Management information systems Zj7xddwlyvMNOtJ43lIpuAwbvhRDW9at pdf

1 Foundationsof InformationSystems in 2 Competing with InformationSection I: Foundation Concepts: Information Section I: Fundamentals of Strategic Section II: Foundation Concepts: Busine

Foundationsoflnfonnation Systems in The IntemetworkedE-Business

• Kepler's Books and Magazines: Small Business • Uniglobe.com and Allfirst Bank: Online

and Dell Computer: Business Lessons of Peer-to-Peer Collaboration

E-Commerce Warriors

• Zagat Survey and Ace Hardware: The Business

• Pepsi Cola Co.: Web Marketing Strategies Value of Online Communities

• Schilling Professional Staffing: E-Business • France Telecom: Internet, Intranet, and

• Sabey's, Reebok, and Home Depot: Success • Covisint and Others: Collaborative Product

• General Electric Company: Evaluating • Siebel Systems and Telstra Corporation:

• Oracle Corporation: E-Business Catch-up • Solectron Electronics and Others: Failures in

• E*Trade Bank and Others: Evaluating Online • Hitachi Semiconductor and Dell Computer:

• Dell Computer Corp.: Failure in B2B • GE Capital and Others: E-Business Challenges

Electronic Commerce Systems Developing E- Business Strategies

• eBay Inc.: Lessons of an E-Commerce Leader • Accel Partners: The Past, Present, and Future

• Florist.com and Others: The Success of Small • Merrill Lynch: Catch-up Leader in

• Wal-Mart, Kmart, Kingfisher and HMV: Retail • Eastman Chemical and the Vanguard Group:

• Brookfield Properties: Prototyping E-Commerce Strategies

• Siemens AG: The Business Case for Knowledge Developing E- Business Solutions

• Raytheon, Cutter, GE, and Honeywell: Qualtty

• Select Comfort and VocalPoint: Managmg Web

• Procter & Gamble: The Business Case for System Changes

Enterprise Portals

• Southwest Airlines, Home Depot, and

• Ford Motor Company: Using Natural Language • The Sports Authority and Others: E-Commerce

• Spirit Airlines: Failure in Systems Conversion

Continued on back endsheet

Management Information Systems

Managing Infonnation Technology in the E- Business Enterprise

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Managing Infonnation Technology

in the E- Business Enterprise

Fifth Edition

James A O'Brien

College of Business Administration

Northern Arizona University

Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco S1.LouisBangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

MANAGEMENT INFORMATION SYSTEMS:

MANAGING INFORMATION TECHNOLOGY IN THE E-BUSlNESS ENTERPRISE

Published by McGraw-Hili, an imprint of The McGraw-Hili Companies, Inc 1221 Avenue ofthe Americas, New York, NY, 10020 Copyright © 2002, 1999, 1996, 1993, 1990 by TheMcGraw-Hili Companies, Inc All rights reserved No part of this publication may be

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To your love, happiness, and success

J ames A O'Brien is an adjunct professor of Computer Information Systems in the College of Business Administration at Northern Arizona University He completed his undergraduate studies at the University of Hawaii and Gonzaga University and earned an M.S and Ph.D.

in Business Administration from the University of Oregon He has been coordinator of the CIS area at Northern Arizona University, professor of Finance and Management Information Systems and chairman of the Depart- ment of Management at Eastern Washington University, and a visiting pro- fessor at the University of Alberta, the University of Hawaii, and Central Washington University.

Dr O'Brien's business experience includes working in the Marketing Management Program of the IBM Corporation, as well as serving as a financial analyst for the General Electric Company He is a graduate of General Elec- tric's Financial Management Program He has also served as an information systems consultant to several banks and computer services firms.

Jim's research interests lie in developing and testing basic conceptual frameworks used in information systems development and management He has written eight books, including several that have been published in multiple edi- tions, as well as in Chinese, Dutch, French, Japanese, or Spanish translations He has also contributed to the field of information systems through the publication

of many articles in business and academic journals, as well as through his ipation in academic and industry associationsin the field of information systems.

appli-This is the E-business enterprise perspective that this text brings to the study

of information systems Of course, as in all my texts, this edition:

• Loads the text with real world cases, examples, and exercises about real

peo-ple and companies in the business world

• Organizes the text around a simple five-area framework that emphasizes the

IS knowledge a business end user needs to know

• Distributes and integrates IS foundation theory throughout the text instead ofconcentrating it in several early chapters

• Places a major emphasis on the strategic role of information technology in ing competitive advantage, supporting electronic business operations and deci-sion making, and enabling electronic commerce and enterprise collaboration.This text is designed for use in undergraduate or introductory MBA courses in Man-agement Information Systems, which are required in many Business Administration

gain-or Management programs as part of the common body of knowledge for all ness majors Thus, this edition treats the subject area known as Information Systems(IS), Management Information Systems (MIS), or Computer Information Systems(CIS) as a major functional area of business that is as important to management edu-cation as are the areas of accounting, finance, operations management, marketing,and human resource management

busi-viii • Pnface

Key Features The new Fifth Edition is the most comprehensive revision of this text since it was

first published Most chapters have been significantly "E-engineered," that is, textmaterial has been radically restructured, eliminated, and augmented with newE-business and E-commerce topics and real world examples to provide students with

a solid E-business foundation for their studies and work in business

A11 New Real \Vorld This text provides all new up-to-date real world case studies These are not fictional

Cases and Examples stories, but actual situations faced by business firms and other organizations as

reported in current business and IS periodicals This includes five real world casestudies in each chapter that apply specifically to that chapter's contents

In addition, each chapter contains several application exercises, including twohands-on spreadsheet or database software assignments and new Internet-based realworld assignments in most chapters Also, many new highlighted in-text real worldexamples have been added to illustrate concepts in every chapter The purpose ofthis variety of learning and assignment options is to give instructors and studentsmany opportunities to apply each chapter's material to real world situations

Preface • ix

Boeing and Analog The Boeing Company embarked on a major business process reengineering Devices: IT Failure paign in 1994, buying off-the-shelf enterprise resources planning (ERP) software and Success to replace hundreds of mainframe legacy systems used to manufacture commer-

cam-cial aircraft For example, Boeing bought Baan's manufacturing, finance, chasing, and distribution ERP software suite; Metaphase's product data manage- ment package; CIMLINC's Linkage for process planning; and Trilogy's SalesBUILDER for configuration management, along with other software packages.

pur-Fast-forward to late 1998, when Boeing announced lousy financial results and major layoffs It predicted a pathetic pretax profit margin of only 1 to 3 percent for its commercial aircraft group by the year 2000, up from 0 percent in 1998 A precipitous decline in airplane orders by Asian airlines is the culprit according to the company But Wall Street analysts and others watching the company say pro- duction inefficiencies, poor planning, and a host of other internal failures bear part of the responsibility for the dismal margin and poor financial results, accord-

ing to articles about the project in, among others, The New York Times and The

Wall Street Journal.

However, other ERP implementations have proved their worth through the positive results achieved The ERP implementation at chip maker Analog Devices, Inc., for instance, helped the company weather tough times in 1998, when declining prices drove down revenues and otherwise put pressure on the entire semiconductor industry Analog has continued to show progress in reduc- ing costs in a variety of areas, including production, staffing, and inventory Bottom line: If the right combination of ERP software, business processes, and managerial expertise are working together, there should be a substantial financial return, as there was for Analog [11].

