are few
competitors and the ones who are out there offer very little value.
Generate a new business idea you could launch on the Internet. Research the Internet to find
similar business in the area you have chosen. How many sites did you find that are offering the
same products or services you are planning to offer? Did you come across any sites from another
country that have a unique approach that you did not see on any of the sites in your own country?
How would you use this information in pursuing your business idea?
5. Free Data!
The U.S. Bureau of Labor Statistics states that its role is as the “principal fact-finding agency for
the federal government in the broad field of labor economics and statistics.” And the data that the
bureau provides via its website are available to anyone, free. This can represent a treasure trove of
business intelligence and data mining for those who take advantage of this resource. Visit the web-
site www.bls.gov . What type of information does the site provide? What information do you find most
useful? What sort of information concerning employment and wages is available? How is this infor-
mation categorized? How would this type of information be helpful to a business manager? What
type of demographic information is available? How could this benefit a new start-up business? 17
6. Explaining Relational Databases
You have been hired by Vision, a start-up clothing company. Your manager, Holly Henningson,
is unfamiliar with databases and their associated business value. Henningson has asked you to
create a report detailing the basics of databases. She would also like you to provide a detailed
explanation of relational databases along with their associated business advantages.
7. Entities and Attributes
Martex Inc. is a manufacturer of athletic equipment, and its primary lines of business include
running, tennis, golf, swimming, basketball, and aerobics equipment. Martex currently supplies
four primary vendors including Sam’s Sports, Total Effort, The Underline, and Maximum Workout.
Martex wants to build a database to help it organize its products. In a group, identify the different
types of entities, attributes, keys, and relationships Martex will want to consider when designing
its relational database.
8. Compiling Information
You are currently working for the Public Transportation Department of Chatfield. The department
controls all forms of public transportation, including buses, subways, and trains. Each depart-
ment has about 300 employees and maintains its own accounting, inventory, purchasing, and
human resource systems. Generating reports across departments is a difficult task and usually
involves gathering and correlating the information from the many different databases. It typically
takes about two weeks to generate the quarterly balance sheets and profit and loss statements.
Your team has been asked to compile a report recommending what the Public Transportation
Department of Chatfield can do to alleviate its information and system issues. Be sure that your
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report addresses the various reasons departmental reports are presently difficult to obtain as well
as how you plan to solve this problem. 18
9. Information Timeliness
Information timeliness is a major consideration for all organizations. Organizations need to
decide the frequency of backups and the frequency of updates to a data warehouse. In a team,
describe the timeliness requirements for backups and updates to a data warehouse for each of
the following:
■ Weather tracking systems.
■ Car dealership inventories.
■ Vehicle tire sales forecasts.
■ Interest rates.
■ Restaurant inventories.
■ Grocery store inventories.
10. Improving Information Quality
HangUps Corporation designs and distributes closet organization structures. The company oper-
ates five systems—order entry, sales, inventory management, shipping, and billing. The company
has severe information quality issues including missing, inaccurate, redundant, and incomplete
information. The company wants to implement a data warehouse containing information from the
five different systems to help maintain a single customer view, drive business decisions, and per-
form multidimensional analysis. Identify how the organization can improve its information quality
when it begins designing and building its data warehouse.
E N T R E P R E N E U R I A L C H A L L E N G E
BUILD YOUR OWN BUSINESS
1. Provide an example of your business data that fits each of the five common characteristics of
high-quality information. Explain why each characteristic is important to your business data and
what might happen if your business data were of low quality. (Be sure to identify your business
and the name of your company.)
2. Identify the different entities and their associated attributes that would be found in your potential
relational database model for your sales database.
3. Identify the benefits of having a data warehouse for your business. What types of data marts
would you want to extract from your data warehouse to help you run your business and make
strategic decisions.
PROJECT I Mining the Data Warehouse
Alana Smith is a senior buyer for a large wholesaler that sells different types of arts and crafts to
greeting card stores such as Hallmark. Smith’s latest marketing strategy is to send all of her custom-
ers a new line of handmade picture frames from Russia. All of her information supports her decision
for the new line. Her analysis predicts that the frames should sell an average of 10 to 15 per store, per
day. Smith is excited about the new line and is positive it will be a success.
A P P LY Y O U R K N O W L E D G E B U S I N E S S P R O J E C T S
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One month later Smith learns the frames are selling 50 percent below expectations and averag-
ing between five and eight frames sold daily in each store. She decides to access the company’s
data warehouse information to determine why sales are below expectations. Identify several differ-
ent dimensions of information that Smith will want to analyze to help her decide what is causing the
problems with the picture frame sales.
PROJECT I I Different Dimensions
The focus of data warehousing is to extend the transformation of data into information. Data ware-
houses offer strategic level, external, integrated, and historical information so businesses can make
projections, identify trends, and make key business decisions. The data warehouse collects and stores
integrated sets of historical information from multiple operational systems and feeds them to one or
more data marts. It may also provide end user access to support enterprisewide views of information.
You are currently working on a marketing team for a large corporation that sells jewelry around the
world. Your boss has asked you to look at the following dimensions of data to determine which ones
you want in your data mart for performing sales and market analysis (see Figure AYK.1 ). As a team,
categorize the different dimensions ranking them from 1 to 5, with 1 indicating that the dimension
offers the highest value and must be in your data mart and 5 indicating that the dimension offers the
lowest value and does not need to be in your data mart.
PROJECT I I I Understanding Search
Pretend that you are a search engine. Choose a topic to query. It can be anything such as your favorite
book, movie, band, or sports team. Search your topic on Google, pick three or four pages from the
results, and print them out. On each printout, find the individual words from your query (such as
Dimension Value (1–5) Dimension Value (1–5)
Product number Season
Store location Promotion
Customer net worth Payment method
Number of sales personnel Commission policy
Customer eating habits Manufacturer
Store hours Traffic report
Salesperson ID Customer language
Product style Weather
Order date Customer gender
Product quantity Local tax information
Ship date Local cultural demographics
Current interest rate Stock market closing
Product cost Customer religious affiliation
Customer’s political affiliation Reason for purchase
Local market analysis Employee dress code policy
Order time Customer age
Customer spending habits Employee vacation policy
Product price Employee benefits
Exchange rates Current tariff information
Product gross margin
FIGURE AYK.1
Data Warehouse Data
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“Boston Red Sox” or “The Godfather”) and use a highlighter to mark each word with color. Do that for
each of the documents that you print out. Now tape those documents on a wall, step back a few feet,
and review your documents.
If you did not know what the rest of a page said and could judge only by the colored words, which
document do you think would be most relevant? Is there anything that would make a document
look more relevant? Is it better to have the words be in a large heading or to occur several times in
a smaller font? Do you prefer it if the words are at the top or the bottom of the page? How often do
the words need to appear? Come up with two or three things you would look for to see if a document
matched a query well. This exercise mimics search engine processes and should help you understand
why a search engine returns certain results over others.
PROJECT IV Predicting Netflix
Netflix Inc., the largest online movie rental service, provides more than 12 million subscribers access
to more than 100,000 unique DVD titles along with a growing on-demand library in excess of 10,000
choices. Data and information are so important to Netflix that it created The Netflix Prize, an open
competition for anyone who could improve the data used in prediction ratings for films (an increase of
10 percent), based on previous ratings. The winner would receive a $1 million prize.
The ability to search, analyze, and comprehend information is vital for any organization’s success. It
certainly was for Netflix, as it was happy to pay anyone $1 million to improve the quality of its information.
In a group, explain how Netflix might use databases, data warehouses, and data marts to predict customer
movie recommendations. Here are a few characteristics you might want to analyze to get you started:
■ Customer demographics.
■ Movie genre, rating, year, producer, type.
■ Actor information.
■ Internet access.
■ Location for mail pickup.
PROJECT V The Crunch Factory
The Crunch Factory is one of the fourth-largest gyms operating in Australia, and each gym operates its
own system with its own database. Unfortunately, the company failed to develop any data-capturing
standards and now faces the challenges associated with low-quality enterprisewide information. For
example, one system has a field to capture email addresses while another system does not. Duplicate
customer information among the different systems is another major issue, and the company con-
tinually finds itself sending conflicting or competing messages to customers from different gyms. A
customer could also have multiple accounts within the company, one representing a membership,
another representing additional classes, and yet another for a personal trainer. The Crunch Factory
has no way to identify that the different customer accounts are actually for the same customer.
