Could you increase your knowledge— and raise your grade—if you…

…used an online tutorial that assisted you with Access and Excel skills mapped to this book?

…learned to use Microsoft’s SharePoint, the number one organizational tool for file sharing and collaboration?

…had flashcards and student PowerPoints to prepare for lectures?

Visit , a valuable tool for your student success and your

business career.


By completing the projects in this text, students will be able to demonstrate business knowledge, application software proficiency, and Internet skills.These projects can be used by instructors as learning assessment tools and by students as demonstrations of business, software, and problem-solving skills to future employers. Here are some of the skills and competencies students using this text will be able to demonstrate:

Business Application skills: Use of both business and software skills in real-world business applications. Demonstrates both business knowledge and proficiency in spreadsheet, database, and Web page/blog creation tools.

Internet skills: Ability to use Internet tools to access information, conduct research, or perform online calculations and analysis.

Analytical, writing and presentation skills: Ability to research a specific topic, analyze a problem, think creatively, suggest a solution, and prepare a clear written or oral presentation of the solution, working either individually or with others in a group.

Business Application Skills


Finance and Accounting

Financial statement analysis

Pricing hardware anrj software

Technology rent vs. buy decision Total Cost of Ownership (TCO) analysis

Analyzing telecommunications services anrj costs

Risk assessment

Retirement planning

Capital budgeting

Human Resources

Employee training and skills tracking

Job posting database and Web page

Manufacturing and Production

Analyzing supplier performance and pricing

Inventory management

Bill of materials cost sensitivity analysis

Sales and Marketing

Sales trend analysis


Spreadsheet charts

Spreadsheet formulas

Spreadsheet downloading and formatting

Spreadsheet formulas

Spreadsheet formulas

Spreadsheet formulas

Spreadsheet charts and formulas

Spreadsheet formulas and logical functions

Spreadsheet formulas

Database design Database querying and reporting

Database design Web page design and creation

Spreadsheet date functions Database functions Data filtering

Importing data into a database Database querying and reporting

Spreadsheet data tables Spreadsheet formulas

Database querying and reporting


Chapter 2*

Chapter 10

Chapter 5

Chapter 5*

Chapter 7

Chapter 8

Chapter 11

Chapter 14

Chapter 14*

Chapter 13*

Chapter 15

Chapter 2

Chapter 6

Chapter 12*

Chapter 1

Customer reservation system

Improving marketing decisions

Customer profiling

Customer service analysis

Sales lead and customer analysis

Blog creation and design

Database querying and reporting

Spreadsheet pivot tables

Database design Database querying and reporting

Database design Database querying and reporting

Database design Database querying and reporting

Blog creation tool

Chapter 3

Chapter 12

Chapter 6*

Chapter 9

Chapter 13

Chapter 4


Using online software tools to calculate shipping costs

Using online interactive mapping software to plan efficient transportation routes

Researching product information and evaluating Web sites for auto sales

Using Internet newsgroups for marketing

Researching travel costs using online travel sites

Searching online databases for products and services

Using Web search engines for business research

Researching and evaluating business outsourcing services

Researching and evaluating supply chain management services

Evaluating e-commerce hosting services

Using shopping bots to compare product price, features, and availability

Using online software tools for retirement planning

Redesigning business processes for Web procurement

Researching real estate prices

Researching international markets and pricing

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Management analysis of a business

Value chain and competitive forces analysis Business strategy formulation

Formulating a corporate privacy policy

Employee productivity analysis

Disaster recovery planning

Locating and evaluating suppliers

Developing an e-commerce strategy

Identifying knowledge management opportunities

Identifying international markets

*Dirt Bikes Running Case on MyMISLab

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13

Chapter 14

Chapter 15


Chapter 1

Chapter 3

Chapter 4

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 15

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Management Information



Kenneth C. Laudon New York University

Jane P. Laudon Azimuth Information Systems

Prentice Hall

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10 9 8 7 6 5 4 3 2 1 ISBN-13: 978-0-13-214285-4

ISBN-10: 0-13-214285-6

A b o u t t h e A u t h o r s


Kenneth C. Laudon is a Professor of Information Systems at New York University’s Stern School of Business. He holds a B.A. in Economics from Stanford and a Ph.D. from Columbia University. He has authored twelve books dealing with electronic commerce, information systems, organizations, and society. Professor Laudon has also written over forty articles concerned with the social, organizational, and management impacts of information systems, privacy, ethics, and multimedia technology.

Professor Laudon’s current research is on the planning and management of large-scale information systems and multimedia information technology. He has received grants from the National Science Foundation to study the evolution of national information systems at the Social Security Administration, the IRS, and the FBI. Ken’s research focuses on enter- prise system implementation, computer-related organizational and occupational changes in large organizations, changes in management ideology, changes in public policy, and under- standing productivity change in the knowledge sector.

Ken Laudon has testified as an expert before the United States Congress. He has been a researcher and consultant to the Office of Technology Assessment (United States Congress), Department of Homeland Security, and to the Office of the President, several executive branch agencies, and Congressional Committees. Professor Laudon also acts as an in-house educator for several consulting firms and as a consultant on systems planning and strategy to several Fortune 500 firms.

At NYU’s Stern School of Business, Ken Laudon teaches courses on Managing the Digital Firm, Information Technology and Corporate Strategy, Professional Responsibility (Ethics), and Electronic Commerce and Digital Markets. Ken Laudon’s hobby is sailing.

Jane Price Laudon is a management consultant in the information systems area and the author of seven books. Her special interests include systems analysis, data management, MIS auditing, software evaluation, and teaching business professionals how to design and use information systems.

Jane received her Ph.D. from Columbia University, her M.A. from Harvard University, and her B.A. from Barnard College. She has taught at Columbia University and the New York University Graduate School of Business. She maintains a lifelong interest in Oriental lan- guages and civilizations.

The Laudons have two daughters, Erica and Elisabeth, to whom this book is dedicated.

B r i e f C o n t e n t s

Part One Organizations, Management, and the Networked Enterprise 1

Chapter 1 Information Systems in Global Business Today 2 Chapter 2 Global E-Business and Collaboration 40 Chapter 3 Information Systems, Organizations, and Strategy 78 Chapter 4 Ethical and Social Issues in Information Systems 120

Part Two Information Technology Infrastructure 161 Chapter 5 IT Infrastructure and Emerging Technologies 162 Chapter 6 Foundations of Business Intelligence: Databases and Information

Management 206

Chapter 7 Telecommunications, the Internet, and Wireless Technology 244 Chapter 8 Securing Information Systems 290

Part Three Key System Applications for the Digital Age 333 Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise

Applications 334

Chapter 10 E-Commerce: Digital Markets, Digital Goods 370 Chapter 11 Managing Knowledge 414 Chapter 12 Enhancing Decision Making 452

Part Four Building and Managing Systems 485 Chapter 13 Building Information Systems 486 Chapter 14 Managing Projects 526 Chapter 15 Managing Global Systems 558

(available on the Web at

References R 1

Glossary G 1

Photo and Screen Shot Credits P 1

Indexes I 1



C o m p l e t e C o n t e n t s

Part One Organizations, Management, and the Networked Enterprise 1

Chapter 1 Information Systems in Global Business Today 2 ◆Opening Case: The New Yankee Stadium Looks to the Future 3 1.1 The Role of Information Systems in Business Today 5

How Information Systems Are Transforming Business 5 • What’s New In Management Information Systems? 6 • Globalization Challenges and Opportunities: A Flattened World 8

◆Interactive Session: Management MIS in Your Pocket 10 The Emerging Digital Firm 11 • Strategic Business Objectives of Information Systems 12

1.2 Perspectives on Information Systems 15 What is an Information System? 15 • Dimensions of Information Systems 17

◆Interactive Session: Technology UPS Competes Globally with Information Technology 22

It Isn’t Just Technology: A Business Perspective on Information Systems 24 • Complementary Assets: Organizational Capital and the Right Business Model 26

1.3 Contemporary Approaches to Information Systems 28 Technical Approach 29 • Behavioral Approach 29 • Approach of This Text: Sociotechnical Systems 29

1.4 Hands-on MIS Projects 31 Management Decision Problems 31 • Improving Decision Making: Using Databases to Analyze Sales Trends 31 • Improving Decision Making: Using the Internet to Locate Jobs Requiring Information Systems Knowledge 32

Learning Track Modules: How Much Does IT Matter?; Information Systems and Your Career, The Emerging Mobile Digital Platform 32

Review Summary 33 • Key Terms 34 • Review Questions 34 • Discussion Questions 35 • Video Cases 35 • Collaboration and Teamwork: Creating a Web Site for Team Collaboration 35

◆Case Study: What’s the Buzz on Smart Grids? 36

Chapter 2 Global E-Business and Collaboration 40 ◆Opening Case: America’s Cup 2010: USA Wins with Information Technology 41 2.1 Business Processes and Information Systems 43

Business Processes 43 • How Information Technology Enhances Business Processes 44

2.2 Types of Business Information Systems 45 Systems for Different Management Groups 45 • Systems for Linking the Enterprise 51

◆Interactive Session: Organizations Domino’s Sizzles with Pizza Tracker 52 E-business, E-commerce, and E-government 55

2.3 Systems for Collaboration and Teamwork 55 What is Collaboration? 56 • Business Benefits of Collaboration and Teamwork 57 • Building a Collaborative Culture and Business Processes 58 • Tools and Technologies for Collaboration and Teamwork 59

◆Interactive Session: Management Virtual Meetings: Smart Management 62 2.4 The Information Systems Function in Business 68

The Information Systems Department 68 • Organizing the Information Systems Function 69

2.5 Hands-on MIS Projects 70 Management Decision Problems 70 • Improving Decision Making: Using a Spreadsheet to Select Suppliers 70 • Achieving Operational Excellence: Using Internet Software to Plan Efficient Transportation Routes 71

Learning Track Modules: Systems from a Functional Perspective; IT Enables Collaboration and Teamwork; Challenges of Using Business Information Systems; Organizing the Information Systems Function 72

Review Summary 72 • Key Terms 73 • Review Questions 73 • Discussion Questions 74 • Video Cases 74 • Collaboration and Teamwork: Describing Management Decisions and Systems 74

◆Case Study: Collaboration and Innovation at Procter & Gamble 75

Chapter 3 Information Systems, Organizations, and Strategy 78 ◆Opening Case: Verizon or AT&T—Which Company Has the Best Digital

Strategy? 79

3.1 Organizations and Information Systems 81 What Is an Organization? 82 • Features of Organizations 84

3.2 How Information Systems Impact Organizations and Business Firms 89 Economic Impacts 89 • Organizational and Behavioral Impacts 91 • The Internet and Organizations 93 • Implications for the Design and Understanding of Information Systems 94

3.3 Using Information Systems to Achieve Competitive Advantage 94 Porter’s Competitive Forces Model 95

Information System Strategies for Dealing with Competitive Forces 96 • The Internet’s Impact on Competitive Advantage 99

◆Interactive Session: Organizations How Much Do Credit Card Companies Know About You? 100

The Business Value Chain Model 102

◆Interactive Session: Management Is the iPad a Disruptive Technology? 103 Synergies, Core Competencies, and Network-Based Strategies 106

vi Contents

3.4 Using Systems for Competitive Advantage: Management Issues 111 Sustaining Competitive Advantage 111 • Aligning IT with Business Objectives 111 • Managing Strategic Transitions 112

3.5 Hands-on MIS Projects 113 Management Decision Problems 113 • Improving Decision Making: Using a Database to Clarify Business Strategy 113 • Improving Decision Making: Using Web Tools to Configure and Price an Automobile 114

Learning Track Module: The Changing Business Environment for Information Technology 115

Review Summary 115 • Key Terms 116 • Review Questions 116 • Discussion Questions 117 • Video Cases 117 • Collaboration and Teamwork: Identifying Opportunities for Strategic Information Systems 117

◆Case Study: Will TV Succumb to the Internet? 118

Chapter 4 Ethical and Social Issues in Information Systems 120 ◆Opening Case: Behavioral Targeting And Your Privacy: You’re the Target 121 4.1 Understanding Ethical and Social Issues Related to Systems 123

A Model for Thinking About Ethical, Social, and Political Issues 124 • Five Moral Dimensions of the Information Age 125 • Key Technology Trends That Raise Ethical Issues 126

4.2 Ethics in an Information Society 129 Basic Concepts: Responsibility, Accountability, and Liability 129 • Ethical Analysis 129 • Candidate Ethical Principles 130 • Professional Codes of Conduct 131 • Some Real-World Ethical Dilemmas 131

4.3 The Moral Dimensions of Information Systems 131 Information Rights: Privacy and Freedom in the Internet Age 131 • Property Rights: Intellectual Property 138 • Accountability, Liability, and Control 141 • System Quality: Data Quality and System Errors 143 • Quality of Life: Equity, Access, and Boundaries 143

◆Interactive Session: Organizations The Perils of Texting 147 ◆Interactive Session: Technology Too Much Technology 151 4.4 Hands-on MIS Projects 153

Management Decision Problems 153 • Achieving Operational Excellence: Creating a Simple Blog 154 • Improving Decision Making: Using Internet Newsgroups for Online Market Research 154

Learning Track Modules: Developing a Corporate Code of Ethics for Information Systems 155

Review Summary 155 • Key Terms 155• Review Questions 156 • Discussion Questions 156 • Video Cases 156 • Collaboration and Teamwork: Developing a Corporate Ethics Code 156

◆Case Study: When Radiation Therapy Kills 157

Contents vii

Part Two Information Technology Infrastructure 161

Chapter 5 IT Infrastructure and Emerging Technologies 162 ◆Opening Case: BART Speeds Up with a New IT Infrastructure 163 5.1 IT Infrastructure 165

Defining IT Infrastructure 165 • Evolution of IT Infrastructure 166 • Technology Drivers of Infrastructure Evolution 170

5.2 Infrastructure Components 175 Computer Hardware Platforms 175 • Operating System Platforms 177 • Enterprise Software Applications 177

◆Interactive Session: Technology New to the Touch 178 Data Management and Storage 179 • Networking/Telecommunications Platforms 180 • Internet Platforms 180 • Consulting and System Integration Services 181

5.3 Contemporary Hardware Platform Trends 181 The Emerging Mobile Digital Platform 181 • Grid Computing 182 • Virtualization 182 • Cloud Computing 183 • Green Computing 184 • Autonomic Computing 185 • High-performance and Power-saving Processors 185

◆Interactive Session: Organizations Is Green Computing Good for Business? 186 5.4 Contemporary Software Platform Trends 187

Linux and Open Source Software 187 • Software for the Web: Java and Ajax 188 • Web Services and Service-Oriented Architecture 189 • Software Outsourcing and Cloud Services 191

5.5 Management Issues 194 Dealing with Platform and Infrastructure Change 194 • Management and Governance 194 • Making Wise Infrastructure Investments 195

5.6 Hands-on MIS Projects 198 Management Decision Problems 198 • Improving Decision Making: Using a Spreadsheet to Evaluate Hardware and Software Options 198 • Improving Decision Making: Using Web Research to Budget for a Sales Conference 199

Learning Track Modules: How Computer Hardware and Software Work; Service Level Agreements; The Open Source Software Initiative; Comparing Stages in IT Infrastructure Evolution 200

Review Summary 200 • Key Terms 201 • Review Questions 202 • Discussion Questions 202 • Video Cases 202 • Collaboration and Teamwork: Evaluating Server Operating Systems 202

◆Case Study: Cloud Services Go Mainstream 203

Chapter 6 Foundations of Business Intelligence: Databases and Information Management 206 ◆Opening Case: RR Donnelley Tries to Master Its Data 207 6.1 Organizing Data in a Traditional File Environment 209

File Organization Concepts 209 • Problems with the Traditional File Environment 210

viii Contents

6.2 The Database Approach to Data Management 212 Database Management Systems 212 • Capabilities of Database Management Systems 217 • Designing Databases 219

6.3 Using Databases to Improve Business Performance and Decision Making 221 • Data Warehouses 222 • Tools for Business Intelligence: Multidimensional Data Analysis and Data Mining 224

◆Interactive Session: Technology What Can Businesses Learn from Text Mining? 227

Databases and the Web 228

6.4 Managing Data Resources 230 Establishing an Information Policy 230 • Ensuring Data Quality 230

◆Interactive Session: Organizations Credit Bureau Errors—Big People Problems 232

6.5 Hands-on MIS Projects 234 Management Decision Problems 234 • Achieving Operational Excellence: Building a Relational Database for Inventory Management 235 • Improving Decision Making: Searching Online Databases for Overseas Business Resources 236

Learning Track Modules: Database Design, Normalization, and Entity- Relationship Diagramming; Introduction to SQL; Hierarchical and Network Data Models 236

Review Summary 237 • Key Terms 238 • Review Questions 239 • Discussion Questions 239 • Video Cases 239 • Collaboration and Teamwork: Identifying Entities and Attributes in an Online Database 239

◆Case Study: The Terror Watch List Database’s Troubles Continue 240

Chapter 7 Telecommunications, the Internet, and Wireless Technology 244 ◆Opening Case: Hyundai Heavy Industries Creates a Wireless Shipyard 245 7.1 Telecommunications and Networking in Today’s Business World 247

Networking and Communication Trends 247 • What Is a Computer Network? 247 • Key Digital Networking Technologies 250

7.2 Communications Networks 252 Signals: Digital vs. Analog 252 • Types of Networks 253 • Physical Transmission Media 255

7.3 The Global Internet 257 What Is the Internet? 257 • Internet Addressing and Architecture 258 • Internet Services and Communication Tools 261

◆Interactive Session: Organizations The Battle Over Net Neutrality 262 ◆Interactive Session: Management Monitoring Employees on Networks:

Unethical or Good Business? 266

The Web 268

7.4 The Wireless Revolution 275 Cellular Systems 276 • Wireless Computer Networks and Internet Access 276 • RFID and Wireless Sensor Networks 279

Contents ix

7.5 Hands-on MIS Projects 282 Management Decision Problems 282 • Improving Decision Making: Using Spreadsheet Software to Evaluate Wireless Services 282 • Achieving Operational Excellence: Using Web Search Engines for Business Research 282

Learning Track Modules: Computing and Communications Services Provided by Commercial Communications Vendors; Broadband Network Services and Technologies; Cellular System Generations; Wireless Applications for CRM, SCM, and Healthcare; Web 2.0 283

Review Summary 284 • Key Terms 285 • Review Questions 286 • Discussion Questions 286 • Video Cases 286 • Collaboration and Teamwork: Evaluating Smartphones 286

◆Case Study: Google, Apple, and Microsoft Struggle for Your Internet Experience 287

Chapter 8 Securing Information Systems 290 ◆Opening Case: You’re On Facebook? Watch Out! 291 8.1 System Vulnerability and Abuse 293

Why Systems Are Vulnerable 293 • Malicious Software: Viruses, Worms, Trojan Horses, and Spyware 296 • Hackers and Computer Crime 298 • Internal Threats: Employees 302 • Software Vulnerability 303

◆Interactive Session: Management When Antivirus Software Cripples Your Computers 304

8.2 Business Value of Security and Control 305 Legal and Regulatory Requirements for Electronic Records Management 306 • Electronic Evidence and Computer Forensics 307

8.3 Establishing a Framework for Security and Control 308 Information Systems Controls 308 • Risk Assessment 309 • Security Policy 310 • Disaster Recovery Planning and Business Continuity Planning 310 • The Role of Auditing 312

8.4 Technologies and Tools for Protecting Information Resources 312 Identity Management and Authentication 312 • Firewalls, Intrusion Detection Systems, and Antivirus Software 314 • Securing Wireless Networks 316 • Encryption and Public Key Infrastructure 317 • Ensuring System Availability 318 • Security Issues for Cloud Computing and the Mobile Digital Platform 320 • Ensuring Software Quality 320

◆Interactive Session: Technology How Secure Is the Cloud? 321 8.5 Hands-on MIS Projects 323

Management Decision Problems 323 • Improving Decision Making: Using Spreadsheet Software to Perform a Security Risk Assessment 324 • Improving Decision Making: Evaluating Security Outsourcing Services 325

Learning Track Modules: The Booming Job Market in IT Security; The Sarbanes- Oxley Act; Computer Forensics; General and Application Controls for Information Systems; Management Challenges of Security and Control 325

Review Summary 326 • Key Terms 326 • Review Questions 327 • Discussion Questions 328 • Video Cases 328 • Collaboration and Teamwork: Evaluating Security Software Tools 328

◆Case Study: Are We Ready for Cyberwarfare? 329

x Contents

Part Three Key System Applications for the Digital Age 333

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 334 ◆Opening Case: Cannondale Learns to Manage a Global Supply Chain 335 9.1 Enterprise Systems 337

What Are Enterprise Systems? 337 • Enterprise Software 338 • Business Value of Enterprise Systems 339

9.2 Supply Chain Management Systems 340 The Supply Chain 340 • Information and Supply Chain Management 342 • Supply Chain Management Software 344

◆Interactive Session: Organizations Southwest Airlines Takes Off with Better Supply Chain Management 345

Global Supply Chains and the Internet 346 • Business Value of Supply Chain Management Systems 348

9.3 Customer Relationship Management Systems 349 What Is Customer Relationship Management? 349 • Customer Relationship Management Software 351 • Operational and Analytical CRM 354 • Business Value of Customer Relationship Management Systems 355

9.4 Enterprise Applications: New Opportunities and Challenges 355 Enterprise Application Challenges 355 • Next Generation Enterprise Applications 356