New Chapters on This edition contains many thoroughly E-engineered chapters that emphasize how

Electronic Business Internet and Web technologies provide the technological infrastructure and businessand Commerce tools that enable internetworked enterprises to engage in electronic business and com-

merce This is demonstrated, not only in the text materials in Chapters 4 and 5, but

in other chapters and Real World Cases and examples in the text Examples includeKepler's Books and Magazines, Pepsi Cola Company, Uniglobe.com and Allfirst Bank,Siebel Systems and Telstra Corporation, Alcoa and Cisco Systems, Solectron Elec-tronics, Hitachi Semiconductor and Dell Computer, eBay, Inc., Florist.com, Wal-mart,Kmart, Kingfisher and HMv, and Raytheon and Deere & Co., to name a few

An Information This text reduces the complexity of an introductory course in information systems

Systems :Framework by using a conceptual framework that organizes the knowledge needed by business

students into five major areas (see Figure 1):

x • Preface

• Foundation Concepts Fundamental business information systems concepts including trends, components, and roles of information systems (Chapter 1) and competitive advantage concepts and applications (Chapter 2) Other behavioral, managerial, and technical concepts are presented where appropriate

in selected chapters.

• Business Applications How the Internet, intranets, extranets, and other information technologies are used in E-business enterprises to support elec- tronic business and commerce, team and enterprise collaboration, and business decision making (Chapters 3, 4, and 5).

• Development Processes Developing and implementing E-business strategies and systems using several strategic planning and application development approaches (Chapters 7 and 8).

• Management Challenges The challenges of E-business technologies and strategies, including security and ethical challenges and global IT management (discussed in many chapters, but emphasized in Chapters 9 and 10).

• Information Technologies A review of major concepts, developments, and managerial implications involved in computer hardware, software, telecommu- nications networks, and data resource management technologies (Chapters 11,

12, 13, and 14) Other technologies used in computer-based information tems are discussed where appropriate in selected chapters.

sys-Strategic, This text also contains substantial text material and cases reflecting the strategic, International, and international, and ethical dimensions of information systems This can be found not Ethical Dimensions only in Chapters 2,9, and 10, but also in all other chapters of the text This is espe-

cially evident in many real world cases and examples, such as General Electric Company, McDonald's and American Express, Oracle Corporation, E*Trade Bank, France Telecom, Siemens AG, Accel Partners, Merrill Lynch, University of Wash- ington, the FBI and Resource Technologies, Visa, American Express, and GM, Axciom, Inc., TR\v, Toyota, and Cendant, and many, many others These examples repeatedly demonstrate the strategic and ethical challenges of managing E-business technologies for competitive advantage in global business markets and in the global information society in which we all live and work.

Nlodular Structure of The text is organized into five modules that reflect the five major areas of the the Text work for information systems knowledge mentioned earlier See Figure 2 Also each

frame-chapter is organized into two distinct sections This is done to avoid proliferation

Each chapter starts with Chapter Highlights and Learning Objectives and endswith a Summary, Key Terms and Concepts, a Review Quiz tied directly to the KeyTerms and Concepts, Discussion Questions, and Application Exercises Real WorldCases are placed at the beginning of the two sections of each chapter (with a briefanalysis), and at the end of each chapter, to help students understand the chaptermaterial in the context of examples from the real world of business.

As stated earlier, besides providing all new Real World Cases, this edition sents a comprehensive E-business revision of the text This includes a majorrestructuring of the text's organization and sequence of chapters to better sup-port its new E-business orientation For example, the four chapters on hardware,software, data resource management, and telecommunications networks have beenmoved to an optional Review of Information Technologies module as Chapters11,12,13, and 14 The chapter on strategic advantage has been brought forward

repre-to the Foundation Concepts module as Chapter 2, while coverage of systemsdevelopment has been moved to a new module on Development Processes asChapter 8 Highlights of other changes made to the Fourth Edition are found inthe following Fifth Edition chapters:

Chapter 1: Foundations of Information Systems in Business

This chapter features a complete reorganization and major changes in tent to present an overview of topics in the five areas of IS knowledge ofthe text Much of the material formerly in Chapters 1 and 2 has been elimi-nated or concentrated in this chapter Thus, Section I covers foundationconcepts in information systems and technologies, and Section II presentsconcepts in E-business applications, the IS development process, and man-agement challenges of IT

con-Chapter 2: Competing with Information Technology

This was Chapter 12 in the previous edition It was moved to the FoundationConcepts module at the urging of reviewers to emphasize the vital importance

of using IT for competitive advantage The strategic use of Internet gies and E-business concepts are major content additions, along with revisingprevious coverage and replacing many in-text real world examples

technolo-Chapter 3: The Internetworked E-Business Enterprise

Section I of this chapter features new topics and thoroughly revised content

on E-business applications and the business use and value of the Internet Thechapter includes new material on intranet enterprise portals and technologies,and new in-text real world examples

Chapter 4: Electronic Business Systems

This chapter has been completely E-engineered to provide students with twosolid sections on E-business Section I on E-business systems features majornew content on cross-functional integrated enterprise applications, includingenterprise application integration (EAI), enterprise resource planning (ERP),and customer relationship management (CRM), and supply chain management(SCM) Section II contains updated coverage of more traditional E-businessapplications that support activities in the functional areas of business Much ofthe coverage of transaction processing systems formerly in Chapter 10 has nowbeen concentrated in the treatment of online transaction processing (OLTP) inSection I

xii • Preface

Chapter 5: Electronic Commerce Systems

This chapter is a complete rewrite and expansion of the former edition's tion on electronic commerce Section I emphasizes the fundamental compo-nents and processes of E-commerce systems, while Section II explores keyapplications and issues in E-commerce, including B2C and B2B marketplaces,requirements for success, and clicks and bricks strategies

sec-Chapter 6: E-Business Decision Support

The focus of Section I of this chapter has been revised to emphasize the majortrends and changes occurring in E-business decision support, which is empow-ering business professionals and knowledge workers (not just managers andexecutives) with Web-enabled decision support tools The chapter also featuresnew material on using data mining and enterprise portals for decision support,and new in-text real world examples

Chapter 7: Developing E-Business Strategies

This chapter is a thorough revision of the material on IS planning and changemanagement formerly in Chapter 14 Both chapter sections contain much newmaterial and real world examples that emphasize the major changes needed indeveloping and implementing E-business strategies before new E-businessapplications can be successfully developed

Chapter 8: Developing E-Business Solutions

This chapter (formerly Chapter 3), is thoroughly revised and reorganized at theurging of reviewers to stress an E-business systems development perspective,including prototyping, user interface, Web design, and end user developmenttopics (Section I), and E-business system implementation (Section II) Most ofthe section on the systems approach, including the hypothetical case study exam-ple of Auto Shack Stores, has been moved to the text's online learning center

Chapter 9: Security and Ethical Challenges of E-Business

This chapter is completely E-engineered to stress security, ethical, and societalchallenges faced by E-businesses, including computer crime in Section 1 Sec-tion II is a new, completely rewritten treatment that focuses on methods ofE-business security management to counter the threats to E-business andE-commerce introduced in Section 1