To remain competitive and be able to generate business intelligence The Crunch Factory has to
resolve these challenges. The Crunch Factory has just hired you as its data quality expert. Your first
task is to determine how the company can turn its low-quality information into high-quality business
intelligence. Create a plan that The Crunch Factory can implement that details the following:
■ Challenges associated with low-quality information.
■ Benefits associated with high-quality information.
■ Recommendations on how the company can clean up its data.
PROJECT VI Too Much of a Good Thing
The Castle, a premium retailer of clothes and accessories, created an enterprisewide data warehouse
so all its employees could access information for decision making. The Castle soon discovered that
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it is possible to have too much of a good thing. The Castle employees found themselves inundated
with data and unable to make any decisions, a common occurrence called analysis paralysis. When
sales representatives queried the data warehouse to determine if a certain product in the size, color,
and category was available, they would get hundreds of results showing everything from production
orders to supplier contracts. It became easier for the sales representatives to look in the warehouse
themselves than to check the system. Employees found the data warehouse was simply too big, too
complicated, and contained too much irrelevant information.
The Castle is committed to making its data warehouse system a success and has come to you for
help. Create a plan that details the value of the data warehouse to the business, how it can be easier
for all employees to use, along with the potential business benefits the company can derive from its
data warehouse.
PROJECT VI I Twitter Buzz
Technology tools that can predict sales for the coming week, decide when to increase inventory, and
determine when additional staff is required are extremely valuable. Twitter is not just for tweeting your
whereabouts anymore. Twitter and other social-media sites have become great tools for gathering
business intelligence on customers, including what they like, dislike, need, and want. Twitter is easy
to use, and businesses can track every single time a customer makes a statement about a particular
product or service. Good businesses turn this valuable information into intelligence spotting trends
and patterns in customer opinion.
Do you agree that a business can use Twitter to gain business intelligence? How many com-
panies do you think are aware of Twitter and exactly how they can use it to gain BI? How do you
think Twitter uses a data warehouse? How do you think companies store Twitter information?
How would a company use Twitter in a data mart? How would a company use cubes to analyze
Twitter data?
Project
Number
Project
Name
Project
Type Plug-In
Focus
Area Project Level
Skill
Set
Page
Number
28 Daily Invoice Access T5, T6, T7, T8 Business
Analysis
Introductory Entities,
Relationships, and
Databases
AYK.17
29 Billing Data Access T5, T6, T7, T8 Business
Intelligence
Introductory Entities,
Relationships, and
Databases
AYK.19
30 Inventory Data Access T5, T6, T7, T8 SCM Intermediate Entities,
Relationships, and
Databases
AYK.20
31 Call Center Access T5, T6, T7, T8 CRM Intermediate Entities,
Relationships, and
Databases
AYK.21
32 Sales Pipeline Access T5, T6, T7, T8 Business
Intelligence
Advanced Entities,
Relationships, and
Databases
AYK.23
33 Online Classified
Ads
Access T5, T6, T7, T8 Ecommerce Advanced Entities,
Relationships, and
Databases
AYK.23
AY K A P P L I C AT I O N P R O J E C T S
If you are looking for Access projects to incorporate into your class, try any of the following after
reading this chapter.
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What’s in IT for me?
The pace of technological change never ceases to amaze as kindergarten classes are now learning PowerPoint and many
elementary school children have their own cell phones. What used to take hours to download over a dial-up modem connec-
tion can now transfer in a matter of seconds through an invisible, wireless network connection from a computer thousands
of miles away. We are living in an increasingly wireless present and hurtling ever faster toward a wireless future. The tipping
point of ubiquitous, wireless, handheld, mobile computing is approaching quickly.
As a business student, understanding network infrastructures and wireless technologies allows you to take advantage of
mobile workforces. Understanding the benefits and challenges of mobility is a critical skill for business executives, regard-
less if you are a novice or a seasoned Fortune 500 employee. By learning about the various concepts discussed in this
chapter, you will develop a better understanding of how business can leverage networking technologies to analyze network
types, improve wireless and mobile business processes, and evaluate alternative networking options.
■ O v e r v i e w o f a C o n n e c t e d
Wo r l d
■ B e n e f i t s o f a C o n n e c t e d Wo r l d
■ C h a l l e n g e s o f a C o n n e c t e d
Wo r l d
SECTION 7.2
Mobility: The Business
Value of a Wireless World
SECTION 7.1
Connectivity: The Business
Value of a Networked World
■ W i re l e s s N e t w o r k C a t e g o r i e s
■ B u s i n e s s A p p l i c a t i o n s o f
W i re l e s s N e t w o r k s
■ B e n e f i t s o f B u s i n e s s M o b i l i t y
■ C h a l l e n g e s o f B u s i n e s s
M o b i l i t y

C H A P T E R
C
H
A
P
T
E
R
O
U
T
L
IN
E

Networks: Mobile Business 7
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opening case study
The Ironman
Florida-based World Triathlon Corporation (WTC), owner of the Ironman Triathlon World
Championship, is in the business of fulfilling the dreams of endurance athletes in one of the
world’s most grueling events. The Ironman Triathlon World Championship brings more than
1,700 of the world’s top athletes to rugged Kailua-Kona, Hawaii, for a world championship
race every fall. Athletes attempt to swim 2.4 miles, cycle 112 miles, and run a full 26.2-mile
marathon—all in a single day. The event features a remote course that threads around the
side of an active volcano and offers breathtaking views but also rough terrain, intense heat,
and shifting trade winds.
In the past, it was not easy for family and friends to know how a particular athlete was
faring in the contest. “As a spectator, you’d see the start, and then the athletes would disap-
pear, and that was pretty much it until the finish line,” recalls Dave Scott, who ran his first
triathlon in 1976. Now, however, Ironman is transforming the way audiences and athletes
experience the race. By using WiMAX networks to enable remote cameras, the company
also raised the bar for professional sports broadcasting and spotlighted a technology many
say will help bring the next billion users into the Internet community.
Fans worldwide now can find any athlete’s speed and location thanks to high-speed
WiMAX broadband connections in various places along the 140-mile course. The company
uses radio-frequency identification (RFID) ankle bracelets to track the athletes’ progress
and high-bandwidth communications to transmit professional-quality video and other data,
making the information accessible on the Ironmanlive.com website.
Networking the course was a challenge due to the same factors that make it challeng-
ing for athletes. “We’re on a very rough, rugged course on an island with an active vol-
cano,” explains Dan Gerson, Ironmanlive.com production manager. “It’s hot, it’s windy, and
there’s no infrastructure. If you can deploy WiMAX here, you can probably deploy it pretty
much anywhere.” Airspan Networks provided the WiMAX infrastructure, using its high-
performance base stations and subscriber stations to create a high-performance network
backbone capable of transmitting data rates required for top-quality video. The team set up
its base station atop the hotel that served as the events’ starting point and finish line, one of
the lowest geographical points of the course.
The team was operating in a non-line-of-sight environment, and highly porous volca-
nic rock absorbed the wireless signals more than other types of rock would. Airspan set
up relays on the ridge sides of the volcano, the side of the road, and the sides of build-
ings to keep signal fidelity. Cameras in locations without power used generators. This was
a wireless deployment in every sense of the word, demonstrating the viability of WiMAX
technology. Footage of the athletes could be incorporated into the live webcast, along with
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pre-event interviews, commentary, and film from cameras on motorcycles and helicopters.
WTC produced the broadcast in a live production studio on-site that streamed the video data
to the global servers that run the Ironmanlive.com website.
WTC also set up eight wireless hotspots, including five along the event course and at the
finish line. An Internet café was stocked with laptops, providing convenient wireless access
to event information and the Ironmanlive.com site. Two giant-screen displays showed the live
program coverage from Ironmanlive.com . Staff used additional mobile devices to manage the
race and monitor each athlete’s progress. For example, if athletes needed medical care, the
health care team used a PDA to scan their RFID tags and instantly access medical records and
local contact information.
Ironman’s transformative use of wireless computing makes sound business sense.
It draws larger audiences and higher advertising revenues for WTC and NBC, which uses
WTC’s Ironman Triathlon programming in its own broadcast of the event a month or two later.
