BOOK principles of information systems 9th -stair, reynolds

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Part 1 An Overview

London, it can quickly ship more of that style to department stores operating in the same
area. Fossil credits the information systems for simplifying its business infrastructure and
supporting consistent best practices across its expanding global business.

As you read this chapter, consider the following:

• How might the information systems such as those used at Fossil make use of the

various components of a computer-based information system: hardware, software,
databases, telecommunications, people, and procedures?

• How do computer-based information systems like Fossil’s help businesses implement

best practices?

Why Learn About Information systems are used in almost every imaginable profession. Entrepreneurs
Information and small business owners use information systems to reach customers around
Systems? the world. Sales representatives use information systems to advertise products,
communicate with customers, and analyze sales trends. Managers use them to make
multimillion-dollar decisions, such as whether to build a manufacturing plant or
research a cancer drug. Financial planners use information systems to advise
their clients to help them save for retirement or their children’s education. From a
small music store to huge multinational companies, businesses of all sizes could not
survive without information systems to perform accounting and finance operations.
Regardless of your college major or chosen career, information systems are indis-
pensable tools to help you achieve your career goals. Learning about information
systems can help you land your first job, earn promotions, and advance your career.

This chapter presents an overview of information systems. The overview
sections on hardware, software, databases, telecommunications, e-commerce and
m-commerce, transaction processing and enterprise resource planning, information
and decision support, special purpose systems, systems development, and ethical and
societal issues are expanded to full chapters in the book. Let’s get started by explor-
ing the basics of information systems.

information system (IS) People and organizations use information every day. Many retail chains, for example, collect
A set of interrelated components data from their stores to help them stock what customers want and to reduce costs. The
that collect, manipulate, store, and components that are used are often called an information system. An information system
disseminate data and information (IS) is a set of interrelated components that collect, manipulate, store, and disseminate data
and provide a feedback mechanism and information and provide a feedback mechanism to meet an objective. It is the feedback
to meet an objective. mechanism that helps organizations achieve their goals, such as increasing profits or improv-
ing customer service. Businesses can use information systems to increase revenues and reduce
costs. This book emphasizes the benefits of an information system, including speed, accuracy,
and reduced costs.

We interact with information systems every day, both personally and professionally. We
use automated teller machines at banks, access information over the Internet, select infor-
mation from kiosks with touch screens, and scan the bar codes on our purchases at self-
checkout lanes. Major Fortune 500 companies can spend more than $1 billion per year on
information systems. Knowing the potential of information systems and putting this knowl-
edge to work can help individuals enjoy a successful career and organizations reach their goals.

Today we live in an information economy. Information itself has value, and commerce
often involves the exchange of information rather than tangible goods. Systems based on
computers are increasingly being used to create, store, and transfer information. Using in-
formation systems, investors make multimillion-dollar decisions, financial institutions trans-
fer billions of dollars around the world electronically, and manufacturers order supplies and
distribute goods faster than ever before. Computers and information systems will continue
to change businesses and the way we live. To prepare for these innovations, you need to be
familiar with fundamental information concepts.

|An Introduction to Information Systems Chapter 1 5

Information systems are
everywhere. An air traveler checks
in for a flight using a kiosk, which
sends the check-in information to a
network to verify the traveler’s
reservation and flight information.
The terminal processes the infor-
mation and prints a boarding pass,
speeding airport check-in times.

(Source: Courtesy of Joshua Lott/
Bloomberg News/Landov.)

INFORMATION CONCEPTS

Information is a central concept of this book. The term is used in the title of the book, in data
this section, and in almost every chapter. To be an effective manager in any area of business, Raw facts, such as an employee
you need to understand that information is one of an organization’s most valuable resources. number, total hours worked in a
This term, however, is often confused with data. week, inventory part numbers, or
sales orders.
Data, Information, and Knowledge
information
Data consists of raw facts, such as an employee number, total hours worked in a week, A collection of facts organized in
inventory part numbers, or sales orders.1 As shown in Table 1.1, several types of data can such a way that they have additional
represent these facts. When facts are arranged in a meaningful manner, they become infor- value beyond the value of the indi-
mation. Information is a collection of facts organized so that they have additional value vidual facts.
beyond the value of the individual facts.2 For example, sales managers might find that know-
ing the total monthly sales suits their purpose more (i.e., is more valuable) than knowing the
number of sales for each sales representative. Providing information to customers can also
help companies increase revenues and profits. According to Frederick Smith, chairman and
president of FedEx, “Information about the package is as important as the package itself…
We care a lot about what’s inside the box, but the ability to track and trace shipments, and
therefore manage inventory in motion, revolutionized logistics.”3 FedEx is a worldwide leader
in shipping packages and products around the world. Increasingly, information generated
by FedEx and other organizations is being placed on the Internet. In addition, many uni-
versities are now placing course information and content on the Internet.4 Using the Open
Course Ware program, the Massachusetts Institute of Technology (MIT) places class notes
and contents on the Internet for more than 1,500 of its courses.

Data Represented by Table 1.1
Alphanumeric data Numbers, letters, and other characters
Image data Graphic images and pictures Types of Data
Audio data Sound, noise, or tones
Video data Moving images or pictures

Data represents real-world things. Hospitals and healthcare organizations, for example,
maintain patient medical data, which represents actual patients with specific health situations.
In many cases, hospitals and healthcare organizations are converting data to electronic form.
Some have developed electronic records management (ERM) systems to store, organize, and
control important data. However, data—raw facts—has little value beyond its existence. For
example, consider data as pieces of railroad track in a model railroad kit. Each piece of track
has limited inherent value as a single object. However, if you define a relationship among
the pieces of the track, they will gain value. By arranging the pieces in a certain way, a railroad

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Part 1 An Overview

Figure 1.1 layout begins to emerge (see Figure 1.1a, top). Data and information work the same way.
Rules and relationships can be set up to organize data into useful, valuable information.
Defining and Organizing
Relationships Among Data The type of information created depends on the relationships defined among existing
Creates Information data. For example, you could rearrange the pieces of track to form different layouts. Adding
new or different data means you can redefine relationships and create new information. For
instance, adding new pieces to the track can greatly increase the value—in this case, variety
and fun—of the final product. You can now create a more elaborate railroad layout
(see Figure 1.1b, bottom). Likewise, a sales manager could add specific product data to his
sales data to create monthly sales information organized by product line. The manager could
use this information to determine which product lines are the most popular and profitable.

(a)

(b)

process Turning data into information is a process, or a set of logically related tasks performed
A set of logically related tasks to achieve a defined outcome. The process of defining relationships among data to create
performed to achieve a defined useful information requires knowledge. Knowledge is the awareness and understanding of a
outcome. set of information and the ways that information can be made useful to support a specific
knowledge task or reach a decision. Having knowledge means understanding relationships in informa-
The awareness and understanding tion. Part of the knowledge you need to build a railroad layout, for instance, is the
of a set of information and ways that understanding of how much space you have for the layout, how many trains will run on the
information can be made useful to track, and how fast they will travel. Selecting or rejecting facts according to their relevance
support a specific task or reach a to particular tasks is based on the knowledge used in the process of converting data into
decision. information. Therefore, you can also think of information as data made more useful through
the application of knowledge. Knowledge workers (KWs) are people who create, use, and
Figure 1.2 disseminate knowledge, and are usually professionals in science, engineering, business, and
The Process of Transforming other areas. A knowledge management system (KMS) is an organized collection of people,
Data into Information procedures, software, databases, and devices used to create, store, and use the organization’s
knowledge and experience.

In some cases, people organize or process data mentally or manually. In other cases, they

use a computer. In the earlier example, the manager could have manually calculated the sum

of the sales of each representative, or a computer could have calculated this sum. Where the

data comes from or how it is processed is less important than whether the data is transformed

into results that are useful and valuable. This transformation process is shown in Figure 1.2.

Data The transformation process Information
(applying knowledge by
selecting, organizing, and
manipulating data)

The Characteristics of Valuable Information

To be valuable to managers and decision makers, information should have the characteristics
described in Table 1.2. These characteristics make the information more valuable to an or-
ganization. Many shipping companies, for example, can determine the exact location of
inventory items and packages in their systems, and this information makes them responsive
to their customers. In contrast, if an organization’s information is not accurate or complete,

|An Introduction to Information Systems Chapter 1 7

people can make poor decisions, costing thousands, or even millions, of dollars. If an inac-
curate forecast of future demand indicates that sales will be very high when the opposite is
true, an organization can invest millions of dollars in a new plant that is not needed. Fur-
thermore, if information is not relevant, not delivered to decision makers in a timely fashion,
or too complex to understand, it can be of little value to the organization.

Characteristics Definitions
Accessible
Accurate Information should be easily accessible by authorized users so they can obtain it in the right format
and at the right time to meet their needs.
Complete
Economical Accurate information is error free. In some cases, inaccurate information is generated because
Flexible inaccurate data is fed into the transformation process. (This is commonly called garbage in,
garbage out [GIGO].)
Relevant
Reliable Complete information contains all the important facts. For example, an investment report that does
not include all important costs is not complete.
Secure
Simple Information should also be relatively economical to produce. Decision makers must always balance
the value of information with the cost of producing it.
Timely
Verifiable Flexible information can be used for a variety of purposes. For example, information on how much
inventory is on hand for a particular part can be used by a sales representative in closing a sale,
by a production manager to determine whether more inventory is needed, and by a financial
executive to determine the total value the company has invested in inventory.

Relevant information is important to the decision maker. Information showing that lumber prices
might drop might not be relevant to a computer chip manufacturer.

Reliable information can be trusted by users. In many cases, the reliability of the information depends
on the reliability of the data-collection method. In other instances, reliability depends on the source
of the information. A rumor from an unknown source that oil prices might go up might not be reliable.

Information should be secure from access by unauthorized users.

Information should be simple, not overly complex. Sophisticated and detailed information might not
be needed. In fact, too much information can cause information overload, whereby a decision maker
has too much information and is unable to determine what is really important.

Timely information is delivered when it is needed. Knowing last week’s weather conditions will not
help when trying to decide what coat to wear today.

Information should be verifiable. This means that you can check it to make sure it is correct, perhaps
by checking many sources for the same information.

Depending on the type of data you need, some characteristics become more valuable Table 1.2
than others. For example, with market-intelligence data, some inaccuracy and incompleteness
is acceptable, but timeliness is essential. Sutter Health, for example, developed a real-time Characteristics of Valuable
system for its intensive care units (ICUs) that can detect and prevent deadly infections, saving Information
over 400 lives a year and millions of dollars in additional healthcare costs.5 Market intelligence
might alert you that competitors are about to make a major price cut. The exact details and
timing of the price cut might not be as important as being warned far enough in advance to
plan how to react. On the other hand, accuracy, verifiability, and completeness are critical for
data used in accounting to manage company assets such as cash, inventory, and equipment.

The Value of Information

The value of information is directly linked to how it helps decision makers achieve their
organization’s goals.6 Valuable information can help people and their organizations perform
tasks more efficiently and effectively.7 Consider a market forecast that predicts a high demand
for a new product. If you use this information to develop the new product and your company
makes an additional profit of $10,000, the value of this information to the company is
$10,000 minus the cost of the information. Valuable information can also help managers

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Part 1 An Overview

decide whether to invest in additional information systems and technology. A new comput-
erized ordering system might cost $30,000, but generate an additional $50,000 in sales. The
value added by the new system is the additional revenue from the increased sales of $20,000.
Most corporations have cost reduction as a primary goal. Using information systems, some
manufacturing companies have slashed inventory costs by millions of dollars. Other com-
panies have increased inventory levels to increase profits. Wal-Mart, for example, uses
information about certain regions of the country and specific situations to increase needed
inventory levels of certain products and improve overall profitability.8 The giant retail store
used valuable information about the needs of people in the path of Hurricane Ivan when it
hit Florida. The store stocked strawberry Pop-Tarts and other food items that didn’t need
refrigeration or food preparation to serve people in the area and to increase its profits.

SYSTEM CONCEPTS

system Like information, another central concept of this book is that of a system. A system is a set
A set of elements or components of elements or components that interact to accomplish goals. The elements themselves and
that interact to accomplish goals. the relationships among them determine how the system works. Systems have inputs, pro-
cessing mechanisms, outputs, and feedback (see Figure 1.3). For example, consider an
automatic car wash. Tangible inputs for the process are a dirty car, water, and various cleaning
ingredients. Time, energy, skill, and knowledge also serve as inputs to the system because
they are needed to operate it. Skill is the ability to successfully operate the liquid sprayer,
foaming brush, and air dryer devices. Knowledge is used to define the steps in the car wash
operation and the order in which the steps are executed.

T
T

T

Input Processing Output

Feedback

Figure 1.3 The processing mechanisms consist of first selecting which cleaning option you want (wash
only, wash with wax, wash with wax and hand dry, etc.) and communicating that to the
Components of a System operator of the car wash. A feedback mechanism is your assessment of how clean the car is.
A system’s four components consist Liquid sprayers shoot clear water, liquid soap, or car wax depending on where your car is in
of input, processing, output, and the process and which options you selected. The output is a clean car. As in all systems,
feedback. independent elements or components (the liquid sprayer, foaming brush, and air dryer) in-
teract to create a clean car.

efficiency System Performance and Standards
A measure of what is produced
divided by what is consumed. System performance can be measured in various ways. Efficiency is a measure of what is
produced divided by what is consumed. It can range from 0 to 100 percent. For example,
the efficiency of a motor is the energy produced (in terms of work done) divided by the energy
consumed (in terms of electricity or fuel). Some motors have an efficiency of 50 percent or
less because of the energy lost to friction and heat generation.

|An Introduction to Information Systems Chapter 1 9

Efficiency is a relative term used to compare systems. For example, a hybrid gasoline effectiveness
engine for an automobile or truck can be more efficient than a traditional gasoline engine A measure of the extent to which a
because, for the equivalent amount of energy consumed, the hybrid engine produces more system achieves its goals; it can be
energy and gets better gas mileage. computed by dividing the goals actu-
ally achieved by the total of the
Effectiveness is a measure of the extent to which a system achieves its goals. It can be stated goals.
computed by dividing the goals actually achieved by the total of the stated goals. For example,
a company might want to achieve a net profit of $100 million for the year using a new system performance standard
A specific objective of the system.
information system. Actual profits, however, might only be $85 million for the year. In this
case, the effectiveness is 85 percent (85/100 = 85 percent). Figure 1.4

Evaluating system performance also calls for using performance standards. A system System Performance Standards
performance standard is a specific objective of the system. For example, a system performance
standard for a marketing campaign might be to have each sales representative sell $100,000
of a certain type of product each year (see Figure 1.4a). A system performance standard for
a manufacturing process might be to provide no more than 1 percent defective parts (see
Figure 1.4b). After standards are established, system performance is measured and compared
with the standard. Variances from the standard are determinants of system performance.

$150,000 Good
Standard=$100,000
125,000
Bad
100,000
Sales

75,000

50,000

25,000

Adams Brown Davis Thomas

Salesperson

(a)

4

3 Bad
Defective Standard=1%
parts (%)
Good
2

1

12 34 56 7 8 9 10 11 12 13
Production day

(b)

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Part 1 An Overview

WHAT IS AN INFORMATION SYSTEM?

As mentioned previously, an information system (IS) is a set of interrelated elements or
components that collect (input), manipulate (process), store, and disseminate (output) data
and information, and provide a corrective reaction (feedback mechanism) to meet an objec-
tive (see Figure 1.5). The feedback mechanism is the component that helps organizations
achieve their goals, such as increasing profits or improving customer service.

Figure 1.5 Input Feedback Output
Processing
The Components of an
Information System

Feedback is critical to the
successful operation of a system.

input Input, Processing, Output, Feedback
The activity of gathering and captur-
ing raw data. Input
In information systems, input is the activity of gathering and capturing raw data. In pro-
processing ducing paychecks, for example, the number of hours every employee works must be collected
Converting or transforming data before paychecks can be calculated or printed. In a university grading system, instructors
into useful outputs. must submit student grades before a summary of grades for the semester or quarter can be
compiled and sent to the students.
output
Production of useful information, Processing
usually in the form of documents In information systems, processing means converting or transforming data into useful out-
and reports. puts. Processing can involve making calculations, comparing data and taking alternative
actions, and storing data for future use. Processing data into useful information is critical in
feedback business settings.
Output that is used to make changes
to input or processing activities. Processing can be done manually or with computer assistance. In a payroll application,
the number of hours each employee worked must be converted into net, or take-home, pay.
Other inputs often include employee ID number and department. The processing can first
involve multiplying the number of hours worked by the employee’s hourly pay rate to get
gross pay. If weekly hours worked exceed 40, overtime pay might also be included. Then
deductions—for example, federal and state taxes, contributions to insurance or savings
plans—are subtracted from gross pay to get net pay.