◆Interactive Session: Technology Enterprise Applications Move to the Cloud 358 9.5 Hands-on MIS Projects 361

Management Decision Problems 361 • Improving Decision Making: Using Database Software to Manage Customer Service Requests 361 • Achieving Operational Excellence: Evaluating Supply Chain Management Services 362

Learning Track Modules: SAP Business Process Map; Business Processes in Supply Chain Management and Supply Chain Metrics; Best Practice Business Processes in CRM Software 363

Review Summary 363 • Key Terms 364 • Review Questions 364 • Discussion Questions 365 • Video Cases 365 • Collaboration and Teamwork: Analyzing Enterprise Application Vendors 365

◆Case Study: Border States Industries Fuels Rapid Growth with ERP 366

Chapter 10 E-Commerce: Digital Markets, Digital Goods 370 ◆Opening Case: 4Food: Burgers Go Social 371 10.1 E-commerce and the Internet 373

E-Commerce Today 373 • Why E-Commerce Is Different 374 • Key Concepts in E-Commerce: Digital Markets and Digital Goods in a Global Marketplace 378

10.2 E-commerce: Business and Technology 381 Types of E-commerce 381 • E-commerce Business Models 382

Contents xi

◆Interactive Session: Organizations Twitter Searches for a Business Model 385 E-commerce Revenue Models 387 • Web 2.0: Social Networking and the Wisdom of Crowds 389

◆Interactive Session: Management Facebook: Managing Your Privacy for Their Profit 390

E-commerce Marketing 392 • B2B E-Commerce: New Efficiencies and Relationships 395

10.3 The Mobile Digital Platform and Mobile E-commerce 399 M-Commerce Services and Applications 399

10.4 Building an E-commerce Web Site 401 Pieces of the Site-building Puzzle 401 • Business Objectives, System Functionality, and Information Requirements 402 • Building the Web Site: In-house Versus Outsourcing 402

10.5 Hands-on MIS 405 Management Decision Problems 405 • Improving Decision Making: Using Spreadsheet Software to Analyze a Dot-Com Business 406 • Achieving Operational Excellence: Evaluating E-Commerce Hosting Services 406

Learning Track Modules: Building a Web Page; E-Commerce Challenges: The Story of Online Groceries; Build an E-commerce Business Plan; Hot New Careers in E-commerce 407

Review Summary 407 • Key Terms 408 • Review Questions 408 • Discussion Questions 409 • Video Cases 409 • Collaboration and Teamwork: Performing a Competitive Analysis of E-Commerce Sites 409

◆Case Study: Amazon vs. Walmart: Which Giant Will Dominate E-commerce? 410

Chapter 11 Managing Knowledge 414 ◆Opening Case: Canadian Tire Keeps the Wheels Rolling With Knowledge

Management Systems 415

11.1 The Knowledge Management Landscape 417 Important Dimensions of Knowledge 417 • The Knowledge Management Value Chain 419 • Types of Knowledge Management Systems 421

11.2 Enterprise-Wide Knowledge Management Systems 422 Enterprise Content Management Systems 422 • Knowledge Network Systems 424 • Collaboration Tools and Learning Management Systems 424

11.3 Knowledge Work Systems 426 Knowledge Workers and Knowledge Work 426 • Requirements of Knowledge Work Systems 426 • Examples of Knowledge Work Systems 427

◆Interactive Session: Technology Augmented Reality: Reality Gets Better 429 11.4 Intelligent Techniques 431

Capturing Knowledge: Expert Systems 432 • Organizational Intelligence: Case-Based Reasoning 434 • Fuzzy Logic Systems 434 • Neural Networks 436 • Genetic Algorithms 438

◆Interactive Session: Organizations The Flash Crash: Machines Gone Wild? 439 Hybrid AI Systems 441 • Intelligent Agents 441

11.5 Hands-on MIS Projects 443

xii Contents

Management Decision Problems 443 • Improving Decision Making: Building a Simple Expert System for Retirement Planning 443 • Improving Decision Making: Using Intelligent Agents for Comparison Shopping 444

Learning Track Module: Challenges of Knowledge Management Systems 444 Review Summary 445 • Key Terms 446 • Review Questions 446 • Discussion Questions 447 • Video Cases 447 • Collaboration and Teamwork: Rating Enterprise Content Management Systems 447

◆Case Study: San Francisco Public Utilities Commission Preserves Expertise with Better Knowledge Management 448

Chapter 12 Enhancing Decision Making 452 ◆Opening Case: What to Sell? What Price to Charge? Ask the Data 453 12.1 Decision Making and Information Systems 455

Business Value of Improved Decision Making 455 • Types of Decisions 455 • The Decision-Making Process 457 • Managers and Decision Making in the Real World 458 • High-Velocity Automated Decision Making 461

12.2 Business Intelligence in the Enterprise 461 What Is Business Intelligence? 462 • The Business Intelligence Environment 463 • Business Intelligence and Analytics Capabilities 464 • Management Strategies for Developing BI and BA Capabilities 468

◆Interactive Session: Organizations Data-Driven Schools 469 12.3 Business Intelligence Constituencies 471

Decision Support for Operational and Middle Management 471 • Decision Support for Senior Management: Balanced Scorecard and Enterprise Performance Management Methods 473 • Group Decision-Support Systems (GDSS) 475

◆Interactive Session: Management Piloting Valero with Real-time Management 476

12.4 Hands-on MIS Projects 478 Management Decision Problems 478 • Improving Decision Making: Using PivotTables to Analyze Sales Data 478 • Improving Decision Making: Using a Web-Based DSS for Retirement Planning 479

Learning Track Module: Building and Using Pivot Tables 479 Review Summary 479 • Key Terms 480 • Review Questions 481 • Discussion Questions 481 • Video Cases 481 • Collaboration and Teamwork: Designing a University GDSS 481

◆Case Study: Does CompStat Reduce Crime? 482

Contents xiii

Part Four Building and Managing Systems 475

Chapter 13 Building Information Systems 486 ◆Opening Case: CIMB Group Redesigns Its Account Opening Process 487 13.1 Systems as Planned Organizational Change 489

Systems Development and Organizational Change 489 • Business Process Redesign 491

13.2 Overview of Systems Development 494 ◆Interactive Session: Organizations Can Business Process Management Make a

Difference? 495

Systems Analysis 496 • Systems Design 498 • Completing the Systems Development Process 499 • Modeling and Designing Systems: Structured and Object-Oriented Methodologies 502

13.3 Alternative Systems-Building Approaches 506 Traditional Systems Life Cycle 506 • Prototyping 507 • End-User Development 508 • Application Software Packages and Outsourcing 510

◆Interactive Session: Technology Zimbra Zooms Ahead with OneView 512 13.4 Application Development for the Digital Firm 513

Rapid Application Development (RAD) 514 • Component-Based Development and Web Services 515

13.5 Hands-on MIS Projects 516 Management Decision Problems 516 • Improving Decision Making: Using Database Software to Design a Customer System for Auto Sales 517 • Achieving Operational Excellence: Redesigning Business Processes for Web Procurement 518

Learning Track Modules: Unified Modeling Language (UML); A Primer on Business Process Design and Documentation 518

Review Summary 519 • Key Terms 520 • Review Questions 520 • Discussion Questions 521 • Video Cases 521 • Collaboration and Teamwork: Preparing Web Site Design Specifications 521

◆Case Study: Are Electronic Medical Records a Cure for Health Care? 522

Chapter 14 Managing Projects 526 ◆Opening Case: Coca-Cola: “Opening Happiness” with a New Project Management

System 527

14.1 The Importance of Project Management 529 Runaway Projects and System Failure 529 • Project Management Objectives 530

14.2 Selecting Projects 531 Management Structure for Information Systems Projects 531 • Linking Systems Projects to the Business Plan 532 • Critical Success Factors 532 • Portfolio Analysis 534 • Scoring Models 535

14.3 Establishing the Business Value of Information Systems 536 Information System Cost and Benefits 537 • Real Options Pricing Models 538 • Limitations of Financial Models 539

xiv Contents

14.4 Managing Project Risk 539 Dimensions of Project Risk 539 • Change Management and the Concept of Implementation 540 • Controlling Risk Factors 542 • Designing for the Organization 546

◆Interactive Session: Organizations DTS Systems Scores with Scrum and Application Lifecycle Management 547

Project Management Software Tools 548

◆Interactive Session: Management Motorola Turns to Project Portfolio Management 550

14.5 Hands-on MIS Projects 552 Management Decision Problems 552 • Improving Decision Making: Using Spreadsheet Software for Capital Budgeting for a New CAD System 552 • Improving Decision Making: Using Web Tools for Buying and Financing a Home 553

Learning Track Modules: Capital Budgeting Methods for Information System Investments; Information Technology Investments and Productivity; Enterprise Analysis (Business Systems Planning) 553

Review Summary 554 • Key Terms 554 • Review Questions 555 • Discussion Questions 555 • Video Cases 555 • Collaboration and Teamwork: Identifying Implementation Problems 555

◆Case Study: JetBlue and WestJet: A Tale of Two IS Projects 556

Chapter 15 Managing Global Systems 558 (available on the Web at

◆Opening Case: 3M: Sticky Film and Scratchy Things That Sell Around the World 559

15.1 The Growth of International Information Systems 561 Developing an International Information Systems Architecture 562 • The Global Environment: Business Drivers and Challenges 563 • State of the Art 566

15.2 Organizing International Information Systems 567 Global Strategies and Business Organization 567 • Global Systems to Fit the Strategy 568 • Reorganizing the Business 569

15.3 Managing Global Systems 570 A Typical Scenario: Disorganization on a Global Scale 570 • Global Systems Strategy 571 • The Management Solution: Implementation 573

◆Interactive Session: Management Fonterra: Managing the World’s Milk Trade 575

15.4 Technology Issues and Opportunities for Global Value Chains 576 Computing Platforms and Systems Integration 577 • Connectivity 577 • Software Localization 579

◆Interactive Session: Organizations How Cell Phones Support Economic Development 580

15.5 Hands-on MIS 582 Management Decision Problems 582 • Achieving Operational Excellence: Building a Job Database and Web Page for an International Consulting

Contents xv

Firm 583 • Improving Decision Making: Conducting International Marketing and Pricing Research 583

Review Summary 584 • Key Terms 584 • Review Questions 585 • Discussion Questions 585 • Video Cases 585 • Collaboration and Teamwork: Identifying Technologies for Global Business Strategies 585

◆Case Study: WR Grace Consolidates Its General Ledger System 586

References R 1

Glossary G 1

Photo and Screen Shot Credits P 1

Indexes I 1

xvi Contents

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BUSINESS CASES AND INTERACTIVE SESSIONS Here are some of the business firms you will find described in the cases and Interactive Sessions of this book:

Chapter 1: Information Systems in Global Business Today The New Yankee Stadium Looks to the Future MIS in Your Pocket UPS Competes Globally with Information Technology What’s the Buzz on Smart Grids?

Chapter 2: Global E-Business and Collaboration America’s Cup 2010: USA Wins with Information Technology Domino’s Sizzles with Pizza Tracker Virtual Meetings: Smart Management Collaboration and Innovation at Procter & Gamble

Chapter 3: Information Systems, Organizations, and Strategy Verizon or AT&T—Which Company Has the Best Digital Strategy? How Much Do Credit Card Companies Know About You? Is the iPad a Disruptive Technology? Will TV Succumb to the Internet?

Chapter 4: Ethical and Social Issues in Information Systems Behavioral Targeting And Your Privacy: You’re the Target The Perils of Texting Too Much Technology When Radiation Therapy Kills

Chapter 5: IT Infrastructure and Emerging Technologies BART Speeds Up with a New IT Infrastructure New to the Touch Is Green Computing Good for Business? Cloud Services Go Mainstream

Chapter 6: Foundations of Business Intelligence: Databases and Information Management RR Donnelley Tries to Master Its Data What Can Businesses Learn from Text Mining? Credit Bureau Errors—Big People Problems The Terror Watch List Database’s Troubles Continue

Chapter 7: Telecommunications, the Internet and Wireless Technology Hyundai Heavy Industries Creates a Wireless Shipyard The Battle Over Net Neutrality Monitoring Employees on Networks: Unethical or Good Business? Google, Apple, and Microsoft Struggle for Your Internet Experience

Chapter 8: Securing Information Systems You’re On Facebook? Watch Out! When Antivirus Software Cripples Your Computers How Secure Is the Cloud? Are We Ready for Cyberwarfare?

Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications Cannondale Learns to Manage a Global Supply Chain Southwest Airlines Takes Off with Better Supply Chain Management Enterprise Applications Move to the Cloud Border States Industries Fuels Rapid Growth with ERP

Chapter 10: E-Commerce: Digital Markets, Digital Goods 4Food: Burgers Go Social Twitter Searches for a Business Model Facebook: Managing Your Privacy for Their Profit Amazon vs. Walmart: Which Giant Will Dominate E-commerce?

Chapter 11: Managing Knowledge Canadian Tire Keeps the Wheels Rolling With Knowledge Management Systems Augmented Reality: Reality Gets Better The Flash Crash: Machines Gone Wild? San Francisco Public Utilities Commission Preserves Expertise with Better Knowledge Management

Chapter 12: Enhancing Decision Making What to Sell? What Price to Charge? Ask the Data Data-Driven Schools Piloting Valero with Real-time Management Does CompStat Reduce Crime?

Chapter 13: Building Information Systems CIMB Group Redesigns Its Account Opening Process Can Business Process Management Make a Difference? Zimbra Zooms Ahead with OneView Are Electronic Medical Records a Cure for Health Care?

Chapter 14: Managing Projects Coca-Cola: “Opening Happiness” with a New Project Management System DTS Systems Scores with Scrum and Application Lifecycle Management Motorola Turns to Project Portfolio Management JetBlue and WestJet: A Tale of Two IS Projects

Chapter 15: Managing Global Systems 3M: Sticky Film and Scratchy Things That Sell Around the World Fonterra: Managing the World’s Milk Trade How Cell Phones Support Economic Development WR Grace Consolidates Its General Ledger System

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We wrote this book for business school students who want an in-depth look at how today’s business firms use information technologies and systems to achieve corporate objectives. Information systems are one of the major tools available to business managers for achieving operational excellence, developing new products and services, improving decision making, and achieving compet- itive advantage. Students will find here the most up-to-date and comprehensive overview of information systems used by business firms today.

When interviewing potential employees, business firms often look for new hires who know how to use information systems and technologies for achieving bottom-line business results. Regardless of whether a student is an accounting, finance, management, operations management, marketing, or information sys- tems major, the knowledge and information found in this book will be valuable throughout a business career.



CURRENCY The 12th edition features all new opening, closing, and Interactive Session cases. The text, figures, tables, and cases have been updated through November 2010 with the latest sources from industry and MIS research.

NEW FEATURES • Thirty video case studies (2 per chapter) and 15 instructional videos are

available online. • Additional discussion questions are provided in each chapter. • Management checklists are found throughout the book; they are designed to

help future managers make better decisions.

NEW TOPICS • Expanded coverage of business intelligence and business analytics • Collaboration systems and tools • Cloud computing • Cloud-based software services and tools • Windows 7 and mobile operating systems • Emerging mobile digital platform • Office 2010 and Google Apps • Green computing • 4G networks • Network neutrality • Identity management

xxii Preface

WHAT’S NEW IN MIS Plenty. A continuing stream of information technology innovations is trans-

forming the traditional business world. What makes the MIS field the most exciting area of study in schools of business is this continuous change in tech- nology, management, and business processes. (Chapter 1 describes these changes in more detail.)

Examples of transforming technologies include the emergence of cloud com- puting, the growth of a mobile digital business platform based on smartphones, netbook computers, and, not least, the use of social networks by managers to achieve business objectives. Most of these changes have occurred in the last few years. These innovations enable entrepreneurs and innovative traditional firms to create new products and services, develop new business models, and transform the day-to-day conduct of business. In the process, some old busi- nesses, even entire industries, are being destroyed while new businesses are springing up.

For instance, the emergence of online music stores—driven by millions of consumers who prefer iPods and MP3 players—has forever changed the older business model of distributing music on physical devices, such as records and CDs, and then selling them in retail stores. Say goodbye to your local music store! Streaming Hollywood movies from Netflix is transforming the old model of distributing films through theaters and then through DVD rentals at physical stores. Say goodbye to Blockbuster! The growth of cloud computing, and huge data centers, along with high-speed broadband connections to the home sup- port these business model changes.

E-commerce is back, generating over $255 billion in revenue in 2010 and esti- mated to grow to over $354 billion by 2014. Amazon’s revenue grew 39 percent in the 12-month period ending June 30, 2010, despite the recession, while offline retail grew by 5 percent. E-commerce is changing how firms design, pro- duce, and deliver their products and services. E-commerce has reinvented itself again, disrupting the traditional marketing and advertising industry and putting major media and content firms in jeopardy. Facebook and other social net- working sites such as YouTube, Twitter, and Second Life exemplify the new face of e-commerce in the twenty-first century. They sell services. When we think of e-commerce, we tend to think of selling physical products. While this iconic vision of e-commerce is still very powerful and the fastest growing form of retail in the U.S., cropping up alongside is a whole new value stream based on selling services, not goods. Information systems and technologies are the foun- dation of this new services-based e-commerce.

Likewise, the management of business firms has changed: With new mobile smartphones, high-speed Wi-Fi networks, and wireless laptop computers,

• Augmented reality • Search engine optimization (SEO) • Freemium pricing models in e-commerce • Crowdsourcing and the wisdom of crowds • E-commerce revenue models • Building an e-commerce Web site • Business process management • Security issues for cloud and mobile platforms

Preface xxiii

remote salespeople on the road are only seconds away from their managers’ questions and oversight. Managers on the move are in direct, continuous con- tact with their employees. The growth of enterprise-wide information systems with extraordinarily rich data means that managers no longer operate in a fog of confusion, but instead have online, nearly instant access to the important infor- mation they need for accurate and timely decisions. In addition to their public uses on the Web, wikis and blogs are becoming important corporate tools for communication, collaboration, and information sharing.


Since its inception, this text has helped to define the MIS course around the globe. This edition continues to be authoritative, but is also more customizable, flexible, and geared to meeting the needs of different colleges, universities, and individual instructors. This book is now part of a complete learning package that includes the core text and an extensive offering of supplemental materials on the Web.

The core text consists of 15 chapters with hands-on projects covering essen- tial topics in MIS. An important part of the core text is the Video Case Study and Instructional Video package: 30 video case studies (2 video cases per chapter) plus 15 instructional videos that illustrate business uses of information systems, explain new technologies, and explore concepts. Video cases are keyed to the topics of each chapter.

In addition, for students and instructors who want to go deeper into selected topics, there are over 40 online Learning Tracks that cover a variety of MIS top- ics in greater depth.

myMISlab provides more in-depth coverage of chapter topics, career resources, additional case studies, supplementary chapter material, and data files for hands-on projects.

THE CORE TEXT The core text provides an overview of fundamental MIS concepts using an

integrated framework for describing and analyzing information systems. This framework shows information systems composed of management, organiza- tion, and technology elements and is reinforced in student projects and case studies.

A diagram accompanying each chapter-opening case graphically illustrates how management, organi- zation, and technology elements work together to create an informa- tion system solution to the business challenges discussed in the case.

xxiv Preface

Chapter Organ izat ion

Each chapter contains the following elements: • A chapter-opening case describing a real-world organization to establish the

theme and importance of the chapter • A diagram analyzing the opening case in terms of the management, organi-

zation, and technology model used throughout the text • A series of learning objectives • Two Interactive Sessions with case study questions and MIS in Action

projects • A Hands-on MIS Projects section featuring two management decision prob-

lems, a hands-on application software project, and a project to develop Internet skills

• A Learning Tracks section identifying supplementary material on myMISlab • A Review Summary section keyed to the learning objectives • A list of key terms that students can use to review concepts • Review questions for students to test their comprehension of chapter

material • Discussion questions raised by the broader themes of the chapter • A pointer to downloadable video cases • A Collaboration and Teamwork project to develop teamwork and presenta-

tion skills, with options for using open source collaboration tools • A chapter-ending case study for students to apply chapter concepts

KEY FEATURES We have enhanced the text to make it more interactive, leading-edge, and appealing to both students and instructors. The features and learning tools are described in the following sections.

Bus iness -Dr iven wi th Bus iness Cases and Examples The text helps students see the direct connection between information systems and business performance. It describes the main business objectives driving the use of information systems and technologies in corporations all over the world: operational excellence, new products and services, customer and supplier inti- macy, improved decision making, competitive advantage, and survival. In-text examples and case studies show students how specific companies use informa- tion systems to achieve these objectives.

We use only current (2010) examples from business and public organizations throughout the text to illustrate the important concepts in each chapter. All the case studies describe companies or organizations that are familiar to students, such as Google, Facebook, the New York Yankees, Procter & Gamble, and Walmart.

Interact iv i ty There’s no better way to learn about MIS than by doing MIS. We provide differ- ent kinds of hands-on projects where students can work with real-world busi- ness scenarios and data, and learn first hand what MIS is all about. These pro- jects heighten student involvement in this exciting subject.

• New Online Video Case Package. Students’ can watch short videos online, either in-class or at home or work, and then apply the concepts of the book to the analysis of the video. Every chapter contains at least two business video cases (30 videos in all) that explain how business firms and managers are using information systems, describe new management practices, and

Preface xxv

explore concepts discussed in the chapter. Each video case consists of a video about a real-world company, a background text case, and case study ques- tions. These video cases enhance students’ understanding of MIS topics and the relevance of MIS to the business world. In addition, there are 15 instruc- tional videos that describe developments and concepts in MIS keyed to respective chapters.