Larger audiences and better experiences for athletes and their families ultimately lead to
greater participation in the Ironman Triathlon and its more than two dozen qualifying races,
and to increased popularity for the sport. 1
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253Technical Foundations of MIS Module 2
section 7.1 Connectivity: The Business Value of a Networked World
L E A R N I N G O U T C O M E S
7.1 Explain the five different networking elements creating a connected world.
7.2 Identify the benefits and challenges of a connected world.
OVERVIEW OF A CONNECTED WORLD
Computer networks are continuously operating all over the globe supporting our
24/7/365 always on and always connected lifestyles. You are probably using several dif-
ferent networks right now without even realizing it. You might be using a school’s net-
work to communicate with teachers, a phone network to communicate with friends, and
a cable network to watch TV or listen to the radio. Networks enable telecommunications
or the exchange of information (voice, text, data, audio, video). The telecommunication
industry has morphed from a government-regulated monopoly to a deregulated market
where many suppliers ferociously compete. Competing telecommunication companies
offer local and global telephony services, satellite service, mobile radio, cable television,
cellular phone services, and Internet access (all of which are detailed in this chapter).
Businesses everywhere are increasingly using networks to communicate and collaborate
with customers, partners, suppliers, and employees. As a manager, you will face many
different communication alternatives, and the focus of this chapter is to provide you with
an initial understanding of the different networking elements you will someday need to
select (see Figure 7.1 ).
LO 7.1: Explain the five different
networking elements creating a con-
nected world.
FIGURE 7.1
Networking Elements Creating a
Connected World
NETWORK CATEGORIES
LAN, WAN, MAN
NETWORK PROVIDERS
ISP, NSP, RSP
NETWORK ACCESS
TECHNOLOGIES
DSL, Cable Modem,
Broadband
NETWORK PROTOCOLS
TCP/IP, DNS, DHCP
NETWORK CONVERGENCE
VolP, UC, IPTV
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Network Categories
The general idea of a network is to allow multiple devices to communicate at the highest
achievable speeds and, very importantly, to reduce the cost of connecting. How a par-
ticular network achieves these goals depends in part on how it is physically constructed
and connected. Networks are categorized based on geographic span: local area net-
works, wide area networks, and metropolitan area networks. Today’s business networks
include a combination of all three.
A local area network (LAN) connects a group of computers in close proximity, such
as in an office building, school, or home. LANs allow sharing of files, printers, games, and
other resources. A LAN also often connects to other LANs, and to wide area networks.
A wide area network (WAN) spans a large geographic area such as a state, province, or
country. Perhaps the best example is the Internet. WANs are essential for carrying out the
day-to-day activities of many companies and government organizations, allowing them
to transmit and receive information among their employees, customers, suppliers, busi-
ness partners, and other organizations across cities, regions, and countries and around
the world. In networking, attenuation represents the loss of a network signal strength
measured in decibels (dB) and occurs because the transmissions gradually dissipate in
strength over longer distances or because of radio interference or physical obstructions
such as walls. A repeater receives and repeats a signal to extend its attenuation or range.
WANs often connect multiple smaller networks, such as local area networks or met-
ropolitan area networks. A metropolitan area network (MAN) is a large computer net-
work usually spanning a city. Most colleges, universities, and large companies that span
a campus use an infrastructure supported by a MAN. Figure 7.2 shows the relationships
and a few differences between a LAN, WAN, and MAN. A cloud image often represents
the Internet or some large network environment.
While LANs, WANs, and MANs all provide users with an accessible and reliable net-
work infrastructure, they differ in many dimensions; two of the most important are cost
and performance. It is easy to establish a network between two computers in the same
room or building, but much more difficult if they are in different states or even countries.
This means someone looking to build or support a WAN either pays more or gets less per-
formance, or both. Ethernet is the most common connection type for wired networking
and is available in speeds from 10 mbps all the way up to 10,000 Mbps (10 Gbit). The most
common wire used for Ethernet networking is Cat5 (Category 5) and the connectors used
are RJ45, slightly larger than the RJ11 connectors used by phones, but the same shape.
Network Providers
The largest and most important network, the Internet has evolved into a global informa-
tion superhighway. Think of it as a network made up of millions of smaller networks,
each with the ability to operate independently of, or in harmony with, the others. Keep-
ing the Internet operational is no simple task. No one owns or runs it, but it does have
an organized network topology. The Internet is a hierarchical structure linking different
levels of service providers, whose millions of devices, LANs, WANs, and MANs supply all
the interconnections. At the top of the hierarchy are national service providers (NSPs),
private companies that own and maintain the worldwide backbone that supports the
Internet. These include Sprint, Verizon, MCI (previously UUNet/WorldCom), AT&T,
NTT, Level3, Century Link, and Cable & Wireless Worldwide. Network access points
(NAPs) are traffic exchange points in the routing hierarchy of the Internet that connects
NSPs. They typically have regional or national coverage and connect to only a few NSPs.
Thus, to reach a large portion of the global Internet, a NAP needs to route traffic through
one of the NSPs to which it is connected. 2
One step down in the hierarchy is the regional service provider. Regional service pro-
viders (RSPs) offer Internet service by connecting to NSPs, but they also can connect
directly to each other. Another level down is an Internet service provider (ISP), which
specializes in providing management, support, and maintenance to a network. ISPs vary
services provided and available bandwidth rates. ISPs link to RSPs and, if they are geo-
graphically close, to other ISPs. Some also connect directly to NSPs, thereby sidestepping
the hierarchy. Individuals and companies use local ISPs to connect to the Internet, and
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large companies tend to connect directly using an RSP. Major ISPs in the United States
include AOL, AT&T, Comcast, Earthlink, and NetZero. The further up the hierarchy, the
faster the connections and the greater the bandwidth. The backbone shown in Figure 7.3
is greatly simplified, but it illustrates the concept that basic global interconnections are
provided by the NSPs, RSPs and ISPs. 3
Network Access Technologies
Performance is the ultimate goal of any computer, computer system, or network. Perfor-
mance is directly related to the network’s speed of data transfer and capacity to handle
transmission. A network that does not offer adequate performance simply will not get
the job done for those who rely on it. Luckily, networks can be upgraded and expanded
if performance is inadequate.
We measure network performance in terms of bandwidth, the maximum amount of
data that can pass from one point to another in a unit of time. Bandwidth is similar to
water traveling through a hose. If the hose is large, water can flow through it quickly.
Data differs from a hose in that it must travel great distances, especially on a WAN, and
not all areas of the network have the same bandwidth. A network essentially has many
different hoses of unequal capacity connected together, which will restrict the flow of
data when one is smaller than the others. Therefore, the speed of transmission of a net-
work is determined by the speed of its smallest bandwidth.
FIGURE 7.2
Network Categories: LAN,
WAN, and MAN
Network Network
Local Area Network (LAN)
Example : City Library
Metropolitan Area Network (MAN)
Example: University Campus
West Campus East Campus
MAN
Network
Wide Area Network (WAN)
Example: Internet
Sydney, Australia London, England
Network
Denver, Colorado Boston, Massachusetts
WAN
Network
Network
Network
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A bit (short for binary digit) is the smallest element of data and has a value of either 0 or
1. Bandwidth is measured in terms of bit rate (or data rate ), the number of bits transferred
or received per unit of time. Figure 7.4 represents bandwidth speeds in terms of bit rates.
Bandwidth is typically given in bits per second (abbreviated as bps) and bytes per second
(abbreviated as Bps). It is important to note that these two terms are not interchangeable.
A modem is a device that enables a computer to transmit and receive data. A connec-
tion with a traditional telephone line and a modem, which most residential users had in
the 1990s, is called dial-up access. Today, many users in underdeveloped countries and in
rural areas in developed countries still use dial-up. It has two drawbacks. First, it is slow,
providing a maximum rate of 56 Kbps. (At 56 Kbps, it takes eight minutes to download a
three-minute song and more than a day to download a two-hour movie.) Second, dial-up
modem access ties up the telephone line so the user cannot receive and make phone calls
while online. The good news is this is not as big an issue as it once was as many people
have cell phones and no longer require using the telephone line for making phone calls. 4
Once the most common connection method worldwide, dial-up is quickly being
replaced by broadband. Broadband is a high-speed Internet connection that is always
connected. High-speed in this case refers to any bandwidth greater than 2 Mbps. Not
long ago, broadband speeds were available only at a premium price to support large
companies’ high-traffic networks. Today, inexpensive access is available for home use
and small companies.