After these calculations and comparisons are performed, the results are typically stored.
Storage involves keeping data and information available for future use, including output,
discussed next.

Output
In information systems, output involves producing useful information, usually in the form
of documents and reports. Outputs can include paychecks for employees, reports for man-
agers, and information supplied to stockholders, banks, government agencies, and other
groups. In some cases, output from one system can become input for another. For example,
output from a system that processes sales orders can be used as input to a customer billing
system.

Feedback
In information systems, feedback is information from the system that is used to make changes
to input or processing activities. For example, errors or problems might make it necessary to
correct input data or change a process. Consider a payroll example. Perhaps the number of
hours an employee worked was entered as 400 instead of 40. Fortunately, most information

|An Introduction to Information Systems Chapter 1 11

systems check to make sure that data falls within certain ranges. For number of hours worked, forecasting
the range might be from 0 to 100 because it is unlikely that an employee would work more Predicting future events to avoid
than 100 hours in a week. The information system would determine that 400 hours is out problems.
of range and provide feedback. The feedback is used to check and correct the input on the
number of hours worked to 40. If undetected, this error would result in a very high net pay Program trading systems help
on the printed paycheck! traders monitor swift changes in
stock prices and make better deci-
Feedback is also important for managers and decision makers. For example, a furniture sions for their investors.
maker could use a computerized feedback system to link its suppliers and plants. The output (Source: Courtesy of REUTERS/
from an information system might indicate that inventory levels for mahogany and oak are Allen Fredrickson/Landov.)
getting low—a potential problem. A manager could use this feedback to decide to order more
wood from a supplier. These new inventory orders then become input to the system. In
addition to this reactive approach, a computer system can also be proactive—predicting
future events to avoid problems. This concept, often called forecasting, can be used to esti-
mate future sales and order more inventory before a shortage occurs. Forecasting is also used
to predict the strength and landfall sites of hurricanes, future stock-market values, and who
will win a political election.

Manual and Computerized Information Systems

As discussed earlier, an information system can be
manual or computerized. For example, some invest-
ment analysts manually draw charts and trend lines
to assist them in making investment decisions.
Tracking data on stock prices (input) over the last
few months or years, these analysts develop patterns
on graph paper (processing) that help them deter-
mine what stock prices are likely to do in the next few
days or weeks (output). Some investors have made
millions of dollars using manual stock analysis infor-
mation systems. Of course, today many excellent
computerized information systems follow stock in-
dexes and markets and suggest when large blocks of
stocks should be purchased or sold (called program
trading) to take advantage of market discrepancies.

Computer-Based Information Systems computer-based information
system (CBIS)
A computer-based information system (CBIS) is a single set of hardware, software, databases, A single set of hardware, software,
telecommunications, people, and procedures that are configured to collect, manipulate, store, databases, telecommunications,
and process data into information. A company’s payroll, order entry, or inventory-control people, and procedures that are
system is an example of a CBIS. Lloyd’s Insurance in London is starting to use a CBIS to configured to collect, manipulate,
reduce paper transactions and convert to an electronic insurance system.9 The new CBIS store, and process data into
allows Lloyd’s to insure people and property more efficiently and effectively. Lloyd’s often information.
insures the unusual, including actress Betty Grable’s legs, Rolling Stone Keith Richards’
hands, and a possible appearance of the Lock Ness Monster (Nessie) in Scotland, which technology infrastructure
would result in a large payment for the person first seeing the monster. CBISs can also be All the hardware, software,
embedded into products. Some new cars and home appliances include computer hardware, databases, telecommunications,
software, databases, and even telecommunications to control their operations and make them people, and procedures that are
more useful. This is often called embedded, pervasive, or ubiquitous computing. configured to collect, manipulate,
store, and process data into
The components of a CBIS are illustrated in Figure 1.6. Information technology (IT) refers information.
to hardware, software, databases, and telecommunications. A business’s technology infras-
tructure includes all the hardware, software, databases, telecommunications, people, and
procedures that are configured to collect, manipulate, store, and process data into informa-
tion. The technology infrastructure is a set of shared IS resources that form the foundation
of each computer-based information system.

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Part 1 An Overview

Figure 1.6 People
Hardware
The Components of a Telecommunications
Computer-Based Information
System.

Software

Procedures

Databases

hardware Hardware
Computer equipment used to per- Hardware consists of computer equipment used to perform input, processing, and output
form input, processing, and output activities.10 Input devices include keyboards, mice and other pointing devices, automatic
activities. scanning devices, and equipment that can read magnetic ink characters.11 Investment firms
often use voice-response technology to allow customers to access their balances and other
Hardware consists of computer information with spoken commands. Processing devices include computer chips that contain
equipment used to perform input, the central processing unit and main memory.12 Advances in chip design allow faster speeds,
processing, and output activities. less power consumption, and larger storage capacity.13 Processor speed is also important.
The trend in the computer industry Today’s more advanced processor chips have the power of 1990s-era supercomputers that
is to produce smaller, faster, and occupied a room measuring 10 feet by 40 feet.14 A large IBM computer used by U.S. Liver-
more mobile hardware. more National Laboratories to analyze nuclear explosions might be the fastest in the world
(Source: © Alberto Pomares/ (up to 596 teraflops—596 trillion operations per second). The super fast computer, called
iStockphoto.com.) Blue Gene, costs about $40 million. Computer imagery companies such as Mental Images
of Germany and Pixar of the United States also need high processor speeds to produce award-
winning images. Image technology is used to help design cars, such as the sleek shapes of
Mercedes-Benz vehicles. Small, inexpensive computers are also becoming popular. The One
Laptop Per Child (OLPC) computer, for example, costs under $200. The Classmate PC by
Intel will cost about $300 and includes some educational software.15 Both computers are
intended for regions of the world that can’t afford traditional personal computers.

The many types of output devices include printers and computer screens. Another type
of output device is printer kiosks, which are located in some shopping malls. After inserting
a disc or memory card from a computer or camera, you can print photos and some documents.
Many special-purpose hardware devices have also been developed. Computerized event data

recorders (EDRs) are now being placed
into vehicles. Like an airplane’s black
box, EDRs record vehicle speed, possible
engine problems, driver performance, and
more. The technology is being used to
document and monitor vehicle operation,
determine the cause of accidents, and in-
vestigate whether truck drivers are taking
required breaks. In one case, an EDR was
used to help convict a driver of vehicular
homicide.

|An Introduction to Information Systems Chapter 1 13

Software software
Software consists of the computer programs that govern the operation of the computer. These The computer programs that govern
programs allow a computer to process payroll, send bills to customers, and provide managers the operation of the computer.
with information to increase profits, reduce costs, and provide better customer service. With
software, people can work anytime at any place. Software that controls manufacturing tools,
for example, can be used to fabricate parts almost anywhere in the world. For example, Fab
Lab software controls tools such as cutters, milling machines, and other devices.16 One Fab
Lab system, which costs about $20,000, has been used to make radio frequency tags to track
animals in Norway, engine parts to allow tractors to run on processed castor beans in India,
and many other fabrication applications.

The two types of software are system software, such as Microsoft Windows Vista, which
controls basic computer operations including start-up and printing, and applications soft-
ware, such as Microsoft Office 2007, which allows you to accomplish specific tasks including
word processing or creating spreadsheets.17 Software is needed for computers of all sizes,
from small handheld computers to large supercomputers.18 Although most software can be
installed from CDs, many of today’s software packages can be downloaded through the
Internet.19

Sophisticated application software, such as Adobe Creative Suite 3, can be used to design,
develop, print, and place professional-quality advertising, brochures, posters, prints, and
videos on the Internet.20

Adobe Creative Suite is an example
of sophisticated application
software, and is designed for
producing professional-quality
graphics for the Web, print, and
video.

(Source: Courtesy of Adobe Systems
Incorporated.)

Databases database
A database is an organized collection of facts and information, typically consisting of two An organized collection of facts and
or more related data files. An organization’s database can contain facts and information information.
on customers, employees, inventory, competitors’ sales, online purchases, and much more.
Most managers and executives consider a database to be one of the most valuable parts of a telecommunications
computer-based information system.21 A number of health insurance companies are now The electronic transmission of
making their databases available to their customers through the Internet.22 Aetna, for exam- signals for communications, which
ple, provides important health data to millions of its customers. Aetna customers can also enables organizations to carry out
place their own health information, such as blood pressure measurements taken at home, on their processes and tasks through
the comprehensive database. However, making databases accessible can pose risks. The De- effective computer networks.
partment of Education decided to limit access to its database of college student loan
information to banks and financial institutions.23 The database contains over 50 million
records on student loans that could be inappropriately used to market financial products to
students and their families.

Telecommunications, Networks, and the Internet
Telecommunications is the electronic transmission of signals for communications, which
enables organizations to carry out their processes and tasks through effective computer net-
works. The Associated Press was one of the first users of telecommunications in the 1920s,
sending news over 103,000 miles of wire in the United States and almost 10,000 miles of
cable across the ocean.24 Today, telecommunications is used by organizations of all sizes and

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Part 1 An Overview

networks individuals around the world. The U.S. government is expected to spend almost $50 billion
Computers and equipment that are on upgraded telecommunications systems and equipment in the next several years.25 With
connected in a building, around the telecommunications, people can work at home or while traveling.26 This approach to work,
country, or around the world to often called telecommuting, allows a telecommuter living in England to send his or her work
enable electronic communications. to the United States, China, or any location with telecommunications capabilities. Today,
China is the largest provider of mobile phone and telecommunications services, with over
Internet 300 million subscribers.27
The world’s largest computer net-
work, consisting of thousands of Networks connect computers and equipment in a building, around the country, or
interconnected networks, all freely around the world to enable electronic communication. Investment firms can use wireless
exchanging information. networks to connect thousands of investors with brokers or traders. Many hotels use wireless
telecommunications to allow guests to connect to the Internet, retrieve voice messages, and
People use the Internet wherever exchange e-mail without plugging their computers or mobile devices into an Internet con-
they are to research information, nector. Wireless transmission also allows aircraft drones, such as Boeing’s Scan Eagle, to fly
buy and sell products and services, using a remote control system and monitor buildings and other commercial establishments.
make travel arrangements, conduct The drones are smaller and less-expensive versions of the Predator and Global Hawk drones
banking, download music and that the U.S. military used in the Afghanistan and Iraq conflicts.
videos, and listen to radio programs.
(Source: © Bob Daemmrich / Photo The Internet is the world’s largest computer network, consisting of thousands of inter-
Edit.) connected networks, all freely exchanging information. Research firms, colleges, universities,
high schools, and businesses are just a few examples of organizations using the Internet.

People use the Internet to research information, buy and sell products and services, make
travel arrangements, conduct banking, download music and videos, and listen to radio pro-
grams, among other activities.28 Increasingly, the Internet is used for communications,
collaboration, and information sharing.29 Internet sites like MySpace (www.myspace.com)
and FaceBook (www.facebook.com) have become popular places to connect with friends
and colleagues.30 Some people, however, fear that this increased usage can lead to problems,
including criminals hacking into the Internet and gaining access to sensitive personal
information.31

Large computers, personal computers, and today’s cell phones, such as Apple’s iPhone,
can access the Internet.32 This not only speeds communications, but also allows people to
conduct business electronically. Some airline companies are providing Internet service on
their flights so that travelers can send and receive e-mail, check investments, and browse the
Internet.33 Internet users can create Web logs (blogs) to store and share their thoughts and
ideas with others around the world. Using podcasting, you can download audio programs or
music from the Internet to play on computers or music players. One of the authors of this
book uses podcasts to obtain information on information systems and technology. You can
also record and store TV programs on computers or special viewing devices and watch them
later.34 Often called place shifting, this technology allows you to record TV programs at home
and watch them at a different place when it’s convenient.

The World Wide Web (WWW), or the Web, is a network of links on the Internet to
documents containing text, graphics, video, and sound. Information about the documents

|An Introduction to Information Systems Chapter 1 15

and access to them are controlled and provided by tens of thousands of special computers intranet
called Web servers. The Web is one of many services available over the Internet and provides An internal network based on Web
access to millions of documents. New Internet technologies and increased Internet commu- technologies that allows people
nications are collectively called Web 2.0.35 within an organization to exchange
information and work on projects.
The technology used to create the Internet is also being applied within companies and extranet
organizations to create intranets, which allow people in an organization to exchange infor- A network based on Web technolo-
mation and work on projects. Companies often use intranets to connect their employees gies that allows selected outsiders,
around the globe. An extranet is a network based on Web technologies that allows selected such as business partners and cus-
outsiders, such as business partners and customers, to access authorized resources of a com- tomers, to access authorized
pany’s intranet. Companies can move all or most of their business activities to an extranet resources of a company’s intranet.
site for corporate customers. Many people use extranets every day without realizing it—to
track shipped goods, order products from their suppliers, or access customer assistance from procedures
other companies. If you log on to the FedEx site (www.fedex.com) to check the status of a The strategies, policies, methods,
package, for example, you are using an extranet. and rules for using a CBIS.

People
People can be the most important element in most computer-based information systems.
They make the difference between success and failure for most organizations. Information
systems personnel include all the people who manage, run, program, and maintain the system.
Large banks can hire IS personnel to speed the development of computer-related projects.
Users are people who work with information systems to get results. Users include financial
executives, marketing representatives, manufacturing operators, and many others. Certain
computer users are also IS personnel.

Procedures
Procedures include the strategies, policies, methods, and rules for using the CBIS, including
the operation, maintenance, and security of the computer. For example, some procedures
describe when each program should be run. Others describe who can access facts in the
database or what to do if a disaster, such as a fire, earthquake, or hurricane, renders the CBIS
unusable. Good procedures can help companies take advantage of new opportunities and
avoid potential disasters. Poorly developed and inadequately implemented procedures, how-
ever, can cause people to waste their time on useless rules or result in inadequate responses
to disasters, such as hurricanes or tornadoes.

Now that we have looked at computer-based information systems in general, we will
briefly examine the most common types used in business today. These IS types are covered
in more detail in Part 3.

BUSINESS INFORMATION SYSTEMS

The most common types of information systems used in business organizations are those
designed for electronic and mobile commerce, transaction processing, management infor-
mation, and decision support. In addition, some organizations employ special-purpose
systems, such as virtual reality, that not every organization uses. Together, these systems help
employees in organizations accomplish routine and special tasks—from recording sales, pro-
cessing payrolls, and supporting decisions in various departments, to providing alternatives
for large-scale projects and opportunities. Although these systems are discussed in separate
sections in this chapter and explained in more detail later, they are often integrated in one
product and delivered by the same software package (see Figure 1.7). For example, some
enterprise resource planning packages process transactions, deliver information, and support
decisions.

|16
Part 1 An Overview

Figure 1.7 Knowledge management
and
Business Information Systems
special-purpose
Business information systems are business information
often integrated in one product and
can be delivered by the same systems
software package.
Management information
and

decision support systems

Enterprise systems
E- and M-commerce

Figure 1.8 shows a simple overview of the development of important business information
systems discussed in this section.

Figure 1.8 TPS MIS DSS Specialized business
1950s 1960s information systems
The Development of Important and electronic and
Business Information Systems mobile commerce

1970s 1980s 1990s 2000 and beyond

e-commerce Electronic and Mobile Commerce
Any business transaction executed
electronically between companies E-commerce involves any business transaction executed electronically between companies
(business-to-business), companies (business-to-business, or B2B), companies and consumers (business-to-consumer, or B2C),
and consumers (business-to- consumers and other consumers (consumer-to-consumer, or C2C), business and the public
consumer), consumers and sector, and consumers and the public sector. You might assume that e-commerce is reserved
other consumers (consumer-to- mainly for consumers visiting Web sites for online shopping. But Web shopping is only a
consumer), business and the public small part of the e-commerce picture; the major volume of e-commerce—and its fastest-
sector, and consumers and the growing segment—is business-to-business (B2B) transactions that make purchasing easier
public sector. for corporations.36 This growth is being stimulated by increased Internet access, growing user
confidence, rapidly improving Internet and Web security, and better payment systems.
mobile commerce PayPal, an e-commerce payment system, for example, processes about $1.5 billion in
(m-commerce) e-commerce transactions annually.37 E-commerce also offers opportunities for small busi-
Transactions conducted anywhere, nesses to market and sell at a low cost worldwide, allowing them to enter the global market.
anytime. Mobile commerce (m-commerce) refers to transactions conducted anywhere, anytime.
M-commerce relies on wireless communications that managers and corporations use to place
orders and conduct business with handheld computers, portable phones, laptop computers
connected to a network, and other mobile devices. Today, mobile commerce can use cell
phones to pay for goods and services.38 After an account is set up, text messages can be sent
and received using a cell phone to authorize purchases. In South Korea, cell phones are used
70 percent of the time to pay for digital content, such as digital music.