Chapter 10: Enterprise and Global Management of E-Business Technology

The first section of this chapter is a completely E-engineered and new ment of the impact of E-business on managers, organizations, and the manage-ment of information technologies and the IS function, eliminating much previ-ous material that focused on more traditional approaches Section II retains itsglobal IT management structure, but includes new treatment and in-text realworld examples on cultural and political challenges, E-business strategies, anddata and Internet access issues in global E-business

treat-Chapter 11: Computer Hardware

Coverage of computer hardware has been updated and revised, includingadded content on information appliances and thin clients, and elimination oftechnical details on CPU components

Chapter 12: Computer Software

Updated coverage of computer software, including business application ware, the Windows 2000 and Linux operating systems, and the XMLlanguage

soft-Chapter 13: Data Resource Management

Includes new content on data resource management, data warehouses, and datamining, and new in-text real world examples

Preface • xiii

Chapter 14: Telecommunications and Networks

Updated coverage of telecommunications network content, including trends,the Internet, fiber optics and wireless technologies, P2P networks, and band-width alternatives Coverage of business applications of telecommunicationsand the Internet has been moved to Chapter 3

Teaching and New to this edition, E-Tutor, authored by Ali Reza Montazemi of McMasters

Learning University, is an electronic tutor available free on CD-ROM that helps students

master basic key concepts before advancing to more complex topics E- Tutor is

Resources an interactive electronic product, with content from the textbook embedded into

a software shell, that provides learning sessions in coordination with sections andsubsections from the textbook It has the flexibility to allow students to workthrough the material at their own pace A presentation manager Instructor

CD-ROM is available to adopters and offers the following resources for coursepresentation and management:

• An Instructor's Resource Manual, authored by Margaret Trenholm-Edmunds

of Mount Allison University, contains suggestions for using the book incourses of varying lengths, detailed chapter outlines with teaching suggestionsfor use in lectures, and answers to all end-of-chapter questions, applicationexercises, and problems and case study questions Teaching tips for incorporat-ing the video clips are included for many chapters

• A Test Bank, authored by Margaret Trenholm-Edmunds of Mount AllisonUniversity, containing true-false, multiple choice, fill-in-the-blank, and shortessay questions

• Computerized/Network Testing with Brownstone Diploma software is fullynetworkable for LAN test administration; tests also can be printed for standardpaper delivery or posted to a website for student access

• Slide shows in Microsoft PowerPoint, authored by Margaret Edmunds of Mount Allison University, are available for each chapter tosupport classroom discussion of chapter concepts and real world cases

Trenholm-• Data/solutions files, authored by James N Morgan of Northern ArizonaUniversity, for the database and spreadsheet application exercises in the textare included

• Video clips are available that highlight how specific companies apply and useinformation technology

The McGraw-HilllIrwin Information Systems Video Library contains 14 10- to12-minute videos on numerous companies demonstrating use of a variety of IT likeintranets, multimedia, or computer-based training systems, and concepts likeclient/server computing and business process reengineering This library is availablefree to adopters For further information, visit www.mhhe.com/business/mis/videos

or contact your local McGraw-HilllIrwin sales representative A video lecture guidefor all 14 videos is included in the Instructor's Resource Manual

• Website/OLC- The book's website at http://www.mhhe.com/business/mis/

obrien/obrienSe provides resources for instructors and students using the text.The Online Learning Center (OLC) builds on the book's pedagogy and fea-tures with self-assessment quizzes, extra material not found in the text, Weblinks, and other resources for students and instructors

• Pageout-our Course Website Development Center Page out offers a syllabuspage, website address, Online Learning Center content, online quizzing,gradebook, discussion forum, and student Web page creation

xiv • Preface

Packaging Options The McGraw-Hill/Irwin Advantage, O'Leary, and Laudon Interactive computing

series are collections of software application manuals and interactive computer-based training products for Microsoft Office In addition, we offer several paperback Inter- net literacy books or CDs, perfect for introducing the World Wide Web, E-mail, and Web page design to students These texts and CDs are available for discounted packaging options with any McGraw-HilllIrwin title For more about our discount options, contact your local McGraw-HilllIrwin sales representative or visit our web- site at www.mhhe.com/it.

In addition, a softwarecasebook-Application Cases in MIS: Using Spreadsheet and Database Software and the Internet, fourth edition, by James N Morgan of Northern Arizona University-is available to supplement the hands-on exercises in this edi- tion This optional casebook contains an extensive number of hands-on cases, many

of which include a suggested approach for solving each case with the Internet, spreadsheet, or database management software packages to develop solutions for realistic business problems.

Acknowledgments The author wishes to acknowledge the assistance of the following reviewers whose

constructive criticism and suggestions helped invaluably in shaping the form and content of this text.

N oushin Ashrafi,University of Massachusetts-Boston

Harry C Benham,Montana State University

Karen E Bland-Collins,Morgan State University

Warren Boe, University of Iowa

Gurpreet Dhillon, University of Nevada-Las vegas

Sean B Eom, Southeast Missouri State University

Dale Foster,Memorial University of Newfoundland

Robert Fulkerth, Golden Gate University

Michelle L Kaarst-Brown, University of Richmond

Ronald J Kizior,Loyola University-Chicago

Douglas M Kline, Sam Houston State University

Andrew G Kotulic, YOrk College of Pennsylvania

Elizabeth E Little, The University of Central Oklahoma

Stephen L Loy,Eastern Kentucky University

Joan B Lumpkin, Wright State University

Pam Milstead,Louisiana Tech University

Murli Nagasundaram, Boise State University

Margaret H Neumann, Governors State University

Rene F Reitsma, St Francis Xavier University

Dolly Samson, VVeberState University

Tod Sedbrook, University of Northern Colorado

Richard S Segall,Arkansas State University

Dana v: Tesone, University of Hawaii and Nova Southeastern University

H Joseph Wen,New Jersey Institute of Technology

Jennifer J Williams, University of Southern Indiana

Karen L Williams, University of Texas-San Antonio

Preface • xv

My thanks also go to James N Morgan of Northern Arizona University, who is the author of the software casebook that can be used with this text and who devel- oped most of the hands-on Application Exercises in the text, as well as the data/solu- tions files on the Instructor CD-ROM I am also grateful to Margaret Trenholm- Edmunds of Mount Allison University, the author of the Instructor's Resource Manual, for her revision of this valuable teaching resource.

Much credit should go to several individuals who played significant roles in this project Thus, special thanks go to the editorial and production team at Irwin/McGraw-Hill, especially Rick Williamson, senior sponsoring editor; Christine Wright and Kelly Delso, developmental editors; Jeff Parr and Nicole Young, senior marketing managers; Christina Thornton-Villagomez and Claudia L McCowan, project managers; and Matthew Baldwin, designer Their ideas and hard work were invaluable contributions to the successful completion of the project Thanks also to Kay Pinto, whose word processing skills helped me meet my manuscript deadlines The contributions of many authors, publishers, and firms in the computer industry that contributed case material, ideas, illustrations, and photographs used in this text are also thankfully acknowledged.