The two most prevalent types of broadband access are digital subscriber lines and
high-speed Internet cable connections. Digital subscriber line (DSL) provides high-
speed digital data transmission over standard telephone lines using broadband modem
technology, allowing both Internet and telephone services to work over the same
FIGURE 7.3
Internet Topology
NSP
International
Connection
International
Connection
ISP
RSP
NAP
NSP
NAP
NSP
RSP
ISP
ISP
RSP RSP
ISPISP
ISP
ISP
ISP ISP
ISP
ISP
ISP
ISP
ISP
Bandwidth Abbreviation Bits per Second (bps) Example
Kilobits Kbps 1 Kbps 5 1,000 bps Traditional modem 5 56 Kbps
Megabits Mbps 1 Mbps 5 1,000 Kbps Traditional Ethernet 5 10 MbpsFast
Ethernet 5 100 Mbps
Gigabits Gbps 1 Gbps 5 1,000 Mbps Gigabit Ethernet 5 1,000 Mbps
FIGURE 7.4
Bandwidth Speeds
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phone lines. Consumers typically obtain DSL Internet access from the same company
that provides their wired local telephone access, such as AT&T or Century Link. Thus,
a customer’s telephone provider is also its ISP, and the telephone line carries both data
and telephone signals using a DSL modem. DSL Internet services are used primarily in
homes and small businesses.
DSL has two major advantages over dial-up. First, it can transmit and receive data much
faster—in the 1 to 2 Mbps range for downloading and 128 Kbps to 1 Mbps for upload-
ing. (Most high-speed connections are designed to download faster than they upload,
because most users download more—including viewing web pages—than they upload.)
The second major advantage is that because they have an “always on” connection to their
ISP, users can simultaneously talk on the phone and access the Internet. DSL’s disadvan-
tages are that it works over a limited physical distance and remains unavailable in many
areas where the local telephone infrastructure does not support DSL technology. 5
While dial-up and DSL use local telephone infrastructure, high-speed Internet cable
connections provide Internet access using a cable television company’s infrastructure
and a special cable modem. A cable modem (or broadband modem) is a type of digital
modem used with high-speed cable Internet service. Cable modems connect a home
computer (or network of home computers) to residential cable TV service, while DSL
modems connect to residential public telephone service. The ISP typically supplies
the cable and DSL modems. Cisco Systems is one of the largest companies producing
computer networking products and services, including the Linksys brand of network-
ing components. Typically, broadband or high-speed Internet service has an average
transfer rate 10 times faster than conventional dial-up service. Telecommuting (virtual
workforce) allows users to work from remote locations, such as home or a hotel, using
high-speed Internet to access business applications and data.
Unlike DSL, high-speed Internet cable is a shared service, which means everyone in
a certain radius, such as a neighborhood, shares the available bandwidth. Therefore, if
several users are simultaneously downloading a video file, the actual transfer rate for
each will be significantly lower than if only one person were doing so. On average, the
available bandwidth using cable can range from 512 Kbps to 50 Mbps for downloading
and 786 Kbps for uploading. 6
Another alternative to DSL or high-speed Internet cable is dedicated communica-
tions lines leased from AT&T or another provider. The most common are T1 lines, a type
of data connection able to transmit a digital signal at 1.544 Mpbs. Although this speed
might not seem impressive, and T1 lines are more expensive than DSL or cable, they
offer far greater reliability because each is composed of 24 channels, creating 24 separate
connections through one line. If a company has three separate plants that experience a
high volume of data traffic, it might make sense to lease lines for reliability of service. 7
A company must match its needs with Internet access methods. If it always needs high
bandwidth access to communicate with customers, partners, or suppliers, a T1 line may
be the most cost-effective method. Figure 7.5 provides an overview of the main meth-
ods for Internet access. The bandwidths in the figure represent average speeds; actual
speeds vary depending upon the service provider and other factors such as the type of
cabling and speed of the computer. 8
Broadband over power line (BPL) technology makes possible high-speed Internet
access over ordinary residential electrical lines and offers an alternative to DSL or high-speed
Access Technology Description Bandwidth Comments
Dial-up On-demand access using a modem and
regular telephone line.
Up to 56 Kbps Cheap but slow compared with other
technologies.
DSL Always-on connection. Special modem
needed.
Download: 1 Mbps to 2 Mbps Upload:
128 Kbps to 1 Mbps
Makes use of the existing local tele-
phone infrastructure.
Cable Always-on connection. Special cable
modem and cable line required.
Download: 512 Kbps to 50 Mbps
Upload: 786 Kbps
It is a shared resource with other users
in the area.
T1 Leased lines for high bandwidth. 1.544 Mbps More expensive than dial-up, DSL, or
cable.
FIGURE 7.5
Types of Internet Access
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cable modems. BPL works by transmitting data over electrical lines using signaling frequen-
cies higher than the electrical (or voice in the case of DSL) signals. BPL allows computer
data to be sent back and forth across the network with no disruption to power output in the
home. Many homeowners are surprised to learn that their electrical system can serve as a
home network running speeds between 1 and 3 Mbps with full Internet access. Unfortu-
nately, limitations such as interference and availability have affected BPL’s popularity.
Network Protocols
A packet is a single unit of binary data routed through a network. Packets directly impact
network performance and reliability by subdividing an electronic message into smaller
more manageable packets. Standard packet formats include a packet header, packet body
containing the original message, and packet footer. The packet header lists the destination
(for example, in IP packets the destination is the IP address) along with the length of the
message data. The packet footer represents the end of the packet or transmission end. The
packet header and packet footer contain error-checking information to ensure the entire
message is sent and received. The receiving device reassembles the individual packets into
the original by stripping off the headers and footers and then piecing together the packets
in the correct sequence. Traceroute is a utility application that monitors the network path
of packet data sent to a remote computer. Traceroute programs send a series of test mes-
sages over the network (using the name or IP address) until the last message finally reaches
its destination. When finished, traceroute displays the path from the initial computer to the
destination computer. A proxy is software that prevents direct communication between a
sending and receiving computer and is used to monitor packets for security reasons.
A protocol is a standard that specifies the format of data as well as the rules to be
followed during transmission. Computers using the same protocol can communicate
easily, providing accessibility, scalability, and connectability between networks. File
transfer protocol (FTP) is a simple network protocol that allows the transfer of files
between two computers on the Internet. To transfer files with FTP, the FTP client pro-
gram initiates a connection to a remote computer running FTP “server” software. After
completing the connection the client can choose to send and/or receive files electroni-
cally. Network access technologies use a standard Internet protocol called transmission
control protocol/Internet protocol (TCP/IP), which provides the technical foundation
for the public Internet as well as for large numbers of private networks. One of the pri-
mary reasons for developing TCP/IP was to allow diverse or differing networks to con-
nect and communicate with each other, essentially allowing LANs, WANs, and MANs to
grow with each new connection. An IP address is a unique number that identifies where
computers are located on the network. IP addresses appear in the form of xxx.xxx.xxx.
xxx, though each grouping can be as short as a single digit.
TCP (the TCP part of TCP/IP) verifies the correct delivery of data because data can
become corrupt when traveling over a network. TCP ensures the size of the data packet is
the same throughout its transmission and can even retransmit data until delivered cor-
rectly. IP (the IP part of TCP/IP) verifies the data are sent to the correct IP address, num-
bers represented by four strings of numbers ranging from 0 to 255 separated by periods.
For example, the IP address of www.apple.com is 97.17.237.15.
Here is another way to understand TCP/IP. Consider a letter that needs to go from the
University of Denver to Apple’s headquarters in Cupertino, California. TCP makes sure the
envelope is delivered and does not get lost along the way. IP acts as the sending and receiv-
ing labels, telling the letter carrier where to deliver the envelope and who it was from. The
Postal Service mainly uses street addresses and zip codes to get letters to their destinations,
which is really what IP does with its addressing method. Figure 7.6 illustrates this example.
However, unlike the Postal Service, which allows multiple people to share the same physi-
cal address, each device using an IP address to connect to the Internet must have a unique
address or else it could not detect which individual device a request should be sent to.
One of the most valuable characteristics of TCP/IP is how scalable its protocols have
proven to be as the Internet has grown from a small network with just a few machines to
a huge internetwork with millions of devices. While some changes have been required
periodically to support this growth, the core of TCP/IP is the same as it was more than
25 years ago. 9 Dynamic host configuration protocol (DHCP) allows dynamic IP address
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allocation so users do not have to have a preconfigured IP address to use the network.