INFORMATION
SYSTEMS @ WORK

Welcome to Mobile Banking tions. Mobile banking systems address these risks with security
measures. Typically, a six-digit PIN is required for accessing
Access to computer-based information systems is becoming account information. Secondly, mobile banking software does not
increasingly pervasive; that is, the systems are available anywhere store account numbers or PINs on the handset. Lastly, mobile
at anytime. Consider the banking industry. The earliest banks kept banking communications is secured with 128-bit encryption so
customers’ money and valuables in vaults, and each bank dealt that it cannot be intercepted and decoded easily.
only with its customers’ financial needs. Financial data networks
were then created to support an interconnected banking system Mobile banking provides an interesting case study for mobile
that allowed the transfer of funds electronically. Still, customers computer-based information systems. It illustrates the difficulties
needed to visit the bank and speak with a cashier to deposit and of getting customers to adopt new systems and disproves the
retrieve funds. Next, automatic teller machines (ATMs) extended notion that “if you build it, they will come.” Companies must invest
the electronic banking system to the customers and provided the time and resources to make consumers aware of the advantages
convenience of banking in numerous locations, including out of and safety of mobile banking. If it catches on, mobile banking will
town. More recently, banking services have extended to the Inter- pave the way for more electronic-wallet cell phone services. Coun-
net and Web, where a substantial number of bank transactions tries that have a head start in mobile banking have moved on to
occur today. Because of online banking, ATMs, and direct deposits, use cell phones to pay cashiers in restaurants and stores, pur-
bank customers rarely have to visit the bank. chase items in vending machines, and buy a ride on the bus. Over
the next decade, it is expected that the cell phone will become a
The latest trend in computer-based information systems user interface to thousands of different computer-based informa-
designed for banking is called mobile banking. Mobile banking pro- tion systems.
vides banking services such as transferring funds, paying bills, and
checking balances from cell phones. While mobile banking is well Discussion Questions
established in Japan, much of Europe, and elsewhere, it has been
slow to catch on in the United States. Some analysts believe that 1. Would you be comfortable using mobile banking for
this is due to banks’ and wireless carriers’ inability to agree on who transferring funds, paying bills, and checking balances?
should design and control the software. Others think that U.S. cell Why or why not?
phone users simply aren’t interested in the service. A study by For-
rester Research found that only 10 percent of Americans were 2. How might mobile banking attract the attention of
interested in mobile banking, while 35 percent already bank online. hackers? Are the precautions discussed in this article
enough to keep hackers at bay?
Ready or not, mobile banking is coming to U.S. cell phone
users. AT&T, a large telecommunications company, is now offer- Critical Thinking Questions
ing online banking applications in partnership with Wachovia and
other banks. Citibank has designed its own mobile banking soft- 1. One of the few services not available through online and
ware that can be downloaded and installed on more than 100 mobile banking is depositing and withdrawing cash. What
handsets over any carrier’s network. A new system called would have to change in society to do away with cash all
goDough has been designed by Jack Henry & Associates that deliv- together?
ers the same services offered at a bank’s Web site from the small
display of a cell phone. Most banks and cell phone service 2. What additional dangers are there for making payments with a
providers believe that the time for mobile banking in the United cell phone, that don’t exist when making payments with credit
States has arrived and are making moves to set the standard. cards? How might they be minimized?
Chances are that by the time you read this, your bank will be offer-
ing cell phone banking services. SOURCES: Hamilton, Anita, “Banking Goes Mobile,” Time, April 2, 2007,
www.time.com/time/business/article/0,8599,1605781,00.html. Fagan, Mark,
When considering mobile banking, many customers are con- “Next Generation of Mobile Banking Draws Interest,” Ecommerce Times,
cerned about security. Sending private financial data over wireless November 23, 2007, www.ecommercetimes.com/story/60435.html. Noyes,
networks poses more risk than sending voice and text communica- Katherine, “Qualcomm Beefs Up Mobile Banking with $210M Firethorn Buy,”
Ecommerce Times, November 14, 2007, www.ecommercetimes.com/story/
60318.html.

17

|18
Part 1 An Overview

With mobile commerce
(m-commerce), people can use cell
phones to pay for goods and services
anywhere, anytime.

(Source: Courtesy of AP Photo/Itsuo
Inouye.)

E-commerce offers many advantages for streamlining work activities. Figure 1.9 provides
a brief example of how e-commerce can simplify the process of purchasing new office fur-
niture from an office-supply company. In the manual system, a corporate office worker must
get approval for a purchase that exceeds a certain amount. That request goes to the purchasing
department, which generates a formal purchase order to procure the goods from the approved
vendor. Business-to-business e-commerce automates the entire process. Employees go di-
rectly to the supplier’s Web site, find the item in a catalog, and order what they need at a
price set by their company. If management approval is required, the manager is notified
automatically. As the use of e-commerce systems grows, companies are phasing out their
traditional systems. The resulting growth of e-commerce is creating many new business
opportunities.

Figure 1.9 Prepare Obtain
requisition approval of
E-Commerce Greatly Simplifies requisition
Purchasing

Requisition Purchasing Vendor
department
plePausrce12h0s4oa0efs1snbteh0hdoeeOI4xeub7efrtssodss.EleolCooBxrnwftDlera3aiXcne/4kgHap’cedisnharteayvwpyplaldeylsulwstoycorhedinwgses
Inbox

ACME Inc.
7 That St.
Anywhere, USA

01800

Traditional process for placing a purchase order Vendor

Electronic
purchase order

E-commerce process for placing a purchase order

E-commerce can enhance a company’s stock prices and market value. Today, several
e-commerce firms have teamed up with more traditional brick-and-mortar businesses to draw
from each other’s strengths. For example, e-commerce customers can order products on a
Web site and pick them up at a nearby store.

|An Introduction to Information Systems Chapter 1 19

In addition to e-commerce, business information systems use telecommunications and electronic business
the Internet to perform many related tasks. Electronic procurement (e-procurement), for ex- (e-business)
ample, involves using information systems and the Internet to acquire parts and supplies. Using information systems and the
Electronic business (e-business) goes beyond e-commerce and e-procurement by using in- Internet to perform all business-
formation systems and the Internet to perform all business-related tasks and functions, such related tasks and functions.
as accounting, finance, marketing, manufacturing, and human resource activities. E-business
also includes working with customers, suppliers, strategic partners, and stakeholders. Com- Figure 1.10
pared to traditional business strategy, e-business strategy is flexible and adaptable (see
Figure 1.10). Electronic Business
E-business goes beyond
E-BUSINESS e-commerce to include using
information systems and the
Management Internet to perform all business-
related tasks and functions, such as
Suppliers Organization Customers accounting, finance, marketing,
E-procurement and its partners E-commerce manufacturing, and human
resources activities.

Enterprise Systems: Transaction Processing Systems and transaction
Enterprise Resource Planning Any business-related exchange,
such as payments to employees,
Transaction Processing Systems sales to customers, and payments
Since the 1950s, computers have been used to perform common business applications. Many to suppliers.
of these early systems were designed to reduce costs by automating routine, labor-intensive
business transactions. A transaction is any business-related exchange such as payments to transaction processing system
employees, sales to customers, or payments to suppliers. Thus, processing business transac- (TPS)
tions was the first computer application developed for most organizations. A transaction An organized collection of people,
processing system (TPS) is an organized collection of people, procedures, software, procedures, software, databases,
databases, and devices used to record completed business transactions. If you understand a and devices used to record
transaction processing system, you understand basic business operations and functions. completed business transactions.

One of the first business systems to be computerized was the payroll system (see
Figure 1.11). The primary inputs for a payroll TPS are the number of employee hours worked
during the week and the pay rate. The primary output consists of paychecks. Early payroll
system produces employee paychecks and related reports required by state and federal agen-
cies, such as the Internal Revenue Service. Other routine applications include sales ordering,
customer billing and customer relationship management, and inventory control. Some au-
tomobile companies, for example, use their TPSs to buy billions of dollars of needed parts
each year through Internet sites. Because these systems handle and process daily business
exchanges, or transactions, they are all classified as TPSs.

Hours Payroll Payroll Figure 1.11
worked transaction checks
processing A Payroll Transaction
Pay Processing System
rate
In a payroll TPS, the inputs
(numbers of employee hours
worked and pay rates) go through a
transformation process to produce
outputs (paychecks).

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Part 1 An Overview

enterprise resource planning Enterprise systems help organizations perform and integrate important tasks, such as paying
(ERP) system employees and suppliers, controlling inventory, sending invoices, and ordering supplies. In
A set of integrated programs capa- the past, companies accomplished these tasks using traditional transaction processing sys-
ble of managing a company’s vital tems. Today, they are increasingly being performed by enterprise resource planning systems.
business operations for an entire
multisite, global organization. Enterprise Resource Planning
An enterprise resource planning (ERP) system is a set of integrated programs that manages
the vital business operations for an entire multisite, global organization. An ERP system can
replace many applications with one unified set of programs, making the system easier to use
and more effective.

Although the scope of an ERP system might vary from company to company, most ERP
systems provide integrated software to support manufacturing and finance. In such an en-
vironment, a forecast is prepared that estimates customer demand for several weeks. The ERP
system checks what is already available in finished product inventory to meet the projected
demand. Manufacturing must then produce inventory to eliminate any shortfalls. In devel-
oping the production schedule, the ERP system checks the raw materials and packing
materials inventories and determines what needs to be ordered to meet the schedule. Most
ERP systems also have a purchasing subsystem that orders the needed items. In addition to
these core business processes, some ERP systems can support functions such as customer
service, human resources, sales, and distribution. The primary benefits of implementing an
ERP system include easing adoption of improved work processes and increasing access to
timely data for decision making.

SAP AG, a German software
company, is one of the leading
suppliers of ERP software. The
company employs more than 34,000
people in more than 50 countries.

Information and Decision Support Systems

The benefits provided by an effective TPS are tangible and justify their associated costs in
computing equipment, computer programs, and specialized personnel and supplies. A TPS
can speed business activities and reduce clerical costs. Although early accounting and financial
TPSs were already valuable, companies soon realized that they could use the data stored in
these systems to help managers make better decisions, whether in human resource manage-
ment, marketing, or administration. Satisfying the needs of managers and decision makers
continues to be a major factor in developing information systems.

ETHICAL AND
SOCIETAL ISSUES

Green Data Centers Manufacturers are working on new technologies to minimize
power consumption in servers. One company is experimenting
Midsized to large businesses maintain powerful computers called with building a data center in an abandoned coal mine under-
servers that store data and run software to provide information ground, where cooling requirements will be minimal. It is estimat-
system services to users on the corporate network and Internet. ed that the subterranean data center will save $9 million per year.
Large corporations might maintain hundreds or even thousands of
servers in large facilities called data centers. For example, Clearly the current power requirements of information sys-
Microsoft is building a 400,000 square foot data center in San tems and the concern over global warming are at odds. Technolo-
Antonio at a cost of $550 million. Google is investing $750 million gy companies are well aware of these concerns and are directing
in a data center facility in Goose Creek, South Carolina and $600 the power of technology at finding solutions to the problem.
million in a facility in Lenoir, North Carolina.
Discussion Questions
Because businesses rely on information and its management,
the demand for powerful data centers is rapidly growing. Unfortu- 1. In what ways do information systems negatively affect
nately, data centers require a lot of power to run and to cool. It is the environment? Are there positive effects as well? If so,
estimated that the money required to cool a data center is equal to what are they?
the cost of the servers themselves. With the increased awareness
of global warming and the contributions of coal-burning power 2. What can be done to minimize the effect of data centers
plants to this problem, data centers are drawing the attention of on the environment?
environmentalists and others who want to save energy. The elec-
tricity required to run data centers worldwide doubled between Critical Thinking Questions
2000 and 2005. This trend is expected to continue; one report esti-
mates that by 2010, the world will require at least 10 new 1,000 1. Consider our rapidly growing dependence on data cen-
megawatt power plants to support the increased demands of data ters. What is the risk of this dependence on our society?
centers.
2. How might the geography of our planet change if the
Governments and corporations, wanting to do what they can to growth of data centers continues increasing? Will there
minimize the impact of data centers on the environment and gain come a time when the growth levels out?
some good publicity in the process, are taking action. At the end of
2006, President Bush signed a law authorizing the U.S. Environ- SOURCES: Bushell, Sue, “British Government Turns Green,” CIO, December
mental Protection Agency (EPA) to analyze the effect of data cen- 20, 2007, www.cio.com.au/index.php/id;1300344377. Levine, Barry, “Data Cen-
ters on the environment. The U.S. federal government has plans to ter Study Looks at Global Trends,” Top Tech News, December 14, 2007,
consolidate its own many data centers into smaller, more efficient www.toptechnews.com/story.xhtml?story_id=57242. Brodkin, Jon, “Server
facilities. The United Kingdom is evaluating its data centers and electricity use doubled from 2000 to 2005,” itWorld Canada, December 10,
moving to greener technologies and techniques to comply with 2007, www.itworldcanada.com/a/Green-IT/149cf7ef-2d04-41b5-
new environmental policies and laws passed in the United King- a23d-0732d23c5e40.html. Mullins, Robert, “Bush signs law to study data cen-
dom and the European Union. ter energy usage,” Computerworld, December 22, 2006,
www.computerworld.com/action/article.do?
The report from the EPA projects that data center power con- command=viewArticleBasic&articleId=9006698. Gittlen, Sandra, “Data center
sumption could be cut by as much as 20 percent if data center land grab: How to get ready for the rush,” Computerworld, March 12, 2007,
managers take simple steps such as using power management www.computerworld.com/action/article.do?
systems, turning off unused servers, and consolidating resources. command=viewArticleBasic&articleId=9012963. Mellor, Chris, “Sun to set up
underground data center to save on power,” Computerworld, November 16,
2007, www.computerworld.com/action/article.do?
command=viewArticleBasic&articleId=9047478.

21

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Part 1 An Overview

management information Management Information Systems
system (MIS) A management information system (MIS) is an organized collection of people, procedures,
An organized collection of people, software, databases, and devices that provides routine information to managers and decision
procedures, software, databases, makers. An MIS focuses on operational efficiency. Marketing, production, finance, and other
and devices that provides routine functional areas are supported by MISs and linked through a common database. MISs
information to managers and typically provide standard reports generated with data and information from the TPS (see
decision makers. Figure 1.12). Producing a report outlining inventory that should be ordered is an example.

Figure 1.12 Marketing Manufacturing
management management
Management Information information information
System system system

Functional management Common
information systems draw data from database
the organization’s transaction
processing system.

Financial TPS Other
management management
information information
system systems

decision support system (DSS) MISs were first developed in the 1960s and typically use information systems to produce
An organized collection of people, managerial reports. In many cases, these early reports were produced periodically—daily,
procedures, software, databases, weekly, monthly, or yearly. Because of their value to managers, MISs have proliferated
and devices used to support throughout the management ranks. For instance, the total payroll summary report produced
problem-specific decision making. initially for an accounting manager might also be useful to a production manager to help
monitor and control labor and job costs.

Decision Support Systems
By the 1980s, dramatic improvements in technology resulted in information systems that
were less expensive but more powerful than earlier systems. People at all levels of organizations
began using personal computers to do a variety of tasks; they were no longer solely dependent
on the IS department for all their information needs. People quickly recognized that com-
puter systems could support additional decision-making activities. A decision support system
(DSS) is an organized collection of people, procedures, software, databases, and devices that
support problem-specific decision making. The focus of a DSS is on making effective deci-
sions. Whereas an MIS helps an organization “do things right,” a DSS helps a manager “do
the right thing.”

In addition to assisting in all aspects of problem-specific decision making, a DSS can
support customers by rapidly responding to their phone and e-mail inquiries. A DSS goes
beyond a traditional MIS by providing immediate assistance in solving problems. Many of
these problems are unique and complex, and key information is often difficult to obtain. For
instance, an auto manufacturer might try to determine the best location to build a new
manufacturing facility. Traditional MISs are seldom used to solve these types of problems;
a DSS can help by suggesting alternatives and assisting in final decision making.