• Management Decision Problems. Each chapter contains two management decision problems that teach students how to apply chapter concepts to real- world business scenarios requiring analysis and decision making.

• Collaboration and Teamwork Projects. Each chapter features a collabora- tive project that encourages students working in teams to use Google sites, Google Docs, and other open-source collaboration tools. The first team pro- ject in Chapter 1 asks students to build a collaborative Google site.

• Hands-on MIS Projects. Every chapter concludes with a Hands-on MIS Projects section containing three types of projects: two management decision problems; a hands-on application software exercise using Microsoft Excel Access, or Web page and blog-creation tools; and a project that develops Internet business skills. A Dirt Bikes USA running case in myMISlab provides additional hands-on projects for each chapter.

Two real-world business sce- narios per chapter provide opportunities for students to apply chapter concepts and practice management decision making.

Students practice using soft- ware in real-world settings for achieving operational excel- lence and enhancing decision making.

xxvi Preface

Each chapter contains two Interactive Sessions focused on management, organiza- tions, or technology using real- world companies to illustrate chapter concepts and issues.

Each chapter features a pro- ject to develop Internet skills for accessing information, conducting research, and per- forming online calculations and analysis.

• Interactive Sessions. Two short cases in each chapter have been redesigned as Interactive Sessions to be used in the classroom (or on Internet discussion boards) to stimulate student interest and active learning. Each case con- cludes with two types of activities: case study questions and MIS in Action. The case study questions provide topics for class discussion, Internet discus- sion, or written assignments. MIS in Action features hands-on Web activities for exploring issues discussed in the case more deeply.

Preface xxvii

Assessment and A ACSB Assessment Gu ide l ines The Association to Advance Collegiate Schools of Business (AACSB) is a not-for- profit corporation of educational institutions, corporations, and other organiza- tions that seeks to improve business education primarily by accrediting univer- sity business programs. As a part of its accreditation activities, the AACSB has developed an Assurance of Learning program designed to ensure that schools teach students what the schools promise. Schools are required to state a clear mission, develop a coherent business program, identify student learning objec- tives, and then prove that students achieve the objectives.

We have attempted in this book to support AACSB efforts to encourage assessment-based education. The front end papers of this edition identify stu- dent learning objectives and anticipated outcomes for our Hands-on MIS pro- jects. In the Instructor Resource Center and myMISlab is a more inclusive and detailed assessment matrix that identifies the learning objectives of each chap- ter and points to all the available assessment tools that ensure students achieve the learning objectives. Because each school is different and may have different missions and learning objectives, no single document can satisfy all situations. Therefore, the authors will provide custom advice to instructors on how to use this text in their respective colleges. Instructors should e-mail the authors or contact their local Pearson Prentice Hall representative for contact information.

For more information on the AACSB Assurance of Learning program and how this text supports assessment-based learning, visit the Instructor Resource Center and myMISlab.

Customizat ion and F lex ib i l i ty : New Learn ing Track Modules Our Learning Tracks feature gives instructors the flexibility to provide in-depth coverage of the topics they choose. There are over 40 Learning Tracks available to instructors and students. A Learning Tracks section at the end of each chap- ter directs students to short essays or additional chapters in myMISlab. This supplementary content takes students deeper into MIS topics, concepts, and debates; reviews basic technology concepts in hardware, software, database design, telecommunications, and other areas; and provides additional hands-on software instruction. The 12th edition includes new Learning Tracks on cloud computing, managing knowledge and collaboration, creating a pivot table with Microsoft Excel PowerPivot, the mobile digital platform, and business process management.

Case study questions and MIS in Action projects encourage students to learn more about the companies and issues dis- cussed in the case studies.

xxviii Preface


• Author-Certified Test Bank. The authors have worked closely with skilled test item writers to ensure that higher level cognitive skills are tested. The test bank includes multiple-choice questions on content, but also includes many questions that require analysis, synthesis, and evaluation skills.

• New Annotated Interactive PowerPoint Lecture Slides. The authors have prepared a comprehensive collection of 500 PowerPoint slides to be used in lectures. Ken Laudon uses many of these slides in his MIS classes and execu- tive education presentations. Each of the slides is annotated with teaching suggestions for asking students questions, developing in-class lists that illus- trate key concepts, and recommending other firms as examples in addition to those provided in the text. The annotations are like an instructor’s manual built into the slides and make it easier to teach the course effectively.

STUDENT LEARNING-FOCUSED Student learning objectives are organized around a set of study questions to focus student attention. Each chapter concludes with a review summary and review questions organized around these study questions.

MYMISLAB MyMISlab is a Web-based assessment and tutorial tool that provides practice and testing while personalizing course content and providing student and class assessment and reporting. Your course is not the same as the course taught down the hall. Now, all the resources that instructors and students need for course success are in one place—flexible and easily organized and adapted for an individual course experience. Visit to see how you can teach, learn, and experience MIS.

CAREER RESOURCES MyMISlab also provides extensive career resources, including job-hunting guides and instructions on how to build a digital portfolio demonstrating the business knowledge, application software proficiency, and Internet skills acquired from using the text. Students can use the portfolio in a resume or job application; instructors can use it as a learning assessment tool.


Inst ructor Resource Center Most of the support materials described in the following sections are conve- niently available for adopters on the online Instructor Resource Center (IRC). The IRC includes the Image Library (a very helpful lecture tool), Instructor’s Manual, Lecture Notes, Test Item File and TestGen, and PowerPoint slides.

Image L ibrar y The Image Library is an impressive resource to help instructors create vibrant lecture presentations. Almost every figure and photo in the text is provided and

Preface xxix

organized by chapter for convenience. These images and lecture notes can be imported easily into PowerPoint to create new presentations or to add to exist- ing ones.

Inst ructor ’ s Manua l The Instructor’s Manual features not only answers to review, discussion, case study, and group project questions, but also in-depth lecture outlines, teaching objectives, key terms, teaching suggestions, and Internet resources.

Test I tem F i le The Test Item File is a comprehensive collection of true-false, multiple-choice, fill-in-the-blank, and essay questions. The questions are rated by difficulty level and the answers are referenced by section. The Test Item File also contains questions tagged to the AACSB learning standards. An electronic version of the Test Item File is available in TestGen, and TestGen conversions are available for BlackBoard or WebCT course management systems. All TestGen files are avail- able for download at the IRC.

Annotated PowerPo int S l ides Electronic color slides created by the authors are available in PowerPoint. The slides illuminate and build on key concepts in the text.

Video Cases and Inst ruct iona l V ideos Instructors can download step-by-step instructions for accessing the video cases from the Instructor Resources page at The following page contains a list of video cases and instructional videos.

xxx Preface

V ideo Cases and Inst ruct iona l V ideos

Chapter Video

Chapter 1: Information Systems Case 1: UPS Global Operations with the DIAD IV In Global Business Today Case 2: IBM, Cisco, Google: Global Warming by Computer

Chapter 2: Global E-business Case 1: How FedEx Works: Enterprise Systems and Collaboration Case 2: Oracle’s Austin Data Center

Instructional Video 1: FedEx Improves Customer Experience with Integrated Mapping, Location Data

Chapter 3: Information Systems, Case 1: National Basketball Association: Competing on Global Delivery with Akamai OS Streaming Organizations, and Strategy Case 2: Customer Relationship Management for San Francisco’s City Government

Chapter 4: Ethical and Social Issues Case 1: Net Neutrality: Neutral Networks Work in Information Systems Case 2: Data Mining for Terrorists and Innocents

Instructional Video 1: Big Brother Is Copying Everything on the Internet Instructional Video 2: Delete: The Virtue of Forgetting in a Digital Age

Chapter 5: IT Infrastructure: Case 1: Hudson’s Bay Company and IBM: Virtual Blade Platform and Emerging Technologies Case 2: SFA on the iPhone and iPod Touch

Instructional Video 1: Google and IBM Produce Cloud Computing Instructional Video 2: IBM Blue Cloud Is Ready-to-Use Computing Instructional Video 3: What the Hell Is Cloud Computing? Instructional Video 4: What Is Ajax and How Does It Work? Instructional Video 5: Yahoo’s FireEagle Geolocation Service

Chapter 6: Foundations of Business Case 1: Maruti Suzuki Business Intelligence and Enterprise Databases Intelligence: Databases and Case 2: Data Warehousing at REI: Understanding the Customer Information Management

Chapter 7: Telecommunications, Case 1: Cisco Telepresence: Meeting Without Traveling the Internet, and Wireless Technology Case 2: Unified Communications Systems with Virtual Collaboration: IBM and Forterra

Instructional Video 1: AT&T Launches Managed Cisco Telepresence Solution Instructional Video 2: CNN Telepresence

Chapter 8: Securing Information Case 1: IBM Zone Trusted Information Channel (ZTIC) Systems Case 2: Open ID and Web Security

Instructional Video 1: The Quest for Identity 2.0 Instructional Video 2: Identity 2.0

Chapter 9: Achieving Operational Case 1: Sinosteel Strengthens Business Management with ERP Applications Excellence and Customer Intimacy: Case 2: Ingram Micro and H&R Block Get Close to Their Customers Enterprise Applications Instructional Video 1: Zara’s: Wearing Today’s Fashions with Supply Chain Management

Chapter 10: E-commerce: Digital Case 1: M-commerce: The Past, Present, and Future Markets, Digital Goods Case 2: Ford AutoXchange B2B Marketplace

Chapter 11: Managing Knowledge Case 1: L’Oréal: Knowledge Management Using Microsoft SharePoint Case 2: IdeaScale Crowdsourcing: Where Ideas Come to Life

Chapter 12: Enhancing Decision Case 1: Antivia: Community-based Collaborative Business Intelligence Making Case 2: IBM and Cognos: Business Intelligence and Analytics for Improved Decision Making

Chapter 13: Building Information Case 1: IBM: Business Process Management in a Service-Oriented Architecture Systems Case 2: Rapid Application Development With Appcelerator

Instructional Video 1: Salesforce and Google: Developing Sales Support Systems with Online Apps

Chapter 14: Managing Projects Case 1: Mastering the Hype Cycle: How to Adopt the Right Innovation at the Right Time Case 2: NASA: Project Management Challenges Instructional Video 1: Software Project Management in 15 Minutes

Chapter 15: Managing Global Systems Case 1: Daum Runs Oracle Apps on Linux Case 2: Monsanto Uses Cisco and Microsoft to Manage Globally

Preface xxxi

ACKNOWLEDGEMENTS The production of any book involves valued contributions from a number of

persons. We would like to thank all of our editors for encouragement, insight, and strong support for many years. We thank Bob Horan for guiding the devel- opment of this edition and Kelly Loftus for her role in managing the project. We also praise Karalyn Holland for overseeing production for this project.

Our special thanks go to our supplement authors for their work. We are indebted to William Anderson for his assistance in the writing and production of the text and to Megan Miller for her help during production. We thank Diana R. Craig for her assistance with database and software topics.

Special thanks to colleagues at the Stern School of Business at New York University; to Professor Edward Stohr of Stevens Institute of Technology; to Professors Al Croker and Michael Palley of Baruch College and New York University; to Professor Lawrence Andrew of Western Illinois University; to Professor Detlef Schoder of the University of Cologne; to Professor Walter Brenner of the University of St. Gallen; to Professor Lutz Kolbe of the University of Gottingen; to Professor Donald Marchand of the International Institute for Management Development; and to Professor Daniel Botha of Stellenbosch University who provided additional suggestions for improvement. Thank you to Professor Ken Kraemer, University of California at Irvine, and Professor John King, University of Michigan, for more than a decade’s long dis- cussion of information systems and organizations. And a special remembrance and dedication to Professor Rob Kling, University of Indiana, for being my friend and colleague over so many years.

We also want to especially thank all our reviewers whose suggestions helped improve our texts. Reviewers for this edition include the following:

Edward J. Cherian, George Washington University Sherry L. Fowler, North Carolina State University Richard Grenci, John Carroll University Dorest Harvey, University of Nebraska Omaha Shohreh Hashemi, University of Houston—Downtown Duke Hutchings, Elon University Ingyu Lee, Troy University Jeffrey Livermore, Walsh College Sue McDaniel, Bellevue University Michelle Parker, Indiana University—Purdue University Fort Wayne Peter A. Rosen, University of Evansville Donna M. Schaeffer, Marymount University Werner Schenk, University of Rochester Jon C. Tomlinson, University of Northwestern Ohio Marie A. Wright, Western Connecticut State University James H. Yu, Santa Clara University Fan Zhao, Florida Gulf Coast University

K.C.L. J.P.L.

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Organizations, Management, and the Networked Enterprise Chapter 1 Information Systems in Global Business Today

Chapter 2 Global E-business and Collaboration

Chapter 3 Information Systems, Organizations, and Strategy

Chapter 4 Ethical and Social Issues in Information Systems

Part One introduces the major themes of this book, raising a series of important ques- tions: What is an information system and what are its management, organization, and technology dimensions? Why are information systems so essential in businesses today? Why are systems for collaboration and teamwork so important? How can information systems help businesses become more competitive? What broader ethi- cal and social issues are raised by widespread use of information systems?

LEARNING OBJECTIVESS After reading this chapter, you will be able to answer the following questions:

1. How are information systems trans- forming business and what is their relationship to globalization?

2. Why are information systems so essential for running and managing a business today?

3. What exactly is an information system? How does it work? What are its management, organization, and technology components?

4. What are complementary assets? Why are complementary assets essential for ensuring that informa- tion systems provide genuine value for an organization?

5. What academic disciplines are used to study information systems? How does each contribute to an under- standing of information systems? What is a sociotechnical systems perspective?


BUSINESS TODAY How Information Systems Are Transforming

Business What’s New in Management Information Systems? Globalization Challenges and Opportunities:

A Flattened World The Emerging Digital Firm Strategic Business Objectives of Information


1.2 PERSPECTIVES ON INFORMATION SYSTEMS What Is an Information System? Dimensions of Information Systems It Isn’t Just Technology: A Business Perspective on

Information Systems Complementary Assets: Organizational Capital and

the Right Business Model

1.3 CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS Technical Approach Behavioral Approach Approach of This Text: Sociotechnical Systems

1.4 HANDS-ON MIS PROJECTS Management Decision Problems Improving Decision Making: Using Databases to

Analyze Sales Trends Improving Decision Making: Using the Internet to

Locate Jobs Requiring Information Systems Knowledge

LEARNING TRACKS MODULES How Much Does IT Matter? Information Systems and Your Career The Emerging Mobile Digital Platform

Chapter 1

Information Systems in Global Business Today

Interactive Sessions:

MIS in Your Pocket

UPS Competes Globally with Information Technology


lthough baseball is a sport, it’s also big business, requiring revenue from tickets to games, television broadcasts, and other sources to pay for teams. Salaries for top play- ers have ballooned, as have ticket prices. Many fans now watch games on television rather than attending them in person or choose other forms of entertainment, such as

electronic games. One way to keep stadiums full of fans, and to keep fans at home happy as well, is to enrich the fan experience by offering more video and services based on technology. When the New York Yankees built the new Yankee Stadium, they did just that.

The new Yankee Stadium, which opened on April 2, 2009, isn’t just another ballpark: It’s the sta- dium of the future. It is the most wired, connected, and video-enabled stadium in all of baseball. Although the new stadium is similar in design to the original Yankee Stadium, built in 1923, the interior has more space and amenities, including more intensive use of video and computer tech- nology. Baseball fans love video. According to Ron Ricci, co-chairman of Cisco Systems’ sports and entertainment division, “It’s what fans want to see, to see more angles and do it on their terms.” Cisco Systems supplied the computer and networking technology for the new stadium.

Throughout the stadium, including the Great Hall, the Yankees Museum, and in-stadium restaurants and concession areas, 1,200 flat-panel high-definition HDTV monitors display live game coverage, up-to-date sports scores, archival and highlight video, promotional messages, news, weather, and traffic updates. There is also a huge monitor in center field that is 101 feet wide and 59 feet high. At the conclusion of games, the monitors provide up-to-the moment traffic information and directions to the nearest stadium exits.

The monitors are designed to surround fans visually from the moment they enter the stadium, especially when they stray from a direct view of the ball field. The pervasiveness of this technol- ogy ensures that while fans are buying a hamburger or a soda, they will never miss a play. The Yankees team controls all the monitors centrally and is able to offer different content on each one. Monitors are located at concession stands, around restaurants and bars, in restrooms, and inside 59 luxury and party suites. If a Yankee player wants to review a game to see how he played, monitors in the team’s video room will display what he did from any angle. Each Yankee player also has a computer at his locker.

The luxury suites have special touch-screen phones for well-heeled fans to use when ordering food and merchandise. At the stadium business center, Cisco interactive videoconferencing technol- ogy will link to a library in the Bronx and to other New York City locations, such as hospitals. Players



and executives will be able to videoconference and talk to fans before or after the games. Eventually data and video from the stadium will be delivered to fans’ home televisions and mobile devices. Inside the sta- dium, fans in each seat will be able to use their mobile phones to order from the concessions or view instant replays. If they have an iPhone, an application called Venuing lets them communicate with other fans at the game, find nearby facilities, obtain reviews of concessions, play pub-style trivia games, and check for news updates.

4 Part One Organizations, Management, and the Networked Enterprise

The Yankees also have their own Web site,, where fans can watch in-market Yankees games live online, check game scores, find out more about their favorite players, purchase tickets to games, and shop for caps, baseball cards and memorabilia. The site also features fantasy baseball games, where fans compete with each other by managing “fantasy teams” based on real players’ statistics.

Sources:, accessed May 5, 2010; Rena Bhattacharyya, Courtney Munroe, and Melanie Posey, “Yankee Stadium Implements State-of-the-Art Technology from AT&T,”, April 13, 2010; “Venuing: An iPhone App Tailor-Made for Yankee Stadium Insiders,” NYY Stadium Insider, March 30, 2010; Dean Meminger, “Yankees’ New Stadium Is More than a Ballpark,”, April 2, 2009.

The challenges facing the New York Yankees and other baseball teams showwhy information systems are so essential today. Major league baseball is a business as well as a sport, and teams such as the Yankees need to take in revenue from games in order to stay in business. Ticket prices have risen, stadium atten- dance is dwindling for some teams, and the sport must also compete with other forms of entertainment, including electronic games and the Internet.

The chapter-opening diagram calls attention to important points raised by this case and this chapter. To increase stadium attendance and revenue, the New York Yankees chose to modernize Yankee Stadium and rely on information technology to provide new interactive services to fans inside and outside the stadium. These services include high-density television monitors displaying live game coverage; up-to-date sports scores, video, promotional messages, news, weather, and traffic information; touch screens for ordering food and merchandise; interactive videoconferencing technology for connecting to fans and the community; mobile social networking applications; and, eventually, data and video broadcast to fans’ home television sets and mobile handhelds. The Yankees’ Web site provides a new channel for interacting with fans, selling tickets to games, and selling other team-related products.

It is also important to note that these technologies changed the way the Yankees run their business. Yankee Stadium’s systems for delivering game coverage, information, and interactive services changed the flow of work for ticketing, seating, crowd management, and ordering food and other items from concessions. These changes had to be carefully planned to make sure they enhanced service, efficiency, and profitability.

Chapter 1 Information Systems in Global Business Today 5


t’s not business as usual in America anymore, or the rest of the global economy. In 2010, American businesses will spend over $562 billion on information systems hardware, software, and telecommunications equipment. In addition, they will spend another $800 billion on business

and management consulting and services—much of which involves redesigning firms’ business operations to take advantage of these new technologies. Figure 1-1 shows that between 1980 and 2009, private business investment in information technology consisting of hardware, software, and communications equipment grew from 32 percent to 52 percent of all invested capital.

As managers, most of you will work for firms that are intensively using information systems and making large investments in information technol- ogy. You will certainly want to know how to invest this money wisely. If you make wise choices, your firm can outperform competitors. If you make poor choices, you will be wasting valuable capital. This book is dedicated to helping you make wise decisions about information technology and informa- tion systems.

HOW INFORMATION SYSTEMS ARE TRANSFORMING BUSINESS You can see the results of this massive spending around you every day by observing how people conduct business. More wireless cell phone accounts were opened in 2009 than telephone land lines installed. Cell phones, BlackBerrys, iPhones, e-mail, and online conferencing over the Internet have all become essential tools of business. Eighty-nine million people in the United States access the Internet using mobile devices in 2010, nearly half the total



Information technology capital investment, defined as hardware, software, and communications equipment, grew from 32 percent to 52 percent of all invested capital between 1980 and 2009. Source: Based on data in U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts, 2009.

6 Part One Organizations, Management, and the Networked Enterprise

Internet user population (eMarketer, 2010). There are 285 million cell phone subscribers in the United States, and nearly 5 billion worldwide (Dataxis, 2010).

By June 2010, more than 99 million businesses worldwide had dot-com Internet sites registered (Verisign, 2010). Today, 162 million Americans shop online, and 133 million have purchased online. Every day about 41 million Americans go online to research a product or service.

In 2009, FedEx moved over 3.4 million packages daily in the United States, mostly overnight, and the United Parcel Service (UPS) moved over 15 million packages daily worldwide. Businesses sought to sense and respond to rapidly changing customer demand, reduce inventories to the lowest possible levels, and achieve higher levels of operational efficiency. Supply chains have become more fast-paced, with companies of all sizes depending on just-in-time inven- tory to reduce their overhead costs and get to market faster.