A Special A special acknowledgment goes to Omar El Sawy,Arvind Malhotra, Sanjay Gosain, Acknowledo ment and Kerry Young for their award-winningMIS Quarterly article, "IT-Intensive Value

z:, Innovation in the Electronic Economy: Insights from Marshall Industries"; to Ravi

Kalakota and Marcia Robinson for their groundbreaking book, E-Business: Roadmap for Success; and to Patricia Seybold for her best-selling book on E-commerce:

Customers com: How to Create a Profitable Business Strategy for the Internet and Beyond.

Their pioneering works were invaluable sources for my coverage of E-business and E-commerce topics in this new edition.

Acknowledging The unique contribution of the hundreds of business firms and other the Real \Vodd of using organizations that are the subject of the real world cases, exercises, and exam- Business pies in this text is gratefully acknowledged The real-life situations faced by these

computer-firms and organizations provide the readers of this text with a valuable tion of the benefits and limitations of using the Internet and other information tech- nologies to enable electronic business and commerce, and enterprise communica- tions and collaboration in support of the business processes, managerial decision making, and strategic advantage of the E-business enterprise.

demonstra-James A O'Brien

1 Foundationsof InformationSystems in 2 Competing with Information

Section I: Foundation Concepts: Information Section I: Fundamentals of Strategic

Section II: Foundation Concepts: Business Section II: Using Information Technology

Management 20

3 The Intemetworked E-Business 5 Electronic Commerce Systems 161

Section I: The Internet, Intranets, and Extranets Fundamentals 162

and Collaboration 96

6 E-Business Decision Support 199

4 Electronic Business Systems 123 Section I: Decision Support in E-Business 200

Section I: Cross-Functional E-Business Section II: Artificial Intelligence Technologies

Section II: Functional E-Business Systems 137

7 Developing E-Business Strategies 247 8 Developing E-Business Solutions 275

Section I: E-BusinessPlanning Fundamentals 248 Section I: Developing E-Business Systems 276

Br-ief Contents • xvii

9 Security and Ethical Challenges 10 Enterprise and Global Management

of E-Business 313 of E-Business Technology 355

Section 1:Security, Ethical, and Societal Section I: Managing E-BusinessTechnologies 356

SectionII: Securitymanagement of E-Business 334 Management 371

11 Computer Hardware 391 13 Data Resource Management 465

Section II: Computer Peripherals: Input, Output, of Database Management 480

and Storage Technologies 405

14 Telecommunications and Networks 497

12 Computer Software 429 Section 1:Overview of Telecommunications

Section II: System Software: Computer System Alternatives 513

Management 444

Appendix: Real World Case Studies Al

Review Quiz Questions RQ 1

Selected References SRI

Glossary G 1

Name Index 11

Company Index 15

Subject Index 110

Module I Foundation Concepts

ec on : oun atlon oncepts: n ormatlon

Why Information Systems Are Important 4 SectionII: Foundation Concepts: Business

The Real World of Information Systems 4 Applications, Development, and Management 18Real World Case 1: Kepler's Books and Magazines: The Fundamental Roles ofIS Applications in Business 18

Small Business Bricks and Clicks Strategies 5 Analyzing CNET and Others 18

Analyzing Kepler's Books & Magazines 6 Real World Case 2: CNET, Oxygen Media, USAWhat YouNeed to Know 6 Networks, and Dell Computer: Business Lessons

n mmewor OZ' U.H1zess ProfesslOnal.f 6

What Is an Information System? 7 Trends in Information Systems 20

Information Technologies 7 The E-Business Enterprise 22

System Concepts: A Foundation 8 Types ofInformation Systems 25

What Is a System? 8 Opez'ations Support Systems 26

Feedback and Control 9 IVIanagement Support Systems 26

Other System Charactez'istics9 Othez' Classifications of Information Systems 27

Components of an Information System 10 Developing Business/IT Solutions 29

Information System Resources 11 Managerial Challenges ofInformation Technology 30

People Resources 11 Successand FailuzT with IT 30

Haz'dware Resources 11 Ethics and IT 32

Software Re.murces 12 Challenges of IT Careen 33

Data Resources 12 The IS Function 34

Netwoz'k Resources 13 Real World Case 3: Pepsi Cola Co.:

Web Marketing Strategies 40Information System Activities 14 Real World Case 4: Schilling Professional Staffing:

Input of Data Resoztl'ces 14 E- Business Home Warrior 41

Processing of Data into Information 14 Real World Case 5: Sobeys, Reebok, and Home Depot:

Output of Information Products 15 Success and Failure with IT 42

Information Quality 15

Contents • xix

Competing with Information Real World Case 2: McDonald's and American Express:

Buildinga Customer-Focused E-Business 57

vantage 44

The Role of Information Technology 60

Strategic IT 44

Improving BusinessQuality 61

Analyzing General Electric 44

Total Quality Management 61

Real World Case 1: General Electric Company:

Evaluating E-Business Strategies 45 Becomlllgan AgIleCompany 63

Competitive Strategy Concepts 46 Creating a Virtual Company 64

Strategic Uses ofInformation Technology 47 Virtual Company Strategies 65

Other Competitive Strategies 47 Building a Knowledge-Creating Company 66

The Value Chain and Strategic IS 49 Knowledge Management Systems 67

Internet-value Based Chains 51 Real World Case 3: Oracle Corporation:

E-BusinessCatch-up Strategies 75Identifying E-Businessand E-Commerce Strategies 52 I ld d

Rea Wor Case 4: E*Tra e Bank and Others:

Section II: Using Information Technology Evaluating Online Banking Strategies 76

for Strategic Advantage 55 Real World Case 5: Dell Computer Corp.:

Analyzing McDonald's and American Express 55

The Internetworked E-Business The Role of Extranets 94

Sect!' n I Th I t t I tr The Future ofIntranets and Extranets 94

o : e n erne, n anets,

and Extranets in Business 80 Section II: Enterprise Communication

The Internetworked E-BusinessEnterprise 80 and Collaboration 96

Analyzing Uniglobe.com and Allfirst Bank 80 Enterprise Collaboration 96

Real World Case 1: Uniglobe.com and AllfirstBank: Analyzing Groove Networks 96

Online Customer Care Alternatives 81 Real World Case 2: Groove Networks: The BusinessCase

OverviewofE-Business Applications 82 Teams, rVorkshops, and Collaboration 98

BusinessUse of the Internet 83 Enterprise Collaboration System Components 98

The BusinessValueof the Internet 85 Groupware for Enterprise Collaboration 98

Applicationsof Intranets 86 Electronic Communication Tools 100

Enterprise Information Portals 88 Electronic Mail 100

Advantage Sales and Marketing: Enterprise Internet Phone and Fax 101

Intranet Technology Resources 90 Electronic Conferencing Tools 102

The BusinessValue ofIntranets 91 Data and Voice Conferencing 103

Examples of Business value 92

xx • Contents

Videoconfez"encing 103

Discussion Forums 104

Chat Systems 105

Electronic Meeting Systems 106

Collaborative Work Management Tools 107

Calendaring and Scheduling 107

'Taskand Project Management 109

Section I: Cross-Functional E-Business

Systems 124

E-Business Applications 124

Analyzing Siebel Systems and Telstra 124

Real World Case 1: Siebel Systems and Telstra

Corporation: Benefits of Customer

Relationship Management 125

E-Business Application AI"chitecture 126

Cross-Functional Enterprise Systems 127

Enterprise Resource Planning 127

Customer Relationship Management 128

Enterprise Application Integration 131

Supply Chain Management 132

Online Transaction Processing 134

The Tmnsaction Processing Cycle 135

Section II: Functional E-Business Systems 137

Functional Business Systems 137

Analyzing Alcoa and Cisco Systems 137

Real World Case 2: Alcoa and Cisco Systems: Real-time

Manufacturing and Supply Chain Management 138

Real World Case 5: Covisint and Others: CollaborativeProduct Development in E-Commerce 122