DHCP allows a computer to access and locate information about a computer on the
server, enabling users to locate and renew their IP address. ISPs usually use DHCP to allow
customers to join the Internet with minimum effort. DHCP assigns unique IP addresses
to devices, then releases and renews these addresses as devices leave and return to the
network.
If there is one flaw in TCP/IP, it is the complexity of IP addresses. This is why we use a
domain name system (DNS) to convert IP addresses into domains, or identifying labels
BUSINESS DRIVEN DISCUSSION
Net Neutrality—the great debate has been raging for some time now, with the
battle lines clearly drawn. Net neutrality is about ensuring that everyone has
equal access to the Internet. It is the founding principle that all consumers
should be able to use the Internet and be free to access its resources without
any form of discrimination. However, regulation on net neutrality is currently
in flux. The Federal Communications Commission (FCC) recently required
Comcast to stop slowing down or blocking subscriber access to many peer-to-
peer file-sharing sites such as BitTorrent. Users of many peer-to-peer networks
often transfer large files, which can be legitimate in nature (such as download-
ing open source applications) or pirated (such as illegal copies of the latest
Hollywood video). Shortly after the FCC ruling, a federal appeals court over-
turned that decision, unanimously ruling that the agency did not have the legal
authority to tell Comcast what to do.
On one side of the debate are the ISPs, such as Comcast, that are building
the Internet infrastructure and want to charge customers relative to their use,
namely, the amount of bandwidth they consume. The ISPs argue more and
more users accessing bandwidth-intense resources provided by the likes of
YouTube and Hulu place huge demands on their networks. They want Internet
access to move from a flat-rate pricing structure to a metered service. The con-
tent providers, such as Google, support the counterargument that if ISPs move
toward metered schemes, this may limit the usage of many resources on the
Internet such as iTunes and Netflix. A metered service may also stifle the inno-
vative opportunities the “open” Internet provides.
Do you agree that the government should control the Internet? Should web-
site owners be legally forced to receive or transmit information from competi-
tors or other websites they find objectionable? Provide examples of when net
neutrality might be good for a business and when net neutrality might be bad
for a business. Overall, is net neutrality good or bad for business? 10
Net Neutrality:
The Great
Debate
APPLY YOUR KNOWLEDGE
FIGURE 7.6
Example of TCP/IP
FROM: 130.253.2.7
TO: 97.17.237.15
INTERNET
FROM: 130.253.2.7
TO: 97.17.237.15
IP
University of Denver
Send Receive
Apple
——————
——————
——————
——————
TCP: Message sent TCP: Message received
Apple
University of Denver
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that use a variety of recognizable naming conventions. Therefore, instead of trying
to remember 97.17.237.15, users can simply specify a domain name to access a com-
puter or website, such as www.apple.com . Figure 7.7 lists the most common Internet
domains. 11
The list of domain names is expected to expand in the coming years to include enti-
ties such as .pro (for accountants, lawyers, and physicians), .aero (for the air-transport
industry), and .museum (for museums). The creation of an .xxx domain was recently
approved for pornographic content. Countries also have domain names such as .au
(Australia), .fr (France), and .sp (Spain).
Websites with heavy traffic often have several computers working together to share
the load of requests. This offers load balancing and fault tolerance, so when requests
are made to a popular site such as www.facebook.com , they will not overload a single
computer and the site does not go down if one computer fails. A single computer can
also have several host names—for instance, if a company is hosting several websites on a
single server, much as an ISP works with hosting.
Domain names are essentially rented, with renewable rights, from a domain name
registrar, such as godaddy.com . Some registrars only register domain names, while oth-
ers provide hosting services for a fee. ICANN (Internet Corporation for Assigning Names
and Numbers) is a nonprofit governance and standards organization that certifies all
domain name registrars throughout the world. With the certification, each registrar is
authorized to register domain names, such as .com , .edu , or .org . 12
Network Convergence
In part due to the explosive use of the Internet and connectivity of TCP/IP, there is a con-
vergence of network devices, applications, and services. Consumers, companies, educa-
tional institutions, and government agencies extensively engage in texting, web surfing,
videoconference applications, online gaming, and ebusiness. Network convergence is
the efficient coexistence of telephone, video, and data communication within a single
network, offering convenience and flexibility not possible with separate infrastructures.
Almost any type of information can be converted into digital form and exchanged over
a network. Network convergence then allows the weaving together of voice, data, and
video. The benefits of network convergence allow for multiple services, multiple devices,
but one network, one vendor, and one bill, as suggested by Figure 7.8 .
One of the challenges associated with network convergence is using the many dif-
ferent tools efficiently and productively. Knowing which communication channel—PC,
text message, videoconference—to use with each business participant can be a chal-
lenge. Unified communications (UC) is the integration of communication channels
into a single service. UC integrates communication channels allowing participants to
communicate using the method that is most convenient for them. UC merges instant
messaging, videoconferencing, email, voice mail, and VoIP. This can decrease the FIGURE 7.7
Internet Domains
.biz
.com
.edu
.gov
.info
.mil
.net
.org
Reserved for businesses
Reserved for commercial organizations and businesses
Reserved for accredited postsecondary institutions
Reserved for U.S. government agencies
Open to any person or entity, but intended for information providers
Reserved for U.S. military
Open to any person or entity
Reserved for nonprofit organizations
Domain Name Use
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communication costs for a business while enhancing the way individuals communicate
and collaborate.
One area experiencing huge growth in network convergence is the use of the Internet
for voice transmission. Voice over IP (VoIP) uses IP technology to transmit telephone
calls. For the first time in more than 100 years, VoIP is providing an opportunity to bring
about significant change in the way people communicate using the telephone. VoIP ser-
vice providers—specialists as well as traditional telephone and cable companies and
some ISPs—allow users to call anyone with a telephone number, whether local, long dis-
tance, cellular, or international.
Two ways to use VoIP for telephone calls are through a web interface that allows
users to make calls from their computer and through a phone attached to a VoIP
adapter that links directly to the Internet through a broadband modem. Figure 7.9 illus-
trates these two ways along with the use of VoIP-enabled phones, bypassing the need
for an adapter.
VoIP services include fixed-price unlimited local and long-distance calling plans
(at least within the United States and Canada), plus a range of interesting features,
such as:
■ The ability to have more than one phone number, including numbers with different
area codes.
■ Integrating email and voice mail so users can listen to their voice mail using their
computer.
■ The ability to receive personal or business calls via computer, no matter where the
user is physically located. 13
FIGURE 7.8
The Benefits of Network
Convergence
Network Convergence
Multiple Services One Provider
• Internet Access • One bill
• One point of contact
• One customer support center
• VolP
• IPTV
FIGURE 7.9
VoIP Connectivity
VoIP
Phone
Adaptor
INTERNET
Broadband
Modem
Broadband
Modem
Standard
Phone
VoIP Phone
PC
PC
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The biggest benefit of VoIP is its low cost. Because it relies on the Internet connection,
however, service can be affected if the bandwidth is not appropriate or Internet access is
not available.
Skype is a perfect example of IP applied to telephone use. Unlike typical VoIP sys-
tems that use a client and server infrastructure, Skype uses a peer-to-peer network.
Peer-to-peer (P2P) is a computer network that relies on the computing power and
bandwidth of the participants in the network rather than a centralized server. Skype’s
user directory is distributed among the users in its network, allowing scalability with-
out a complex and expensive centralized infrastructure. Peer-to-peer networks became
an overnight sensation years ago through a service called Napster that distributed digi-
tal music illegally . Skype has found a way to use this resource to provide value to its
users. 14
As the popularity of VoIP grows, governments are becoming more interested in reg-
ulating it as they do traditional telephone services. In the United States, the Federal
Communications Commission requires compliance among VoIP service providers com-
parable to those for traditional telephone providers such as support for local number
portability, services for the disabled, and law enforcement for surveillance, along with
regulatory and other fees.
An exciting and new convergence is occurring in the area of television with Inter-
net Protocol TV (IPTV), which distributes digital video content using IP across the
Internet and private IP networks. Comcast provides an example of a private IP net-
work that also acts as a cable TV provider. Traditional television sends all program
signals simultaneously to the television, allowing the user to select the program by
selecting a channel. With IPTV, the user selects a channel and the service provider
sends only that single program to the television. Like cable TV, IPTV uses a box that
acts like a modem to send and receive the content (see Figure 7.10 ). A few IPTV fea-
tures include:
■ Support of multiple devices: PCs and televisions can access IPTV services.
■ Interactivity with users: Interactive applications and programs are supported by
IPTV’s two-way communication path.