As newspaper readership continues to decline, more than 78 million people receive their news online. About 39 million people watch a video online every- day, 66 million read a blog, and 16 million post to blogs, creating an explosion of new writers and new forms of customer feedback that did not exist five years ago (Pew, 2010). Social networking site Facebook attracted 134 million monthly visitors in 2010 in the United States, and over 500 million worldwide. Businesses are starting to use social networking tools to connect their employees, customers, and managers worldwide. Many Fortune 500 companies now have Facebook pages.

Despite the recession, e-commerce and Internet advertising continue to expand. Google’s online ad revenues surpassed $25 billion in 2009, and Internet advertising continues to grow at more than 10 percent a year, reaching more than $25 billion in revenues in 2010.

New federal security and accounting laws, requiring many businesses to keep e-mail messages for five years, coupled with existing occupational and health laws requiring firms to store employee chemical exposure data for up to 60 years, are spurring the growth of digital information at the estimated rate of 5 exabytes annually, equivalent to 37,000 new Libraries of Congress.

WHAT’S NEW IN MANAGEMENT INFORMATION SYSTEMS? Lots! What makes management information systems the most exciting topic in business is the continual change in technology, management use of the tech- nology, and the impact on business success. New businesses and industries appear, old ones decline, and successful firms are those who learn how to use the new technologies. Table 1-1 summarizes the major new themes in business uses of information systems. These themes will appear throughout the book in all the chapters, so it might be a good idea to take some time now and discuss these with your professor and other students.

In the technology area there are three interrelated changes: (1) the emerg- ing mobile digital platform, (2) the growth of online software as a service, and (3) the growth in “cloud computing” where more and more business software runs over the Internet.

IPhones, iPads, BlackBerrys, and Web-surfing netbooks are not just gadgets or entertainment outlets. They represent new emerging computing platforms based on an array of new hardware and software technologies. More and more business computing is moving from PCs and desktop machines to these mobile devices. Managers are increasingly using these devices to coordinate

Chapter 1 Information Systems in Global Business Today 7




Cloud computing platform emerges as a major business A flexible collection of computers on the Internet begins to perform area of innovation tasks traditionally performed on corporate computers.

Growth in software as a service (SaaS) Major business applications are now delivered online as an Internet service rather than as boxed software or custom systems.

A mobile digital platform emerges to compete with the PC as a Apple opens its iPhone software to developers, and then opens an business system Applications Store on iTunes where business users can download

hundreds of applications to support collaboration, location-based services, and communication with colleagues. Small portable lightweight, low-cost, net-centric subnotebook computers are a major segment of the laptop marketplace. The iPad is the first successful tablet- sized computing device with tools for both entertainment and business productivity.


Managers adopt online collaboration and social networking software Google Apps, Google Sites, Microsoft’s Windows SharePoint Services, to improve coordination, collaboration, and knowledge sharing and IBM’s Lotus Connections are used by over 100 million business

professionals worldwide to support blogs, project management, online meetings, personal profiles, social bookmarks, and online communities.

Business intelligence applications accelerate More powerful data analytics and interactive dashboards provide real- time performance information to managers to enhance decision making.

Virtual meetings proliferate Managers adopt telepresence video conferencing and Web conferencing technologies to reduce travel time, and cost, while improving collaboration and decision making.


Web 2.0 applications are widely adopted by firms Web-based services enable employees to interact as online communities using blogs, wikis, e-mail, and instant messaging services. Facebook and MySpace create new opportunities for business to collaborate with customers and vendors.

Telework gains momentum in the workplace The Internet, netbooks, iPads, iPhones, and BlackBerrys make it possible for growing numbers of people to work away from the traditional office; 55 percent of U.S. businesses have some form of remote work program.

Co-creation of business value Sources of business value shift from products to solutions and experiences and from internal sources to networks of suppliers and collaboration with customers. Supply chains and product development are more global and collaborative than in the past; customers help firms define new products and services.

work, communicate with employees, and provide information for decision making. We call these developments the “emerging mobile digital platform.”

Managers routinely use so-called “Web 2.0” technologies like social networking, collaboration tools, and wikis in order to make better, faster decisions. As management behavior changes, how work gets organized, coordinated, and measured also changes. By connecting employees working on teams and projects, the social network is where works gets done, where plans are executed, and where managers manage. Collaboration spaces are

8 Part One Organizations, Management, and the Networked Enterprise

where employees meet one another—even when they are separated by continents and time zones.

The strength of cloud computing and the growth of the mobile digital platform allow organizations to rely more on telework, remote work, and dis- tributed decision making. This same platform means firms can outsource more work, and rely on markets (rather than employees) to build value. It also means that firms can collaborate with suppliers and customers to create new products, or make existing products more efficiently.

You can see some of these trends at work in the Interactive Session on Management. Millions of managers rely heavily on the mobile digital platform to coordinate suppliers and shipments, satisfy customers, and manage their employees. A business day without these mobile devices or Internet access would be unthinkable. As you read this case, note how the emerging mobile platform greatly enhances the accuracy, speed, and richness of decision making.

GLOBALIZATION CHALLENGES AND OPPORTUNITIES: A FLATTENED WORLD In 1492, Columbus reaffirmed what astronomers were long saying: the world was round and the seas could be safely sailed. As it turned out, the world was populated by peoples and languages living in isolation from one another, with great disparities in economic and scientific development. The world trade that ensued after Columbus’s voyages has brought these peoples and cultures closer. The “industrial revolution” was really a world-wide phenomenon energized by expansion of trade among nations.

In 2005, journalist Thomas Friedman wrote an influential book declaring the world was now “flat,” by which he meant that the Internet and global communications had greatly reduced the economic and cultural advantages of developed countries. Friedman argued that the U.S. and European countries were in a fight for their economic lives, competing for jobs, markets, resources, and even ideas with highly educated, motivated populations in low-wage areas in the less developed world (Friedman, 2007). This “globalization” presents both challenges and opportunities for business firms

A growing percentage of the economy of the United States and other advanced industrial countries in Europe and Asia depends on imports and exports. In 2010, more than 33 percent of the U.S. economy resulted from foreign trade, both imports and exports. In Europe and Asia, the number exceeded 50 percent. Many Fortune 500 U.S. firms derive half their revenues from foreign operations. For instance, more than half of Intel’s revenues in 2010 came from overseas sales of its microprocessors. Eighty percent of the toys sold in the U.S. are manufactured in China, while about 90 percent of the PCs manufactured in China use American-made Intel or Advanced Micro Design (AMD) chips.

It’s not just goods that move across borders. So too do jobs, some of them high-level jobs that pay well and require a college degree. In the past decade, the United States lost several million manufacturing jobs to offshore, low-wage producers. But manufacturing is now a very small part of U.S. employment (less than 12 percent and declining). In a normal year, about 300,000 service jobs move offshore to lower wage countries, many of them in less-skilled information system occupations, but also including “tradable service” jobs in architecture, financial services, customer call centers, consulting, engineering, and even radi- ology.

Chapter 1 Information Systems in Global Business Today 9

Can you run your company out of your pocket? Perhaps not entirely, but there are many functions today that can be performed using an iPhone, BlackBerry, or other mobile handheld device. The smartphone has been called the “Swiss Army knife of the digital age.” A flick of the finger turns it into a Web browser, a telephone, a camera, a music or video player, an e-mail and messaging machine, and for some, a gateway into corporate systems. New software applications for social networking and salesforce management (CRM) make these devices even more versatile business tools.

The BlackBerry has been the favored mobile handheld for business because it was optimized for e-mail and messaging, with strong security and tools for accessing internal corporate systems. Now that’s changing. Companies large and small are starting to deploy Apple’s iPhone to conduct more of their work. For some, these handhelds have become necessities.

Doylestown Hospital, a community medical center near Philadelphia, has a mobile workforce of 360 independent physicians treating thousands of patients. The physicians use the iPhone 3G to stay connected around the clock to hospital staff, colleagues, and patient information. Doylestown doctors use iPhone features such as e-mail, calen- dar, and contacts from Microsoft Exchange ActiveSync. The iPhone allows them to receive time-sensitive e-mail alerts from the hospital. Voice communication is important as well, and the iPhone allows the doctors to be on call wherever they are.

Doylestown Hospital customized the iPhone to provide doctors with secure mobile access from any location in the world to the hospital’s MEDITECH electronic medical records system. MEDITECH delivers information on vital signs, medications, lab results, allergies, nurses’ notes, therapy results, and even patient diets to the iPhone screen. “Every radiographic image a patient has had, every dictated report from a specialist is available on the iPhone,” notes Dr. Scott Levy, Doylestown Hospital’s vice president and chief medical officer. Doylestown doctors also use the iPhone at the patient’s bedside to access medical reference applications such as Epocrates Essentials to help them interpret lab results and obtain medication information.

MIS IN YOUR POCKET Doylestown’s information systems department

was able to establish the same high level of security for authenticating users of the system and tracking user activity as it maintains with all the hospital’s Web-based medical records applications. Information is stored securely on the hospital’s own server computer.

D.W. Morgan, headquartered in Pleasanton, California, serves as a supply chain consultant and transportation and logistics service provider to companies such as AT&T, Apple Computer, Johnson & Johnson, Lockheed Martin, and Chevron. It has operations in more than 85 countries on four continents, moving critical inventory to factories that use a just-in-time (JIT) strategy. In JIT, retailers and manufacturers main- tain almost no excess on-hand inventory, relying upon suppliers to deliver raw materials, compo- nents, or products shortly before they are needed.

In this type of production environment, it’s absolutely critical to know the exact moment when delivery trucks will arrive. In the past, it took many phone calls and a great deal of manual effort to provide customers with such precise up-to-the- minute information. The company was able to develop an application called ChainLinq Mobile for its 30 drivers that updates shipment information, collects signatures, and provides global positioning system (GPS) tracking on each box it delivers.

As Morgan’s drivers make their shipments, they use ChainLinq to record pickups and status updates. When they reach their destination, they collect a signature on the iPhone screen. Data collected at each point along the way, including a date- and time-stamped GPS location pinpointed on a Google map, are uploaded to the company’s servers. The servers make the data available to cus- tomers on the company’s Web site. Morgan’s com- petitors take about 20 minutes to half a day to pro- vide proof of delivery; Morgan can do it immediately.

TCHO is a start-up that uses custom-developed machinery to create unique chocolate flavors. Owner Timothy Childs developed an iPhone app that enables him to remotely log into each choco- late-making machine, control time and temperature, turn the machines on and off, and receive alerts about when to make temperature changes. The iPhone app also enables him to remotely view sev- eral video cameras that show how the TCHO

I N T E R A C T I V E S E S S I O N : M A N A G E M E N T

10 Part One Organizations, Management, and the Networked Enterprise

1. What kinds of applications are described here? What business functions do they support? How do they improve operational efficiency and decision making?

2. Identify the problems that businesses in this case study solved by using mobile digital devices.

3. What kinds of businesses are most likely to benefit from equipping their employees with mobile digi- tal devices such as iPhones, iPads, and BlackBerrys?

4. D.W. Morgan’s CEO has stated, “The iPhone is not a game changer, it’s an industry changer. It changes the way that you can interact with your customers and with your suppliers.” Discuss the implications of this statement.

FlavorLab is doing. TCHO employees also use the iPhone to exchange photos, e-mail, and text mes- sages.

The Apple iPad is also emerging as a business tool for Web-based note-taking, file sharing, word processing, and number-crunching. Hundreds of business productivity applications are being devel- oped, including tools for Web conferencing, word processing, spreadsheets, and electronic presenta-

Explore the Web site for the Apple iPhone, the Apple iPad, the BlackBerry, and the Motorola Droid, then answer the following questions:

1. List and describe the capabilities of each of these devices and give examples of how they could be used by businesses.

2. List and describe three downloadable business applications for each device and describe their business benefits.

tions. Properly configured, the iPad is able to connect to corporate networks to obtain e-mail messages, calendar events, and contacts securely over the air.

Sources: “Apple iPhone in Business Profiles,, accessed May 10, 2010; Steve Lohr, Cisco Cheng, “The Ipad Has Business Potential,” PC World, April 26, 2010; and “Smartphone Rises Fast from Gadget to Necessity,” The New York Times, June 10, 2009.


Whether it’s attending an online meeting, checking orders, working with files and documents, or obtaining business intelligence, Apple’s iPhone and iPad offer unlim- ited possibilities for business users. Both devices have stunning multitouch display, full Internet browsing, capa- bilities for messaging, video and audio transmission, and document management. These features make each an all-purpose platform for mobile computing.

iPhone and iPad Applications Used in Business:


2. FedEx Mobile

3. iTimeSheet

4. QuickOffice Connect

5. Documents to Go

6. GoodReader

7. Evernote

8. WebEx

Chapter 1 Information Systems in Global Business Today 11

On the plus side, in a normal, non-recessionary year, the U.S. economy cre- ates over 3.5 million new jobs. Employment in information systems and the other service occupations is expanding, and wages are stable. Outsourcing has actually accelerated the development of new systems in the United States and worldwide.

The challenge for you as a business student is to develop high-level skills through education and on-the-job experience that cannot be outsourced. The challenge for your business is to avoid markets for goods and services that can be produced offshore much less expensively. The opportunities are equally immense. You will find throughout this book examples of companies and individuals who either failed or succeeded in using information systems to adapt to this new global environment.

What does globalization have to do with management information systems? That’s simple: everything. The emergence of the Internet into a full-blown international communications system has drastically reduced the costs of operating and transacting on a global scale. Communication between a factory floor in Shanghai and a distribution center in Rapid Falls, South Dakota, is now instant and virtually free. Customers now can shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. Firms producing goods and services on a global scale achieve extraordinary cost reductions by finding low-cost suppliers and managing production facilities in other countries. Internet service firms, such as Google and eBay, are able to replicate their business models and services in multiple countries without having to redesign their expensive fixed-cost information systems infrastruc- ture. Half of the revenue of eBay (as well as General Motors) in 2011 will origi- nate outside the United States. Briefly, information systems enable globaliza- tion.

THE EMERGING DIGITAL FIRM All of the changes we have just described, coupled with equally significant organizational redesign, have created the conditions for a fully digital firm. A digital firm can be defined along several dimensions. A digital firm is one in which nearly all of the organization’s significant business relationships with customers, suppliers, and employees are digitally enabled and mediated. Core business processes are accomplished through digital networks spanning the entire organization or linking multiple organizations.

Business processes refer to the set of logically related tasks and behaviors that organizations develop over time to produce specific business results and the unique manner in which these activities are organized and coordinated. Developing a new product, generating and fulfilling an order, creating a marketing plan, and hiring an employee are examples of business processes, and the ways organizations accomplish their business processes can be a source of competitive strength. (A detailed discussion of business processes can be found in Chapter 2.)

Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means. In a digital firm, any piece of information required to support key business decisions is available at any time and anywhere in the firm.

Digital firms sense and respond to their environments far more rapidly than traditional firms, giving them more flexibility to survive in turbulent times. Digital firms offer extraordinary opportunities for more flexible global organiza- tion and management. In digital firms, both time shifting and space shifting are

12 Part One Organizations, Management, and the Networked Enterprise

the norm. Time shifting refers to business being conducted continuously, 24/7, rather than in narrow “work day” time bands of 9 A.M. to 5 P.M. Space shifting means that work takes place in a global workshop, as well as within national boundaries. Work is accomplished physically wherever in the world it is best accomplished.

Many firms, such as Cisco Systems. 3M, and IBM, are close to becoming dig- ital firms, using the Internet to drive every aspect of their business. Most other companies are not fully digital, but they are moving toward close digital inte- gration with suppliers, customers, and employees. Many firms, for example, are replacing traditional face-to-face meetings with “virtual” meetings using video- conferencing and Web conferencing technology. (See Chapter 2.)

STRATEGIC BUSINESS OBJECTIVES OF INFORMATION SYSTEMS What makes information systems so essential today? Why are businesses investing so much in information systems and technologies? In the United States, more than 23 million managers and 113 million workers in the labor force rely on information systems to conduct business. Information systems are essential for conducting day-to-day business in the United States and most other advanced countries, as well as achieving strategic business objectives.

Entire sectors of the economy are nearly inconceivable without substantial investments in information systems. E-commerce firms such as Amazon, eBay, Google, and E*Trade simply would not exist. Today’s service industries—finance, insurance, and real estate, as well as personal services such as travel, medicine, and education—could not operate without information systems. Similarly, retail firms such as Walmart and Sears and manufacturing firms such as General Motors and General Electric require information systems to survive and prosper. Just as offices, telephones, filing cabinets, and efficient tall buildings with elevators were once the foundations of business in the twentieth century, infor- mation technology is a foundation for business in the twenty-first century.

There is a growing interdependence between a firm’s ability to use information technology and its ability to implement corporate strategies and achieve corporate goals (see Figure 1-2). What a business would like to do in five years often depends on what its systems will be able to do. Increasing market share, becoming the high-quality or low-cost producer, developing new products, and increasing employee productivity depend more and more on the kinds and quality of information systems in the organization. The more you understand about this relationship, the more valuable you will be as a manager.

Specifically, business firms invest heavily in information systems to achieve six strategic business objectives: operational excellence; new products, services, and business models; customer and supplier intimacy; improved decision making; competitive advantage; and survival.

Operat iona l Exce l lence Businesses continuously seek to improve the efficiency of their operations in order to achieve higher profitability. Information systems and technologies are some of the most important tools available to managers for achieving higher levels of efficiency and productivity in business operations, especially when coupled with changes in business practices and management behavior.

Walmart, the largest retailer on earth, exemplifies the power of information systems coupled with brilliant business practices and supportive management

Chapter 1 Information Systems in Global Business Today 13

to achieve world-class operational efficiency. In fiscal year 2010, Walmart achieved $408 billion in sales—nearly one-tenth of retail sales in the United States—in large part because of its Retail Link system, which digitally links its suppliers to every one of Walmart’s stores. As soon as a customer purchases an item, the supplier monitoring the item knows to ship a replacement to the shelf. Walmart is the most efficient retail store in the industry, achieving sales of more than $28 per square foot, compared to its closest competitor, Target, at $23 a square foot, with other retail firms producing less than $12 a square foot.

New Products , Ser v ices , and Bus iness Mode l s Information systems and technologies are a major enabling tool for firms to create new products and services, as well as entirely new business models. A business model describes how a company produces, delivers, and sells a product or service to create wealth.

Today’s music industry is vastly different from the industry a decade ago. Apple Inc. transformed an old business model of music distribution based on vinyl records, tapes, and CDs into an online, legal distribution model based on its own iPod technology platform. Apple has prospered from a continuing stream of iPod innovations, including the iPod, the iTunes music service, the iPad, and the iPhone.

Customer and Supp l ie r Int imacy When a business really knows its customers, and serves them well, the customers generally respond by returning and purchasing more. This raises revenues and profits. Likewise with suppliers: the more a business engages its suppliers, the better the suppliers can provide vital inputs. This lowers costs. How to really know your customers, or suppliers, is a central problem for businesses with millions of offline and online customers.

The Mandarin Oriental in Manhattan and other high-end hotels exemplify the use of information systems and technologies to achieve customer intimacy. These hotels use computers to keep track of guests’ preferences, such as their preferred


In contemporary systems there is a growing interdependence between a firm’s information systems and its business capabilities. Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases, and telecommunications. Often, what the organization would like to do depends on what its systems will permit it to do.

14 Part One Organizations, Management, and the Networked Enterprise

room temperature, check-in time, frequently dialed telephone numbers, and television programs., and store these data in a large data repository. Individual rooms in the hotels are networked to a central network server computer so that they can be remotely monitored or controlled. When a customer arrives at one of these hotels, the system automatically changes the room conditions, such as dimming the lights, setting the room temperature, or selecting appropriate music, based on the customer’s digital profile. The hotels also analyze their customer data to identify their best customers and to develop individualized marketing campaigns based on customers’ preferences.

JCPenney exemplifies the benefits of information systems-enabled supplier intimacy. Every time a dress shirt is bought at a JCPenney store in the United States, the record of the sale appears immediately on computers in Hong Kong at the TAL Apparel Ltd. supplier, a contract manufacturer that produces one in eight dress shirts sold in the United States. TAL runs the numbers through a computer model it developed and then decides how many replacement shirts to make, and in what styles, colors, and sizes. TAL then sends the shirts to each JCPenney store, bypassing completely the retailer’s warehouses. In other words, JCPenney’s shirt inventory is near zero, as is the cost of storing it.

Improved Dec i s ion Making Many business managers operate in an information fog bank, never really having the right information at the right time to make an informed decision. Instead, managers rely on forecasts, best guesses, and luck. The result is over- or underproduction of goods and services, misallocation of resources, and poor response times. These poor outcomes raise costs and lose customers. In the past decade, information systems and technologies have made it possible for managers to use real-time data from the marketplace when making decisions.

For instance, Verizon Corporation, one of the largest telecommunication companies in the United States, uses a Web-based digital dashboard to provide managers with precise real-time information on customer complaints, network performance for each locality served, and line outages or storm-damaged lines. Using this information, managers can immediately allocate repair resources to affected areas, inform consumers of repair efforts, and restore service fast.

Compet i t i ve Advantage When firms achieve one or more of these business objectives—operational excellence; new products, services, and business models; customer/supplier intimacy; and improved decision making—chances are they have already achieved a competitive advantage. Doing things better than your competitors, charging less for superior products, and responding to customers and suppliers in real time all add up to higher sales and higher profits that your competitors cannot match. Apple Inc., Walmart, and UPS, described later in this chapter, are industry leaders because they know how to use information systems for this purpose.