Decision support systems are used when the problem is complex and the information
needed to determine appropriate action is difficult to obtain and use. Consequently, a DSS
also involves managerial judgment and perspective. Managers often play an active role in
developing and implementing the DSS. A DSS recognizes that different managerial styles
and decision types require different systems. For example, two production managers in the
same position trying to solve the same problem might require different information and
support. The overall emphasis is to support, rather than replace, managerial decision making.

|An Introduction to Information Systems Chapter 1 23

Decisioneering provides decision
support software called Crystal
Ball, which helps businesspeople of
all types assess risks and make
forecasts. Shown here is the
Standard Edition being used for oil
field development.

(Source: Crystal Ball screenshot
courtesy of Decisioneering, Inc.)

A DSS can include a collection of models used to support a decision maker or user
(model base), a collection of facts and information to assist in decision making (database),
and systems and procedures (user interface or dialogue manager) that help decision makers
and other users interact with the DSS (see Figure 1.13). Software is often used to manage
the database—the database management system (DBMS)—and the model base—the model
management system (MMS). Not all DSSs have all of these components.

Database Model base Figure 1.13
Essential DSS Elements

DBMS MMS

Access to the Internet, External External
corporate intranets, database database
extranets, networks, access
and other computer
systems

User interface

Dialogue manager

|24
Part 1 An Overview

artificial intelligence (AI) In addition to DSSs for managers, other systems use the same approach to support groups
A field in which the computer system and executives. A group support system includes the DSS elements just described as well as
takes on the characteristics of software, called groupware, to help groups make effective decisions. An executive support
human intelligence. system, also called an executive information system, helps top-level managers, including a firm’s
president, vice presidents, and members of the board of directors, make better decisions. An
executive support system can assist with strategic planning, top-level organizing and staffing,
strategic control, and crisis management.

Specialized Business Information Systems: Knowledge
Management, Artificial Intelligence, Expert Systems, and
Virtual Reality

In addition to TPSs, MISs, and DSSs, organizations often rely on specialized systems. Many
use knowledge management systems (KMSs), an organized collection of people, procedures,
software, databases, and devices to create, store, share, and use the organization’s knowledge
and experience.39 A shipping company, for example, can use a KMS to streamline its trans-
portation and logistics business.

In addition to knowledge management, companies use other types of specialized systems.
Experimental specialized systems in cars can help prevent accidents.40 These new systems
allow cars to communicate with each other using radio chips installed in their trunks. When
two or more cars move too close together, the specialized systems sound alarms and brake in
some cases. Some specialized systems are based on the notion of artificial intelligence (AI),
in which the computer system takes on the characteristics of human intelligence. The field
of artificial intelligence includes several subfields (see Figure 1.14). Some people predict that
in the future we will have nanobots, small molecular-sized robots, traveling throughout our
bodies and in our bloodstream, keeping us healthy. Other nanobots will be embedded in
products and services, making our lives easier and creating new business opportunities.

A Nissan Motor Company car
swerves back into its lane on its own
shortly after it ran off the track
during a test of the Lane Departure
Prevention feature, which also
sounds a warning when the car
veers out of its lane.

(Source: Courtesy of AP Photo/
Katsumi Kasahara.)

Artificial Intelligence
Robotics is an area of artificial intelligence in which machines take over complex, dangerous,
routine, or boring tasks, such as welding car frames or assembling computer systems and
components. Vision systems allow robots and other devices to “see,” store, and process visual
images. Natural language processing involves computers understanding and acting on verbal
or written commands in English, Spanish, or other human languages. Learning systems allow
computers to learn from past mistakes or experiences, such as playing games or making
business decisions, and neural networks is a branch of artificial intelligence that allows com-
puters to recognize and act on patterns or trends. Some successful stock, options, and futures
traders use neural networks to spot trends and improve the profitability of their investments.

|An Introduction to Information Systems Chapter 1 25

Artificial Figure 1.14
intelligence
The Major Elements of Artificial
Intelligence

Vision Learning
systems systems

Robotics Expert systems

Neural networks

Natural language
processing

Expert Systems expert system
Expert systems give the computer the ability to make suggestions and function like an expert A system that gives a computer the
in a particular field, helping enhance the performance of the novice user. The unique value ability to make suggestions and
of expert systems is that they allow organizations to capture and use the wisdom of experts function like an expert in a particu-
and specialists. Therefore, years of experience and specific skills are not completely lost when lar field.
a human expert dies, retires, or leaves for another job. Expert systems can be applied to almost
any field or discipline. They have been used to monitor nuclear reactors, perform medical knowledge base
diagnoses, locate possible repair problems, design and configure IS components, perform The collection of data, rules, proce-
credit evaluations, and develop marketing plans for a new product or investment strategy. dures, and relationships that must
The collection of data, rules, procedures, and relationships that must be followed to achieve be followed to achieve value or the
value or the proper outcome is contained in the expert system’s knowledge base. proper outcome.

Virtual Reality virtual reality
Virtual reality is the simulation of a real or imagined environment that can be experienced The simulation of a real or imagined
visually in three dimensions. Cigna Healthcare, for example, is experimenting with a virtual environment that can be experi-
reality game designed to help treat cancer in young adults and children.41 Developed by enced visually in three dimensions.
HopeLab (www.hopelab.org), the virtual reality game called Re-Mission shows young adults
and children how to combat cancer.

Originally, virtual reality referred to immersive virtual reality, which means the user
becomes fully immersed in an artificial, computer-generated 3-D world. The virtual world
is presented in full scale and relates properly to the human size. Virtual reality can also refer
to applications that are not fully immersive, such as mouse-controlled navigation through a
3-D environment on a graphics monitor, stereo viewing from the monitor via stereo glasses,
stereo projection systems, and others. Boeing, for example, used virtual reality and computer
simulation to help design and build its Dreamliner 787.42 According to Kevin Fowler,
Boeing’s vice president of process integration, “A breakthrough program like the 787
Dreamliner needed to lead the way in performance, quality, cost, and schedule supported
by efficient and effective production planning.” Boeing used 3-D models from Dassault
Systems to design and manufacture the new aircraft. Retail stores like Saks Fifth Avenue
and Neiman-Marcus are using virtual reality to help advertise high-end products on the
Internet.43 In one virtual ad campaign, about $500,000 of orders from over 20 countries
were received in less than a week.

A variety of input devices, such as head-mounted displays (see Figure 1.15), data gloves,
joysticks, and handheld wands, allow the user to navigate through a virtual environment and
to interact with virtual objects. Directional sound, tactile and force feedback devices, voice
recognition, and other technologies enrich the immersive experience. Because several people
can share and interact in the same environment, virtual reality can be a powerful medium
for communication, entertainment, and learning.

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Part 1 An Overview

Boeing used virtual reality and
computer simulation when
designing and building its
Dreamliner 787 aircraft.

(Source: Frank Brandmaier/dpa/
Landov.)

Figure 1.15 It is difficult to predict where information systems and technology will be in 10 to 20
years. It seems, however, that we are just beginning to discover the full range of their use-
A Head-Mounted Display fulness. Technology has been improving and expanding at an increasing rate; dramatic
growth and change are expected for years to come. Without question, having knowledge of
The head-mounted display (HMD) the effective use of information systems will be critical for managers both now and in the
was the first device to provide the long term. Now, let’s examine how information systems are created.
wearer with an immersive
experience. A typical HMD houses
two miniature display screens and
an optical system that channels the
images from the screens to the
eyes, thereby presenting a stereo
view of a virtual world. A motion
tracker continuously measures the
position and orientation of the user’s
head and allows the image-
generating computer to adjust the
scene representation to the current
view. As a result, the viewer can look
around and walk through the
surrounding virtual environment.

(Source: Courtesy of 5DT, Inc. www.
5dt.com.)

SYSTEMS DEVELOPMENT

systems development Systems development is the activity of creating or modifying business systems. Systems de-
The activity of creating or modifying velopment projects can range from small to very large and are conducted in fields as diverse
business systems. as stock analysis and video game development. Some systems development efforts are a huge
success. Wachovia Corporation and Investment Bank, for example, used systems develop-
ment to create a new computer-trading platform that increased processing capacity by a factor
of three, while dramatically reducing costs.44 According to Tony Bishop, senior vice president
of the firm, “We looked at the current system and said, ‘Where can we build standardized
frameworks, components, and services…?’ We now do pricing in milliseconds, not seconds,
for either revenue protection or revenue gain.” Other systems development efforts fail to
meet their cost or schedule goals. A large federal database designed to track hundreds of
millions of dollars of money transfers in an effort to curb terrorism was delayed by several
years.45 Scheduled to be implemented by 2007, the system may not be ready until 2010.
Some also question whether the $32 million budget for the new system will be met. In another
case, Colorado Governor Bill Ritter ordered that all centralized systems development efforts
be placed under the state’s chief information officer to curb expensive computer systems that

|An Introduction to Information Systems Chapter 1 27

don’t work correctly.46 In previous years, some have claimed that over $300 million was spent
on systems that couldn’t pay welfare benefits on time, issue overtime payments to road crews,

issue license plates correctly, or accurately track unemployment benefits. A new Colorado
vehicle registration system may also have to be abandoned because of faulty systems devel-
opment procedures, costing Colorado taxpayers over $10 million.47 Systems development
failures can be a result of poor planning and scheduling, insufficient management of risk,
poor requirements determination, and lack of user involvement.48 Training people to use a
new or modified system can be critical to the successful implementation of these systems and
can help avoid systems development failures.49

People inside a company can develop systems, or companies can use outsourcing, hiring
an outside company to perform some or all of a systems development project.50 Outsourcing
allows a company to focus on what it does best and delegate other functions to companies
with expertise in systems development. Outsourcing, however, is not the best alternative for
all companies.

Developing information systems to meet business needs is highly complex and
difficult—so much so that it is common for IS projects to overrun budgets and exceed
scheduled completion dates. One strategy for improving the results of a systems development
project is to divide it into several steps, each with a well-defined goal and set of tasks to
accomplish (see Figure 1.16). These steps are summarized next.

SYSTEMS INVESTIGATION Figure 1.16
Understand problem
An Overview of Systems
Development

SYSTEMS ANALYSIS
Understand solutions

SYSTEMS DESIGN
Select and plan best solution

SYSTEMS IMPLEMENTATION
Place solution into effect

SYSTEMS MAINTENANCE
AND REVIEW

Evaluate results of solution

Systems Investigation and Analysis

The first two steps of systems development are systems investigation and analysis. The goal
of the systems investigation is to gain a clear understanding of the problem to be solved or
opportunity to be addressed. After an organization understands the problem, the next ques-
tion is, “Is the problem worth solving?” Given that organizations have limited resources—
people and money—this question deserves careful consideration. If the decision is to continue
with the solution, the next step, systems analysis, defines the problems and opportunities of
the existing system. During systems investigation and analysis, as well as design maintenance
and review, discussed next, the project must have the complete support of top-level managers
and focus on developing systems that achieve business goals.

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Part 1 An Overview

Systems Design, Implementation, and Maintenance and

Review

Systems design determines how the new system will work to meet the business needs defined
during systems analysis. Systems implementation involves creating or acquiring the various
system components (hardware, software, databases, etc.) defined in the design step,
assembling them, and putting the new system into operation. The purpose of systems main-
tenance and review is to check and modify the system so that it continues to meet changing
business needs. Increasingly, companies are hiring outside companies to do their design,
implementation, maintenance, and review functions.

INFORMATION SYSTEMS IN SOCIETY, BUSINESS,
AND INDUSTRY

Information systems have been developed to meet the needs of all types of organizations and
people. The speed and widespread use of information systems, however, opens users to a
variety of threats from unethical people. Computer criminals and terrorists, for example, have
used the Internet to steal millions of dollars or promote terrorism and violence.51 Some
organizations are using information systems to prevent or thwart such attacks. Because of the
tragic shooting deaths at Virginia Tech in the spring of 2007, for example, some universities
are developing security alert systems that allow the school to send text messages to students’
cell phones in case of an emergency.52 Students can also send text messages to the university
if they see or encounter a problem or an emergency.

Most computer monitors are now Security, Privacy, and Ethical Issues in Information
manufactured and sold with an En-
ergy Star rating, including many Dell Systems and the Internet
monitors, such as the UltraSharp
19-inch flat panel LCD monitor. Although information systems can provide enormous benefits, they do have drawbacks. Some
drawbacks are minor, such as always being connected at work and to your boss through the
(Source: © 2008 Dell. Inc. All rights Internet, minimizing free time.53 Others can be more severe, where people’s personal data,
reserved.) including Social Security and credit card numbers, can be lost or stolen, resulting in credit
card fraud and ruined credit.54 The U.S. Secret Service arrested a man in Turkey who may
have been responsible for tens of millions of dollars of fraud from identity theft by stealing
tens of thousands of credit and debit card numbers.55 The Federal Trade Commission (FTC)
reported that 25 percent of identity theft victims from this individual resulted in credit card
fraud, 16 percent encountered phone or utility theft, another 16 percent had bank fraud
committed against them, and 14 percent had employee-related fraud committed using iden-
tity theft. In the United States, it has been estimated that about 150 million computer records
have been stolen or exposed to fraud.56 According or a Forrester Research report, this type
of data loss has cost companies from about $90 to $300 per lost record. Some companies
have spent millions of dollars to investigate and counteract stolen computer records.

Computer-related mistakes and waste are also a concern. In Japan, a financial services
firm had trading losses of $335 mil-
lion due to a typing mistake in en-
tering a trade. Another computer
mistake stranded hundreds of United
Airline flights.57 Similar computer-
related errors have caused airline de-
lays or cancellations with other air-
lines around the world.58 Unwanted
e-mail, called “spam,” can be a huge
waste of people’s time.59 Many indi-
viduals and organizations are trying
to find better ways to block spam.

|An Introduction to Information Systems Chapter 1 29

Some computers that burn a large amount of energy are wasteful. One survey reported Figure 1.17
that almost half of European computer managers were concerned about power consumption The Cost and Cause of
and computer-related waste.60 Thirty-three percent of American computer managers were Computer Attacks
concerned about power consumption and waste. Some experts believe that computers (Source: Data from Riva Richmond,
waste up to half of the energy they consume and account for about two percent of worldwide “How to Find Your Weak Spots,” The
energy usage.61 Wall Street Journal, September 29,
2003, p. R3.)
CAUSE
Norton AntiVirus is a popular virus-
Theft of proprietary detection program.
information (Source: Courtesy of Norton by
Symantec.)
Denial of service

Virus

Insider abuse of
Internet access

Financial fraud

Laptop theft

Sabotage

System penetration

Active wiretap

Telecommunications fraud

Unauthorized access by
insiders

Telecommunications
eavesdropping

0 10 20 30 40 50 60 70 80 90 100
COST

(MILLIONS OF DOLLARS)

Increasingly, the legal and ethical use of systems has been highlighted in the news. Music
publishers and other companies, for example, have sued YouTube, the popular video-sharing
Web site, for copyright violations.62 The suit claims that YouTube has illegally posted copy-
righted material and video content. Ethical issues concern what is generally considered right
or wrong. Some IS professionals believe that computers may create new opportunities for
unethical behavior. For example, a faculty member of a medical school falsified computerized
research results to get a promotion—and a higher salary. In another case, a company was
charged with using a human resource information system to time employee layoffs and firings
to avoid paying pensions. More and more, the Internet is associated with unethical behavior.
Unethical investors have placed false rumors or
incorrect information about a company on the In-
ternet and tried to influence its stock price to make
money.

To protect against threats to your privacy and
data, you can install security and control measures.
For example, many software products can detect
and remove viruses and spam from computer sys-
tems. Barclays, an international bank, is using
handheld identity authorization devices to prevent
bank fraud.63 The new devices will help eliminate
the problem of stolen identification numbers and
passwords.

You can install firewalls (software and hardware that protect a computer system or net-
work from outside attacks) to avoid viruses and prevent unauthorized people from gaining
access to your computer system. You can also use identification numbers and passwords.
Some security experts propose installing Web cameras and hiring “citizen spotters” to

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Part 1 An Overview

monitor the Webcams. In response to possible abuses, a number of laws have been passed
to protect people from invasion of their privacy, including The Privacy Act, enacted in
the 1970s.