■ Low bandwidth: IPTV conserves bandwidth because the provider sends only a
single channel.
■ Personalization: Users can choose not only what they want to watch, but also when
they want to watch it. 15 FIGURE 7.10
IPTV Components
INTERNET
HDTV
IPTV Set-Top Box
IPTV Service Provider
World TV Broadcasts
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BENEFITS OF A CONNECTED WORLD
Before networks, transferring data between computers was time-consuming and labor-
intensive. People had to physically copy data from machine to machine using a disk.
Networks offer many advantages for a business including:
■ Sharing resources
■ Providing opportunities
■ Reducing travel
Sharing Resources
Resource sharing makes all applications, equipment (such as a high-volume printer),
and data available to anyone on the network, without regard to the physical location
of the resource or the user. Sharing physical resources also supports a sustainable MIS
infrastructure, allowing companies to be agile, efficient, and responsible at the same
time. Cloud computing (see Chapter 5) and virtualization consolidate information as
well as systems that enhance the use of shared resources. By using shared resources,
cloud computing and virtualization allow for collective computing power, storage, and
software, in an on-demand basis.
Perhaps even more important than sharing physical resources is sharing data. Most
companies, regardless of size, depend not just on their customer records, inventories,
accounts receivable, financial statements, and tax information, but also on their ability
to share these, especially with operations in remote locations. Networking with a LAN,
WAN, or MAN allows employees to share data quickly and easily and to use applications
such as databases and collaboration tools that rely on sharing. By sharing data, networks
have made business processes more efficient. For example, as soon as an order is placed,
anyone in the company who needs to view it—whether in marketing, purchasing, manu-
facturing, shipping, or billing—can do so.
Intranets and extranets let firms share their corporate information securely. An
intranet is a restricted network that relies on Internet technologies to provide an
LO 7.2: Identify the benefits and
challenges of a connected world.
BUSINESS DRIVEN DEBATE
As more Internet-related services move beyond delivering content just to the
computer, Google wants to bring that content into the living room. In a joint
venture, Google is teaming with Sony and Intel to introduce IPTV services either
through new Internet accessible TVs or a new set-top box allowing consumers
to search for content, browse the web, view photo albums, and more. Google
would provide the needed software, along with advertisement opportunities;
Sony would manufacture the new TVs; and Intel would supply the processors
that make it all happen. While consumers can already watch TV shows on their
computers as well as on a TV, porting Internet content to a HDTV screen seems
like the next logical step, which is the magic of IPTV.
However, this is a very crowded playing field with many firms competing
for the living room space. Google is competing with the likes of VUDU, TiVo,
Yahoo! Connected TV, Netflix, Roku, Rovi, DivX, Apple TV, Xbox 360, Boxee,
CinemaNow, Popbox, and many others, with no clear winner, at least not at the
moment.
Brainstorm the advantages and disadvantages of associated with IPTV. Do
you think Google TV will be successful? Why or why not? 16
Google TV
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Internet-like environment within the company for information sharing, communications,
collaboration, web publishing, and the support of business processes, as suggested
in Figure 7.11 . This network is protected by security measures such as passwords,
encryption, and firewalls, and thus only authorized users can access it. Intranets provide
a central location for all kinds of company-related information such as benefits, sched-
ules, strategic directions, and employee directories. 17
An extranet is an extension of an intranet that is available only to authorized out-
siders, such as customers, partners, and suppliers. Having a common area where these
parties can share information with employees about, for instance, order and invoice
processing can be a major competitive advantage in product development, cost control,
marketing, distribution, and supplier relations. Companies can establish direct private
network links among themselves or create private, secure Internet access, in effect a
“private tunnel” within the Internet, called a virtual private network (VPN). Figure 7.12
illustrates using a VPN to connect to a corporate server.
Extranets enable customers, suppliers, consultants, subcontractors, business pros-
pects, and others to access selected intranet websites and other company network
resources that allow the sharing of information. Consultants and contractors can
facilitate the design of new products or services. Suppliers can ensure that the raw
materials necessary for the company to function are in stock and can be delivered in a
FIGURE 7.11
Intranet Uses
Intranets
Business Operations
and Management
Example: Developing custom
applications like order
processing, inventory control,
and sales management.
Employees within the
company can access and run
such applications using web
browsers from anywhere on
the network whenever
needed.
Communications and
Collaboration
Example: Using a browser to
send and receive email, voice
mail, documents, and web
pages to communicate with
others within the organization,
as well as externally through
the Internet.
Web Publishing
Example:
Newsletters, technical
documentations, and product
catalogs can be published in a
variety of ways, including web
pages, email, and as part of
organizational business
applications.
FIGURE 7.12
Using a VPN
INTERNET
Company Server
Supplier using a VPN
Customer using a VPN
A VPN acts like a “tunnel”
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timely fashion. Customers can access ordering and payment functions and check order
status. The extranet links the company to the outside world in a way that improves its
operations.
Extranets provide business value in several ways. First, by relying on web browsers
they make customer and supplier access to company resources easy and fast. Second,
they enable a company to customize interactive web-enabled services for the intended
audience, to build and strengthen strategic relationships with customers and suppliers.
Finally, extranets can allow and improve collaboration with customers and other busi-
ness partners.
Providing Opportunities
Ebusiness can enhance the opportunities of manufacturers that buy parts from a variety
of suppliers. Using networks, they can order parts electronically when needed, reducing
the need for large inventories and enhancing efficiency.
Networks allow companies to sell to consumers via the Internet too, offering books,
clothing, airline tickets, and more. Most midsize and larger companies also have a
marketing presence on the web and provide extensive online information about their
products and services. The Internet has lowered entry barriers for start-ups and small
companies, which can now immediately tap potential customers online without hiring
an expensive marketing company.
Reducing Travel
Networks provide the means for videoconferencing. Using this technology, employees
at distant locations can meet without spending time and money on travel, while seeing
and hearing each other as if they were in the same location. Nor do all employees have to
come to the office; some can telecommute using Internet connections for both data and
voice and, thanks to intranets and extranets, maintain the same access to information as
they do at work. Telecommuting has been greatly enhanced by VPNs, videoconferenc-
ing, and VoIP.
BUSINESS DRIVEN STARTUP
ViVu is transforming the way people interact using videoconferencing. The
company has several useful services, including VuRoom, which uses a Skype
plug-in that allows remote users to collaborate with presentation and desk-
top sharing functionalities. The company uses a Software-as-a-Service (SaaS)
model, allowing consumers to purchase a license to host an event of varying
size. Teleconference members can participate from any platform (PC or Mac)
using a web browser without having to download any proprietary viewer or
needing any special hardware. Attendees only need a regular broadband
Internet connection to receive the service. VuRoom can be used for both small
videoconferences and big corporate web-based training sessions. The compa-
ny’s flagship service, VuCast, enables meeting organizers to create, publish, and
manage large-scale, high-quality video events that can accommodate more
than 10,000 participants.
What are the advantages of using videoconferencing? What are the disad-
vantages of using videoconferencing? Would you participate in a teleconfer-
ence with 10,000 users? Why or why not? What types of events does ViVu best
serve? 18
ViVu Video-
conferencing
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CHALLENGES OF A CONNECTED WORLD
Networks have created a diverse, yet globally connected world. By eliminating time and
distance, networks make it possible to communicate in ways not previously imaginable.
Even though networks provide many business advantages, they also create increased
challenges in (1) security and (2) social, ethical, and political issues.
Security
Networks are a tempting target for mischief and fraud. A company first has to ensure
proper identification of users and authorization of network access. Outside suppliers
might be allowed to access production plans via the company’s extranet, for example,
but they must not be able to see other information such as financial records. The com-
pany should also preserve the integrity of its data; only qualified users should be allowed
to change and update data, and only well-specified data. Security problems intensify on
the Internet where companies need to guard against fraud, invalid purchases, and mis-
appropriation of credit card information.
Two methods for encrypting network traffic on the web are secure sockets layer
and secure hypertext transfer protocol. Secure sockets layer (SSL) is a standard secu-
rity technology for establishing an encrypted link between a web server and a browser,
ensuring that all data passed between them remain private. Millions of websites use SSL
to protect their online transactions with their customers.
To create an SSL connection, a web server requires an SSL Certificate, an electronic
document that confirms the identity of a website or server and verifies that a public key
belongs to a trustworthy individual or company. (Public key is described in Chapter 4.)