Process Control 144

Machine Control 144

Robotics 145

Human Resource Systems 145

HRM and the Intel71et 146

HRM and COIpomte Int1-a11ets 146

Staffing the Organization 147

Training and Development 148

Financial Management Systems 151

Cash Management 151

Online Invest1nent Management 152

Capital Budgeting 152

Financial F01wasting and Planning 152

Real World Case 3: Solectron Electronics and Others:Failures in Supply Chain Management 158

Real World Case 4: Hitachi Semiconductorand Dell Computer: Benefits of EnterpriseApplication Integration 159

Real World Case 5: GE Capital and Others:

E- Business Challenges of Chief Financial Officers 160

Real World Case 1: eBay Inc and Amazon.com:Lessons from an E-Commerce Leader 163The Scope ofE-Commerce 164

Elect1"011ic Commene Technologies 165

Essential E-Commerce Processes 166

Access Control and Security 166

Profiling and PeI'sonalizing 167

Seal"chManagement 168

Content and Catalog Management 168

Wol'kfiow Management 169

Event Notification 171

Collaboration and Trading 171

Electronic Payment Processes 171

web Payment Processes 171

Electronic Funds Transfer 172

Micropayment Systems 172

Secure Electronic Payment5 172

Section II: E-Commerce Applications

and Issues 174

E-Commerce Application Trends 174

Analyzing Ma1ThaStewa1T.com 174

Real World Case 2: MarthaStewart.com:

Building an E-Commerce Website 175

E-Comme1'ce Trends 176

E-Business Decision Support 199

Section I: Decision Support in E- Business 200

E-Business and Decision Support 200

Analyzing Siemens AG 200

Real World Case 1: Siemens AG: The Business Case

for Global Knowledge Management 201

E-Business Decision SUpp07TTrends 202

Information, Decisions, and Management 203

Decision St1'ucture 204

Management Information Systems 204

Management Rep07TingAltel71atives 205

Online Analytical Processing 206

Decision Support Systems 208

DSS Models and Software 209

Geographic Information and Data Visualization

Data Mining for Decision Support 214

Executive Information Systems 215

Enterprise Portals and Decision Support 217

Ente1prise bzfo171lationPanels 217

Entelprise Knowledge Portals 218

Content.f • xxi

Business-to-Consumer E-Commerce 177

E-Commene Success Facto1J 177

Web Store Requirements 179

Developing a web Store 180

Se17JingYour Custome1J 181

Managing a web St07"e 182

Business-to- Business E-Commerce 183E-Commerce Marketplaces 184

Electronic Data Intenhange 186

Clicks and Bricks in E-Commerce 189

E-Commerce Integration 189

Other Clicks and Bricks Strategies 190

Real World Case 3: Compucision and InternationalCellulose: Challenges of B2B Marketplaces 196Real World Case 4: Florist.com and Others:

The Success of Small Business E-Commerce 197Real World Case 5: Wal-Mart, Kmart, Kingfisherand HMV: Retail Bricks and Clicks Strategies 198

Section II: Artificial Intelligence Technologies

in Business 220

Analyzing RivalWatch.com and Others 220

Real World Case 2: RivalWatch.com and Others: AI Toolsfor Competitive Business Intelligence 221

An Overview of Artificial Intelligence 222

The Domains of Artificial Intelligence 222

~eural~etworks 224Fuzzy Logic Systems 225

Fuzzy Logic in Business 225

Genetic Algorithms 227Virtual Reality 228

VR Applications 228

Intelligent Agents 229Expert Systems 230

Components of an Expert System 230

Expert System Applications 233

Developing Expert Systems 23 5

Knowledge Engineering 235The Value of Expert Systems 236

Benefits of ExpelT Systems 237

Limitations of ExpelT Systems 237

Real World Case 3: Procter &Gamble: The BusinessCase for Enterprise Portals 243

Real World Case 4: EMI Group: Using OLAPfor Strategic Decision Support 244

Real World Case 5: Ford Motor Company:

Using ~atural Language Intelligent Agents 245

Analyzing Accel Partners 248

Real World Case 1: Accel Partners: The Past, Present,

and Future ofE-Commerce 249

Organizational Planning 250

The Scenario Approach 250

Planning for Competitive Advantage 252

E-Business Planning 253

Infol7nation TechnologyArchitecture 254

E-Business Application Planning 255

E-Business Architecture Planning 256

Section II: Implementing E- Business

Analyzing Raytheon, Cutter, GE, and Honeywell 276

Real World Case 1: Raytheon, Cutter, GE,

and Honeywell: Quality in E-Business Systems

The Prototyping Process 280

Starting the Systems Development Process 281

Feasibility Studies 281

Systems Analysis 283

Organizational Analysis 283

Analysis of the Present System 284

Functional Requirement Analysis 285

Systems Design 286

User Interface Design 286

System Specifications 287

Computer-Aided Systems Engineering 287

End User Development 289

Implementation 258

Analyzing Cross Engineering, Pitney-Bowes, and Emerson 258

Real World Case 2: Cross Engineering, Pitney-Bowes,

and Emerson: Change Management Challenges

of CRM Systems 259Implementing E-Business Change 260End User Resistance and Involvement 261Change Management 262

A Change Management Process 264

Real World Case 3: Merrill Lynch: Catch-up Leader

in E-Commerce Technology 271

Real World Case 4: Eastman Chemical and the Vanguard

Group: Planning for Strategic E-Business Change 272

Real World Case 5: Brookfield Properties: Prototyping

E-Commerce Strategies 273

Focus on IS Activities 289

Doing End User Development 290

Section II: Implementing E-Business Systems 293

Implementation 293

Analyzing Select Comfort and VocalPoint 293

Real World Case 2: Select Comfort and VocalPoint:

Implementing Web System Changes 294Implementing New Systems 295Evaluating Hardware, Software, and Services 295

Hardware Evaluation Factors 296

Software Evaluation Factors 296

Evaluating IS Services 297

Other Implementation Activities 299

Testing 299

Documentation 300 Training 300 Conversion Methods 301

IS Maintenance 302

Real World Case 3: Southwest Airlines, Home Depot,

and BlueLight.com: Alternative E-CommerceWebsite Strategies 309

Real World Case 4: The Sports Authority and Others:

E-Commerce Website Design Requirements 310

Real World Case 5: Spirit Airlines: Failure in Systems

Implementation and Conversion 311

Contents • xxiii

Security and Ethical Challenges

Section I: Security, Ethical, and Societal

Challenges ofE-Business 314

Introduction 314

Analyzing the University ofU7ashington and Others 314

Real World Case 1: University of Washington

and Others: Vulnerability to Hacker Attacks

on E-Commerce Websites 315

E-Business, Security, Ethics, and Society 316

Computer Crime in E- Business 316

Section II: Security Management ofE-Business 334

E-Business Security 334

Analyzing the High- Tech Crime Network and eBSure 334

Real World Case 2: High-Tech Crime Network and

eBSure: Outsourcing Fire Walls and Network Security 335Security Management 336

Internetworked E- Business Defenses 337

EnC7yption 337 Fh'e U7alls337

Denial of Service Defenses 338 E-mail Monitoring 340

Computer Failure Controls 342

Fault Tolerant Systems 343

Disaster Recovezy 344

E-Business System Controls and Audits 344

Information Sy.>temControls 344

Auditing E-Business Systems 345

Real World Case 3: The FBI and Recourse Technologies:

Discovering Insider Security Threats 351

Real World Case 4: Visa, American Express,

and GM: Managing E-Business Security Risk 352

Real World Case 5: Acxiom Inc.: Consumer Privacy

Challenges in E-Business 353

Real World Case 1: Raytheon and Deere &Co.:

Metrics for E-Business Management 357Managers and E-Business Technologies 358

Pooz'IS Pezformance 359

Management Involvement and Govez'1zance 361

The E-Business Organization 361E-Business Technology Management 363

xxiv • Contents

Managing the IS Function 364 Cultural, Political, and Geoeconomic Challenges 373

Organizing IT 365 Global E-Business Strategies 374

Managing Application Development 367 Global E-Business Applications 375

Managing IS Operations 367 Global IT Platforms 377

Human Resource Management of IT 368 The Internet as a Global IT Platform 377

The CIO and Other IT Executives 369 Global Data Access Issues 378

TechnologyManagement 370 Internet Access L,sues 380

Managing User Services 370 Global Systems Development 381

Section II: Global E-Business Technology Systems Development St1'ategies 381

The International Dimension 371 in E- Business Technology Management 387

Analyzing TRTV, Toyota, and Cendant 371 Real World Case 4: Royal&Sun, Nypro, and Phillips

Real World Case 2: TRW, Toyota, Cendant: Petroleum: Managing Global Disaster Recovery 388Global E-Business Management Issues 372 Real World Case 5: Shutterfly, FedEx, and AltaVista:Global E-Business Technology Management 373 Global Outsourcing of Customer Support 389

Module V Review of Information Technologies

Computer Hardware 391 Pointing Devices 407

Section I: Computer Systems: End User Pen-Based Computing 409

and Enterprise Computing 392 Speech Recognition Systems 410

Analyzing BTG, NEC Elect1'onics,and Biogen 392 Optical Scanning 411

Real World Case 1: BTG, NEC Electronics, and Biogen: Other Input Technologies 412

The Business Case for Server Compute Farms 393 Output Technologies and Trends 413

Computer Generations 394 Printed Output 414

Microcomputer Systems 395 Storage Trends and Trade-Offs 415

Network Computers 397 Computer Storage Fundamentals 416

Information Appliances 398 Direct and Sequential Access 417

Computer Te17ninals 399 Semiconductor Memory 418

Midrange Computer Systems 399 Magnetic Disk Storage 419

Mainframes Computer Systems 400 'Typesof Magnetic Disks 419

Supercomputer Systems 400 RAID Storage 420

Technical Note: The Computer System Concept 403 Magnetic Tape Storage 420

Compute?' Processing Speeds 404 Optical Disk Storage 420

Section II: Computer Peripherals: Input, Output, Business Applications 421

and Storage Technologies 405 Real World Case 3: Office Depot and NetByTel:

Analyzing Longs Drugs and Text1'on 405 Web-Enabled Voice Recognition Systems 426

Real World Case 2: Longs Drugs and Textron: Real World Case 4: Staples, Ames, Best Buy and REI:Desktop Versus Network Computing 406 Using In-Store Web Kiosks 427

Input Technology Trends 407 Mainframes for Linux and Web Applications 428

Real World Case 1: Hershey Direct and Norm

Thompson: Evaluating Online Software Services 431

Application Software for End Users 433

Software Suites and Integrated Packages 434

Web Browsers and More 435

Electronic Mail 435

Word Processing and Desktop Publishing 436

Electronic Spreadsheets 437

Database Management 439

Presentation Graphics and Multimedia 440

Multimedia Software Technologies 440

Personal Information Managers 441

Groupware 442

Other Business Software 443

Section II: System Software: Computer

System Management 444

System Software Overview 444

Analyzing TravelNow and EEA Systems 444

Section I: Managing Data Resources 466

Data Resource Management 466

Analyzing Shop At Home and Others 466

Real World Case 1: Shop At Home and Others:

Data Resources Management for Business Intelligence 467

Foundation Data Concepts 468

The Database Management Approach 470

Using Database Management Software 471

Operating System Functions 446

Popular Operating Systems 448

Network Management Programs 450Database Management Systems 450Other System Management Programs 451Programming Languages 451

Machine Languages 452

Assembler Languages 452

High-Level Languages 452

Fourth-Generation Languages 453 Object-Oriented Languages 454

HTML,~L,andJava 454

Programming Software 456

Language Translat01"Programs 456 Programming Tools457

Real World Case 3: FreeMarkets Inc.:

Converting to "Windows 2000 Servers 462Real World Case 4: Transcentric and Aircast:

Evaluating XML Versus EDI 463Real World Case 5: Zagat Survey and Royal&SunAlliance: Evaluating Microsoft.net 464

Challenges of Data Resource Management 479

Section II: Technical Foundations

of Database Management 480

Database Management 480

xxvi • Contents

Analyzing 480

Database Structures 480

Real World Case 2: Payless Shoe Source:

The Challenges of Storage Management 481

Evaluation of Database Structures 484

Object Technology and the Web 485

Internetworking the Enterprise 498

Analyzing WebLinc and Othe7's 498

Real World Case 1: WebLinc and Others:

The Business Care for Wireless LANs 499

Trends in Telecommunications 500

Indusuy Trends 500

Technology Trends 500

Business Application Trends 502

The Business Value of Telecommunications 502

The Internet Revolution 503

Inte17let Applications 503

A Telecommunications Network Model 504

Types of Telecommunications Networks 505

Wide A7'ea Networks 506

Local Area Networks 506

Intranets and Exu'anets 506

Data Planning and Database Design 488

Real World Case 3: Liquid Audio and Others:

The Promise of Storage Area Networks 494Real World Case 4: UPMC Health, First Unionand Vencor: Storage Management Alternatives 495Real World Case 5: National City Bank and Staples:The Roles and Requirements of Data Mining 496

Real World Case 2: Piasecki Steel, Lguide.com andCyberTrain: Evaluating Broadband Alternatives 514Telecommunications Media 515

Twisted-Pair Wire 515

Coaxial Cable 515 Fiber Optics 516

Wireless Technologies 516

Terrestrial Microwave 516

Communications Satellites 516

Cellular and PCS Systems 517

The Wi7'elm Web 517

Network Architecture and Protocols 522

The OSI Model 523 The Internet's TCP/IP 523

Bandwidth Alternatives 523Switching Alternatives 524Real World Case 3: Northeast Utilities and GuaranteedOvernight Delivery: Challenges of Mobile WirelessApplications 531

Real World Case 4: Genuine Parts and Equity Residential:Evaluating Virtual Private Networks 532