Use of information systems also raises work concerns, including job loss through increased
efficiency and some potential health problems from making repetitive motions.
Ergonomics, the study of designing and positioning workplace equipment, can help you avoid
health-related problems of using computer systems.

Computer and Information Systems Literacy

Whatever your college major or career path, understanding computers and information sys-
tems will help you cope, adapt, and prosper in this challenging environment. Some colleges
are requiring a certain level of computer and information systems literacy before students are
admitted or accepted into the college.64 The University of Chicago’s School of Business, for
example, requires entering students be able to use Microsoft Office PowerPoint, a presenta-
tion and graphics program. While at school, you might connect with friends and other
students using a social networking Internet site, such as MySpace (www.myspace.com) or
FaceBook (www.facebook.com).65 When you graduate, you might find yourself interviewing
for a job using the TMP Island in Second Life (www.second.life.com). The TMP Island in
Second Life is a site where job candidates and corporate recruiters can meet and conduct a
virtual job interview.

The TMP Island allows you to
conduct a job interview in the virtual
world.

(Source: Courtesy of TMP
Worldwide Advertising &
Communications, LLC.)

computer literacy A knowledge of information systems will help you make a significant contribution on
Knowledge of computer systems the job. It will also help you advance in your chosen career or field. Managers are expected
and equipment and the ways they to identify opportunities to implement information systems to improve their business. They
function; it stresses equipment and are also expected to lead IS projects in their areas of expertise. To meet these personal and
devices (hardware), programs and organizational goals, you must acquire both computer literacy and information systems
instructions (software), databases, literacy. Computer literacy is a knowledge of computer systems and equipment and the ways
and telecommunications. they function. It stresses equipment and devices (hardware), programs and instructions
(software), databases, and telecommunications.
information systems literacy
Knowledge of how data and infor- Information systems literacy goes beyond knowing the fundamentals of computer systems
mation are used by individuals, and equipment. Information systems literacy is the knowledge of how data and information
groups, and organizations. are used by individuals, groups, and organizations. It includes knowledge of computer tech-
nology and the broader range of information systems. Most important, however, it encom-
passes how and why this technology is applied in business. Knowing about various types of
hardware and software is an example of computer literacy. Knowing how to use hardware
and software to increase profits, cut costs, improve productivity, and increase customer
satisfaction is an example of information systems literacy. Information systems literacy can
involve recognizing how and why people (managers, employees, stockholders, and others)
use information systems; being familiar with organizations, decision-making approaches,
management levels, and information needs; and understanding how organizations can use

|An Introduction to Information Systems Chapter 1 31

computers and information systems to achieve their goals. Knowing how to deploy transac-
tion processing, management information, decision support, and special-purpose systems to
help an organization achieve its goals is a key aspect of information systems literacy.

Information Systems in the Functional Areas of Business

Information systems are used in all functional areas and operating divisions of business. In
finance and accounting, information systems forecast revenues and business activity, deter-
mine the best sources and uses of funds, manage cash and other financial resources, analyze
investments, and perform audits to make sure that the organization is financially sound and
that all financial reports and documents are accurate. Sales and marketing use information
systems to develop new goods and services (product analysis), select the best location for
production and distribution facilities (place or site analysis), determine the best advertising
and sales approaches (promotion analysis), and set product prices to get the highest total
revenues (price analysis). In manufacturing, information systems process customer orders,
develop production schedules, control inventory levels, and monitor product quality. In
addition, information systems help to design products (computer-assisted design, or CAD),
manufacture items (computer-assisted manufacturing, or CAM), and integrate machines or
pieces of equipment (computer-integrated manufacturing, or CIM). Human resource manage-
ment uses information systems to screen applicants, administer performance tests to em-
ployees, monitor employee productivity, and more. Legal information systems analyze product
liability and warranties and help to develop important legal documents and reports.

Festo, a global manufacturer of
components and controls for
industrial automation, uses a CAD
system when developing its
products.

(Source: Courtesy of Festo AG &
Co. KG.)

Information Systems in Industry

In addition to being used in every department in a company, information systems are used
in almost every industry or field in business. The airline industry develops Internet auction
sites to offer discount fares and increase revenue. Investment firms use information systems
to analyze stocks, bonds, options, the futures market, and other financial instruments,
and provide improved services to their customers. Banks use information systems to help
make sound loans and good investments as well as to provide online check payment for
account holders. The transportation industry uses information systems to schedule trucks and
trains to deliver goods and services at the lowest cost. Publishing companies use information
systems to analyze markets and to develop and publish newspapers, magazines, and books.
Healthcare organizations use information systems to diagnose illnesses, plan medical treat-
ment, track patient records, and bill patients. Health maintenance organizations (HMOs)
use Web technology to access patients’ insurance eligibility and other information stored in
databases to cut patient costs. Retail companies are using the Web to take orders and provide
customer service support. Retail companies also use information systems to help market
products and services, manage inventory levels, control the supply chain, and forecast de-
mand. Power management and utility companies use information systems to monitor and
control power generation and usage. Professional services firms employ information systems

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Part 1 An Overview

to improve the speed and quality of services they provide to customers. Management con-
sulting firms use intranets and extranets to offer information on products, services, skill levels,
and past engagements to their consultants. These industries are discussed in more detail as
we continue through the book.

GLOBAL CHALLENGES IN INFORMATION SYSTEMS

Changes in society as a result of increased international trade and cultural exchange, often
called globalization, have always had a significant impact on organizations and their infor-
mation systems. In his book, The World Is Flat, Thomas Friedman describes three eras of
globalization66 (see Table 1.4). According to Friedman, we have progressed from the glob-
alization of countries to the globalization of multinational corporations and individuals.
Today, people in remote areas can use the Internet to compete with and contribute to other
people, the largest corporations, and entire countries. These workers are empowered by high-
speed Internet access, making the world flatter. In the Globalization 3.0 era, designing a new
airplane or computer can be separated into smaller subtasks and then completed by a person
or small group that can do the best job. These workers can be located in India, China, Russia,
Europe, and other areas of the world. The subtasks can then be combined or reassembled
into the complete design. This approach can be used to prepare tax returns, diagnose a pa-
tient’s medical condition, fix a broken computer, and many other tasks.

Table 1.4 Era Dates Characterized by
Eras of Globalization Globalization 1.0 Late 1400–1800 Countries with the power to explore
and influence the world
Globalization 2.0 1800–2000
Multinational corporations that have
Globalization 3.0 2000–today plants, warehouses, and offices around
the world

Individuals from around the world
who can compete and influence other
people, corporations, and countries
by using the Internet and powerful
technology tools

Today’s information systems have led to greater globalization. High-speed Internet access
and networks that can connect individuals and organizations around the world create more
international opportunities. Global markets have expanded. People and companies can get
products and services from around the world, instead of around the corner or across town.
These opportunities, however, introduce numerous obstacles and issues, including challenges
involving culture, language, and many others.

• Cultural challenges. Countries and regional areas have their own cultures and customs

that can significantly affect individuals and organizations involved in global trade.

• Language challenges. Language differences can make it difficult to translate exact

meanings from one language to another.

• Time and distance challenges. Time and distance issues can be difficult to overcome for

individuals and organizations involved with global trade in remote locations. Large time
differences make it difficult to talk to people on the other side of the world. With long
distance, it can take days to get a product, a critical part, or a piece of equipment from
one location to another location.

|An Introduction to Information Systems Chapter 1 33

• Infrastructure challenges. High-quality electricity and water might not be available in

certain parts of the world. Telephone services, Internet connections, and skilled
employees might be expensive or not readily available.

• Currency challenges. The value of different currencies can vary significantly over time,

making international trade more difficult and complex.

• Product and service challenges. Traditional products that are physical or tangible, such

as an automobile or bicycle, can be difficult to deliver to the global market. However,
electronic products (e-products) and electronic services (e-services) can be delivered to

customers electronically, over the phone, through networks, through the Internet, or by
other electronic means. Software, music, books, manuals, and advice can all be delivered
globally and over the Internet.

• Technology transfer issues. Most governments don’t allow certain military-related

equipment and systems to be sold to some countries. Even so, some believe that foreign
companies are stealing intellectual property, trade secrets, and copyrighted materials, and
counterfeiting products and services.

• State, regional, and national laws. Each state, region, and country has a set of laws that

must be obeyed by citizens and organizations operating in the country. These laws can
deal with a variety of issues, including trade secrets, patents, copyrights, protection of
personal or financial data, privacy, and much more. Laws restricting how data enters or
exits a country are often called transborder data-flow laws. Keeping track of these laws and

incorporating them into the procedures and computer systems of multinational and
transnational organizations can be very difficult and time consuming, requiring expert
legal advice.

• Trade agreements. Countries often enter into trade agreements with each other. The

North American Free Trade Agreement (NAFTA) and the Central American Free
Trade Agreement (CAFTA) are examples. The European Union (EU) is another example
of a group of countries with an international trade agreement.67 The EU is a collection
of mostly European countries that have joined together for peace and prosperity.
Additional trade agreements include the Australia-United States Free Trade Agreement

(AUSFTA), signed into law in 2005, and the Korean-United States Free Trade
Agreement (KORUS-FTA), signed into law in 2007.68 Free trade agreements have been
established between Bolivia and Mexico, Canada and Costa Rica, Canada and Israel,
Chile and Korea, Mexico and Japan, the United States and Jordan, and many others.69

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Part 1 An Overview

SUMMARY

Principle that is used to make adjustments or changes to input or pro-
cessing activities.
The value of information is directly linked to how it
helps decision makers achieve the organization’s The components of a computer-based information system
goals. (CBIS) include hardware, software, databases, telecommuni-
cations and the Internet, people, and procedures. The types
Information systems are used in almost every imaginable of CBISs that organizations use can be classified into four
career area. Regardless of your college major or chosen basic groups: (1) e-commerce and m-commerce, (2) TPS and
career, you will find that information systems are indispens- ERP systems, (3) MIS and DSS, and (4) specialized business
able tools to help you achieve your career goals. Learning information systems. The key to understanding these types of
about information systems can help you get your first job, earn systems begins with learning their fundamentals.
promotions, and advance your career.
E-commerce involves any business transaction executed
Data consists of raw facts; information is data trans- electronically between parties such as companies (business-
formed into a meaningful form. The process of defining rela- to-business), companies and consumers (business-to-
tionships among data requires knowledge. Knowledge is an consumer), business and the public sector, and consumers
awareness and understanding of a set of information and the and the public sector. The major volume of e-commerce and
way that information can support a specific task. To be valu- its fastest-growing segment is business-to-business trans-
able, information must have several characteristics: It should actions that make purchasing easier for big corporations.
be accurate, complete, economical to produce, flexible, reli- E-commerce also offers opportunities for small businesses
able, relevant, simple to understand, timely, verifiable, acces- to market and sell at a low cost worldwide, thus allowing them
sible, and secure. The value of information is directly linked to enter the global market right from start-up. M-commerce
to how it helps people achieve their organization’s goals. involves anytime, anywhere computing that relies on wireless
networks and systems.
Principle
The most fundamental system is the transaction process-
Computers and information systems are constantly ing system (TPS). A transaction is any business-related
making it possible for organizations to improve the exchange. The TPS handles the large volume of business
way they conduct business. transactions that occur daily within an organization. An
enterprise resource planning (ERP) system is a set of
A system is a set of elements that interact to accomplish a integrated programs that can manage the vital business
goal or set of objectives. The components of a system include operations for an entire multisite, global organization. A man-
inputs, processing mechanisms, and outputs. A system uses agement information system (MIS) uses the information from
feedback to monitor and control its operation to make sure a TPS to generate information useful for management
that it continues to meet its goals and objectives. decision making.

System performance is measured by its efficiency and A decision support system (DSS) is an organized collection
effectiveness. Efficiency is a measure of what is produced of people, procedures, databases, and devices that help make
divided by what is consumed; effectiveness measures the problem-specific decisions. A DSS differs from an MIS in the
extent to which a system achieves its goals. A systems per- support given to users, the emphasis on decisions, the devel-
formance standard is a specific objective. opment and approach, and the system components, speed,
and output.
Principle
Specialized business information systems include knowl-
Knowing the potential impact of information systems edge management, artificial intelligence, expert, and virtual
and having the ability to put this knowledge to work reality systems. Knowledge management systems are orga-
can result in a successful personal career and orga- nized collections of people, procedures, software, databases,
nizations that reach their goals. and devices used to create, store, share, and use the organi-
zation’s knowledge and experience. Artificial intelligence (AI)
Information systems are sets of interrelated elements that includes a wide range of systems in which the computer takes
collect (input), manipulate and store (process), and dissemi- on the characteristics of human intelligence. Robotics is an
nate (output) data and information. Input is the activity of area of artificial intelligence in which machines perform com-
capturing and gathering new data, processing involves con- plex, dangerous, routine, or boring tasks, such as welding car
verting or transforming data into useful outputs, and output frames or assembling computer systems and components.
involves producing useful information. Feedback is the output Vision systems allow robots and other devices to have “sight”
and to store and process visual images. Natural language
processing involves computers interpreting and acting on

|An Introduction to Information Systems Chapter 1 35

verbal or written commands in English, Spanish, or other Information systems play a fundamental and ever-expanding
human languages. Learning systems let computers learn role in society, business, and industry. But their use can also
from past mistakes or experiences, such as playing games or raise serious security, privacy, and ethical issues. Effective
making business decisions, while neural networks is a branch information systems can have a major impact on corporate
of artificial intelligence that allows computers to recognize strategy and organizational success. Businesses around the
and act on patterns or trends. An expert system (ES) is globe are enjoying better safety and service, greater efficiency
designed to act as an expert consultant to a user who is seek- and effectiveness, reduced expenses, and improved decision
ing advice about a specific situation. Originally, the term making and control because of information systems. Individ-
virtual reality referred to immersive virtual reality, in which uals who can help their businesses realize these benefits will
the user becomes fully immersed in an artificial, computer- be in demand well into the future.
generated 3-D world. Virtual reality can also refer to applica-
tions that are not fully immersive, such as mouse-controlled Computer and information systems literacy are prereq-
navigation through a 3-D environment on a graphics monitor, uisites for numerous job opportunities, and not only in the IS
stereo viewing from the monitor via stereo glasses, and stereo field. Computer literacy is knowledge of computer systems
projection systems. and equipment; information systems literacy is knowledge of
how data and information are used by individuals, groups, and
Principle organizations. Today, information systems are used in all the
functional areas of business, including accounting, finance,
System users, business managers, and information sales, marketing, manufacturing, human resource manage-
systems professionals must work together to build a ment, and legal information systems. Information systems
successful information system. are also used in every industry, such as airlines, investment
firms, banks, transportation companies, publishing compa-
Systems development involves creating or modifying nies, healthcare, retail, power management, professional
existing business systems. The major steps of this process services, and more.
and their goals include systems investigation (gain a clear
understanding of what the problem is), systems analysis Changes in society as a result of increased international
(define what the system must do to solve the problem), sys- trade and cultural exchange, often called globalization, have
tems design (determine exactly how the system will work to always had a significant impact on organizations and their
meet the business needs), systems implementation (create information systems. In his book, The World Is Flat, Thomas
or acquire the various system components defined in the Friedman describes three eras of globalization, spanning the
design step), and systems maintenance and review (maintain globalization of countries to the globalization of multinational
and then modify the system so that it continues to meet corporations and individuals. Today, people in remote areas
changing business needs). can use the Internet to compete with and contribute to other
people, the largest corporations, and entire countries. People
Principle and companies can get products and services from around
the world, instead of around the corner or across town. These
Information systems must be applied thoughtfully opportunities, however, introduce numerous obstacles and
and carefully so that society, business, and industry issues, including challenges involving culture, language, and
around the globe can reap their enormous benefits. many others.

CHAPTER 1: SELF-ASSESSMENT TEST

The value of information is directly linked to how it helps c. alphanumeric data
decision makers achieve the organization’s goals. d. symmetric data

1. A(n) _________________ is a set of interrelated compo- 3. Knowledge workers are usually professionals in science,
nents that collect, manipulate, and disseminate data and engineering, business, and other areas. True or False?
information and provide a feedback mechanism to meet an
objective. Computers and information systems are constantly making
it possible for organizations to improve the way they conduct
2. Numbers, letters, and other characters are represented by business.
_____________.
a. image data 4. A(n) _______________ is a set of elements or components
b. numeric data that interact to accomplish a goal.

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Part 1 An Overview

5. A measure of what is produced divided by what is con- c. DSS (decision support system)
sumed is known as __________. d. KM (knowledge management)
a. efficiency
b. effectiveness 11. _________________ involves anytime, anywhere com-
c. performance merce that uses wireless communications.
d. productivity
System users, business managers, and information systems
6. A specific objective of a system is called effectiveness. True professionals must work together to build a successful infor-
or False? mation system.

Knowing the potential impact of information systems and 12. What defines the problems and opportunities of the exist-
having the ability to put this knowledge to work can result in ing system?
a successful personal career and organizations that reach their a. systems analysis
goals. b. systems review
c. systems development
7. A(n) ______________ consists of hardware, software, d. systems design
databases, telecommunications, people, and procedures.
Information systems must be applied thoughtfully and care-
8. Computer programs that govern the operation of a com- fully so that society, business, and industry around the globe
puter system are called _____________. can reap their enormous benefits.
a. feedback
b. feedforward 13. ______________ literacy is a knowledge of how data
c. software and information are used by individuals, groups, and
d. transaction processing systems organizations.

9. Payroll and order processing are examples of a computer- CHAPTER 1: SELF-ASSESSMENT TEST ANSWERS
ized management information system. True or False?
(1) information system (2) c (3) True (4) system (5) a (6) False
10. What is an organized collection of people, procedures, (7) computer-based information system (CBIS) (8) c (9) False
software, databases, and devices used to create, store, share, (10) d (11) Mobile commerce (m-commerce) (12) a
and use the organization’s experience and knowledge? (13) Information systems
a. TPS (transaction processing system)
b. MIS (management information system)

REVIEW QUESTIONS

1. What is an information system? What are some of the ways 10. Identify the functions of a transaction processing system.
information systems are changing our lives? 11. What is the difference between an intranet and an extranet?
12. What is m-commerce? Describe how it can be used.
2. How would you distinguish data and information? Infor- 13. What are the most common types of computer-based
mation and knowledge?
information systems used in business organizations today?
3. Identify at least six characteristics of valuable information. Give an example of each.
4. What is the difference between efficiency and effectiveness? 14. Describe three applications of virtual reality.
5. What are the components of any information system? 15. What are computer literacy and information systems liter-
6. What is feedback? What are possible consequences of acy? Why are they important?
16. What are some of the benefits organizations seek to achieve
inadequate feedback? through using information systems?
7. How is system performance measured? 17. Identify the steps in the systems development process and
8. What is a knowledge management system? Give an state the goal of each.

example.
9. What is a computer-based information system? What are

its components?

|An Introduction to Information Systems Chapter 1 37

DISCUSSION QUESTIONS

1. Why is the study of information systems important to you? would you want to build a model of their learning pro-
What do you hope to learn from this course to make it cesses? What kinds of models would you create? Why
worthwhile? might you create more than one type of model?
8. Describe the “ideal” automated vehicle license plate
2. Describe how information systems are used at school or renewal system for the drivers in your state. Describe the
work. input, processing, output, and feedback associated with
this system.
3. What is the value of software? Give several examples of 9. What computer application needs the most improvement
software you use at school or home. at your college or university? Describe how systems devel-
opment could be used to develop it.
4. Why is a database an important part of a computer-based 10. Discuss how information systems are linked to the business
information system? objectives of an organization.
11. What are your career goals and how can a computer-based
5. What is the difference between e-commerce and information system be used to achieve them?
m-commerce?

6. What is the difference between DSS and knowledge
management?

7. Suppose that you are a teacher assigned the task of describ-
ing the learning processes of preschool children. Why

PROBLEM-SOLVING EXERCISES

1. Prepare a data disk and a backup disk for the problem- company’s public relations department, Web pages on the
solving exercises and other computer-based assignments Internet, etc.). Use word processing software to prepare a
you will complete in this class. Create one directory for each one-page summary of the different resources you tried and
chapter in the textbook (you should have 14 directories). their ease of use and effectiveness.
As you work through the problem-solving exercises and 3. Create a table that lists ten or more possible career areas,
complete other work using the computer, save your assign- annual salaries, and brief job descriptions, and rate how
ments for each chapter in the appropriate directory. On the much you would like the career area on a scale from 1 (don’t
label of each disk or USB flash drive, be sure to include your like) to 10 (like the most). Print the results. Sort the table
name, course, and section. On one disk write “Working according to annual salaries from high to low and print the
Copy”; on the other write “Backup.” resulting table. Sort the table from the most liked to least
liked and print the results.
2. Search through several business magazines (Business Week, 4. Do some research to obtain estimates of the rate of growth
Computerworld, PC Week, etc.) for a recent article that dis- of social networking sites like MySpace and FaceBook. Use
cusses the use of information systems to deliver significant the plotting capabilities of your spreadsheet or graphics
business benefits to an organization. Now use other software to produce a bar chart of that growth over a num-
resources to find additional information about the same ber of years. Share your findings with the class.
organization (Reader’s Guide to Periodical Literature, online
search capabilities available at your school’s library, the

TEAM ACTIVITIES e-mail address, and phone number of each member. Find
out one interesting fact about each member of your team
1. Before you can do a team activity, you need a team! As a as well. Brainstorm a name for your team. Put the infor-
class member, you might create your own team, or your mation on each team member into a database and print
instructor might assign members to groups. After your enough copies for each team member and your instructor.
group has been formed, meet and introduce yourselves
to each other. Find out the first name, hometown, major,

|38
Part 1 An Overview

2. With the other members of your group, use word process- willing to do to accomplish these goals. Send the report to
ing software to write a one-page summary of what your your instructor via e-mail.
team hopes to gain from this course and what you are

WEB EXERCISES

1. Throughout this book, you will see how the Internet pro- you find? Try to obtain information on this book. You
vides a vast amount of information to individuals and might be asked to develop a report or send an e-mail mes-
organizations. We will stress the World Wide Web, or sim- sage to your instructor about what you found.
ply the Web, which is an important part of the Internet. 2. Go to an Internet search engine, such as www.google.com,
Most large universities and organizations have an address and search for information about virtual reality. Write a
on the Internet, called a Web site or home page. The address brief report that summarizes what you found.
of the Web site for this publisher is www.course.com. You 3. Using the Internet, search for information on the use of
can gain access to the Internet through a browser, such as information systems in a company or organization that
Microsoft Internet Explorer or Netscape. Using an Internet interests you. How does the organization use technology to
browser, go to the Web site for this publisher. What did help it accomplish its goals?

CAREER EXERCISES

1. In the Career Exercises found at the end of every chapter, 2. Research careers in accounting, marketing, information
you will explore how material in the chapter can help you systems, and two other career areas that interest you.
excel in your college major or chosen career. Write a brief Describe the job opportunities, job duties, and the possible
report on the career that appeals to you the most. Do the starting salaries for each career area in a report.
same for two other careers that interest you.

CASE STUDIES

Case One customers; cabbies will no longer need to maintain records
with pencil and paper.
New York City Cabbies Strike Over New Information
System Sounds like a win-win situation, right? Many of the cabbies
don’t agree. They are concerned that the GPS system will
New York City’s Taxi & Limousine Commission has mandated track their movements after hours. About 85 percent of New
that all licensed city cab owners install new information sys- York City cabbies are independent contractors who own their
tems in their cabs. The new state-of-the-art system connects cab and use it for their personal transportation while off duty.
the cabs to a wireless data network. The new system will not They are also upset about the $1,300 that they need to pay for
be used for dispatching cabs (most New York City cabs are the system and a five percent required fee for every credit card
hailed from the curb) but will provide text messages informing transaction made by their customers. Mostly, they are upset
cabbies of nearby opportunities. It includes global positioning that they were not a part of the decision and design process
system technology that provides an interactive map that pas- that led to the citywide mandate. In a headline-making move,
sengers can use to see their current location, destination, and the New York Taxi Workers Alliance, which represents 10,000
routes. The new system will allow customers to pay via credit of the city’s 13,000 cabbies, called a two-day strike to pressure
card, and will provide music and other forms of entertain- the city to rethink its new system. Unfortunately, the strike
ment. The system also automates the process of keeping had little effect as many cabbies stayed on duty, unable to
business records of fares and trips and spits out receipts for afford the time off of work.

|An Introduction to Information Systems Chapter 1 39

The city is moving forward with the deployment of the new command=viewArticleBasic&articleId=9032482&source=rss_news10.
cab information system. It has justified the expense to the cab Hamblen, Matt, “N.Y. taxi drivers set strike date to protest GPS systems,”
drivers by pointing out the increase of cab fares over the past Computerworld, August 23, 2007, www.computerworld.com/
two years that doubled driver wages to $28 an hour on aver- action/article.do?command=viewArticleBasic&articleId=9032482&source=
age; an increase that was imposed with promises to cus- rss_news10. Lopez, Elias, “City Cabdrivers Strike Again, but Protest Gets Little
tomers for better service and in-cab technologies. Notice,” New York Times, October 23, 2007, www.nytimes.com/2007/10/23/
nyregion/23taxi.html?_r=1&ref=nyregion&oref=slogin.
New York City’s Taxi & Limousine Commission versus the
New York Taxi Workers Alliance provides several lessons Case Two
about business interactions and information systems. Today’s
businesses have an incredible amount of pressure on them Yansha Leans on IS to Stay Competitive
to implement the latest and smartest technologies and infor-
mation systems. Often it is a business’s information system More than ever before, Chinese retailers are facing local
that gives a business an important advantage over its com- competition from foreign companies. China’s highly regu-
petition. The City of New York no doubt feels pressure to lated economy has insulated businesses from competition.
provide visitors and locals with high-quality service and Now that China is loosening its regulations in an effort to
smooth running transportation systems. If it fails in this benefit from international trade, its own businesses must
regard, visitors and locals may begin to find other cities more work harder to become more efficient and effective and keep
attractive to visit and reside in. Information systems also allow customers.
businesses to operate more efficiently and effectively. The
new system for New York City cabs ultimately saves drivers Yansha is one of China’s biggest retailers. It sells upscale
and passengers time and energy. designer clothes from around the world along with other fine
merchandise. One of its largest retail stores occupies 215,000
Finally, this story illustrates a resistance to change that is square feet in Beijing’s famous Youyi Shopping City.
often experienced when implementing sweeping new infor-
mation systems in large businesses and organizations. Many Yansha has long experienced market leadership in China,
businesses today are revamping entire corporate systems but in recent years has felt increasing competition from inter-
and investing in retraining employees and winning them over national companies. Yansha’s management team was aware
to the new system. This is an integral and challenging part of that its methods of communication with suppliers—the plac-
new system implementation. So should you visit New York City ing and receiving of orders—was less than efficient. It was
anytime soon, and experience the cool technology built into also aware of other inefficiencies in communication through-
the cabs, remember the struggle that went into bringing this out the organization. For Yansha to maintain its leadership
new system to life, and give your driver a generous tip. role in the market, it would need to cut the waste and
become lean and mean in its application of information
Discussion Questions system technology.

1. Were New York City cabbies justified in their concern over Yansha turned to IBM China Research Lab to evaluate its
GPS tracking in their cabs? Why or why not? information systems and recommend the latest technologies
to bring it up to date. IBM implemented a massive system
2. What might New York City’s Taxi & Limousine Commis- upgrade across the entire enterprise: an enterprise resource
sion have done to create a smoother transition to the new planning (ERP) system. The ERP allows Yansha executives
system? and managers to view real-time performance data, such as
sales across all locations, in certain regions, or in one par-
Critical Thinking Questions ticular store. Using this system, managers could, for exam-
ple, determine the success of a particular marketing
1. Many cabbies expressed the opinion that the technology approach. The new ERP interfaces with a new supply chain
being installed in their cabs was inevitable, no matter what management (SCM) system that provides close communica-
their opinion. Do you agree with this assessment? Why or tion between Yansha and its suppliers. These two systems
why not? working together, the ERP system and the SCM system, allow
for Yansha and its suppliers to work as one tightly knit
2. As a customer of a cab service, would you appreciate the organization.
benefits provided by the new system in New York City?
Would it help provide you with a favorable view of the city The new systems required a substantial investment of
in general? List the benefits and provide your view of each. time and money for Yansha, but the benefits have vastly over-
shadowed the costs. The new systems reduced the time it
SOURCES: Hamblen, Matt, “N.Y. taxi agency says cabs will get GPS technology, takes for suppliers to ship merchandise to Yansha (order lead
despite strike threat,” Computerworld, August 7, 2007, time) from 2.5 days to 4.5 hours. The order acknowledgment
www.computerworld.com/action/article.do? rate has increased from 80 percent to 99 percent. Order
errors have been reduced from 9 percent to 1 percent.

|40
Part 1 An Overview

The money saved by Yansha receiving the right merchandise Questions for Web Case
at the right time has saved the company enough money to pay
for its expensive new information systems within nine months See the Web site for this book to read about the Whitmann
of rolling them out. Achieving a return on investment (ROI) in Price Consulting case for this chapter. The following ques-
such a short time is something any chief information officer tions cover this Web case.
(CIO) would be proud of.
Whitmann Price Consulting: A New Systems Initiative
Discussion Questions
Discussion Questions
1. China is experiencing a rapidly evolving economy. Why do 1. What advantages would the proposed Advanced Mobile
you think most international businesses are looking to
China as both an opportunity and a threat? Communications and Information System provide for
Whitmann Price Consulting? What problems might it
2. Yansha has raced to catch up with the latest information assist in eliminating?
systems and technologies, but remains a local Chinese 2. Why do you think Josh and Sandra have been asked to
business. What might Yansha’s next move be in order to interview the managers of the six business units within
increase its revenue? How might that move be most suc- WPC as a first step? As IT professionals, Josh, Sandra, and
cessfully taken? their boss Matt know much more about technology and
information systems than the heads of the business units.
Critical Thinking Questions Shouldn’t they be able to design the system without sug-
gestions from amateurs? Including more people in the
1. What benefits do local businesses such as Yansha have planning stage is sure to complicate the process.
over foreign businesses that come to China to compete.
How can those advantages be used to maintain leadership Critical Thinking Questions
in a market? 1. If you were Josh or Sandra, what questions would you ask

2. What benefits do international businesses have over the heads of the six business units?
smaller local businesses? How can they be used to infil- 2. If you were Josh or Sandra, what additional research
trate a new market and take over leadership?
might you request of your IT staff at this point?
SOURCES: Staff, “Yansha department store embraces supplier collaboration
to streamline processes,” IBM Success Stories, November 29, 2007,
www-01.ibm.com/software/success/cssdb.nsf/CS/JSTS-79BMT3?
OpenDocument&Site=corp&cty=en_us. Yansha’s Web site, accessed
December 21, 2007, www.yansha.com.cn.

NOTES

Sources for the opening vignette: Staff, “Fossil integrates retail and 8 Ayres, I. and Nalebuff, B., “Experiment,” Forbes, September 3, 2007,
wholesale operations with IBM and SAP,” IBM Success Stories, p. 130.
www-01.ibm.com/software/success/cssdb.nsf/CS/STRD-795MNK?
OpenDocument&Site=corp&cty=en_us. Fossil Web site, accessed 9 McDonald, Ian, “Making Paperless Trails at Lloyd’s,” The Wall Street
December 26, 2007, www.fossil.com. SAP Web site, accessed December Journal, August 13, 2007, p. B1.
26, 2007, www.sap.com/about/press/press.epx?pressid=4514.
10 Wingfield, Nick, “Hide the Button,” The Wall Street Journal, July 25,
1 Mills, Steven, “News,” Computerworld, June 4, 2007, p. 20. 2007, p. D1.
2 Dhar, V. and Sundararajan, A., “Information Technologies in Busi-
11 Lawton, Christopher, “Dumb Terminals Can Be a Smart Move,” The
ness: A Blueprint for Education and Research,” Information Systems Wall Street Journal, January 30, 2007, p. B3.
Research, June 2007, p. 125.
3 Smith, Frederick, “A Budding Network,” Forbes, May 7, 2007, p. 64. 12 Clark, Don, “Intel Scores Speed Breakthrough,” The Wall Street
4 Chaker, Anne Marie, “Yale on $0 Per Day,” The Wall Street Journal, Journal, July 25, 2007, p. B4.
February 15, 2007, p. D1.
5 Hoffman, Thomas, “Saving Lives Via Video at Sutter Health’s eICU,” 13 Wildstrom, Stephen, “How Flash Will Change PCs,” Business Week,
Computerworld, June 25, 2007, p. 28. June 11, 2007.
6 Oh, Wonseok and Pinsonneault, Alian, “On the Assessment of the
Strategic Value of Information Technologies,” MIS Quarterly, June 14 Gonsalves, Antone, “A Supercomputer on a Chip,” Information
2007, p. 239. Week, June 25, 2007, p. 26.
7 Peppard, J. and Daniel, E. “Managing the Realization of Business
Benefits from IT Investments,” MIS Quarterly Executive, June 2007, 15 Einhorn, Bruce, “Intel Inside the Third World,” Business Week, July
p. 1. 9, 2007, p. 38.

16 Fab Lab, http://fab.cba.mit.edu/, accessed August 25, 2007.
17 Spanbauer, Scott, “The Right Operating System For You,” PC World,

April 2007, p. 102.
18 Dunn, Scott, “Sync Your PC’s Tunes with Windows Mobile Devices,”

PC World, March 2007, p. 124.
19 Arar, Yardena, “Say So Long to Shrink-Wrapped Software,” PC

World, February 2007, p. 37.

|An Introduction to Information Systems Chapter 1 41

20 “Adobe Creative Suite 3,” www.adobe.com/products/creativesuite/, 46 Imse, Ann and Gathright, Alan, “Governor Seeks to Bring Order to
accessed August 20, 2007. Computer Chaos,” Rocky Mountain News, July 23, 2007, p. 4.

21 Nickum, Chris, “The BI Prescription,” Optimize Magazine, April 2007, 47 Bartels, Lynn, “State Might Scrap DMV Computers,” Rocky Mountain
p. 45. News, August 14, 2007, p. 5.

22 Havenstein, Heather, “Aetna Clients to Get Access to Online Health 48 Nelson, Ryan, “IT Project Management: Infamous Failures, Classic
Data,” Computerworld, January 15, 2007, p. 7. Mistakes, and Best Practices,” MIS Quarterly Executive, June 2007,
p. 67.
23 Greenemeier, Larry, “Data on Loan,” Information Week, April 23,
2007, p. 33. 49 Rajeev, Sharma and Yetton, Philip, “The Contingent Effects of Train-
ing, Technical Complexity, and Task Interdependence on Successful
24 Schupak, Amanda, “90 Years of Networks,” Forbes, May 7, 2007, Information Systems Implementation,” MIS Quarterly, June 2007,
p. 106. p. 219.

25 Malykhina, E. and Gardner, D., “A $48 Billion Upgrade,” Information 50 Flandez, Raymond, “In Search of Help,” The Wall Street Journal,
Week, April 2, 2007, p. 22. March 19, 2007, p. R8.

26 Gomes, Lee, “Paradoxes Abound in Telecommuting,” The Wall Street 51 Katz, R. and Devon, J., “Web of Terror,” Forbes, May 7, 2007, p. 184.
Journal, January 23, 2007, p. B3. 52 Gonzalez, Erika, “CU Sets Up Alert System,” Rocky Mountain News,

27 Malykhina, Elena, “China Picks Google,” Information Week, January August 8, 2007, p. 16.
8, 2007, p. 17. 53 Turkle, Sherry, “Can You Hear Me Now?” Forbes, May 7, 2007, p. 176.
54 Vijayan, J., “Pfizer Breech Illustrates Risks of Sharing Files,”
28 McBride, Sarah, “Online-Radio Fight Reaches New Pitch,” The Wall
Street Journal, May 31, 2007, p. A13. Computerworld, June 18, 2007, p. 20.
55 Bryan-Low, Cassell, “Turkish Police Hold Data-Theft Suspect,” The
29 Ali, Sarmad, “When I Was Your Age, We Didn’t Have Sites for Writing
Our Bios,” The Wall Street Journal, May 31, 2007, p. B1. Wall Street Journal, August 10, 2007, p. A6.
56 Banhan, Russ, “Personal Data for Sale,” The Wall Street Journal,
30 Hardy, Quentin, “Better Than YouTube,” Forbes, May 21, 2007, p. 72.
31 McMillan, Robert, “Is Web 2.0 Safe?” PC World, July 2007, p. 18. June 5, 2007, p. A18.
32 Borrows, P. and Crockett, R., “Turning Cell Phones on Their Ear,” 57 Walsh, Chris, “Computer Glitch Delays Hundreds of United Flights,”

Business Week, January 22, 2007, p. 40. Rocky Mountain News, June 21, 2007, p. 5.
33 McCartney, Scott, “WiFi in the Sky,” The Wall Street Journal, April 3, 58 Staff, “Computer Glitch Cancels Japan Flights,” Computerworld,

2007, p. B9. June 4, 2007, p. 14.
34 Green, Heather, “Don’t Quit Your Day Job, Podcasters,” Business 59 Murphy-Barret, Victoria, “Spam Hunter,” Forbes, July 23, 2007, p. 54.
60 Mitchell, Robert, “Green Data Centers,” Computerworld, June 25,
Week, April 9, 2007, p. 72.
35 Neville, Jeffery, “Web 2.0s Wild Blue Yonder,” Information Week, 2007, p. 26.
61 Clark, Don, “Computer Power Waste Targeted,” The Wall Street
January 8, 2007, p. 45.
36 Buckman, Rebecca, “Backers Thrive on B2B Firms,” The Wall Street Journal, June 13, 2007, p. B6.
62 Smith, Ethan and Delaney, Kevin, “Music Publishers Join YouTube
Journal, July 16, 2007, p. C1.
37 Holahan, Catherine, “Going, Going, Everywhere,” Business Week, Copyright Suit,” The Wall Street Journal, August 7, 2007, p. A2.
63 Babcock, Charles, “Barclays Attacks Phishers,” Information Week,
June 18, 2007, p. 62.
38 Buckman, Rebecca, “Just Charge It to Your Cell Phone,” The Wall April 23, 2007, p. 27.
64 Pope, Justin, “PowerPoint Skills Needed to Apply to Business
Street Journal, June 21, 2007, p. B3.
39 Ma, M. and Agarwal, R., “Through a Glass Darkly,” Information Sys- School,” Rocky Mountain News, August 8, 2007, p. 5.
65 Postrel, Virginia, “A Small Circle of Friends,” Forbes, May 7, 2007,
tems Research, March 2007, p. 42.
40 Fahey, Jonathan, “Car Talk,” Forbes, January 29, 2007, p. 52. p. 204.
41 Greenemeier, Larry, “A Cancer-Zapping Heroine,” Information 66 Friedman, Thomas, “The World Is Flat,” Farrar, Straus and Giroux,

Week, June 4, 2007, p. 22. 2005, p. 488.
42 Boeing Simulates and Manufactures 787 Dreamliner, www.3ds.com/ 67 www.europa.eu.int, accessed August 15, 2007.
68 www.ustr.gov/Document_Library/Press_Releases/2007/June/
news-events/press-room/release/1357/1/, accessed August 16,
2007. United_States_the_Republic_of_Korea_Sign_Lmark_
43 Peng, Tina, “Why Trunk Shows Are Going Virtual,” The Wall Street Free_Trade_Agreement.html, accessed November 8, 2007.
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44 Anthes, Gary, “Split-Second Trading,” Computerworld, May 21, 2007,
p. 40.
45 Vijayan, J., “Feds Delay Database for Money Transfer Records,”
Computerworld, January 22, 2007, p. 1.

CHAPTER Information Systems
in Organizations
•2•

PRINCIPLES LEARNING OBJECTIVES

■ The use of information systems to add ■ Identify the value-added processes in the sup-
value to the organization is strongly ply chain and describe the role of information
influenced by organizational structure, systems within them.
culture, and change.
■ Provide a clear definition of the terms organi-
■ Because information systems are so zational structure, culture, and change and
important, businesses need to be sure discuss how they affect the implementation of
that improvements or completely new sys- information systems.
tems help lower costs, increase profits,
improve service, or achieve a competitive ■ Identify some of the strategies employed to
advantage. lower costs or improve service.

■ Cooperation between business managers ■ Define the term competitive advantage and
and IS personnel is the key to unlocking the discuss how organizations are using informa-
potential of any new or modified system. tion systems to gain such an advantage.

■ Discuss how organizations justify the need for
information systems.

■ Define the types of roles, functions, and careers
available in the field of information systems.

|Information Systems in Organizations Chapter 2 43

Information Systems in the Global Economy
FedEx, United States

Information Systems Connect People with Packages

International shipping companies like FedEx might appear to be fairly simple operations.
After all, how much technology does it take to transport a package from one location to
another? In truth, however, FedEx is counted among the most technologically-advanced
corporations in the world.

FedEx manages two intimately joined networks: its shipping network composed of
distribution centers, trucks, planes, and delivery personnel, and its information system
composed of scanners, computers of all kinds, telecommunications equipment, databases,
software, and the people that manage and use it. Both systems are equally important to
the service that FedEx provides and to the company’s leadership role in the industry. The
shipping network is the primary service, and the information systems allow the shipping
to function efficiently and effectively.

Consider, for example, the new information system recently deployed across offices of
FedEx Canada. FedEx realizes the importance of being able to provide information to its
customers regarding package deliveries without hesitation or delay. With this in mind,
FedEx Canada implemented a state-of-the-art customer relationship management (CRM)
system designed for use by customer service representatives and sales staff. Representa-
tives use the new system to find the location of any package in the global distribution
system at any moment in time. The system also prompts FedEx staff on how to manage
the dialogue with the customer based on the scenario. For example, if the customer is
interested in having a shipment picked up, the information system will provide the
sequence of questions for the representative to ask the customer. In this way, FedEx per-
sonnel can handle any foreseeable request with a minimum of training.

To make this type of service possible, information about packages is collected at every
stop along the route. A package label may be scanned a dozen times prior to its delivery
at its final destination. Each time it is scanned, the record in the central FedEx database
is updated. The database acts as a source of information that feeds many information sys-
tems designed for varying services across the company. Personnel and customers can then
access that information from the FedEx network and the Internet.

Managing a global business is a complex job with many considerations. For example,
the FedEx Web site is available in 25 languages. The site isn’t simply translated into other
languages, but rather redesigned from the ground up for each language to satisfy and
appeal to the culture for which it is created. FedEx must also understand and work with
numerous currencies and international laws. For example, packages traveling across
international borders are often subject to customs inspections.

FedEx’s unique experience as a global shipping company has provided it with valuable
insight into the interplay between businesses around the world. By understanding the flow
of packages, products, and parts between global organizations, FedEx has positioned itself
as one of the most important components of the burgeoning global economy. FedEx is
much more than a delivery service; it is a logistics manager that connects the many com-
ponents of the supply chain—that is, the process that takes a product from the raw
materials from which it is built to the retail store at which it is sold, and increasingly to
the customer’s doorstep. The supply chain is part the value chain, which includes methods
for adding value to products and services. FedEx and other global shipping companies
have become key components in business value chains.

|44
Part 1 An Overview

As you read this chapter, consider the following:

• How do FedEx information systems contribute to the value of the services the company

provides?

• How can FedEx itself act as a component of the information systems used by its

business customers?

• Why is FedEx more valuable today than it was ten years ago?

Why Learn About Organizations of all types use information systems to cut costs and increase profits.
Information After graduating, a management major might be hired by a shipping company to help
Systems in design a computerized system to improve employee productivity. A marketing major
Organizations? might work for a national retailer using a network to analyze customer needs in
different areas of the country. An accounting major might work for an accounting or
consulting firm using a computer to audit other companies’ financial records. A real
estate major might use the Internet and work in a loose organizational structure with
clients, builders, and a legal team located around the world. A biochemist might con-
duct research for a drug company and use a computer to evaluate the potential of a
new cancer treatment. An entrepreneur might use information systems to advertise
and sell products and bill customers.

Although your career might be different from your classmates’, you will almost
certainly work with computers and information systems to help your company or
organization become more efficient, effective, productive, and competitive in its
industry. In this chapter, you will see how information systems can help organiza-
tions produce higher-quality products and services to increase their return on in-
vestment. We begin by investigating organizations and information systems.

Information systems have changed the way organizations work in recent years. While it once
was used primarily to automate manual processes, information technology has transformed
the nature of work and the shape of organizations themselves. In this chapter and throughout
the book, you will explore the benefits and drawbacks of information systems in today’s
organizations.

ORGANIZATIONS AND INFORMATION SYSTEMS

organization An organization is a formal collection of people and other resources established to accomplish
A formal collection of people and a set of goals. The primary goal of a for-profit organization is to maximize shareholder value,
other resources established to often measured by the price of the company stock. Nonprofit organizations include social
accomplish a set of goals. groups, religious groups, universities, and other organizations that do not have profit as their
goal.

An organization is a system, which means that it has inputs, processing mechanisms,
outputs, and feedback. An organization constantly uses money, people, materials, machines
and other equipment, data, information, and decisions. As shown in Figure 2.1, resources
such as materials, people, and money serve as inputs to the organizational system from the
environment, go through a transformation mechanism, and then are produced as outputs to
the environment. The outputs from the transformation mechanism are usually goods or
services, which are of higher relative value than the inputs alone. Through adding value or
worth, organizations attempt to achieve their goals.

How does the organizational system increase the value of resources? In the transformation
mechanism, subsystems contain processes that help turn inputs into goods or services
of increasing value. These processes increase the relative worth of the combined inputs on
their way to becoming final outputs. Let’s reconsider the simple car wash example from
Chapter 1 (see Figure 1.3). The first process is washing the car. The output of this

|Information Systems in Organizations Chapter 2 45

ENVIRONMENT Figure 2.1
Organizational system
A General Model of an
Process subsystem Supply chain Organization
and customer
relationship Information systems support and
management work within all parts of an
organizational process. Although
Input Product Output not shown in this simple model,
transformation input to the process subsystem can
come from internal and external
sources. Just prior to entering the
subsystem, data is external. After it
enters the subsystem, it becomes
internal. Likewise, goods and
services can be output to either
internal or external systems.

Material & physical flow Decision flow Value flow Data flow Information system(s)

system—a clean but wet car—is worth more than the mere collection of ingredients (soap value chain
A series (chain) of activities that
and water), as evidenced by the popularity of automatic car washes. Consumers are willing includes inbound logistics, ware-
house and storage, production, fin-
to pay for the skill, knowledge, time, and energy required to wash their car. The second ished product storage, outbound
logistics, marketing and sales, and
process is drying—transforming the wet car into a dry one with no water spotting. Again, customer service.

consumers are willing to pay for the additional skill, knowledge, time, and energy required

to accomplish this transformation.
Providing value to a stakeholder—customer, supplier, manager, shareholder, or

employee—is the primary goal of any organization. The value chain, first described by
Michael Porter in a 1985 Harvard Business Review article, reveals how organizations can add
value to their products and services. The value chain is a series (chain) of activities that
includes inbound logistics, warehouse and storage, production, finished product storage,
outbound logistics, marketing and sales, and customer service (see Figure 2.2). You investi-
gate each activity in the chain to determine how to increase the value perceived by a customer.
Depending on the customer, value might mean lower price, better service, higher quality, or
uniqueness of product. The value comes from the skill, knowledge, time, and energy that
the company invests in the product or activity. The value chain is just as important to com-
panies that don’t manufacture products, such as tax preparers, legal firms, and other service
providers. By adding a significant amount of value to their products and services, companies
ensure success. Combining a value chain with just-in-time (JIT) inventory means companies
can deliver materials or parts when they are needed. Ball Aerospace, for example, uses JIT to
help reduce inventory costs and enhance customer satisfaction.1

Combining a value chain with just-
in-time (JIT) inventory means
companies can deliver materials or
parts when they are needed. Ball
Aerospace uses JIT to help reduce
inventory costs and enhance
customer satisfaction.

(Source: AP Photo/Denver Post,
R. J. Sangosti.)

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Part 1 An Overview

Figure 2.2 Raw Upstream management Warehouse Production
materials and
The Value Chain of a Inbound Process control
Manufacturing Company logistics storage systems

Managing raw materials, inbound Customer service Inbound Raw material Finished product
logistics, and warehouse and tracking inventory storage
storage facilities is called upstream systems
management. Managing finished control systems
product storage, outbound logistics, Marketing and sales
marketing and sales, and customer Outbound
service is called downstream logistics
management.

Customer service Promotion planning Distribution planning Automated storage and
tracking and systems systems retrieval systems

control systems

Downstream management

Wal-Mart’s use of information
systems is an integral part of its
operation. The company gives
suppliers access to its inventory
system, so the suppliers can
monitor the database and
automatically send another
shipment when stocks are low,
eliminating the need for purchase
orders. This speeds delivery time,
lowers Wal-Mart’s inventory
carrying costs, and reduces
stockout costs.

(Source: www.walmart.com.)

Managing the supply chain and customer relationships are two key elements of managing
the value chain. Supply chain management (SCM) helps determine what supplies are required
for the value chain, what quantities are needed to meet customer demand, how the supplies
should be processed (manufactured) into finished goods and services, and how the shipment
of supplies and products to customers should be scheduled, monitored, and controlled.2 For
example, in an automotive company, SCM can identify key supplies and parts, negotiate
with vendors for the best prices and support, make sure that all supplies and parts are available

|Information Systems in Organizations Chapter 2 47

to manufacture cars and trucks, and send finished products to dealerships around the country
when they are needed. Increasingly, SCM is accomplished using the Internet and electronic
marketplaces (e-marketplaces). When an organization has many suppliers, it can use Internet
exchanges to negotiate favorable prices and service. SCM is becoming a global practice as
companies have parts and products manufactured around the world.3 According to Jean
Philippe Thenoz, vice president of CMA-CGM, a worldwide shipper, “The client wants to
know where the blue socks in size medium are that he ordered two weeks ago from China.”

Customer relationship management (CRM) programs help a company manage all aspects
of customer encounters, including marketing and advertising, sales, customer service after
the sale, and programs to retain loyal customers. CRM can help a company collect customer
data, contact customers, educate them about new products, and actively sell products to
existing and new customers. Often, CRM software uses a variety of information sources,
including sales from retail stores, surveys, e-mail, and Internet browsing habits, to compile
comprehensive customer profiles. CRM systems can also get customer feedback to help de-
sign new products and services. Tesco, Britain’s largest retail operation, uses a CRM Clubcard
program to provide outstanding customer service and deliver loyalty rewards and perks to
valued customers. See Figure 2.3. Customers can earn services such as meals out, travel, dry
cleaning, and car maintenance. The Clubcard loyalty program also extends to Tesco’s busi-
ness partners, introducing Tesco customers to other businesses. To be of most benefit, CRM
programs must be tailored for each company or organization.4 According to Amanda
Zuniga, senior research analyst at pharmaceutical intelligence firm Cutting Edge Information,
“customer relationship management programs must be individually tailored to meet the
programs’ specific objectives.”

Figure 2.3

Tesco Web Site
Tesco uses its Web site to help with
customer relationship
management.

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Part 1 An Overview

organizational structure What role does an information system play in these processes? A traditional view of
Organizational subunits and the information systems holds that organizations use them to control and monitor processes and
way they relate to the overall ensure effectiveness and efficiency. An information system can turn feedback from the sub-
organization. systems into more meaningful information for employees. This information might summa-
rize the performance of the subsystems and be used to change how the system operates. Such
changes could involve using different raw materials (inputs), designing new assembly-line
procedures (product transformation), or developing new products and services (outputs). In
this view, the information system is external to the process and serves to monitor or control it.

A more contemporary view, however, holds that information systems are often so inti-
mately involved that they are part of the process itself. From this perspective, the information
system plays an integral role in the process, whether providing input, aiding product trans-
formation, or producing output. Consider a phone directory business that creates phone
books for international corporations. A corporate customer requests a phone directory listing
all steel suppliers in Western Europe. Using its information system, the directory business
can sort files to find the suppliers’ names and phone numbers and organize them into an
alphabetical list. The information system itself is an integral part of this process. It does not
just monitor the process externally but works as part of the process to transform raw data
into a product. In this example, the information system turns input (names and phone num-
bers) into a salable output (a phone directory). The same system might also provide the input
(data files) and output (printed pages for the directory).

The latter view provides a new perspective on how and why businesses can use informa-
tion systems. Rather than attempting to understand information systems independent of the
organization, we consider the potential role of information systems within the process itself,
often leading to the discovery of new and better ways to accomplish the process.

Organizational Structures

Organizational structure refers to organizational subunits and the way they relate to the
overall organization. An organization’s structure depends on its goals and approach to man-
agement, and can affect how it views and uses information systems. The types of organiza-
tional structures typically include traditional, project, team, and virtual. Organizational
structure can have a direct impact on the organization’s information system.

ETHICAL AND
SOCIETAL ISSUES

Fighting Global Poverty with Information Systems ourselves at a major intersection of the network economy where
we help to connect global learning opportunities with investment
The World Bank is not a typical bank, but two financial institutions assistance to governments. Put another way, it’s about having two
owned by 185 member countries. The International Bank for currencies: the currency of money and the currency of knowledge.
Reconstitution and Development (IBRD) is the part of the bank that We believe our work in bringing knowledge and information to
focuses on middle-income and creditworthy poor countries, and developing countries is as important as the capital and invest-
the International Development Association (IDA) focuses on the ments that we provide as an engine for development.”
poorest countries. Together, these institutions provide “low-interest
loans and interest-free credit and grants to developing countries Muhsen’s project cost the World Bank hundreds of millions of
for education, health, infrastructure, communications, and many dollars over several years. It included many information system
other purposes,” according to the World Bank Web site. The bank packages including an SAP ERP system; an Oracle Record Integrat-
has about 10,000 employees worldwide, with loans of about $20 ed Information System; a multilingual, natural-language system
billion annually. from Teregram for document management; a custom-designed,
Web-based dashboard interface; Lotus Notes for e-mail, online
In recent years, the World Bank has suffered from front page collaboration, and content storage; and IBM WebSphere. While
scandals regarding suspected improprieties with its senior-level these systems cost the World Bank nearly $100 million, the bulk of
officials. In 2007, World Bank president Paul Wolfowitz was pres- its investment went to building its own global, high-speed network
sured to resign, and in 2005, vice president and CIO Mohammed infrastructure complete with regional satellites and miles of fiber
Muhsen retired under a cloud of suspicion. However, while the optics to provide network connectivity to remote and poor regions
press and the world were focused on corruption in the World of the world.
Bank, some very positive developments were taking place with
World Bank infrastructure and information systems that went Discussion Questions
relatively unnoticed.
1. Why do you think Muhsen believes that the knowledge
The World Bank has traditionally been run as a top-down hier- provided to its customers by the World Bank’s information
archy, which is a traditional organizational structure. In recent system is equal in value to the money loaned? Do you
years, through the use of global information systems, the World believe this to be true? Why?
Bank has transformed into a “decentralized, front-line, matrix
organization,” observes a recent article in Baseline magazine. 2. What unique challenges does the World Bank face when
Rather than controlling information systems from the top, the designing an organization-wide information system?
World Bank has been investing to empower its clients with the
information systems they need locally to participate in the global Critical Thinking Questions
economy.
1. Once the network infrastructure is created that connects
The effort to distribute economic knowledge to World Bank the World Bank to its customers, what types of services
customers began in the mid-1990s with then-president James might it support?
Wolfensohn. In a 1996 speech to the Bank Board of Governors,
Wolfensohn said, “The revolution in information technology 2. Mohammed Muhsen invested 17 years of his life in devel-
increases the potential value of [the bank’s development] efforts by oping the World Bank’s international knowledge network,
vastly extending their reach. We need to invest in systems that will but retired under a “cloud of suspicion” over investments
enhance our ability to gather information and experience and he allegedly made in an information system company that
share it with our clients.” Ex-World Bank CIO, Mohammed Muhsen, was contracted by the World Bank. What lessons can be
embraced that mandate to revamp the World Bank’s information learned from the unfortunate circumstances of Muhsen’s
infrastructure and communications networks to create a global retirement?
knowledge-sharing network, which has been highly praised in the
industry. SOURCES: McCartney, Laton and Watson, Brian, “World Bank: Behind the IT
Transformation,” Baseline, August 5, 2007, www.baselinemag.com/
Wolfensohn and Muhsen were among the first to formalize print_article2/0,1217,a=212463,00.asp. World Bank Web site,
what is now referred to as a knowledge management information www.worldbank.org, accessed December 27, 2007.
system. Muhsen defined his mission as follows: “We position

49

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Part 1 An Overview

traditional organizational Traditional Organizational Structure
structure A traditional organizational structure, also called a hierarchical structure, is like a managerial
An organizational structure in which pyramid where the hierarchy of decision making and authority flows from the strategic man-
major department heads report to a agement at the top down to operational management and nonmanagement employees.
president or top-level manager. Compared to lower levels, the strategic level, including the president of the company and
vice presidents, has a higher degree of decision authority, more impact on corporate goals,
Figure 2.4 and more unique problems to solve (see Figure 2.4). In most cases, major department heads
A simplified model of the report to a president or top-level manager. The major departments are usually divided ac-
organization, showing the cording to function and can include marketing, production, information systems, finance
managerial pyramid from top- and accounting, research and development, and so on (see Figure 2.5). The positions or
level managers to departments that are directly associated with making, packing, or shipping goods are called
nonmanagement employees. line positions. A production supervisor who reports to a vice president of production is an
example of a line position. Other positions might not be directly involved with the formal
chain of command but instead assist a department or area. These are staff positions, such as a
legal counsel reporting to the president.

Decision dimensions

High

Strategic
management

Tactical
management

Operational
management

Low

Decision Impact on Uniqueness Nonmanagement employees
authority corporate of problems

goals Marketing Accounting Manufacturing Other functional
areas

Figure 2.5 Staff position A. Bailey, S. Burry,
Legal counsel President
A Traditional Organizational
Structure

B. Wang, C. Rodrig, R. Henderson, K. Kelly, W. Osborn,
VP, Accounting VP, Information VP, Marketing VP, Production VP, Human
systems resources

S. Samuel, L. Bashran, Line
Supervisor Supervisor positions

flat organizational structure Today, the trend is to reduce the number of management levels, or layers, in the tradi-
An organizational structure with a tional organizational structure. This type of structure, often called a flat organizational
reduced number of management structure, empowers employees at lower levels to make decisions and solve problems without
layers. needing permission from midlevel managers. Empowerment gives employees and their man-
agers more responsibility and authority to make decisions, take action, and have more control
empowerment over their jobs. For example, an empowered sales clerk could respond to certain customer
Giving employees and their man- requests or problems without needing permission from a supervisor. Policies and programs
agers more responsibility and that let employees share ownership in a company flatten the organizational structure. The
authority to make decisions, take Clark County School District in Nevada, for example, is using empowerment to give school
certain actions, and have more
control over their jobs.

|An Introduction to Information Systems Chapter 2 51

principals and teachers more control over budgets, programs, and classes.5 According to project organizational
school Superintendent Walt Rulffes, “There are powerful indicators from the first-year em- structure
powerment school results that, given the right conditions and some additional funding, A structure centered on major
empowerment schools can dramatically improve student performance.” products or services.

Information systems can be a key element in empowering employees because they provide
the information employees need to make decisions. The employees might also be empowered
to develop or use their own personal information systems, such as a simple forecasting model
or spreadsheet.

Project and Team Organizational Structures
A project organizational structure is centered on major products or services. For example,
in a manufacturing firm that produces baby food and other baby products, each line is pro-
duced by a separate unit. Traditional functions such as marketing, finance, and production are
positioned within these major units (see Figure 2.6). Many project teams are temporary—
when the project is complete, the members go on to new teams formed for another project.

B. Worth Figure 2.6
President,
Baby Products Company A Project Organizational
Structure
W. Butler,
T. Walker, Senior VP, O. Teco,
Senior VP, Diaper Project Senior VP,
Baby Food Project Communications
and Stroller Project

VP, VP, VP, VP, VP, VP, VP, VP, VP, VP, VP, VP,

Finance Marketing Production Sales Finance Marketing Production Sales Finance Marketing Production Sales

The team organizational structure is centered on work teams or groups. In some cases, team organizational structure
these teams are small; in others, they are very large. Typically, each team has a leader who A structure centered on work teams
reports to an upper-level manager. Depending on its tasks, the team can be temporary or or groups.
permanent. A healthcare company, for example, can form small teams to organize its ad-
ministrators, physicians, and others to work with individual patients. virtual organizational
structure
Virtual Organizational Structure and Collaborative Work A structure that employs individu-
A virtual organizational structure employs individuals, groups, or complete business units als, groups, or complete business
in geographically dispersed areas that can last for a few weeks or years, often requiring units in geographically dispersed
telecommunications or the Internet.6 Virtual teams are employed to ensure the participation areas that can last for a few weeks
of the best available people to solve important organizational problems. or years, often requiring telecom-
munications or the Internet.
These people might be in different countries, operating in different time zones. In other
words, virtual organizational structures allow work to be separated from location and time.
Work can be done anywhere, anytime. People might never meet physically, which explains
the use of the word virtual, and highlights the difference between virtual organizations and
traditional ones that have operations in more than one location—a virtual organization is
geographically distributed, and uses information technology to communicate and coordinate
the work. In some cases, a virtual organization is temporary, lasting only a few weeks or
months. In others, it can last for years or decades.

Successful virtual organizational structures share key characteristics. One strategy is to
have in-house employees concentrate on the firm’s core businesses and use virtual employees,
groups, or businesses to do everything else. Using information systems to manage the activ-
ities of a virtual structure is essential, often requiring specialized software to coordinate joint
work. Even with sophisticated IS tools, teams still need face-to-face meetings, especially at
the beginning of new projects. Some virtual workers that travel around the country or the
globe to different client sites, however, experience increased stress and difficulty in handling

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Part 1 An Overview

Virtual teams let people consult with
experts no matter their physical
location, which is especially useful
in the healthcare industry.

(Source: Courtesy of AP Photo/Paul
Sancya.)

both job and family obligations.7 This can result in these employees seeking different, more
traditional positions to reduce the stress. Some experts have proposed the following for virtual
teams.8

• When possible, use virtual team members that know each other or use technology that

helps virtual team members quickly get to know each other.

• Use virtual team members who are already connected with other people and resources

throughout the organization.

• Virtual team projects should be as independent as possible from other projects, so that a

delay or problem with one team doesn’t affect the progress or success of another virtual
team.

• Develop Internet resources that help virtual teams communicate and collaborate on

important projects.

• Make sure that virtual team projects are challenging, meaningful, and interesting.

A virtual organizational structure allows collaborative work, in which managers and em-
ployees can effectively work in groups, even those composed of members from around the

|An Introduction to Information Systems Chapter 2 53

world. A management team, for example, can include executives from Australia and England.
A programming team can consist of people in the United States and India. Collaborative
work can also include all aspects of the supply chain and customer relationship management.
An automotive design team, for example, can include critical parts suppliers, engineers from
the company, and important customers.

A virtual organizational structure
allows collaborative work, in which
managers and employees can
effectively work in groups, even
those composed of members from
around the world.

(Source: © Jon Feingersh/Getty
Images.)

Organizational Culture and Change culture
A set of major understandings and
Culture is a set of major understandings and assumptions shared by a group, such as within assumptions shared by a group.
an ethnic group or a country. Organizational culture consists of the major understandings
and assumptions for a business, corporation, or other organization. The understandings, organizational culture
which can include common beliefs, values, and approaches to decision making, are often not The major understandings and
stated or documented as goals or formal policies. For example, Procter & Gamble has an assumptions for a business, corpo-
organizational culture that places an extremely high value on understanding its customers ration, or other organization.
and their needs. For marketing recommendations to be accepted, they must be based on facts
known about customers. As another example, employees might be expected to be clean-cut, organizational change
wear conservative outfits, and be courteous in dealing with all customers. Sometimes orga- How for-profit and nonprofit organi-
nizational culture is formed over years. In other cases, top-level managers can form it rapidly zations plan for, implement, and
by starting a “casual Friday” dress policy. Organizational culture can also have a positive affect handle change.
on the successful development of new information systems that support the organization’s
culture.9

Organizational change deals with how for-profit and nonprofit organizations plan for,
implement, and handle change. Change can be caused by internal factors, such as those
initiated by employees at all levels, or external factors, such as activities wrought by com-
petitors, stockholders, federal and state laws, community regulations, natural occurrences
(such as hurricanes), and general economic conditions. Many European countries, for ex-
ample, adopted the euro, a single European currency, which changed how financial compa-
nies do business and use their information systems. Organizational change also occurs when
two or more organizations merge. When organizations merge, however, integrating their
information systems can be critical to future success.10 Unfortunately, many organizations
only consider the integration of their different information systems late in the merger process.

Change can be sustaining or disruptive.11 Sustaining change can help an organization
improve the supply of raw materials, the production process, and the products and services
it offers. Developing new manufacturing equipment to make disk drives is an example of a
sustaining change for a computer manufacturer. The new equipment might reduce the costs
of producing the disk drives and improve overall performance. Disruptive change, on the other
hand, often harms an organization’s performance or even puts it out of business. In general,
disruptive technologies might not originally have good performance, low cost, or even strong