Typically, an SSL Certificate will contain a domain name, the company name and
address, and the expiration date of the certificate and other details. Verisign is the leading
Internet Certification Authority that issues SSL Certificates. When a browser connects
to a secure site, it retrieves the site’s SSL Certificate, makes sure it has not expired, and
confirms a Certification Authority has issued it. If the certificate fails on any one of these
validation measures, the browser will display a warning to the end user that the site is
not secure. If a website is using SSL, a lock icon appears in the lower right-hand corner
of the user’s web browser.
Secure hypertext transfer protocol (SHTTP or HTTPS) is a combination of HTTP
and SSL to provide encryption and secure identification of an Internet server. HTTPS
protects against interception of communications, transferring credit card informa-
tion safely and securely with special encryption techniques. When a user enters a web
address using https:// the browser will encrypt the message. However, the server receiv-
ing the message must be configured to receive HTTPS messages.
In summary, each company needs to create a network security policy that specifies
aspects of data integrity availability and confidentiality or privacy as well as account-
ability and authorization. With a variety of security methods, such as SSL and SHTTP, a
company can protect its most important asset, its data.
Social, Ethical, and Political Issues
Only a small fraction of the world’s population has access to the Internet, and some
people who have had access in the past have lost it due to changes in their circum-
stances such as unemployment or poverty. Providing network access to those who want
or need it helps to level the playing field and removes the digital divide, a worldwide
gap giving advantage to those with access to technology. Organizations trying to bridge
the divide include the Boston Digital Bridge Foundation, which concentrates on local
schoolchildren and their parents, helping to make them knowledgeable about comput-
ers, programs, and the Internet. Other organizations provide inexpensive laptops and
Internet access in low-income areas in developing countries. 19
Another social issue with networking occurs with newsgroups or blogs where like-
minded people can exchange messages. If the topics are technical in nature or sports
related such as cycling, few issues arise. Problems can begin when social media feature
topics people can be sensitive about, such as politics, religion, or sex, or when someone
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posts an offensive message to someone else. Different countries have different and even
conflicting laws about Internet use, but because the Internet knows no physical bound-
aries, communication is hard to regulate, even if anyone could. Some people believe net-
work operators should be responsible for the content they carry, just as newspapers and
magazines are. Operators, however, feel that like the post office or phone companies,
they cannot be expected to police what users say. If they censored messages, how would
they avoid violating users’ rights to free speech?
Many employers read and censor employee emails and limit employee access to dis-
tracting entertainment such as YouTube and social networks such as Facebook. Spend-
ing company time “playing” is not a good use of resources, they believe.
Social issues can even affect the government and its use of networks to snoop on citi-
zens. The FBI has installed a system at many ISPs to scan all incoming and outgoing
email for nuggets of interest. The system was originally called Carnivore but bad public-
ity caused it to be renamed DCS1000. While the name is much more generic, its goal
is the same—locate information on illegal activities by spying on millions of people.
A common conception associated with networking technologies is “Big Brother is watch-
ing!” People are wary of how much information is available on the Internet and how eas-
ily it can fall into the wrong hands. 20
section 7.2 Mobility: The Business Value of a Wireless World
L E A R N I N G O U T C O M E S
7.3 Describe the different wireless network categories.
7.4 Explain the different wireless network business applications.
7.5 Identify the benefits and challenges of business mobility.
WIRELESS NETWORK CATEGORIES
As far back as 1896, Italian inventor Guglielmo Marconi demonstrated a wireless
telegraph, and in 1927, the first radiotelephone system began operating between the
United States and Great Britain. Automobile-based mobile telephones were offered in
1947. In 1964, the first communications satellite, Telstar, was launched, and soon after,
satellite-relayed telephone service and television broadcasts became available. Wireless
networks have exploded since then, and newer technologies are now maturing that allow
companies and home users alike to take advantage of both wired and wireless networks. 21
Before delving into a discussion of wireless networks, we should distinguish between
mobile and wireless, terms that are often used synonymously but actually have dif-
ferent meanings. Mobile means the technology can travel with the user, for instance,
users can download software, email messages, and web pages onto a laptop or other
mobile device for portable reading or reference. Information collected while on the
road can be synchronized with a PC or company server. Wireless, on the other hand,
refers to any type of operation accomplished without the use of a hard-wired connec-
tion. There are many environments in which the network devices are wireless but not
mobile, such as wireless home or office networks with stationary PCs and printers. Some
forms of mobility do not require a wireless connection; for instance, a worker can use a
wired laptop at home, shut down the laptop, drive to work, and attach the laptop to the
company’s wired network.
In many networked environments today, users are both wireless and mobile; for
example, a mobile user commuting to work on a train can maintain a VoIP call and
multiple TCP/IP connections at the same time. Figure 7.13 categorizes wireless networks
by type.
LO 7.3: Describe the different
wireless network categories .
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Personal Area Networks
A personal area network (PAN) provides communication for devices owned by a sin-
gle user that work over a short distance. PANs are used to transfer files, including email,
calendar appointments, digital photos, and music. A PAN can provide communication
between a wireless headset and a cell phone or between a computer and a wireless
mouse or keyboard. Personal area networks generally cover a range of less than 10 meters
(about 30 feet). Bluetooth is a wireless PAN technology that transmits signals over short
distances among cell phones, computers, and other devices. The name is borrowed from
Harald Bluetooth, a king in Denmark more than 1,000 years ago. Bluetooth eliminates
the need for wires, docking stations, or cradles, as well as all the special attachments that
typically accompany personal computing devices. Bluetooth operates at speeds up to
1 Mbps within a range of 33 feet or less. Devices that are Bluetooth-enabled communicate
directly with each other in pairs, like a handshake. Up to eight can be paired simultane-
ously. And Bluetooth is not just for technology devices. An array of Bluetooth-equipped
appliances, such as a television set, a stove, and a thermostat, can be controlled from a
cell phone—all from a remote location. 22
Wireless LANs
A wireless LAN (WLAN ) is a local area network that uses radio signals to transmit and
receive data over distances of a few hundred feet. An access point (AP) is the computer
or network device that serves as an interface between devices and the network. Each
computer initially connects to the access point and then to other computers on the
network. A wireless access point (WAP) enables devices to connect to a wireless net-
work to communicate with each other. WAPs with multiple-in/multiple-out (MIMO)
technology have multiple transmitters and receivers, allowing them to send and receive
greater amounts of data than traditional networking devices. Wireless fidelity (Wi-Fi) is
a means by which portable devices can connect wirelessly to a local area network, using
access points that send and receive data via radio waves. Wi-Fi has a maximum range of
about 1,000 feet in open areas such as a city park and 250 to 400 feet in closed areas such
as an office building. Wi-Fi infrastructure includes the inner workings of a Wi-Fi ser-
vice or utility, including the signal transmitters, towers, or poles, along with additional
equipment required to send out a Wi-Fi signal. Most WLANs use a Wi-Fi infrastructure in
which a wireless device, often a laptop, communicates through an access point or base
station by means of, for instance, wireless fidelity.
Areas around access points where users can connect to the Internet are often called
hotspots. Hotspots are designated locations where Wi-Fi access points are publically
available. Hotspots are found in places such as restaurants, airports, and hotels—places
where business professionals tend to gather. Hotspots are extremely valuable for those
business professionals who travel extensively and need access to business applications.
By positioning hotspots at strategic locations throughout a building, campus, or city,
network administrators can keep Wi-Fi users continuously connected to a network or
the Internet, no matter where they roam. 23
In a Wi-Fi network, the user’s laptop or other Wi-Fi-enabled device has a wireless
adapter that translates data into a radio signal and transmits it to the wireless access
point. The wireless access point, which consists of a transmitter with an antenna that is
FIGURE 7.13
Wireless Communication
Network Categories
Wireless Wide Area
Networks (WWANs)
Wireless
Metropolitan Area
Networks (WMANs)
Wireless Local Area
Networks (WLANs)
Wireless Networks
Personal Area
Networks (PANs)
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often built into the hardware, receives the signal and decodes it. The access point then
sends the information to the Internet over a wired broadband connection, as illustrated
in Figure 7.14 . When receiving data, the wireless access point takes the information
from the Internet, translates it into a radio signal, and sends it to the computer’s wireless
adapter. If too many people try to use the Wi-Fi network at one time, they can experience
interference or dropped connections. Most laptop computers come with built-in wire-
less transmitters and software to enable computers to automatically discover the exis-
tence of a Wi-Fi network.
Wi-Fi operates at considerably higher frequencies than cell phones use, which allows
greater bandwidth. The bandwidths associated with Wi-Fi are separated according to sev-
eral wireless networking standards, known as 802.11, for carrying out wireless local area
network communication. The Institute of Electrical and Electronics Engineers (IEEE)
researches and institutes electrical standards for communication and other technologies.
IEEE 802.11n (or Wireless-N) is the newest standard for wireless networking. Compared
with earlier standards such as 802.11b, Wireless-N offers faster speeds, more flexibility, and
greater range. The organization denotes different versions of the standard—for example,
Wireless-G and Wireless-N—by a lowercase letter at the end of this number. Figure 7.15
outlines the bandwidths associated with a few of these standards. 24
An increasing number of digital devices, including most laptops, netbooks, tablets
such as the iPad, and even printers are incorporating Wi-Fi technology into their design.
Cell phones are incorporating Wi-Fi so they can automatically switch from the cell net-
work to a faster Wi-Fi network where available for data communications. BlackBerrys
and iPhones can connect to an access point for data communications such as email and
web browsing, but not for voice unless they use the services of Skype or another VoIP.
Wireless MANs
A wireless MAN (WMAN) is a metropolitan area network that uses radio signals to
transmit and receive data. WMAN technologies have not been highly successful to date,
mainly because they are not widely available, at least in the United States. One with the
FIGURE 7.14
Wi-Fi Networks
Access
Point
INTERNET
Wireless Network
Broadband
Modem
Wi-Fi Standard Bandwidth
802.11a 54 Mbps
802.11b 11 Mbps
802.11g 54 Mbps
802.11n 140 Mbps
FIGURE 7.15
Wi-Fi Standards and
Bandwidths
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potential for success is Worldwide Interoperability for Microwave Access (WiMAX), a
communications technology aimed at providing high-speed wireless data over metro-
politan area networks. In many respects, WiMAX operates like Wi-Fi, only over greater
distances and with higher bandwidths. A WiMAX tower serves as an access point and
can connect to the Internet or another tower. A single tower can provide up to 3,000
square miles of coverage, so only a few are needed to cover an entire city. WiMAX can
support data communications at a rate of 70 Mbps. In New York City, for example, one or
two WiMAX access points around the city might meet the heavy demand more cheaply
than hundreds of Wi-Fi access points. WiMAX can also cover remote or rural areas where
cabling is limited or nonexistent, and where it is too expensive or physically difficult to
install wires for the relatively few users. 26
WiMAX can provide both line-of-sight and non-line-of-sight service. A non-line-of-
sight service uses a small antenna on a mobile device that connects to a WiMAX tower
less than six miles away where transmissions are disrupted by physical obstructions.
This form of service is similar to Wi-Fi but has much broader coverage area and higher
bandwidths. A line-of-sight option offers a fixed antenna that points at the WiMAX tower
from a rooftop or pole. This option is much faster than non-line-of-sight service, and the
distance between the WiMAX tower and antenna can be as great as 30 miles. Figure 7.16
illustrates the WiMAX infrastructure. 27
Some cellular companies are evaluating WiMAX as a means of increasing bandwidth
for a variety of data-intensive applications such as those used by smartphones. Sprint
Nextel and Clearwire are building a nationwide WiMAX network in the United States.
WiMAX-capable gaming devices, laptops, cameras, and even cell phones are being
manufactured by companies including Intel, Motorola, Nokia, and Samsung. 28
Wireless WAN—Cellular Communication System
A wireless WAN (WWAN) is a wide area network that uses radio signals to transmit and
receive data. WWAN technologies can be divided into two categories: cellular communi-
cation systems and satellite communication systems.
Although mobile communications have been around for generations, including the
walkie-talkies of the 1940s and mobile radiophones of the 1950s, it was not until 1983 that
cellular telephony became available commercially. A cell phone is a device for voice and
BUSINESS DRIVEN MIS
Who would have thought that a car could be hacked? But that is exactly what
happened in Austin, Texas. About a hundred cars were broken into, not by the
usual method of either picking the lock or smashing a window but instead via
a Wi-Fi connection. A local dealership, where all the cars were purchased, had
installed a Wi-Fi-enabled black box under the dashboard that could disable
the car and set off the horn if the owner did not make payments. However, in
this case, the owners were not in arrears, but the victims of a recently laid-off
employee at the dealership who was seeking revenge by going into the web-
based system to disable the cars one by one. After someone at the dealership
figured out the cars had been hacked, the password that allowed authorization
to the black boxes was quickly changed.
Is the black box a good idea? Do you consider this an ethical business prac-
tice? If you had bought a car with a black box, would you have it removed?
How many customers do you think will consider buying another car from that
dealership? 25
Cars Hacked
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FIGURE 7.16
WiMAX Infrastructure
Line-of-Sight
Transmission
ISP WiMAX
Tower
Non-Line-of-Sight
Transmission
INTERNET
data, communicating wirelessly through a collection of stationary ground-based sites
called base stations, each of which is linked to its nearest neighbor stations. Base station
coverage areas are about 10 square miles and are called cells, as Figure 7.17 illustrates. 29
The first cell phone was demonstrated in 1973 by Motorola (it weighed almost
2 pounds), but it took 10 years for the technology to become commercially available.
The Motorola DynaTAC, marketed in 1983, weighed one pound and cost about $4,000.
Cellular technology has come a long way since then. 30
Cellular systems were originally designed to provide voice services to mobile cus-
tomers and thus were designed to interconnect cells to the public telephone network.
Increasingly, they provide data services and Internet connectivity. There are more cell
phones than landline phones in many countries today, and it is no longer uncommon
for cell phones to be the only phones people have.
Cell phones have morphed into smartphones that offer more advanced computing
ability and connectivity than basic cell phones. They allow for web browsing, emailing,
listening to music, watching video, computing, keeping track of contacts, sending text
messages, and taking and sending photos. The Apple iPhone and RIM BlackBerry are
examples of smartphones.
Cell phones and smartphones, or mobile phones as they are collectively called,
need a provider to offer services, much as computer users need an ISP to connect to
the Internet. The most popular mobile phone providers in the United States are AT&T,
Sprint, T-Mobile, and Verizon. They offer different cell phones, features, coverage areas,
and services. One of the newer services is third-generation, or 3G, services that bring
wireless broadband to mobile phones. Figure 7.18 lists the cell phone generations.
The 3G networks let users surf web pages, enjoy streaming music, watch video-on-
demand programming, download and play 3-D games, and participate in social media
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and teleconferencing. Streaming is a method of sending audio and video files over
the Internet in such a way that the user can view the file while it is being transferred.
Streaming is not limited to cellular usage; all wireless and even wired networks can take
advantage of this method. The most obvious advantage is speed, a direct benefit for
mobile and wireless devices since they are still not as fast as their wired counterparts. 31
Wireless WAN—Satellite Communication System
The other wireless WAN technology is a satellite communication system. A satellite is a
space station that orbits the Earth receiving and transmitting signals from Earth-based
stations over a wide area. When satellite systems first came into consideration in the
FIGURE 7.18
Cell Phone Generations
The original analog cell phone network.
Digital cell phone service.
Broadband Internet services over cellular
network.
Very high-speed access, anywhere, anytime,
to anything digital—audio, video, text.
Speed 5 9.6 Kbps
Speed 5 10 Kbps2144 Kbps
Speed 5 144 Kbps211 Mbps
Speed 5 22300 Mbps
1G
2G – 2.5G
3G – 3.5G
4G
FIGURE 7.17
Cell Phone Communication
System Overview
Each cell is typically sized
at about 10 square miles
Each cell has a base
station that
consists of an
antennae or tower
to relay signals
Cell
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1990s, the goal was to provide wireless voice and data coverage for the entire planet,
without the need for mobile phones to roam between many different provider networks.
But by the time satellite networks were ready for commercial use, they had already been
overtaken by cellular systems.
The devices used for satellite communication range from handheld units to mobile
base stations to fixed satellite dish receivers. The peak data transmission speeds range
from 2.4 Kbps to 2 Mbps. For the everyday mobile professional, satellite communi-
cation may not provide a compelling benefit, but for people requiring voice and data
access from remote locations or guaranteed coverage in nonremote locations, satellite
technology is a viable solution.
Conventional communication satellites move in stationary orbits approximately
22,000 miles above Earth