Real World Case 5: American Honda and Ford:

Wireless Supply Chain Networks 533

COl/tentI • xxvii

Real World Case Studies Al The Casefor Online Markets A20

Textron Corporation: The E-Business The Casefor Bandwidth Trading A22

Transformation Process A3 Em"on s Startup Markets A23

The Chief Innovation Officer A3 Online l'vIarkets Risks and Rewards A23

The Trouble with Conglomerates A4 Covisint LLC: Challenges of an Industry-Led

Let the Transformation Begin AS Global Electronic Marketplace A25

Recreational Equipment Inc.: Climbing to Success Covisints Slow Start A26

Blazing New Retail Trails All Questioning the Business Model A31

Virgin Group Ltd.: Building an E-Commerce

Megaportal AI3

The Virgin King A13

A web Megastore Al3

Wireless M-Commerce Al6

Enron Corporation: Creating and Dominating

Electronic Markets AI8

The Multitasking Trader Al8

Subj ect Index 110

The Impact of EnronOnline A 18

Management Information Systems

Managing Information Technology in the E- Business Enterprise

Chapter Highlights Learning Objectives

Foundation Concepts: Infonnation Systems and able to:

Business Bricks-and-Clicks Strategies

2. Give examples to illustrate how E-business,What You Need to Know

electronic commerce, or enterprise collaboration

An IS Framework for Business Professionals

systems could support a firm's business processes,System Concepts: A Foundation

managerial decision making, and strategies forComponents of an Information System competitive advantage.

Information System Resources

3 Provide examples of the components of real worldInformation System Activities

information systems Illustrate that in an Recognizing Information Systems tion system, people use hardware, software, data,

Foundation Concepts: Business Applications, processing, output, storage, and control activitiesDevelopment, and Management that transform data resources into informationThe Fundamental Roles ofIS Applications in Business products

Real World Case: CNET, Oxygen Media, USA Networks, 4. Provide examples of several major types ofand Dell Computer: Business Lessons ofE-Commerce information systems from your experiences withvVarriors

business organizations in the real world

Trends in Information Systems

5 Identify several challenges that a businessThe E-Business Enterprise

manager might face in managing the successfulTypes ofInformation Systems

and ethical development and use of informationDeveloping Business/IT Solutions technology in a business.

Managerial Challenges of Information Technology

Success and Failure with IT

Ethics and IT

Challenges of IT Careers

4 • Module I / Foundation Concepts

Why The blending of Internet technologies and traditional business concerns is impacting all

Information industries and is really the latest phase in the ongoing evolution of business All Systems Are panies need to update their business infrastructures and change the way they work to respond more immediately to customer needs [12].

com-Important Why study information systems and information technology? That's the same as

ask-ing why anyone should study accountask-ing, finance, operations management, ing, human resource management, or any other major business function Informa- tion systems and technologies (including E-business and E-commerce technologies and applications) have become a vital component of successful businesses and organ- izations They thus constitute an essential field of study in business administration and management That's why most business majors must take a course in informa- tion systems Since you probably intend to be a manager, entrepreneur, or business professional, it is just as important to have a basic understanding of information sys- tems as it is to understand any other functional area in business.

market-The Real World Let's take a moment to bring the real world into our discussion of the importance

of Information of information systems (IS) and information technology (IT) Read the Real World Systems Case of Kepler's Books See Figure 1.1. &Magazines on the next page Then let's analyze it together.

Kepler's Books and Magazines: Small Business

6 • Module I / Foundation Concepts

Analyzing Kepler's We can learn a lot about the importance of information technology and

informa-Books & Ahgazines tion systems from the Real World Case of Kepler's Books & Magazines

This case dramatizes just one of the countless examples of the business challengesand opportunities created by the growth of the Internet and the World \Vide Web.Like many business owners, Clark Kepler wondered if his bookstore would survive theonslaught of powerful dotcom competitors like Amazon.com But Kepler's has sur-vived and thrived by adding new E-commerce services to the traditional mix of prod-ucts and services that its customers still wanted from their neighborhood bookstore.For example, Kepler's established its own E-commerce Web site and made arrange-ments with a nearby dotcom delivery company to provide same-day delivery servicefor customers who wanted it Thus, Kepler's has transformed itself into a "bricks andclicks" enterprise, blending the best features of traditional and electronic commerce.Thus, information technologies, including Internet-based information systems, areplaying a vital and expanding role in business Information technology can help allkinds of businesses improve the efficiency and effectiveness of their business processes,managerial decision making, and workgroup collaboration and thus strengthen theircompetitive positions in a rapidly changing marketplace This is true whetherinformation technology is used to support product development teams, customersupport processes, interactive electronic commerce transactions, or any other businessactivity Internet-based information technologies and systems are fast becoming anecessary ingredient for business success in today's dynamic global environment

What You Need There is no longer any distinction between an IT project and a business initiative IT

to Know at Marriott is a key component of the products and services that we provide to our

customers and guests at our properties As such, there's very little that goes on within the company that either I personally or one of my top executives is not involved in [13].

Those are the words of Carl Wilson, executive vice-president and CIa of riott International So even top executives and managers must learn how to applyinformation systems and technologies to their unique business situations In fact,business firms depend on all of their managers and employees to help them managetheir use of information technologies So the important question for any businessprofessional or manager is: What do you need to know in order to help manage thehardware, software, data, and network resources of your business, so they are usedfor the strategic success of your company?

Mar-An IS Framework The field of information systems encompasses many complex technologies, abstract

for' Business behavioral concepts, and specialized applications in countless business and

nonbusi-Professionals ness areas As a manager or business professional you do not have to absorb all of

this knowledge Figure 1.2 illustrates a useful conceptual framework that organizesthe knowledge presented in this text and outlines what you need to know aboutinformation systems It emphasizes that you should concentrate your efforts in fiveareas of knowledge:

• Foundation Concepts. Fundamental behavioral, technical, business, andmanagerial concepts about the components and roles of information systems.Examples include basic information system concepts derived from generalsystems theory, or competitive strategy concepts used to develop E-businessapplications of information technology for competitive advantage Chapters 1and 2 and other chapters of the text support this area of knowledge

• Business Applications. The major uses of information systems for the tions, management, and competitive advantage of an E-business enterprise,including electronic business, commerce, collaboration and decision makingusing the Internet, intranets, and extranets are covered in Chapters 3through 6

special-• Management Challenges. The challenges of effectively and ethically ing E-business technologies, strategies, and security at the end user, enterprise,and global levels of a business Chapters 9 and 10 specifically cover these top-ics, but all of the chapters in the text emphasize the managerial challenges ofinformation technology in today's global E-business environment.

manag-• Information Technologies. Major concepts, developments, and managementissues in information technology-that is, hardware, software, networks, dataresource management, and many Internet-based technologies Chapters 11through 14 provide you with review coverage of such topics that supports thisarea of information systems knowledge

In this chapter, we will discuss some of the foundation concepts of informationsystems and introduce other topics that give you an overview of the five areas of ISknowledge covered in this text

Let's begin with a simple definition of an information system, which we will expand

in the next few pages An information system can be any organized combination

of people, hardware, software, communications networks, and data resources thatcollects, transforms, and disseminates information in an organization See Figure 1.3.People have relied on information systems to communicate with each other using avariety of physical devices (hardware), information processing instructions andprocedures (software), communications channels (networks), and stored data (data resources)since the dawn of civilization