Sur v iva l Business firms also invest in information systems and technologies because they are necessities of doing business. Sometimes these “necessities” are driven by industry-level changes. For instance, after Citibank introduced the first automated teller machines (ATMs) in the New York region in 1977 to attract customers through higher service levels, its competitors rushed to provide ATMs to their customers to keep up with Citibank. Today, virtually all banks in the United States have regional ATMs and link to national and international ATM

Chapter 1 Information Systems in Global Business Today 15

networks, such as CIRRUS. Providing ATM services to retail banking customers is simply a requirement of being in and surviving in the retail banking business.

There are many federal and state statutes and regulations that create a legal duty for companies and their employees to retain records, including digital records. For instance, the Toxic Substances Control Act (1976), which regulates the exposure of U.S. workers to more than 75,000 toxic chemicals, requires firms to retain records on employee exposure for 30 years. The Sarbanes— Oxley Act (2002), which was intended to improve the accountability of public firms and their auditors, requires certified public accounting firms that audit public companies to retain audit working papers and records, including all e-mails, for five years. Many other pieces of federal and state legislation in health care, financial services, education, and privacy protection impose significant information retention and reporting requirements on U.S. businesses. Firms turn to information systems and technologies to provide the capability to respond to these challenges.

1.2 PERSPECTIVES ON INFORMATION SYSTEMS So far we’ve used information systems and technologies informally without defining the terms. Information technology (IT) consists of all the hardware and software that a firm needs to use in order to achieve its business objectives. This includes not only computer machines, storage devices, and handheld mobile devices, but also software, such as the Windows or Linux operating sys- tems, the Microsoft Office desktop productivity suite, and the many thousands of computer programs that can be found in a typical large firm. “Information systems” are more complex and can be best be understood by looking at them from both a technology and a business perspective.

WHAT IS AN INFORMATION SYSTEM? An information system can be defined technically as a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control in an organization. In addition to supporting decision making, coordination, and control, information systems may also help managers and workers analyze problems, visualize complex subjects, and create new products.

Information systems contain information about significant people, places, and things within the organization or in the environment surrounding it. By information we mean data that have been shaped into a form that is meaningful and useful to human beings. Data, in contrast, are streams of raw facts representing events occurring in organizations or the physical environ- ment before they have been organized and arranged into a form that people can understand and use.

A brief example contrasting information and data may prove useful. Supermarket checkout counters scan millions of pieces of data from bar codes, which describe each product. Such pieces of data can be totaled and analyzed to provide meaningful information, such as the total number of bottles of dish detergent sold at a particular store, which brands of dish detergent were selling the most rapidly at that store or sales territory, or the total amount spent on that brand of dish detergent at that store or sales region (see Figure 1-3).

Three activities in an information system produce the information that organizations need to make decisions, control operations, analyze problems, and create new products or services. These activities are input, processing, and output (see Figure 1-4). Input captures or collects raw data from within the organization or from its external environment. Processing converts this raw input into a meaningful form. Output transfers the processed information to the people who will use it or to the activities for which it will be used. Information systems also require feedback, which is output that is returned to appropriate members of the organization to help them evaluate or correct the input stage.

In the Yankees’ system for selling tickets through its Web site, the raw input consists of order data for tickets, such as the purchaser’s name, address, credit card number, number of tickets ordered, and the date of the game for which the ticket is being purchased. Computers store these data and process them to calculate order totals, to track ticket purchases, and to send requests for payment to credit card companies. The output consists of tickets to print out, receipts for orders, and reports on online ticket orders. The system provides meaningful information, such as the number of tickets sold for a particular game, the total number of tickets sold each year, and frequent customers.

Although computer-based information systems use computer technology to process raw data into meaningful information, there is a sharp distinction between a computer and a computer program on the one hand, and an information system on the other. Electronic computers and related software programs are the technical foundation, the tools and materials, of modern information systems. Computers provide the equipment for storing and processing information. Computer programs, or software, are sets of operating instructions that direct and control computer processing. Knowing how computers and computer programs work is important in designing solutions to organizational problems, but computers are only part of an information system.

16 Part One Organizations, Management, and the Networked Enterprise


Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information, such as the total unit sales of dish detergent or the total sales revenue from dish detergent for a specific store or sales territory.

A house is an appropriate analogy. Houses are built with hammers, nails, and wood, but these do not make a house. The architecture, design, setting, landscaping, and all of the decisions that lead to the creation of these features are part of the house and are crucial for solving the problem of putting a roof over one’s head. Computers and programs are the hammers, nails, and lumber of computer-based information systems, but alone they cannot produce the information a particular organization needs. To understand information systems, you must understand the problems they are designed to solve, their architectural and design elements, and the organizational processes that lead to these solutions.

DIMENSIONS OF INFORMATION SYSTEMS To fully understand information systems, you must understand the broader organization, management, and information technology dimensions of systems (see Figure 1-5) and their power to provide solutions to challenges and problems in the business environment. We refer to this broader understanding of informa- tion systems, which encompasses an understanding of the management and organizational dimensions of systems as well as the technical dimensions of systems, as information systems literacy. Computer literacy, in contrast, focuses primarily on knowledge of information technology.

The field of management information systems (MIS) tries to achieve this broader information systems literacy. MIS deals with behavioral issues as well

Chapter 1 Information Systems in Global Business Today 17


An information system contains information about an organization and its surrounding environment. Three basic activities—input, processing, and output—produce the information organizations need. Feedback is output returned to appropriate people or activities in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems.

18 Part One Organizations, Management, and the Networked Enterprise

as technical issues surrounding the development, use, and impact of informa- tion systems used by managers and employees in the firm.

Let’s examine each of the dimensions of information systems—organizations, management, and information technology.

Organ izat ions Information systems are an integral part of organizations. Indeed, for some companies, such as credit reporting firms, there would be no business without an information system. The key elements of an organization are its people, structure, business processes, politics, and culture. We introduce these components of organizations here and describe them in greater detail in Chapters 2 and 3.

Organizations have a structure that is composed of different levels and specialties. Their structures reveal a clear-cut division of labor. Authority and responsibility in a business firm are organized as a hierarchy, or a pyramid structure. The upper levels of the hierarchy consist of managerial, professional, and technical employees, whereas the lower levels consist of operational personnel.

Senior management makes long-range strategic decisions about products and services as well as ensures financial performance of the firm. Middle management carries out the programs and plans of senior management and operational management is responsible for monitoring the daily activities of the business. Knowledge workers, such as engineers, scientists, or architects, design products or services and create new knowledge for the firm, whereas data workers, such as secretaries or clerks, assist with scheduling and commu- nications at all levels of the firm. Production or service workers actually pro- duce the product and deliver the service (see Figure 1-6).

Experts are employed and trained for different business functions. The major business functions, or specialized tasks performed by business organizations, consist of sales and marketing, manufacturing and production,


Using information systems effectively requires an understanding of the organization, management, and information technology shaping the systems. An information system creates value for the firm as an organizational and management solution to challenges posed by the environment.

Chapter 1 Information Systems in Global Business Today 19

finance and accounting, and human resources (see Table 1-2). Chapter 2 provides more detail on these business functions and the ways in which they are supported by information systems.

An organization coordinates work through its hierarchy and through its business processes, which are logically related tasks and behaviors for accomplishing work. Developing a new product, fulfilling an order, and hiring a new employee are examples of business processes.

Most organizations’ business processes include formal rules that have been developed over a long time for accomplishing tasks. These rules guide employees in a variety of procedures, from writing an invoice to responding to customer complaints. Some of these business processes have been written down, but others are informal work practices, such as a requirement to return telephone calls from co-workers or customers, that are not formally documented. Information systems automate many business processes. For instance, how a customer receives credit or how a customer is billed is often determined by an information system that incorporates a set of formal business processes.


Business organizations are hierarchies consisting of three principal levels: senior management, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management.



Sales and marketing Selling the organization’s products and services

Manufacturing and production Producing and delivering products and services

Finance and accounting Managing the organization’s financial assets and maintaining the organization’s financial records

Human resources Attracting, developing, and maintaining the organization’s labor force; maintaining employee records

20 Part One Organizations, Management, and the Networked Enterprise

Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things, that has been accepted by most of its members. You can see organizational culture at work by looking around your university or college. Some bedrock assumptions of university life are that professors know more than students, the reasons students attend college is to learn, and that classes follow a regular schedule.

Parts of an organization’s culture can always be found embedded in its information systems. For instance, UPS’s concern with placing service to the customer first is an aspect of its organizational culture that can be found in the company’s package tracking systems, which we describe later in this section.

Different levels and specialties in an organization create different interests and points of view. These views often conflict over how the company should be run and how resources and rewards should be distributed. Conflict is the basis for organizational politics. Information systems come out of this cauldron of differing perspectives, conflicts, compromises, and agreements that are a natural part of all organizations. In Chapter 3, we examine these features of organizations and their role in the development of information systems in greater detail.

Management Management’s job is to make sense out of the many situations faced by organizations, make decisions, and formulate action plans to solve organiza- tional problems. Managers perceive business challenges in the environment; they set the organizational strategy for responding to those challenges; and they allocate the human and financial resources to coordinate the work and achieve success. Throughout, they must exercise responsible leadership. The business information systems described in this book reflect the hopes, dreams, and realities of real-world managers.

But managers must do more than manage what already exists. They must also create new products and services and even re-create the organization from time to time. A substantial part of management responsibility is creative work driven by new knowledge and information. Information technology can play a powerful role in helping managers design and deliver new products and services and redirecting and redesigning their organizations. Chapter 12 treats management decision making in detail.

Informat ion Techno logy Information technology is one of many tools managers use to cope with change. Computer hardware is the physical equipment used for input, processing, and output activities in an information system. It consists of the following: computers of various sizes and shapes (including mobile handheld devices); various input, output, and storage devices; and telecommunications devices that link computers together.

Computer software consists of the detailed, preprogrammed instructions that control and coordinate the computer hardware components in an informa- tion system. Chapter 5 describes the contemporary software and hardware platforms used by firms today in greater detail.

Data management technology consists of the software governing the organization of data on physical storage media. More detail on data organization and access methods can be found in Chapter 6.

Networking and telecommunications technology, consisting of both physical devices and software, links the various pieces of hardware and transfers

Chapter 1 Information Systems in Global Business Today 21

data from one physical location to another. Computers and communications equipment can be connected in networks for sharing voice, data, images, sound, and video. A network links two or more computers to share data or resources, such as a printer.

The world’s largest and most widely used network is the Internet. The Internet is a global “network of networks” that uses universal standards (described in Chapter 7) to connect millions of different networks with more than 1.4 billion users in over 230 countries around the world.

The Internet has created a new “universal” technology platform on which to build new products, services, strategies, and business models. This same technology platform has internal uses, providing the connectivity to link differ- ent systems and networks within the firm. Internal corporate networks based on Internet technology are called intranets. Private intranets extended to authorized users outside the organization are called extranets, and firms use such networks to coordinate their activities with other firms for making purchases, collaborating on design, and other interorganizational work. For most business firms today, using Internet technology is both a business neces- sity and a competitive advantage.

The World Wide Web is a service provided by the Internet that uses universally accepted standards for storing, retrieving, formatting, and displaying information in a page format on the Internet. Web pages contain text, graphics, animations, sound, and video and are linked to other Web pages. By clicking on highlighted words or buttons on a Web page, you can link to related pages to find additional information and links to other locations on the Web. The Web can serve as the foundation for new kinds of information systems such as UPS’s Web-based package tracking system described in the following Interactive Session.

All of these technologies, along with the people required to run and manage them, represent resources that can be shared throughout the organi- zation and constitute the firm’s information technology (IT) infrastruc- ture. The IT infrastructure provides the foundation, or platform, on which the firm can build its specific information systems. Each organization must carefully design and manage its IT infrastructure so that it has the set of technology services it needs for the work it wants to accomplish with infor- mation systems. Chapters 5 through 8 of this book examine each major tech- nology component of information technology infrastructure and show how they all work together to create the technology platform for the organization.

The Interactive Session on Technology describes some of the typical technologies used in computer-based information systems today. UPS invests heavily in information systems technology to make its business more efficient and customer oriented. It uses an array of information technologies including bar code scanning systems, wireless networks, large mainframe computers, handheld computers, the Internet, and many different pieces of software for tracking packages, calculating fees, maintaining customer accounts, and man- aging logistics.

Let’s identify the organization, management, and technology elements in the UPS package tracking system we have just described. The organization element anchors the package tracking system in UPS’s sales and production functions (the main product of UPS is a service—package delivery). It specifies the required procedures for identifying packages with both sender and recipient information, taking inventory, tracking the packages en route, and providing package status reports for UPS customers and customer service representatives.

22 Part One Organizations, Management, and the Networked Enterprise


United Parcel Service (UPS) started out in 1907 in a closet-sized basement office. Jim Casey and Claude Ryan—two teenagers from Seattle with two bicycles and one phone—promised the “best service and lowest rates.” UPS has used this formula successfully for more than 100 years to become the world’s largest ground and air package delivery company. It’s a global enterprise with over 408,000 employees, 96,000 vehicles, and the world’s ninth largest airline.

Today, UPS delivers more than 15 million pack- ages and documents each day in the United States and more than 200 other countries and territories. The firm has been able to maintain leadership in small-package delivery services despite stiff competi- tion from FedEx and Airborne Express by investing heavily in advanced information technology. UPS spends more than $1 billion each year to maintain a high level of customer service while keeping costs low and streamlining its overall operations.

It all starts with the scannable bar-coded label attached to a package, which contains detailed infor- mation about the sender, the destination, and when the package should arrive. Customers can download and print their own labels using special software provided by UPS or by accessing the UPS Web site. Before the package is even picked up, information from the “smart” label is transmitted to one of UPS’s computer centers in Mahwah, New Jersey, or Alpharetta, Georgia, and sent to the distribution center nearest its final destination. Dispatchers at this center download the label data and use special software to create the most efficient delivery route for each driver that considers traffic, weather conditions, and the location of each stop. UPS estimates its delivery trucks save 28 million miles and burn 3 million fewer gallons of fuel each year as a result of using this technology. To further increase cost savings and safety, drivers are trained to use “340 Methods” developed by industrial engineers to optimize the performance of every task from lifting and loading boxes to selecting a package from a shelf in the truck.

The first thing a UPS driver picks up each day is a handheld computer called a Delivery Information Acquisition Device (DIAD), which can access one of the wireless networks cell phones rely on. As soon as the driver logs on, his or her day’s route is down- loaded onto the handheld. The DIAD also automati-

UPS COMPETES GLOBALLY WITH INFORMATION TECHNOLOGY cally captures customers’ signatures along with pickup and delivery information. Package tracking information is then transmitted to UPS’s computer network for storage and processing. From there, the information can be accessed worldwide to provide proof of delivery to customers or to respond to customer queries. It usually takes less than 60 seconds from the time a driver presses “complete” on a DIAD for the new information to be available on the Web.

Through its automated package tracking system, UPS can monitor and even re-route packages throughout the delivery process. At various points along the route from sender to receiver, bar code devices scan shipping information on the package label and feed data about the progress of the package into the central computer. Customer service representatives are able to check the status of any package from desktop computers linked to the central computers and respond immediately to inquiries from customers. UPS customers can also access this information from the company’s Web site using their own computers or mobile phones.

Anyone with a package to ship can access the UPS Web site to check delivery routes, calculate shipping rates, determine time in transit, print labels, sched- ule a pickup, and track packages. The data collected at the UPS Web site are transmitted to the UPS cen- tral computer and then back to the customer after processing. UPS also provides tools that enable cus- tomers, such Cisco Systems, to embed UPS functions, such as tracking and cost calculations, into their own Web sites so that they can track shipments without visiting the UPS site.

In June 2009, UPS launched a new Web-based Post-Sales Order Management System (OMS) that manages global service orders and inventory for critical parts fulfillment. The system enables high- tech electronics, aerospace, medical equipment, and other companies anywhere in the world that ship critical parts to quickly assess their critical parts inventory, determine the most optimal routing strategy to meet customer needs, place orders online, and track parts from the warehouse to the end user. An automated e-mail or fax feature keeps customers informed of each shipping milestone and can provide notification of any changes to flight schedules for commercial airlines carrying their parts. Once orders

Chapter 1 Information Systems in Global Business Today 23


1. What are the inputs, processing, and outputs of UPS’s package tracking system?

2. What technologies are used by UPS? How are these technologies related to UPS’s business strategy?

3. What strategic business objectives do UPS’s information systems address?

4. What would happen if UPS’s information systems were not available?

are complete, companies can print documents such as labels and bills of lading in multiple languages.

UPS is now leveraging its decades of expertise managing its own global delivery network to manage logistics and supply chain activities for other compa- nies. It created a UPS Supply Chain Solutions division that provides a complete bundle of standard- ized services to subscribing companies at a fraction of what it would cost to build their own systems and infrastructure. These services include supply chain design and management, freight forwarding, customs brokerage, mail services, multimodal transportation, and financial services, in addition to logistics services.

Servalite, an East Moline, Illinois, manufacturer of fasteners, sells 40,000 different products to hardware

stores and larger home improvement stores. The company had used multiple warehouses to provide two-day delivery nationwide. UPS created a new logistics plan for the company that helped it reduce freight time in transit and consolidate inven- tory. Thanks to these improvements, Servalite has been able to keep its two-day delivery guarantee while lowering warehousing and inventory costs. Sources: Jennifer Levitz, “UPS Thinks Out of the Box on Driver Training,” The Wall Street Journal, April 6, 2010; United Parcel Service, “In a Tighter Economy, a Manufacturer Fastens Down Its Logistics,” UPS Compass, accessed May 5, 2010; Agam Shah, “UPS Invests $1 Billion in Technology to Cut Costs,” Bloomberg Businessweek, March 25, 2010; UPS, “UPS Delivers New App for Google’s Android,” April 12, 2010; Chris Murphy, “In for the Long Haul,” Information Week, January 19, 2009; United Parcel Service, “ UPS Unveils Global Technology for Critical Parts Fulfillment,” June 16, 2009; and, accessed May 5, 2010.

Explore the UPS Web site ( and answer the following questions:

1. What kind of information and services does the Web site provide for individuals, small businesses, and large businesses? List these services.

2. Go to the Business Solutions portion of the UPS Web site. Browse the UPS Business Solutions by category (such as shipment delivery, returns, or international trade) and write a description of all the services UPS provides for one of these categories. Explain how a business would benefit from these services.

3. Explain how the Web site helps UPS achieve some or all of the strategic business objectives we described earlier in this chapter. What would be the impact on UPS’s business if this Web site were not available?


The system must also provide information to satisfy the needs of managers and workers. UPS drivers need to be trained in both package pickup and delivery procedures and in how to use the package tracking system so that they can work efficiently and effectively. UPS customers may need some training to use UPS in-house package tracking software or the UPS Web site.

UPS’s management is responsible for monitoring service levels and costs and for promoting the company’s strategy of combining low cost and superior service. Management decided to use computer systems to increase the ease of sending a package using UPS and of checking its delivery status, thereby reducing delivery costs and increasing sales revenues.

24 Part One Organizations, Management, and the Networked Enterprise

The technology supporting this system consists of handheld computers, bar code scanners, wired and wireless communications networks, desktop comput- ers, UPS’s data center, storage technology for the package delivery data, UPS in- house package tracking software, and software to access the World Wide Web. The result is an information system solution to the business challenge of pro- viding a high level of service with low prices in the face of mounting competition.

IT ISN’T JUST TECHNOLOGY: A BUSINESS PERSPECTIVE ON INFORMATION SYSTEMS Managers and business firms invest in information technology and systems because they provide real economic value to the business. The decision to build or maintain an information system assumes that the returns on this investment will be superior to other investments in buildings, machines, or other assets. These superior returns will be expressed as increases in productivity, as increases in revenues (which will increase the firm’s stock market value), or perhaps as superior long-term strategic positioning of the firm in certain markets (which produce superior revenues in the future).

We can see that from a business perspective, an information system is an important instrument for creating value for the firm. Information systems enable the firm to increase its revenue or decrease its costs by providing information that helps managers make better decisions or that improves the execution of business processes. For example, the information system for analyzing supermarket checkout data illustrated in Figure 1-3 can increase firm profitability by helping managers make better decisions on which products to stock and promote in retail supermarkets.

Every business has an information value chain, illustrated in Figure 1-7, in which raw information is systematically acquired and then transformed through various stages that add value to that information. The value of an information system to a business, as well as the decision to invest in any new information system, is, in large part, determined by the extent to which the system will lead to better management decisions, more efficient business

Using a handheld computer called a Delivery Information Acquisition Device (DIAD), UPS drivers automatically capture customers’ signatures along with pickup, delivery, and time card information. UPS information systems use these data to track packages while they are being transported.

Chapter 1 Information Systems in Global Business Today 25

processes, and higher firm profitability. Although there are other reasons why systems are built, their primary purpose is to contribute to corporate value.

From a business perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and, ultimately, increase firm profitability.

The business perspective calls attention to the organizational and managerial nature of information systems. An information system represents an organiza- tional and management solution, based on information technology, to a challenge or problem posed by the environment. Every chapter in this book begins with a short case study that illustrates this concept. A diagram at the beginning of each chapter illustrates the relationship between a business challenge and resulting management and organizational decisions to use IT as a solution to challenges generated by the business environment. You can use this diagram as a starting point for analyzing any information system or information system problem you encounter.

Review the diagram at the beginning of this chapter. The diagram shows how the Yankees’ systems solved the business problem presented by declin- ing interest in baseball games and competition from television and other media. These systems provide a solution that takes advantage of new inter- active digital technology and opportunities created by the Internet. They opened up new channels for selling tickets and interacting with customers that improved business performance. The diagram also illustrates how


From a business perspective, information systems are part of a series of value-adding activities for acquiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and, ultimately, increase firm profitability.

26 Part One Organizations, Management, and the Networked Enterprise


Although, on average, investments in information technology produce returns far above those returned by other investments, there is considerable variation across firms. Source: Based on Brynjolfsson and Hitt (2000).

management, technology, and organizational elements work together to cre- ate the systems.

COMPLEMENTARY ASSETS: ORGANIZATIONAL CAPITAL AND THE RIGHT BUSINESS MODEL Awareness of the organizational and managerial dimensions of information systems can help us understand why some firms achieve better results from their information systems than others. Studies of returns from information technology investments show that there is considerable variation in the returns firms receive (see Figure 1-8). Some firms invest a great deal and receive a great deal (quadrant 2); others invest an equal amount and receive few returns (quadrant 4). Still other firms invest little and receive much (quadrant 1), whereas others invest little and receive little (quadrant 3). This suggests that investing in information technology does not by itself guarantee good returns. What accounts for this variation among firms?

The answer lies in the concept of complementary assets. Information technology investments alone cannot make organizations and managers more effective unless they are accompanied by supportive values, structures, and behavior patterns in the organization and other complementary assets. Business firms need to change how they do business before they can really reap the advantages of new information technologies.

Some firms fail to adopt the right business model that suits the new technol- ogy, or seek to preserve an old business model that is doomed by new technology. For instance, recording label companies refused to change their old business model, which was based on physical music stores for distribution rather than adopt a new online distribution model. As a result, online legal

Chapter 1 Information Systems in Global Business Today 27

music sales are dominated not by record companies but by a technology company called Apple Computer.

Complementary assets are those assets required to derive value from a primary investment (Teece, 1988). For instance, to realize value from automo- biles requires substantial complementary investments in highways, roads, gasoline stations, repair facilities, and a legal regulatory structure to set standards and control drivers.

Research on business information technology investment indicates that firms that support their technology investments with investments in complementary assets, such as new business models, new business processes, management behavior, organizational culture, or training, receive superior returns, whereas those firms failing to make these complementary investments receive less or no returns on their information technology investments (Brynjolfsson, 2003; Brynjolfsson and Hitt, 2000; Davern and Kauffman, 2000; Laudon, 1974). These investments in organization and management are also known as organizational and management capital.

Table 1-3 lists the major complementary investments that firms need to make to realize value from their information technology investments. Some of this investment involves tangible assets, such as buildings, machinery, and tools. However, the value of investments in information technology depends to a large extent on complementary investments in management and organi- zation.

Key organizational complementary investments are a supportive business culture that values efficiency and effectiveness, an appropriate business model, efficient business processes, decentralization of authority, highly distributed decision rights, and a strong information system (IS) development team.

Important managerial complementary assets are strong senior management support for change, incentive systems that monitor and reward individual innovation, an emphasis on teamwork and collaboration, training programs, and a management culture that values flexibility and knowledge.


Organizational assets Supportive organizational culture that values efficiency and effectiveness Appropriate business model Efficient business processes Decentralized authority Distributed decision-making rights Strong IS development team

Managerial assets Strong senior management support for technology investment and change Incentives for management innovation Teamwork and collaborative work environments Training programs to enhance management decision skills Management culture that values flexibility and knowledge-based decision making.

Social assets The Internet and telecommunications infrastructure IT-enriched educational programs raising labor force computer literacy Standards (both government and private sector) Laws and regulations creating fair, stable market environments Technology and service firms in adjacent markets to assist implementation

28 Part One Organizations, Management, and the Networked Enterprise

Important social investments (not made by the firm but by the society at large, other firms, governments, and other key market actors) are the Internet and the supporting Internet culture, educational systems, network and computing standards, regulations and laws, and the presence of technology and service firms.

Throughout the book we emphasize a framework of analysis that considers technology, management, and organizational assets and their interactions. Perhaps the single most important theme in the book, reflected in case studies and exercises, is that managers need to consider the broader organization and management dimensions of information systems to understand current problems as well as to derive substantial above-average returns from their information technology investments. As you will see throughout the text, firms that can address these related dimensions of the IT investment are, on average, richly rewarded.


The study of information systems is a multidisciplinary field. No single theory or perspective dominates. Figure 1-9 illustrates the major disciplines that contribute problems, issues, and solutions in the study of information systems. In general, the field can be divided into technical and behavioral approaches. Information systems are sociotechnical systems. Though they are composed of machines, devices, and “hard” physical technology, they require substantial social, organizational, and intellectual investments to make them work properly.


The study of information systems deals with issues and insights contributed from technical and behavioral disciplines.

Chapter 1 Information Systems in Global Business Today 29

TECHNICAL APPROACH The technical approach to information systems emphasizes mathematically based models to study information systems, as well as the physical technology and for- mal capabilities of these systems. The disciplines that contribute to the technical approach are computer science, management science, and operations research.

Computer science is concerned with establishing theories of computability, methods of computation, and methods of efficient data storage and access. Management science emphasizes the development of models for decision- making and management practices. Operations research focuses on mathemat- ical techniques for optimizing selected parameters of organizations, such as transportation, inventory control, and transaction costs.

BEHAVIORAL APPROACH An important part of the information systems field is concerned with behavioral issues that arise in the development and long-term maintenance of information systems. Issues such as strategic business integration, design, implementation, utilization, and management cannot be explored usefully with the models used in the technical approach. Other behavioral disciplines contribute important concepts and methods.

For instance, sociologists study information systems with an eye toward how groups and organizations shape the development of systems and also how systems affect individuals, groups, and organizations. Psychologists study information systems with an interest in how human decision makers perceive and use formal information. Economists study information systems with an interest in understanding the production of digital goods, the dynamics of digital markets, and how new information systems change the control and cost structures within the firm.

The behavioral approach does not ignore technology. Indeed, information systems technology is often the stimulus for a behavioral problem or issue. But the focus of this approach is generally not on technical solutions. Instead, it concentrates on changes in attitudes, management and organizational policy, and behavior.

APPROACH OF THIS TEXT: SOCIOTECHNICAL SYSTEMS Throughout this book you will find a rich story with four main actors: suppliers of hardware and software (the technologists); business firms making invest- ments and seeking to obtain value from the technology; managers and employ- ees seeking to achieve business value (and other goals); and the contemporary legal, social, and cultural context (the firm’s environment). Together these actors produce what we call management information systems.

The study of management information systems (MIS) arose to focus on the use of computer-based information systems in business firms and gov- ernment agencies. MIS combines the work of computer science, manage- ment science, and operations research with a practical orientation toward developing system solutions to real-world problems and managing informa- tion technology resources. It is also concerned with behavioral issues surrounding the development, use, and impact of information sys- tems, which are typically discussed in the fields of sociology, economics, and psychology.

30 Part One Organizations, Management, and the Networked Enterprise

Our experience as academics and practitioners leads us to believe that no single approach effectively captures the reality of information systems. The successes and failures of information are rarely all technical or all behavioral. Our best advice to students is to understand the perspectives of many disciplines. Indeed, the challenge and excitement of the information systems field is that it requires an appreciation and tolerance of many different approaches.

The view we adopt in this book is best characterized as the sociotechnical view of systems. In this view, optimal organizational performance is achieved by jointly optimizing both the social and technical systems used in production.

Adopting a sociotechnical systems perspective helps to avoid a purely technological approach to information systems. For instance, the fact that information technology is rapidly declining in cost and growing in power does not necessarily or easily translate into productivity enhancement or bottom- line profits. The fact that a firm has recently installed an enterprise-wide financial reporting system does not necessarily mean that it will be used, or used effectively. Likewise, the fact that a firm has recently introduced new business procedures and processes does not necessarily mean employees will be more productive in the absence of investments in new information systems to enable those processes.

In this book, we stress the need to optimize the firm’s performance as a whole. Both the technical and behavioral components need attention. This means that technology must be changed and designed in such a way as to fit organizational and individual needs. Sometimes, the technology may have to be “de-optimized” to accomplish this fit. For instance, mobile phone users adapt this technology to their personal needs, and as a result manufacturers quickly seek to adjust the technology to conform with user expectations. Organizations and individuals must also be changed through training, learn- ing, and planned organizational change to allow the technology to operate and prosper. Figure 1-10 illustrates this process of mutual adjustment in a sociotechnical system.


In a sociotechnical perspective, the performance of a system is optimized when both the technology and the organization mutually adjust to one another until a satisfactory fit is obtained.

Chapter 1 Information Systems in Global Business Today 31

1.4 HANDS-ON MIS PROJECTS The projects in this section give you hands-on experience in analyzing financial reporting and inventory management problems, using data management software to improve management decision making about increasing sales, and using Internet software for developing shipping budgets.

Management Dec i s ion Prob lems

1. Snyders of Hanover, which sells more than 78 million bags of pretzels, snack chips, and organic snack items each year, had its financial depart- ment use spreadsheets and manual processes for much of its data gathering and reporting. Hanover’s financial analyst would spend the entire final week of every month collecting spreadsheets from the heads of more than 50 departments worldwide. She would then consolidate and re-enter all the data into another spreadsheet, which would serve as the company’s monthly profit-and-loss statement. If a department needed to update its data after submitting the spreadsheet to the main office, the analyst had to return the original spreadsheet and wait for the department to re-submit its data before finally submitting the updated data in the consolidated document. Assess the impact of this situation on business performance and management decision making.

2. Dollar General Corporation operates deep discount stores offering house- wares, cleaning supplies, clothing, health and beauty aids, and packaged food, with most items selling for $1. Its business model calls for keeping costs as low as possible. Although the company uses information systems (such as a point-of-sale system to track sales at the register), it deploys them very sparingly to keep expenditures to the minimum. The company has no automated method for keeping track of inventory at each store. Managers know approximately how many cases of a particular product the store is supposed to receive when a delivery truck arrives, but the stores lack technology for scanning the cases or verifying the item count inside the cases. Merchandise losses from theft or other mishaps have been rising and now represent over 3 percent of total sales. What decisions have to be made before investing in an information system solution?

Improv ing Dec i s ion Making: Us ing Databases to Ana lyze Sa les Trends

Software skills: Database querying and reporting Business skills: Sales trend analysis

Effective information systems transform data into meaningful information for decisions that improve business performance. In MyMISLab, you can find a Store and Regional Sales Database with raw data on weekly store sales of computer equipment in various sales regions. A sample is shown below, but MyMISLab may have a more recent version of this database for this exercise. The database includes fields for store identification number, sales region number, item number, item description, unit price, units sold, and the weekly sales period when the sales were made. Develop some reports and queries to make this information more useful for running the business. Try to use the information in the database to support decisions on which prod- ucts to restock, which stores and sales regions would benefit from additional marketing and promotional campaigns, which times of the year products

32 Part One Organizations, Management, and the Networked Enterprise

should be offered at full price, and which times of the year products should be discounted. Modify the database table, if necessary, to provide all of the information you require. Print your reports and results of queries.

Improv ing Dec i s ion Making: Us ing the Internet to Locate Jobs Requ i r ing Informat ion Systems Knowledge

Software skills: Internet-based software Business skills: Job searching

Visit job-posting Web sites such as or Spend some time at the sites examining jobs for accounting, finance, sales, market- ing, and human resources. Find two or three descriptions of jobs that require some information systems knowledge. What information systems knowledge do these jobs require? What do you need to do to prepare for these jobs? Write a one- to two-page report summarizing your findings.

LEARNING TRACK MODULES The following Learning Tracks provide content relevant to topics covered in this chapter:

1. How Much Does IT Matter?

2. Information Systems and Your Career

3. The Emerging Mobile Digital Platform

Chapter 1 Information Systems in Global Business Today 33

Review Summary 1. How are information systems transforming business and what is their relationship to

globalization? E-mail, online conferencing, and cell phones have become essential tools for conducting business.

Information systems are the foundation of fast-paced supply chains. The Internet allows many businesses to buy, sell, advertise, and solicit customer feedback online. Organizations are trying to become more competitive and efficient by digitally enabling their core business processes and evolving into digital firms. The Internet has stimulated globalization by dramatically reducing the costs of producing, buying, and selling goods on a global scale. New information system trends include the emerging mobile digital platform, online software as a service, and cloud computing.

2. Why are information systems so essential for running and managing a business today? Information systems are a foundation for conducting business today. In many industries, survival

and the ability to achieve strategic business goals are difficult without extensive use of information technology. Businesses today use information systems to achieve six major objectives: operational excellence; new products, services, and business models; customer/supplier intimacy; improved decision making; competitive advantage; and day-to-day survival.

3. What exactly is an information system? How does it work? What are its management, organization, and technology components?

From a technical perspective, an information system collects, stores, and disseminates information from an organization’s environment and internal operations to support organizational functions and decision making, communication, coordination, control, analysis, and visualization. Information systems transform raw data into useful information through three basic activities: input, processing, and output.

From a business perspective, an information system provides a solution to a problem or challenge facing a firm and represents a combination of management, organization, and technology elements. The management dimension of information systems involves issues such as leadership, strategy, and management behavior. The technology dimension consists of computer hardware, software, data management technology, and networking/telecommunications technology (including the Internet). The organization dimension of information systems involves issues such as the organization’s hierarchy, functional specialties, business processes, culture, and political interest groups.

4. What are complementary assets? Why are complementary assets essential for ensuring that information systems provide genuine value for an organization?

In order to obtain meaningful value from information systems, organizations must support their technology investments with appropriate complementary investments in organizations and management. These complementary assets include new business models and business processes, supportive organizational culture and management behavior, appropriate technology standards, regulations, and laws. New information technology investments are unlikely to produce high returns unless businesses make the appropriate managerial and organizational changes to support the technology.

5. What academic disciplines are used to study information systems? How does each contribute to an understanding of information systems? What is a sociotechnical systems perspective?

The study of information systems deals with issues and insights contributed from technical and behavioral disciplines. The disciplines that contribute to the technical approach focusing on formal models and capabilities of systems are computer science, management science, and operations research. The disciplines contributing to the behavioral approach focusing on the design, implementa- tion, management, and business impact of systems are psychology, sociology, and economics. A sociotechnical view of systems considers both technical and social features of systems and solutions that represent the best fit between them.

34 Part One Organizations, Management, and the Networked Enterprise

Review Questions 1. How are information systems transforming busi-

ness and what is their relationship to globalization?

• Describe how information systems have changed the way businesses operate and their products and services.

• Identify three major new information system trends.

• Describe the characteristics of a digital firm.

• Describe the challenges and opportunities of globalization in a “flattened” world.

2. Why are information systems so essential for running and managing a business today?

• List and describe six reasons why information systems are so important for business today.

3. What exactly is an information system? How does it work? What are its management, organization, and technology components?

• Define an information system and describe the activities it performs.

• List and describe the organizational, manage- ment, and technology dimensions of informa- tion systems.

• Distinguish between data and information and between information systems literacy and computer literacy.

• Explain how the Internet and the World Wide Web are related to the other technology components of information systems.

4. What are complementary assets? Why are complementary assets essential for ensuring that information systems provide genuine value for an organization?

• Define complementary assets and describe their relationship to information technology.

• Describe the complementary social, manage- rial, and organizational assets required to optimize returns from information technol- ogy investments.

5. What academic disciplines are used to study information systems? How does each contribute to an understanding of information systems? What is a sociotechnical systems perspective?

• List and describe each discipline that contributes to a technical approach to informa- tion systems.

• List and describe each discipline that con- tributes to a behavioral approach to information systems.

• Describe the sociotechnical perspective on information systems.

Key Terms Business functions, 18 Business model, 13 Business processes, 11 Complementary assets, 27 Computer hardware, 20 Computer literacy, 17 Computer software, 20 Culture, 20 Data, 15 Data management technology, 20 Data workers, 18 Digital firm, 11 Extranets, 21 Feedback, 16 Information, 15 Information system, 15 Information systems literacy, 17 Information technology (IT), 15

Information technology (IT) infrastructure, 21 Input, 16 Internet, 21 Intranets, 21 Knowledge workers, 18 Management information systems (MIS), 17 Middle management, 18 Network, 21 Networking and telecommunications technology, 20 Operational management, 18 Organizational and management capital, 27 Output, 16 Processing, 16 Production or service workers, 18 Senior management, 18 Sociotechnical view, 30 World Wide Web, 21

Chapter 1 Information Systems in Global Business Today 35

Collaboration and Teamwork: Creating a Web Site for Team Collaboration

Form a team with three or four classmates. Then use the tools at Google Sites to create a Web site for your team. You will need to a create a Google account for the site and specify the collaborators (your team members) who are allowed to access the site and make contributions. Specify your professor as the viewer of the site so that person can evaluate your work. Assign a name to the site. Select a theme for the

site and make any changes you wish to colors and fonts. Add features for project announcements and a repository for team documents, source materials, illustrations, electronic presentations, and Web pages of interest. You can add other features if you wish. Use Google to create a calendar for your team. After you complete this exercise, you can use this Web site and calendar for your other team projects.

Discussion Questions 1. Information systems are too important to be left

to computer specialists. Do you agree? Why or why not?

2. If you were setting up the Web site for another Major League Baseball team, what management, organization, and technology issues might you encounter?

3. What are some of the organizational, managerial, and social complementary assets that help make UPS’s information systems so successful?

Video Cases Video Cases and Instructional Videos illustrating some of the concepts in this chapter are available. Contact your instructor to access these videos.

36 Part One Organizations, Management, and the Networked Enterprise

What’s the Buzz on Smart Grids? CASE STUDY

he existing electricity infrastructure in the United States is outdated and inefficient. Energy companies provide power to consumers, but the grid provides no

information about how the consumers are using that energy, making it difficult to develop more efficient approaches to distribution. Also, the current electric- ity grid offers few ways to handle power provided by alternative energy sources, which are critical compo- nents of most efforts to go “green.” Enter the smart grid.

A smart grid delivers electricity from suppliers to consumers using digital technology to save energy, reduce costs, and increase reliability and trans- parency. The smart grid enables information to flow back and forth between electric power providers and individual households to allow both consumers and energy companies to make more intelligent decisions regarding energy consumption and production. Information from smart grids would show utilities when to raise prices when demand is high and lower them when demand lessens. Smart grids would also help consumers program high-use electrical appliances like heating and air condition- ing systems to reduce consumption during times of peak usage. If implemented nationwide, proponents believe, smart grids would lead to a 5 to 15 percent decrease in energy consumption. Electricity grids are sized to meet the maximum electricity need, so a drop in peak demand would enable utilities to operate with fewer expensive power plants, thereby lowering costs and pollution.

Another advantage of smart grids is their ability to detect sources of power outages more quickly and precisely at the individual household level. With such precise information, utilities will be able to respond to service problems more rapidly and efficiently.

Managing the information flowing in these smart grids requires technology: networks and switches for power management; sensor and monitoring devices to track energy usage and distribution trends; systems to provide energy suppliers and consumers with usage data; communications systems to relay data along the entire energy supply system; and systems linked to programmable appliances to run them when energy is least costly.

If consumers had in-home displays showing how much energy they are consuming at any moment and the price of that energy, they are more likely to curb their consumption to cut costs. Home thermostats and appliances could adjust on their own automatically, depending on the cost of power, and even obtain that power from nontraditional sources, such as a neighbor’s rooftop solar panel. Instead of power flowing from a small number of power plants, the smart grid will make it possible to have a distributed energy system. Electricity will flow from homes and businesses into the grid, and they will use power from local and faraway sources. Besides increasing energy efficiency, converting to smart grids along with other related energy initiatives could create up to 370,000 jobs.

That’s why pioneering smart grid projects such as SmartGridCity in Boulder, Colorado, are attracting attention. SmartGridCity represents a collaboration by Xcel Energy Inc. and residents of Boulder to test the viability of smart grids on a smaller scale. Participants can check their power consumption levels and costs online, and will soon be able to program home appliances over the Web. Customers access this information and set goals and guidelines for their home’s energy usage through a Web portal. They also have the option of allowing Xcel to remotely adjust their thermostats during periods of high demand.

SmartGridCity is also attempting to turn homes into “miniature power plants” using solar-powered battery packs that “TiVo electricity,” or stash it away to use at a later time. This serves as backup power for homes using the packs, but Xcel can also tap into that power during times of peak energy consumption to lessen the overall energy load. Xcel will be able to remotely adjust thermostats and water heaters and will have much better information about the power consumption of their consumers.

Bud Peterson, chancellor of the University of Colorado at Boulder, and his wife Val have worked with Xcel to turn their home into the prototype residence for the SmartGridCity project. Their house was supplied with a six-kilowatt photovoltaic system on two roofs, four thermostats controlled via the Web, a plug-in hybrid electric vehicle (PHEV) Ford Escape, and other high-tech, smart grid-compatible features. Xcel employees are able to monitor periods


Chapter 1 Information Systems in Global Business Today 37

of high power consumption and how much energy the Petersons’ Escape is using on the road.

A digital dashboard in the Petersons’ house displays power usage information in dozens of different ways—live household consumption and production, stored backup power, and carbon emis- sion reductions translated into gallons of gasoline and acres of trees saved each year. The dashboard also allows the Petersons to program their home thermostats to adjust the temperature by room, time of day, and season. Since the project began in the spring of 2008, the Petersons have been able to reduce their electricity use by one-third.

Xcel is not alone. Hundreds of technology compa- nies and almost every major electric utility company see smart grids as the wave of the future. Heightening interest is $3.4 billion in federal economic recovery money for smart grid technology.

Duke Energy spent $35 million on smart grid ini- tiatives, installing 80,000 smart meters as part of a pilot project in Charlotte, North Carolina, to provide business and residential customers with up-to-the- minute information on their energy use, as well as data on how much their appliances cost to operate. This helps them save money by curbing usage during peak times when rates are high or by replac- ing inefficient appliances. Duke now plans to spend $1 billion on sensors, intelligent meters, and other upgrades for a smart grid serving 700,000 customers in Cincinnati.

Florida Power and Light is budgeting $200 million for smart meters covering 1 million homes and busi- nesses in the Miami area over the next two years. Center Point Energy, which services 2.2 million cus- tomers in the metropolitan Houston area, is planning to spend $1 billion over the next five years on a smart grid. Although residential customers’ monthly electric bills will be $3.24 higher, the company says this amount will be more than offset by energy sav- ings. Pacific Gas & Electric, which distributes power to Northern and Central California, is in the process of installing 10 million smart meters by mid-2012.

Google has developed a free Web service called PowerMeter for tracking energy use online in houses or businesses as power is consumed. It expects other companies to build the devices that will supply data to PowerMeter.

There are a number of challenges facing the efforts to implement smart grids. Changing the infrastructure of our electricity grids is a daunting task. Two-way meters that allow information to flow both to and from homes need to be installed at any home or building that uses electric power–in other

words, essentially everywhere. Another challenge is creating an intuitive end-user interface. Some SmartGridCity participants reported that the dash- board they used to manage their appliances was too confusing and high-tech. Even Val Peterson admitted that, at first, managing the information about her power usage supplied through the Xcel Web portal was an intimidating process.

The smart grid won’t be cheap, with estimated costs running as high as $75 billion. Meters run $250 to $500 each when they are accompanied by new utility billing systems. Who is going to pay the bill? Is the average consumer willing to pay the upfront costs for a smart grid system and then respond appropriately to price signals? Will consumers and utility companies get the promised payback if they buy into smart grid technology? Might “smart meters” be too intrusive? Would consumers really want to entrust energy companies with regulating the energy usage inside their homes? Would a highly computerized grid increase the risk of cyberattacks?

Jack Oliphant, a retiree living north of Houston in Spring, Texas, believes that the $444 he will pay Center Point for a smart meter won’t justify the expense. “There’s no mystery about how you save energy,” he says. “You turn down the air condi- tioner and shut off some lights. I don’t need an expensive meter to do that.” Others have pointed out other less-expensive methods of reducing energy consumption. Marcel Hawiger, an attorney for The Utility Reform Network, a San Francisco consumer advocacy group, favors expanding existing air conditioner-cycling programs, where utilities are able to control air conditioners so they take turns coming on and off, thereby reducing demands on the electric system. He believes air conditioner controllers, which control temperature settings and compressors to reduce overall energy costs, provide much of the benefit of smart meters at a fraction of their cost.

Consumer advocates have vowed to fight smart grids if they boost rates for customers who are unable or unwilling to use Web portals and allow energy companies to control aspects of their appliances. Advocates also argue that smart grids represent an Orwellian intrusion of people’s right to use their appliances as they see fit without disclosing facts about their usage to others. A proposal by officials in California to require all new homes to have remotely adjustable thermostats was soundly defeated after critics worried about the privacy implications.

38 Part One Organizations, Management, and the Networked Enterprise

Energy companies stand to lose money as individuals conserve more electricity, creating a disincentive for them to cooperate with conservation efforts like smart grids. Patience will be critical as energy companies and local communities work to set up new technologies and pricing plans.

Sources: Rebecca Smith, “What Utilities Have Learned from Smart- Meter Tests,” The Wall Street Journal, February 22, 2010; “Smart Grid: & Reasons Why IT Matters,” CIO Insight, March 24, 2010; Yuliya Chernova, “Getting Smart About Smart Meters,” The Wall Street Journal, May 10, 2010; Bob Evans, “IT’s Dark-Side Potential Seenin SmartGridCity Project,” Information Week, March 24, 2009; Bob Violino, “No More Grid-Lock,” Information Week, November 16, 2009; K.C. Jones, “Smart Grids to Get Jolt from IT,” Information Week, March 23, 2009; Rebecca Smith, “Smart Meter, Dumb Idea?” The Wall Street Journal, April 27, 2009; Stephanie Simon, “The More Your Know…” The Wall Street Journal, February 9, 2009; and Matthew Wald and Miguel Helft, “Google Taking a Step into Power Metering,” The New York Times, February 10, 2009.

CASE STUDY QUESTIONS 1. How do smart grids differ from the current

electricity infrastructure in the United States?

2. What management, organization, and technology issues should be considered when developing a smart grid?

3. What challenge to the development of smart grids do you think is most likely to hamper their development?

4. What other areas of our infrastructure could benefit from “smart” technologies? Describe one example not listed in the case.

5. Would you like your home and your community to be part of a smart grid? Why or why not? Explain.

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LEARNING OBJECTIVESS After reading this chapter, you will be able to answer the following questions:

1. What are business processes? How are they related to informa- tion systems?

2. How do systems serve the different management groups in a business?

3. How do systems that link the enterprise improve organizational performance?

4. Why are systems for collaboration and teamwork so important and what technologies do they use?

5. What is the role of the information systems function in a business?


SYSTEMS Business Processes How Information Technology Improves Business


2.2 TYPES OF INFORMATION SYSTEMS Systems for Different Management Groups Systems for Linking the Enterprise E-business, E-commerce, and E-government

2.3 SYSTEMS FOR COLLABORATION AND TEAMWORK What Is Collaboration? Business Benefits of Collaboration and Teamwork Building a Collaborative Culture and Business

Processes Tools and Technologies for Collaboration and


2.4 THE INFORMATION SYSTEMS FUNCTION IN BUSINESS The Information Systems Department Organizing the Information Systems Function

2.5 HANDS-ON MIS PROJECTS Management Decision Problems Improving Decision Making: Using a Spreadsheet to

Select Suppliers Achieving Operational Excellence: Using Internet

Software to Plan Efficient Transportation Routes

LEARNING TRACK MODULES Systems from a Functional Perspective IT Enables Collaboration and Teamwork Challenges of Using Business Information Systems Organizing the Information Systems Function

Chapter 2

Global E-business and Collaboration

Interactive Sessions:

Domino’s Sizzles with Pizza Tracker

Virtual Meetings: Smart Management


he BMW Oracle Racing organization won the 33rd America’s Cup yacht race in Valencia, Spain on February 18, 2010. The BMW Oracle boat USA, backed by software billionaire Larry Ellison, beat Alinghi, the Swiss boat backed by Ernesto Bertarelli, a Swiss billionaire. It’s always a spectacle when two billionaires go head to head for the

prize. Lots and lots of money, world-class talent, and in this case, the best technologies and information systems in the world. In the end, the 114-foot USA won handily the first two races of a best-of-three series, reaching speeds over 35 miles an hour, three times faster than the wind. As far as experts can figure, USA is the fastest sailboat in history.

So what kind of technology can you get for a $300 million sailboat? Start with the physical structure: a three hulled trimaran, 114 feet long, fashioned from carbon fiber shaped into a form descended from Polynesian outrigger boats over a thousand years old. The hull is so light it only extends six inches into the water. Forget about a traditional mast (that’s the pole that holds up the sails) and forget about sails too. Think about a 233-foot airplane wing also made from carbon fiber that sticks up from the boat deck 20 stories high. Instead of cloth sails, think about a stretchy aeronautical fabric over a carbon fiber frame that is hydraulically controlled to assume any shape you want, sort of like a stretchy garment hugs the body’s bones. The result is a wing, not a sail, whose shape can be changed from pretty near flat to quite curved just like an aircraft wing.

Controlling this wickedly sleek sailboat requires a lightning-fast collection of massive amounts of data, powerful data management, rapid real-time data analysis, quick decision making, and immediate measurement of the results. In short, all the information technologies needed by a modern business firm. When you can perform all these tasks thousands of times in an hour, you can incrementally improve your performance and have an overwhelming advantage over less IT-savvy opponents on race day.

For USA, this meant using 250 sensors on the wing, hull, and rudder to gather real-time data on pressure, angles, loads, and strains to monitor the effectiveness of each adjustment. The sensors track 4,000 variables, 10 times a second, producing 90 million data points an hour.

Managing all these data is Oracle Database 11g data management software. The data are wirelessly transferred to a tender ship running Oracle 11g for near real-time analysis using a family of formulas (called velocity prediction formulas) geared to understanding what makes the boat go fast. Oracle’s Application Express presentation graphics summarize the millions of



data points and present the boat managers with charts that make sense of the information. The data are also sent to Oracle’s Austin data center for more in- depth analysis. Using powerful data analysis tools, USA managers were able to find relationships they had never thought about before. Over several years of practice, from day one to the day before the race, the crew of USA could chart a steady improvement in performance.

All this meant “sailing” had changed, perhaps been trans-

42 Part One Organizations, Management, and the Networked Enterprise

formed by IT. Each crew member wore a small mobile handheld computer on his wrist to display data on the key performance variables customized for that person’s responsibilities, such as the load balance on a specific rope or the current aerodynamic performance of the wing sail. Rather than stare at the sails or the sea, the crew had to be trained to sail like pilots looking at instruments. The helmsman turned into a pilot looking at data displayed on his sunglasses with an occasional glance at the deck crew, sea state, and competitors.

Professional and amateur sailors across the world wondered if the technology had transformed sailing into something else. The billionaire winner Larry Ellison sets the rules for the next race, and the blogs are speculating that he will seek a return to simpler more traditional boats that need to be sailed, not flown like air- planes. Yet few really believe Ellison will give up a key IT advantage in data col- lection, analysis, presentation, and performance-based decision making.

Sources: Jeff Erickson, “Sailing Home with the Prize,” Oracle Magazine, May/June 2010; www.america’s, accessed May 21,2010; and, accessed May 21, 2010.

The experience of BMW Oracle’s USA in the 2010 America’s Cup competi-tion illustrates how much organizations today, even those in traditional sports such as sailing, rely on information systems to improve their perfor- mance and remain competitive. It also shows how much information systems make a difference in an organization’s ability to innovate, execute, and in the case of business firms, grow profits.

The chapter-opening diagram calls attention to important points raised by this case and this chapter. The America’s Cup contenders were confronted with both a challenge and opportunity. Both were locked in the world’s most competitive sailing race. They staffed their crews with the best sailors in the world. But sailing ability was not enough. There were opportunities for improv- ing sailing performance by changing and refining the design of the competing vessels using information systems intensively for this purpose.

Because Oracle is one of the world’s leading information technology providers, the company was a natural for using the most advanced information technology to continually improve USA’s design and performance. But informa- tion technology alone would not have produced a winning boat. The Oracle team had to revise many of the processes and procedures used in sailing to take advantage of the technology, including training experienced sailors to work more like pilots with high-tech instruments and sensors. Oracle won the America’s Cup because it had learned how to apply new technology to improve the processes of designing and sailing a competitive sailboat.

Chapter 2 Global E-business and Collaboration 43


n order to operate, businesses must deal with many different pieces of information about suppliers, customers, employees, invoices and pay- ments, and of course their products and services. They must organize work activities that use this information to operate efficiently and

enhance the overall performance of the firm. Information systems make it pos- sible for firms to manage all their information, make better decisions, and improve the execution of their business processes.

BUSINESS PROCESSES Business processes, which we introduced in Chapter 1, refer to the manner in which work is organized, coordinated, and focused to produce a valuable prod- uct or service. Business processes are the collection of activities required to pro- duce a product or service. These activities are supported by flows of material, information, and knowledge among the participants in business processes. Business processes also refer to the unique ways in which organizations coordi- nate work, information, and knowledge, and the ways in which management chooses to coordinate work.

To a large extent, the performance of a business firm depends on how well its business processes are designed and coordinated. A company’s business processes can be a source of competitive strength if they enable the company to innovate or to execute better than its rivals. Business processes can also be liabilities if they are based on outdated ways of working that impede organizational responsiveness and efficiency. The chapter-opening case describing the processes used to sail the 2010 winning America’s Cup boat clearly illustrates these points, as do many of the other cases in this text.

Every business can be seen as a collection of business processes, some of which are part of larger encompassing processes. For instance, designing a new sailboat model, manufacturing components, assembling the finished boat, and revising the design and construction are all part of the overall production process. Many busi- ness processes are tied to a specific functional area. For example, the sales and marketing function is responsible for identifying customers, and the human resources function is responsible for hiring employees. Table 2-1 describes some typical business processes for each of the functional areas of business.




Manufacturing and production Assembling the product Checking for quality Producing bills of materials

Sales and marketing Identifying customers Making customers aware of the product Selling the product

Finance and accounting Paying creditors Creating financial statements Managing cash accounts

Human resources Hiring employees Evaluating employees’ job performance Enrolling employees in benefits plans

44 Part One Organizations, Management, and the Networked Enterprise

Other business processes cross many different functional areas and require coordination across departments. For instance, consider the seemingly simple business process of fulfilling a customer order (see Figure 2-1). Initially, the sales department receives a sales order. The order passes first to accounting to ensure the customer can pay for the order either by a credit verification or request for immediate payment prior to shipping. Once the customer credit is established, the production department pulls the product from inventory or produces the product. Then the product is shipped (and this may require work- ing with a logistics firm, such as UPS or FedEx). A bill or invoice is generated by the accounting department, and a notice is sent to the customer indicating that the product has shipped. The sales department is notified of the shipment and prepares to support the customer by answering calls or fulfilling warranty claims.

What at first appears to be a simple process, fulfilling an order, turns out to be a very complicated series of business processes that require the close coordina- tion of major functional groups in a firm. Moreover, to efficiently perform all these steps in the order fulfillment process requires a great deal of information. The required information must flow rapidly both within the firm from one deci- sion maker to another; with business partners, such as delivery firms; and with the customer. Computer-based information systems make this possible.

HOW INFORMATION TECHNOLOGY IMPROVES BUSINESS PROCESSES Exactly how do information systems improve business processes? Information systems automate many steps in business processes that were formerly per- formed manually, such as checking a client’s credit, or generating an invoice and shipping order. But today, information technology can do much more. New technology can actually change the flow of information, making it possible for many more people to access and share information, replacing sequential steps


Fulfilling a customer order involves a complex set of steps that requires the close coordination of the sales, accounting, and manufacturing functions.

with tasks that can be performed simultaneously, and eliminating delays in decision making. New information technology frequently changes the way a business works and supports entirely new business models. Downloading a Kindle e-book from Amazon, buying a computer online at Best Buy, and down- loading a music track from iTunes are entirely new business processes based on new business models that would be inconceivable without today’s information technology.

That’s why it’s so important to pay close attention to business processes, both in your information systems course and in your future career. By analyzing business processes, you can achieve a very clear understanding of how a business actually works. Moreover, by conducting a business process analysis, you will also begin to understand how to change the business by improving its processes to make it more efficient or effective. Throughout this book, we examine business processes with a view to understanding how they might be improved by using information technology to achieve greater efficiency, innovation, and customer service.

2.2 TYPES OF INFORMATION SYSTEMS Now that you understand business processes, it is time to look more closely at how information systems support the business processes of a firm. Because there are different interests, specialties, and levels in an organization, there are different kinds of systems. No single system can provide all the information an organization needs.

A typical business organization has systems supporting processes for each of the major business functions—systems for sales and marketing, manufacturing and production, finance and accounting, and human resources. You can find examples of systems for each of these business functions in the Learning Tracks for this chapter. Functional systems that operate independently of each other are becoming a thing of the past because they cannot easily share information to support cross-functional business processes. Many have been replaced with large-scale cross-functional systems that integrate the activities of related busi- ness processes and organizational units. We describe these integrated cross- functional applications later in this section.

A typical firm also has different systems supporting the decision-making needs of each of the main management groups we described in Chapter 1. Operational management, middle management, and senior management each use systems to support the decisions they must make to run the company. Let’s look at these systems and the types of decisions they support.

SYSTEMS FOR DIFFERENT MANAGEMENT GROUPS A business firm has systems to support different groups or levels of manage- ment. These systems include transaction processing systems, management information systems, decision-support systems, and systems for business intel- ligence.

Transact ion Process ing Systems Operational managers need systems that keep track of the elementary activities and transactions of the organization, such as sales, receipts, cash deposits, payroll, credit decisions, and the flow of materials in a factory. Transaction

Chapter 2 Global E-business and Collaboration 45

46 Part One Organizations, Management, and the Networked Enterprise

processing systems (TPS) provide this kind of information. A transaction processing system is a computerized system that performs and records the daily routine transactions necessary to conduct business, such as sales order entry, hotel reservations, payroll, employee record keeping, and shipping.

The principal purpose of systems at this level is to answer routine questions and to track the flow of transactions through the organization. How many parts are in inventory? What happened to Mr. Smith’s payment? To answer these kinds of questions, information generally must be easily available, current, and accurate.

At the operational level, tasks, resources, and goals are predefined and highly structured. The decision to grant credit to a customer, for instance, is made by a lower-level supervisor according to predefined criteria. All that must be deter- mined is whether the customer meets the criteria.

Figure 2-2 illustrates a TPS for payroll processing. A payroll system keeps track of money paid to employees. An employee time sheet with the employee’s name, social security number, and number of hours worked per week represents a single transaction for this system. Once this transaction is input into the system, it updates the system’s master file (or database—see Chapter 6) that permanently maintains employee information for the organiza- tion. The data in the system are combined in different ways to create reports of interest to management and government agencies and to send paychecks to employees.

Managers need TPS to monitor the status of internal operations and the firm’s relations with the external environment. TPS are also major producers of information for the other systems and business functions. For example, the payroll system illustrated in Figure 2-2, along with other accounting TPS,


A TPS for payroll processing captures employee payment transaction data (such as a time card). System outputs include online and hard-copy reports for management and employee paychecks.

Chapter 2 Global E-business and Collaboration 47

supplies data to the company’s general ledger system, which is responsible for maintaining records of the firm’s income and expenses and for producing reports such as income statements and balance sheets. It also supplies employee payment history data for insurance, pension, and other benefits cal- culations to the firm’s human resources function and employee payment data to government agencies such as the U.S. Internal Revenue Service and Social Security Administration.

Transaction processing systems are often so central to a business that TPS failure for a few hours can lead to a firm’s demise and perhaps that of other firms linked to it. Imagine what would happen to UPS if its package tracking system were not working! What would the airlines do without their computer- ized reservation systems?

Bus iness Inte l l igence Systems for Dec i s ion Support Middle management needs systems to help with monitoring, controlling, decision-making, and administrative activities. The principal question addressed by such systems is this: Are things working well?

In Chapter 1, we define management information systems as the study of information systems in business and management. The term management information systems (MIS) also designates a specific category of information systems serving middle management. MIS provide middle managers with reports on the organization’s current performance. This information is used to monitor and control the business and predict future performance.

MIS summarize and report on the company’s basic operations using data supplied by transaction processing systems. The basic transaction data from TPS are compressed and usually presented in reports that are produced on a regular schedule. Today, many of these reports are delivered online. Figure 2-3 shows how a typical MIS transforms transaction-level data from order process-


In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports.

48 Part One Organizations, Management, and the Networked Enterprise

ing, production, and accounting into MIS files that are used to provide man- agers with reports. Figure 2-4 shows a sample report from this system.

MIS serve managers primarily interested in weekly, monthly, and yearly results. These systems typically provide answers to routine questions that have been specified in advance and have a predefined procedure for answering them. For instance, MIS reports might list the total pounds of lettuce used this quarter by a fast-food chain or, as illustrated in Figure 2-4, compare total annual sales figures for specific products to planned targets. These systems generally are not flexible and have little analytical capability. Most MIS use simple rou- tines, such as summaries and comparisons, as opposed to sophisticated mathe- matical models or statistical techniques.

In contrast, decision-support systems (DSS) support more non-routine decision making. They focus on problems that are unique and rapidly chang- ing, for which the procedure for arriving at a solution may not be fully prede- fined in advance. They try to answer questions such as these: What would be the impact on production schedules if we were to double sales in the month of December? What would happen to our return on investment if a factory sched- ule were delayed for six months?

Although DSS use internal information from TPS and MIS, they often bring in information from external sources, such as current stock prices or product prices of competitors. These systems use a variety of models to analyze the data and are designed so that users can work with them directly.

An interesting, small, but powerful, DSS is the voyage-estimating system of a subsidiary of a large American metals company that exists primarily to carry bulk cargoes of coal, oil, ores, and finished products for its parent company. The firm owns some vessels, charters others, and bids for shipping contracts in the open market to carry general cargo. A voyage-estimating system calculates financial and technical voyage details. Financial calculations include ship/time costs (fuel, labor, capital), freight rates for various types of cargo, and port expenses. Technical details include a myriad of factors, such as ship cargo capacity, speed, port distances, fuel and water consumption, and loading pat- terns (location of cargo for different ports).


This report, showing summarized annual sales data, was produced by the MIS in Figure 2-3.

Chapter 2 Global E-business and Collaboration 49

The system can answer questions such as the following: Given a customer delivery schedule and an offered freight rate, which vessel should be assigned at what rate to maximize profits? What is the optimal speed at which a particu- lar vessel can maximize its profit and still meet its delivery schedule? What is the optimal loading pattern for a ship bound for the U.S. West Coast from Malaysia? Figure 2-5 illustrates the DSS built for this company. The system operates on a desktop personal computer, providing a system of menus that makes it easy for users to enter data or obtain information.

The voyage-estimating DSS we have just described draws heavily on models. Other systems supporting non-routine decision making are more data-driven, focusing instead on extracting useful information from large quantities of data. For example, Intrawest—the largest ski operator in North America—collects and stores large amounts of customer data from its Web site, call center, lodging reservations, ski schools, and ski equipment rental stores. It uses special software to analyze these data to determine the value, revenue potential, and loyalty of each customer so managers can make better decisions on how to target their marketing programs. The system segments customers into seven categories based on needs, attitudes, and behaviors, ranging from “passionate experts” to “value-minded family vacationers.” The company then e-mails video clips that would appeal to each segment to encourage more visits to its resorts.

All of the management systems we have just described are systems for busi- ness intelligence. Business intelligence is a contemporary term for data and software tools for organizing, analyzing, and providing access to data to help managers and other enterprise users make more informed decisions. You’ll learn more about business intelligence in Chapters 6 and 12.

Business intelligence applications are not limited to middle managers, and can be found at all levels of the organization, including systems for senior management. Senior managers need systems that address strategic issues and long-term trends, both in the firm and in the external environment. They are


This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts.

50 Part One Organizations, Management, and the Networked Enterprise

concerned with questions such as these: What will employment levels be in five years? What are the long-term industry cost trends, and where does our firm fit in? What products should we be making in five years? What new acquisitions would protect us from cyclical business swings?

Executive support systems (ESS) help senior management make these decisions. They address non-routine decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for arriving at a solution. ESS present graphs and data from many sources through an interface that is easy for senior managers to use. Often the information is delivered to senior executives through a portal, which uses a Web interface to present integrated personalized business content. You will learn more about other applications of portals in Chapter 11.

ESS are designed to incorporate data about external events, such as new tax laws or competitors, but they also draw summarized information from internal MIS and DSS. They filter, compress, and track critical data, displaying the data of greatest importance to senior managers. Increasingly, such systems include business intelligence analytics for analyzing trends, forecasting, and “drilling down” to data at greater levels of detail.

For example, the CEO of Leiner Health Products, one of the largest manufac- turers of private-label vitamins and supplements in the United States, has an ESS that provides on his desktop a minute-to-minute view of the firm’s financial performance as measured by working capital, accounts receivable, accounts payable, cash flow, and inventory. The information is presented in the form of a digital dashboard, which displays on a single screen graphs and charts of key performance indicators for managing a company. Digital dashboards are becoming an increasingly popular tool for management decision makers.

Dundas Data Visualization’s digital dashboard delivers comprehensive and accurate information for decision making. The graphical overview of key performance indicators helps managers quickly spot areas that need attention.

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The Interactive Session on Organizations describes real-world examples of several types of systems we have just described that are used by a successful fast-food chain. Note the types of systems illustrated in this case and the role they play in improving business performance and competitiveness.

SYSTEMS FOR LINKING THE ENTERPRISE Reviewing all the different types of systems we have just described, you might wonder how a business can manage all the information in these different systems. You might also wonder how costly it is to maintain so many different systems. And you might wonder how all these different systems can share information and how managers and employees are able to coordinate their work. In fact, these are all important questions for businesses today.

Enterpr i se App l icat ions Getting all the different kinds of systems in a company to work together has proven a major challenge. Typically, corporations are put together both through normal “organic” growth and through acquisition of smaller firms. Over a period of time, corporations end up with a collection of systems, most of them older, and face the challenge of getting them all to “talk” with one another and work together as one corporate system. There are several solutions to this problem.

One solution is to implement enterprise applications, which are systems that span functional areas, focus on executing business processes across the business firm, and include all levels of management. Enterprise applications help businesses become more flexible and productive by coordinating their business processes more closely and integrating groups of processes so they focus on efficient management of resources and customer service.

There are four major enterprise applications: enterprise systems, supply chain management systems, customer relationship management systems, and knowledge management systems. Each of these enterprise applications integrates a related set of functions and business processes to enhance the performance of the organization as a whole. Figure 2-6 shows that the architec- ture for these enterprise applications encompasses processes spanning the entire organization and, in some cases, extending beyond the organization to customers, suppliers, and other key business partners.

Enterprise Systems Firms use enterprise systems, also known as enter- prise resource planning (ERP) systems, to integrate business processes in manufacturing and production, finance and accounting, sales and marketing, and human resources into a single software system. Information that was previously fragmented in many different systems is stored in a single comprehensive data repository where it can be used by many different parts of the business.

For example, when a customer places an order, the order data flow automati- cally to other parts of the company that are affected by them. The order trans- action triggers the warehouse to pick the ordered products and schedule shipment. The warehouse informs the factory to replenish whatever has been depleted. The accounting department is notified to send the customer an invoice. Customer service representatives track the progress of the order through every step to inform customers about the status of their orders. Managers are able to use firm-wide information to make more precise and timely decisions about daily operations and longer-term planning.

52 Part One Organizations, Management, and the Networked Enterprise

I N T E R A C T I V E S E S S I O N : O R G A N I Z AT I O N S

When it comes to pizza, everyone has an opinion. Some of us think that our current pizza is just fine the way it is. Others have a favorite pizza joint that makes it like no one else. And many pizza lovers in America agreed up until recently that Domino’s home-delivered pizza was among the worst. The home-delivery market for pizza chains in the United States is approximately $15 billion per year. Domino’s, which owns the largest home-delivery market share of any U.S. pizza chain, is finding ways to innovate by overhauling its in-store transaction processing systems and by providing other useful services to customers, such as its Pizza Tracker. And more important, Domino’s is trying very hard to overcome its reputation for poor quality by radically improving ingredients and freshness. Critics believe the company significantly improved the quality of its pizza and customer service in 2010.

Domino’s was founded in 1960 by Tom Monaghan and his brother James when they purchased a single pizza store in Ypsilanti, Michigan. The company slowly began to grow, and by 1978, Domino’s had 200 stores. Today, the company is headquartered in Ann Arbor, Michigan, and operates almost 9,000 stores located in all 50 U.S. states and across the world in 60 international markets. In 2009, Domino’s had $1.5 billion in sales and earned $80 million in profit.

Domino’s is part of a heated battle among promi- nent pizza chains, including Pizza Hut, Papa John’s, and Little Caesar. Pizza Hut is the only chain larger than Domino’s in the U.S., but each of the four has significant market share. Domino’s also competes with local pizza stores throughout the U.S. To gain a competitive advantage Domino’s needs to deliver excellent customer service, and most importantly, good pizza. But it also benefits from highly effective information systems.

Domino’s proprietary point-of-sale system, Pulse, is an important asset in maintaining consistent and efficient management functions in each of its restau- rants. A point-of-sale system captures purchase and payment data at a physical location where goods or services are bought and sold using computers, auto- mated cash registers, scanners, or other digital devices.

In 2003, Domino’s implemented Pulse in a large portion of its stores, and those stores reported improved customer service, reduced mistakes, and

DOMINO’S SIZZLES WITH PIZZA TRACKER shorter training times. Since then, Pulse has become a staple of all Domino’s franchises. Some of the func- tions Pulse performs at Domino’s franchises are tak- ing and customizing orders using a touch-screen interface, maintaining sales figures, and compiling customer information. Domino’s prefers not to disclose the specific dollar amounts that it has saved from Pulse, but it’s clear from industry analysts that the technology is working to cut costs and increase customer satisfaction.

More recently, Domino’s released a new hardware and software platform called Pulse Evolution, which is now in use in a majority of Domino’s more than 5,000 U.S. branches. Pulse Evolution improves on the older technology in several ways. First, the older software used a ‘thick-client’ model, which required all machines using the software to be fully equipped personal computers running Windows. Pulse Evolution, on the other hand, uses ‘thin-client’ archi- tecture in which networked workstations with little independent processing power collect data and send them over the Internet to powerful Lenovo PCs for processing. These workstations lack hard drives, fans, and other moving parts, making them less expensive and easier to maintain. Also, Pulse Evolution is easier to update and more secure, since there’s only one machine in the store which needs to be updated.

Along with Pulse Evolution, Domino’s rolled out its state-of-the-art online ordering system, which includes Pizza Tracker. The system allows customers to watch a simulated photographic version of their pizza as they customize its size, sauces, and toppings. The image changes with each change a customer makes. Then, once customers place an order, they are able to view its progress online with Pizza Tracker. Pizza Tracker displays a horizontal bar that tracks an order’s progress graphically. As a Domino’s store completes each step of the order fulfillment process, a section of the bar becomes red. Even customers that place their orders via telephone can monitor their progress on the Web using Pizza Tracker at stores using Pulse Evolution. In 2010, Domino’s introduced an online polling system to continuously upload information from local stores.

As with most instances of organizational change of this magnitude, Domino’s experienced some resis- tance. Domino’s originally wanted its franchises to

Chapter 2 Global E-business and Collaboration 53


1. What kinds of systems are described in this case? Identify and describe the business processes each supports. Describe the inputs, processes, and out- puts of these systems.

2. How do these systems help Domino’s improve its business performance?

3. How did the online pizza ordering system improve the process of ordering a Domino’s pizza?

4. How effective are these systems in giving Domino’s a competitive edge? Explain your answer.

select Pulse to comply with its requirements for data security, but some franchises have resisted switching to Pulse and sought alternative systems. After Domino’s tried to compel those franchises to use Pulse, the U.S. District Court for Minnesota sided with franchisees who claimed that Domino’s could not force them to use this system. Now, Domino’s continues to make improvements to Pulse in an effort to make it overwhelmingly appealing to all franchisees.

Pizza Hut and Papa John’s also have online order- ing capability, but lack the Pizza Tracker and the sim- ulated pizza features that Domino’s has successfully implemented. Today, online orders account for almost 20 percent of all of Domino’s orders, which is up from less than 15 percent in 2008. But the battle

Visit Domino’s Web site and examine the order place- ment and Pizza Tracker features. Then answer the following questions:

1. What steps does Pizza Tracker display for the user? How does the Pizza Tracker improve the customer experience?

2. Would the Pizza Tracker service influence you to order pizza from Domino’s instead of a competing chain? Why or why not?

3. What improvements would you make to the order placement feature?

to sell pizza with technology rages on. Pizza Hut cus- tomers can now use their iPhones to place orders, and Papa John’s customers can place orders by tex- ting. With many billions of dollars at stake, all the large national pizza chains will be developing innova- tive new ways of ordering pizza and participating in its creation.

Sources: PRN Newswire, “Servant Systems Releases Domino’s Store Polling Software,” PRN Newswire, April 14, 2010; Julie Jargon, “Domino’s IT Staff Delivers Slick Site, Ordering System,” The Wall Street Journal, November 24, 2009;, accessed May 17, 2010; Paul McDougall, “Interop: Domino’s Eyes Microsoft Cloud,” Information Week, April 26, 2010; “Domino’s Builds New Foundation Under Proprietary Store Tech,” Nation’s Restaurant News, February 25, 2009; “and “Inside Domino’s ‘Pizza Tracker.’ What It Does, Why, and How,” Nation’s Restaurant News, February 27, 2008.


Supply Chain Management Systems Firms use supply chain management (SCM) systems to help manage relationships with their suppliers. These systems help suppliers, purchasing firms, dis- tributors, and logistics companies share information about orders, production, inventory levels, and delivery of products and services so that they can source, produce, and deliver goods and services effi- ciently. The ultimate objective is to get the right amount of their products from their source to their point of consumption in the least amount of time and at the lowest cost. These systems increase firm profitability by lowering the costs of moving and making products and by enabling managers to make better decisions about how to organize and schedule sourcing, production, and distribution.

Supply chain management systems are one type of interorganizational system because they automate the flow of information across organizational boundaries. You will find examples of other types of interorganizational information systems throughout this text because such systems make it possible for firms to link electronically to customers and to outsource their work to other companies.

Customer Relationship Management Systems Firms use customer relationship management (CRM) systems to help manage their relationships with their customers. CRM systems provide infor- mation to coordinate all of the business processes that deal with customers in sales, marketing, and service to optimize revenue, customer satisfaction, and customer retention. This information helps firms identify, attract, and retain the most profitable customers; provide better service to existing cus- tomers; and increase sales.

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Knowledge Management Systems Some firms perform better than others because they have better knowledge about how to create, produce, and deliver products and services. This firm knowledge is difficult to imitate, unique, and can be leveraged into long-term strategic benefits. Knowledge management systems (KMS) enable organizations to better manage processes for capturing and applying knowledge and expertise. These systems collect all relevant knowledge and experience in the firm, and make it available wherever and whenever it is needed to improve business processes and management decisions. They also link the firm to external sources of knowledge.

We examine enterprise systems and systems for supply chain management and customer relationship management in greater detail in Chapter 9. We discuss collaboration systems that support knowledge management in this chapter and cover other types of knowledge management applications in Chapter 11.

Int ranets and Extranets Enterprise applications create deep-seated changes in the way the firm conducts its business, offering many opportunities to integrate important busi- ness data into a single system. They are often costly and difficult to implement. Intranets and extranets deserve mention here as alternative tools for increasing integration and expediting the flow of information within the firm, and with customers ad suppliers.

Intranets are simply internal company Web sites that are accessible only by employees. The term “intranet” refers to the fact that it is an internal network, in contrast to the Internet, which is a public network linking organizations and


Enterprise applications automate processes that span multiple business functions and organizational levels and may extend outside the organization.

Chapter 2 Global E-business and Collaboration 55

other external networks. Intranets use the same technologies and techniques as the larger Internet, and they often are simply a private access area in a larger company Web site. Likewise with extranets. Extranets are company Web sites that are accessible to authorized vendors and suppliers, and often used to coordinate the movement of supplies to the firm’s production apparatus.

For example, Six Flags, which operates 19 theme parks throughout North America, maintains an intranet for its 2,500 full-time employees that provides company-related news and information on each park’s day-to-day operations, including weather forecasts, performance schedules, and details about groups and celebrities visiting the parks. The company also uses an extranet to broad- cast information about schedule changes and park events to its 30,000 seasonal employees. We describe the technology for intranets and extranets in more detail in Chapter 7.

E-BUSINESS, E-COMMERCE, AND E-GOVERNMENT The systems and technologies we have just described are transforming firms’ relationships with customers, employees, suppliers, and logistic partners into digital relationships using networks and the Internet. So much business is now enabled by or based upon digital networks that we use the terms “electronic business” and “electronic commerce” frequently throughout this text.

Electronic business, or e-business, refers to the use of digital technology and the Internet to execute the major business processes in the enterprise. E-business includes activities for the internal management of the firm and for coordination with suppliers and other business partners. It also includes electronic commerce, or e-commerce.

E-commerce is the part of e-business that deals with the buying and selling of goods and services over the Internet. It also encompasses activities supporting those market transactions, such as advertising, marketing, customer support, security, delivery, and payment.

The technologies associated with e-business have also brought about similar changes in the public sector. Governments on all levels are using Internet technology to deliver information and services to citizens, employees, and businesses with which they work. E-government refers to the application of the Internet and networking technologies to digitally enable government and public sector agencies’ relationships with citizens, businesses, and other arms of government.

In addition to improving delivery of government services, e-government makes government operations more efficient and also empowers citizens by giving them easier access to information and the ability to network electroni- cally with other citizens. For example, citizens in some states can renew their driver’s licenses or apply for unemployment benefits online, and the Internet has become a powerful tool for instantly mobilizing interest groups for political action and fund-raising.

2.3 SYSTEMS FOR COLLABORATION AND TEAMWORK With all these systems and information, you might wonder how is it possible to make sense out of them? How do people working in firms pull it all together, work towards common goals, and coordinate plans and actions? Information systems can’t make decisions, hire or fire people, sign contracts, agree on deals,

56 Part One Organizations, Management, and the Networked Enterprise

or adjust the price of goods to the marketplace. In addition to the types of sys- tems we have just described, businesses need special systems to support collaboration and teamwork.

WHAT IS COLLABORATION? Collaboration is working with others to achieve shared and explicit goals. Collaboration focuses on task or mission accomplishment and usually takes place in a business, or other organization, and between businesses. You collab- orate with a colleague in Tokyo having expertise on a topic about which you know nothing. You collaborate with many colleagues in publishing a company blog. If you’re in a law firm, you collaborate with accountants in an accounting firm in servicing the needs of a client with tax problems.

Collaboration can be short-lived, lasting a few minutes, or longer term, depending on the nature of the task and the relationship among participants. Collaboration can be one-to-one or many-to-many.

Employees may collaborate in informal groups that are not a formal part of the business firm’s organizational structure or they may be organized into for- mal teams. Teams are part of the organization’s business structure for getting things done. Teams have a specific mission that someone in the business assigned to them. They have a job to complete. The members of the team need to collaborate on the accomplishment of specific tasks and collectively achieve the team mission. The team mission might be to “win the game,” or “increase online sales by 10%,” or “prevent insulating foam from falling off a space shuttle.” Teams are often short-lived, depending on the problems they tackle and the length of time needed to find a solution and accomplish the mission.

Collaboration and teamwork are more important today than ever for a variety of reasons.

• Changing nature of work. The nature of work has changed from factory manu- facturing and pre-computer office work where each stage in the production process occurred independently of one another, and was coordinated by supervisors. Work was organized into silos. Within a silo, work passed from one machine tool station to another, from one desktop to another, until the finished product was completed. Today, the kinds of jobs we have require much closer coordination and interaction among the parties involved in producing the service or product. A recent report from the consulting firm McKinsey and Company argued that 41 percent of the U.S. labor force is now composed of jobs where interaction (talking, e-mailing, presenting, and persuading) is the primary value-adding activity. Even in factories, workers today often work in production groups, or pods.

• Growth of professional work. “Interaction” jobs tend to be professional jobs in the service sector that require close coordination, and collaboration. Professional jobs require substantial education, and the sharing of informa- tion and opinions to get work done. Each actor on the job brings specialized expertise to the problem, and all the actors need to take one another into account in order to accomplish the job.

• Changing organization of the firm. For most of the industrial age, managers organized work in a hierarchical fashion. Orders came down the hierarchy, and responses moved back up the hierarchy. Today, work is organized into groups and teams, who are expected to develop their own methods for accomplishing the task. Senior managers observe and measure results, but are much less likely to issue detailed orders or operating procedures. In part

Chapter 2 Global E-business and Collaboration 57

this is because expertise has been pushed down in the organization, as have decision-making powers.

• Changing scope of the firm. The work of the firm has changed from a single location to multiple locations—offices or factories throughout a region, a nation, or even around the globe. For instance, Henry Ford developed the first mass-production automobile plant at a single Dearborn, Michigan fac- tory. In 2010, Ford expected to produce about 3 million automobiles and employ over 200,000 employees at 90 plants and facilities worldwide. With this kind of global presence, the need for close coordination of design, pro- duction, marketing, distribution, and service obviously takes on new impor- tance and scale. Large global companies need to have teams working on a global basis.

• Emphasis on innovation. Although we tend to attribute innovations in busi- ness and science to great individuals, these great individuals are most likely working with a team of brilliant colleagues, and all have been preceded by a long line of earlier innovators and innovations. Think of Bill Gates and Steve Jobs (founders of Microsoft and Apple), both of whom are highly regarded innovators, and both of whom built strong collaborative teams to nurture and support innovation in their firms. Their initial innovations derived from close collaboration with colleagues and partners. Innovation, in other words, is a group and social process, and most innovations derive from collaboration among individuals in a lab, a business, or government agencies. Strong col- laborative practices and technologies are believed to increase the rate and quality of innovation.

• Changing culture of work and business. Most research on collaboration supports the notion that diverse teams produce better outputs, faster, than individuals working on their own. Popular notions of the crowd (“crowdsourcing,” and the “wisdom of crowds”) also provide cultural support for collaboration and teamwork.

BUSINESS BENEFITS OF COLLABORATION AND TEAMWORK There are many articles and books that have been written about collaboration, some of them by business executives and consultants, and a great many by aca- demic researchers in a variety of businesses. Nearly all of this research is anec- dotal. Nevertheless, among both business and academic communities there is a general belief that the more a business firm is “collaborative,” the more suc- cessful it will be, and that collaboration within and among firms is more essen- tial than in the past.

A recent global survey of business and information systems managers found that investments in collaboration technology produced organizational improve- ments that returned over four times the amount of the investment, with the greatest benefits for sales, marketing, and research and development functions (Frost and White, 2009). Another study of the value of collaboration also found that the overall economic benefit of collaboration was significant: for every word seen by an employee in e-mails from others, $70 of additional revenue was generated (Aral, Brynjolfsson, and Van Alstyne, 2007).

Table 2-2 summarizes some of the benefits of collaboration identified by previous writers and scholars. Figure 2-7 graphically illustrates how collabora- tion is believed to impact business performance.

While there are many presumed benefits to collaboration, you really need a supportive business firm culture and the right business processes before you can achieve meaningful collaboration. You also need a healthy investment in collaborative technologies. We now examine these requirements.

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Productivity People working together can complete a complex task faster than the same number of people working in isolation from one another. There will be fewer errors.

Quality People working collaboratively can communicate errors, and correct actions faster, when they work together than if they work in isolation. Can lead to a reduction in buffers and time delay among production units.

Innovation People working collaboratively in groups can come up with more innovative ideas for products, services, and administration than the same number working in isolation from one another.

Customer service People working together in teams can solve customer complaints and issues faster and more effectively than if they were working in isolation from one another.

Financial performance (profitability, As a result of all of the above, collaborative firms have sales, and sales growth) superior sales growth and financial performance.

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