Business professionals rely on many types of information systems Some tion systems use simple manual (paper-and-pencil) hardware devices and informal(word-of-mouth) communications channels However, in this text, we will concen-trate on computer-based information systemsthat use computer hardware and software,the Internet and other telecommunications networks, computer-based data resourcemanagement techniques, and many other information technologies to transformdata resources into an endless variety of information products for consumers andbusiness professionals Now let's look at some of the basic foundation concepts ofinformation systems

informa-System System concepts underlie the field of information systems That's why we need to

Concepts A discuss how generic system concepts apply to business firms and the components

.• and activities of information systems Understanding system concepts will help you

Foundation understand many other concepts in the technology, applications, development, and

management of information systems that we will cover in this text For example, tem concepts help you understand:

sys-• Technology That computer networks are systems of information processingcomponents that use a variety of hardware, software, data, and telecommunica-tions technologies

• Applications That electronic business and commerce applications involveinterconnected business information systems

• Development That developing ways to use information technology in ness includes designing the basic components of information systems

busi-• Management That managing information technology emphasizes the quality,strategic business value, and security of an organization's information systems

\Vhat Is a \Vhat is a system? A system can be most simply defined as a group of interrelated or

interacting elements forming a unified whole Many examples of systems can befound in the physical and biological sciences, in modern technology, and in humansociety Thus, we can talk of the physical system of the sun and its planets, the bio-logical system of the human body, the technological system of an oil refinery, andthe socioeconomic system of a business organization

However, the following generic system concept provides a more appropriatefoundation concept for the field of information systems: a system is a group of inter-related components working together toward a common goal by accepting inputsand producing outputs in an organized transformation process

Such a system (sometimes called a dynamic system) has three basic interactingcomponents or functions:

• Input involves capturing and assembling elements that enter the system to be

processed For example, raw materials, energy, data, and human effort must besecured and organized for processing

• Processing involves transformation processes that convert input into output.Examples are a manufacturing process, the human breathing process, or math-ematical calculations

• Output involves transferring elements that have been produced by a

transforma-tion process to their ultimate destinatransforma-tion For example, finished products, humanservices, and management information must be transmitted to their human users

Chaptel- 1 / Foundations of InfO/mation Systems in Business • 9

A manufacturing system accepts raw materials as input and produces finished goods

as output An information system is a system that accepts resources (data) as inputand processes them into products (information) as output A business organization is asystem where economic resources are transformed by various business processes intogoods and services •

The system concept becomes even more useful by including two additional nents: feedback and control A system with feedback and control components is

compo-sometimes called a cybernetic system, that is, a self-monitoring, self-regulating system

• Feedback is data about the performance of a system For example, data aboutsales performance is feedback to a sales manager

• Control involves monitoring and evaluating feedback to determine whether asystem is moving toward the achievement of its goal The control functionthen makes necessary adjustments to a system's input and processing compo-nents to ensure that it produces proper output For example, a sales managerexercises control when reassigning salespersons to new sales territories afterevaluating feedback about their sales performance

A familiar example of a self-monitoring, self-regulating system is the

thermostat-controlled heating system found in many homes; it automatically monitors and

regulates itself to maintain a desired temperature Another example is the humanbody, which can be regarded as a cybernetic system that automatically monitorsand adiusts many of its functions, such as temperature, heartbeat, and breathing

A business also has many control activities For example, computers may monitorand control manufacturing processes, accounting procedures help control financialsystems, data entry displays provide control of data entry activities, and sales quotasand sales bonuses attempt to control sales performance •

Figure 1.4uses a business organization to illustrate the fundamental components of

a system, as well as several other system characteristics Note that a system does not

exist in a vacuum, rather, it exists and functions in an environment containing othersystems If a system is one of the components of a larger system, it is a subsystem,

and the larger system is its environment

Several systems may share the same environment Some of these systems may beconnected to one another by means of a shared boundary, or inte1face Figure 1.5 also illustrates the concept of an open system; that is, a system that interacts with

other systems in its environment In this diagram, the system exchanges inputs andoutputs with its environment Thus, we could say that it is connected to its envi-ronment by input and output interfaces Finally, a system that has the ability tochange itself or its environment in order to survive is an adaptive system.

Organizations such as businesses and government agencies are good examples ofthe systems in society, which is their environment Society contains a multitude of suchsystems, including individuals and their social, political, and economic institutions.Organizations themselves consist of many subsystems, such as departments, divisions,process teams, and other workgroups Organizations are examples of open systemsbecause they interface and interact with other systems in their environment Finally,organizations are examples of adaptive systems, since they can modify themselves tomeet the demands of a changing environment •

Components of We are now ready to apply the system concepts we have learned to help us better

an Information ~ndersta~d how an ~nformation system works For example, w.e have said that an

mformatlOn system IS a system that accepts data resources as mput and processes

System them into information products as output How does an information system

accom-plish this? What system components and activities are involved?

Figure 1.5 illustrates an infonnation system model that expresses a tal conceptual framework for the major components and activities of informationsystems An information system depends on the resources of people (end users and

fundamen-IS specialists), hardware (machines and media), software (programs and procedures),data (data and knowledge bases), and networks (communications media and networksupport) to perform input, processing, output, storage, and control activities thatconvert data resources into information products

This information system model highlights the relationships among the nents and activities of information systems It provides a framework that emphasizesfour major concepts that can be applied to all types of information systems:

compo-• People, hardware, software, data, and networks are the five basic resources ofinformation systems

• People resources include end users and IS specialists, hardware resources sist of machines and media, software resources include both programs andprocedures, data resources can include data and knowledge bases, and networkresources include communications media and networks

con-• Data resources are transformed by information processing activities into a ety of information products for end users

vari-• Information processing consists of input, processing, output, storage, and trol activities

con-Information Our basic IS model shows that an information system consists of five major resources:

System people, hardware, software, data, and networks Let's briefly discuss several basic

concepts and examples of the roles these resources playas the fundamental components

Resources of information systems You should be able to recognize these five components at

work in any type of information system you encounter in the real world Figure 1.6outlines several examples of typical information system resources and products.People Resources People are required for the operation of all information systems These people

resources include end users and IS specialists

• End users (also called users or clients) are people who use an informationsystem or the information it produces They can be accountants, salespersons,engineers, clerks, customers, or managers Most of us are information systemend users And most end users in business are knowledge workers, that is,people who spend most of their time communicating and collaborating inteams and workgroups and creating, using, and distributing information

• IS specialists are people who develop and operate information systems Theyinclude systems analysts, software developers, system operators, and othermanagerial, technical, and clerical IS personnel Briefly, systems analysts designinformation systems based on the information requirements of end users, soft-ware developers create computer programs based on the specifications ofsystems analysts, and system operators help to monitor and operate large com-puter systems and networks

Hardware Resources The concept of hardware resources includes all physical devices and materials used

in information processing Specifically, it includes not only machines, such as puters and other equipment, but also all data media, that is, tangible objects onwhich data are recorded, from sheets of paper to magnetic or optical disks Exam-ples of hardware in computer-based information systems are: