Read Case – Five Famous ERP Failures and answer the Four questions on page 223 in a three to

five page paper excluding title, abstract, and reference pages, include at least three peer reviewed

sources found in the Potomac Library properly cited and referenced.

Please use this strategy when you analyze a case:

1. Identify and write the main issues found discussed in the case

(who, what, how, where and when (the critical facts in a case).

2. List all indicators (including stated “problems”) that something is

not as expected or as desired.

3. Briefly analyze the issue with theories found in your textbook or

other academic materials. Decide which ideas, models, and

theories seem useful. Apply these conceptual tools to the

situation. As new information is revealed, cycle back to sub steps

a and b.

4. Identify the areas that need improvement (use theories from your

textbook)

o Specify and prioritize the criteria used to choose action

alternatives.

o Discover or invent feasible action alternatives.

o Examine the probable consequences of action alternatives.

o Select a course of action.

o Design and implementation plan/schedule.

o Create a plan for assessing the action to be implemented.

5. Conclusion (every paper should end with a strong conclusion or

summary)

Writing Requirements

 5 pages in length (excluding cover page, abstract, and

reference list)

 APA format, Use the APA template located in the Student

Resource Center to complete the assignment.

 Please use the Case Study Guide as a reference point for writing

your case study.

baL6732X_fm_i-xxx.indd i 11/08/16 03:47 PM
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baL6732X_fm_i-xxx.indd ii 11/04/16 09:15 PM
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baL6732X_fm_i-xxx.indd iii 11/04/16 09:15 PM
Business
Driven
Technology
SEVENTH EDITION
Paige Baltzan
Daniels College of Business
University of Denver
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baL6732X_fm_i-xxx.indd iv 12/20/16 09:22 PM
BUSINESS DRIVEN TECHNOLOGY, SEVENTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2013, 2010,
and 2009. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a
database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited
to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
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ISBN 978-1-259-56732-2
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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.
Library of Congress Cataloging-in-Publication Data
Names: Baltzan, Paige, author.
Title: Business driven technology / Paige Baltzan, Daniels College of
Business, University of Denver.
Description: Seventh edition. | New York, NY : McGraw-Hill Education, [2018]
Identifiers: LCCN 2016038028 | ISBN 9781259567322 (alk. paper)
Subjects: LCSH: Information technology—Management. | Management information
systems. | Information resources management. | Industrial
management—Technological innovations.
Classification: LCC HD30.2 .H32 2018 | DDC 658.4/038—dc23 LC record available
at https://lccn.loc.gov/2016038028
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not
indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee
the accuracy of the information presented at these sites.
www.mhhe.com
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baL6732X_fm_i-xxx.indd v 11/04/16 09:15 PM
In memory of Allan R. Biggs, my father, my mentor,
and my inspiration.
Paige
To my mother Sophie, my father Thomas, my
brother Tom, and my wonderful husband Mel–
without whom I would not be who I am today.
Thank you all for your love, support, and undying
confidence in me.
Patricia
D E D I C AT I O N
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vi * Brief Table of Contents
baL6732X_fm_i-xxx.indd vi 11/04/16 09:15 PM
1. Achieving Business Success
Chapter 1: Business Driven Technology
Chapter 2: Identifying Competitive Advantages
Chapter 3: Strategic Initiatives for Implementing Competitive Advantages
Chapter 4: Measuring the Success of Strategic Initiatives
Chapter 5: Organizational Structures That Support Strategic Initiatives
2 Exploring Business Intelligence
Chapter 6: Valuing and Storing Organizational Information—Databases
Chapter 7: Accessing Organizational Information—Data Warehouses
Chapter 8: Understanding Big Data and Its Impact on Business
3 Streamlining Business Operations
Chapter 9: Enabling the Organization—Decision Making
Chapter 10: Extending the Organization—Supply Chain Management
Chapter 11: Building a Customer-Centric Organization—Customer Relationship Management
Chapter 12: Integrating the Organization from End to End—Enterprise Resource Planning
4 Building Innovation
Chapter 13: Creating Innovative Organizations
Chapter 14: Ebusiness
Chapter 15: Creating Collaborative Partnerships
Chapter 16: Integrating Wireless Technology in Business
5 Transforming Organizations
Chapter 17: Developing Software to Streamline Operations
Chapter 18: Methodologies for Supporting Agile Organizations
Chapter 19: Managing Organizational Projects
B R I E F T A B L E O F C O N T E N T S
UNITS
B1 Business Basics
B2 Business Process
B3 Hardware and Software Basics
B4 MIS Infrastructures
B5 Networks and Telecommunications
B6 Information Security
B7 Ethics
B8 Operations Management
B9 Sustainable MIS Infrastructures
B10 Business Intelligence
B11 Global Information Systems
B12 Global Trends
T1 Personal Productivity Using IT
T2 Basic Skills Using Excel
T3 Problem Solving Using Excel
T4 Decision Making Using Excel
T5 Designing Database Applications
T6 Basic Skills Using Access
T7 Problem Solving Using Access
T8 Decision Making Using Access
T9 Designing Web Pages
T10 Creating Web Pages Using HTML
T11 Creating Gantt Charts with Excel and Microsoft
Project
BUSINESS PLUG-INS
TECHNOLOGY PLUG-INS (CONNECT ONLY)
Apply Your Knowledge Projects
Glossary
Notes
Index
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Table of Contents * vii
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Metrics for Strategic Initiatives 62
Chapter 4 Case: Manipulating the Data to Find Your
Version of the Truth 66
CHAPTER 5: ORGANIZATIONAL STRUCTURES THAT SUPPORT
STRATEGIC INITIATIVES 71
Information Ethics 71
Information Does Not Have Ethics: People Do 72
Information Security 73
Security Threats Caused by Hackers and Viruses 74
Chapter 5 Case: Targeting Target 77
Learning Outcome Review 79
Review Questions 79
Making Business Decisions 79
Unit Summary 82
Key Terms 82
Unit Closing Case One: The Internet of Things 83
Unit Closing Case Two: Five Ways Hackers Can Get into
Your Business 85
Apply Your Knowledge 87
AYK Application Projects 92
UNIT 2 94
Exploring Business Intelligence 94
Big Data, Big Business, Big Opportunities 95
Introduction 98
CHAPTER 6: VALUING AND STORING ORGANIZATIONAL
INFORMATION—DATABASES 99
The Business Benefits of High-Quality Information 99
Information Type: Transactional and Analytical 100
Information Timeliness 101
Information Quality 101
Information Governance 104
Storing Information Using a Relational Database
Management System 104
Storing Data Elements in Entities and Attributes 105
Creating Relationships through Keys 105
Coca-Cola Relational Database Example 106
Using a Relational Database for Business Advantages 108
Increased Flexibility 108
Increased Scalability and Performance 108
Reduced Information Redundancy 109
Increased Information Integrity (Quality) 109
Increased Information Security 109
Driving Websites with Data 110
Website Data 110
Integrating Information among Multiple Databases 112
Data Integration 112
Chapter 6 Case: Political Microtargeting: What Data
Crunchers Did for Obama 114
T A B L E O F C O N T E N T S
About the Author xi
Preface xiv
UNIT 1 2
Achieving Business Success 2
Buy Experiences, Not Things 3
Introduction 5
CHAPTER 1: BUSINESS DRIVEN TECHNOLOGY 6
Competing in the Information Age 6
Data 7
Information 9
Business Intelligence 10
Knowledge 11
The Challenge: Departmental Companies 12
The Solution: Management Information Systems 13
Chapter 1 Case: The World Is Flat—Thomas Friedman 16
CHAPTER 2: IDENTIFYING COMPETITIVE ADVANTAGES 21
Identifying Competitive Advantages 21
SWOT Analysis: Understanding Business Strategies 23
The Five Forces Model—Evaluating Industry
Attractiveness 24
Buyer Power 24
Supplier Power 25
Threat of Substitute Products or Services 25
Threat of New Entrants 26
Rivalry Among Existing Competitors 26
Analyzing the Airline Industry 26
The Three Generic Strategies—Choosing a Business
Focus 27
Value Chain Analysis—Executing Business Strategies 28
Chapter 2 Case: Michael Porter on TED—The Case for
Letting Business Solve Social Problems 31
CHAPTER 3: STRATEGIC INITIATIVES FOR IMPLEMENTING
COMPETITIVE ADVANTAGES 36
Business Process Reegineering 36
Business Process Reengineering 37
Business Process Modeling 40
Supply Chain Management 43
Customer Relationship Management 46
Enterprise Resource Planning 49
Chapter 3 Case: Amazon Drone Knocking 52
CHAPTER 4: MEASURING THE SUCCESS OF STRATEGIC
INITIATIVES 56
MIS Roles and Responsibilities 56
Metrics: Measuring Success 59
Efficiency and Effectiveness Metrics 60
The Interrelationship between Efficiency and
Effectiveness MIS Metrics 60
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viii * Table of Contents
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CHAPTER 10: EXTENDING THE ORGANIZATION—SUPPLY CHAIN
MANAGEMENT 180
Information Technology’s Role in the Supply Chain 180
Technologies Reinventing the Supply Chain 182
3D Printing Supports Procurement 184
RFID Supports Logistics 185
Drones Support Logistics 187
Robotics Supports Materials Management 187
The Extended Supply Chain 188
Chapter 10 Case: ETSY 189
CHAPTER 11: BUILDING A CUSTOMER-CENTRIC ORGANIZATION—
CUSTOMER RELATIONSHIP MANAGEMENT 194
Customer Relationship Management 194
The Power of the Customer 195
Operational and Analytical CRM 195
Marketing and Operational CRM 195
Sales and Operational CRM 198
Customer Service and Operational CRM 200
Analytical CRM 201
Extending Customer Relationship Management 201
Supplier Relationship Management 202
Partner Relationship Management 202
Employee Relationship Management 203
Chapter 11 Case: Zappos Is Passionate for Customers 204
CHAPTER 12: INTEGRATING THE ORGANIZATION FROM END TO
END—ENTERPRISE RESOURCE PLANNING 209
Enterprise Resource Planning (ERP) 209
Bringing the Organization Together 210
The Evolution of ERP 211
Integration Tools 212
Core and Extended ERP Components 214
Core ERP Components 214
Extended ERP Components 216
Measuring ERP Success 217
The Future of ERP 218
On-Premise ERP 218
Cloud ERP 218
Hybrid ERP 220
Chapter 12 Case: Five Famous ERP Failures 222
Learning Outcome Review 224
Review Questions 224
Making Business Decisions 225
Unit Summary 226
Key Terms 226
Unit Closing Case One: Action Finally 227
Unit Closing Case Two: Dream It, Design It, 3D
Print It 229
Apply Your Knowledge 230
AYK Application Projects 236
UNIT 4 238
Building Innovation 238
Slack–Be Less Busy 239
Introduction 241
CHAPTER 13: CREATING INNOVATIVE ORGANIZATIONS 242
Disruptive Technologies and Web 1.0 242
CHAPTER 7: ACCESSING ORGANIZATIONAL INFORMATION—DATA
WAREHOUSES 119
Data Warehousing 119
History of the Data Warehouse 119
Data Mart 121
Information Cleansing (or Scrubbing) 122
Business Intelligence 124
The Problem: Data Rich, Information Poor 125
The Solution: Business Intelligence 125
Chapter 7 Case: Zillow 127
CHAPTER 8: UNDERSTANDING BIG DATA AND ITS IMPACT ON
BUSINESS 131
The Power of Big Data 131
Distributed Computing 131
Virtualization 133
Analyzing Big Data 133
Data Mining 134
Data-Mining Process Model 135
Data-Mining Analysis Techniques 135
Data Mining Modeling Techniques for
Predictions 139
Data Analysis 140
Advanced Data Analytics 141
Data Visualization 142
Chapter 8 Case: Mining the Data Warehouse 144
Learning Outcome Review 146
Review Questions 146
Making Business Decisions 147
Unit Summary 149
Key Terms 149
Unit Closing Case One: Data Visualization: Stories for the
Information Age 150
Unit Closing Case Two: Informing Information 152
Apply Your Knowledge 155
AYK Application Projects 159
UNIT 3 160
Streamlining Business Operations 160
The Connected Car Revolution 161
Introduction 163
CHAPTER 9: ENABLING THE ORGANIZATION—DECISION
MAKING 164
Making Business Decisions 164
The Decision-Making Essentials 164
Support: Enhancing Decision Making with MIS 167
Operational Support Systems 167
Managerial Support Systems 169
Strategic Support Systems 170
The Future: Artificial Intelligence 172
Expert Systems 173
Neural Networks 173
Genetic Algorithms 174
Intelligent Agents 175
Virtual Reality 175
Chapter 9 Case: Defense Advanced Research Projects Agency
(DARPA) Grand Challenge 176
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Table of Contents * ix
baL6732X_fm_i-xxx.indd ix 11/04/16 09:15 PM
Wireless MANs 284
Wireless WAN—Cellular Communication System 285
Wireless WAN—Satellite Communication System 287
Protecting Wireless Connections 287
Managing Mobile Devices 288
Business Applications of Wireless Networks 288
Radio-Frequency Identification (RFID) 289
Global Positioning System (GPS) 290
Geographic Information Systems (GIS) 291
Chapter 16 Case: Square 293
Learning Outcome Review 294
Review Questions 294
Making Business Decisions 294
Unit Summary 297
Key Terms 297
Unit Closing Case One: Bitcoin 299
Unit Closing Case Two: Disrupting the Taxi: Uber 300
Apply Your Knowledge 302
AYK Application Projects 306
UNIT 5 308
Transforming Organizations 308
Gamer Delight 309
Introduction 311
CHAPTER 17: DEVELOPING SOFTWARE TO STREAMLINE
OPERATIONS 312
The Systems Development Life Cycle (SDLC) 312
Phase 1: Planning 314
Phase 2: Analysis 314
Phase 3: Design 315
Phase 4: Development 316
Phase 5: Testing 316
Phase 6: Implementation 318
Phase 7: Maintenance 319
Chapter 17 Case: Reducing Ambiguity in Business
Requirements 320
CHAPTER 18: METHODOLOGIES FOR SUPPORTING AGILE
ORGANIZATIONS 325
Software Development Methodologies 325
Rapid Application Development (RAD) Methodology 327
Extreme Programming Methodology 327
Rational Unified Process (RUP) Methodology 328
Scrum Methodology 328
Developing a Service-Oriented Architecture 328
Interoperability 330
Loose Coupling 330
SOA Service 331
Chapter 18 Case: Getting Your Project on Track 332
CHAPTER 19: MANAGING ORGANIZATIONAL PROJECTS 338
Using Project Management to Deliver Successful
Projects 338
Unclear or Missing Business Requirements 339
Skipped Phases 339
Changing Technology 340
The Cost of Finding Errors in the SDLC 340
Balance of the Triple Constraints 341
Disruptive versus Sustaining Technology 242
The Internet and World Wide Web—The Ultimate Business
Disruptors 244
Web 1.0: The Catalyst for Ebusiness 244
Advantages of Ebusiness 246
Expanding Global Reach 246
Opening New Markets 246
Reducing Costs 246
Improving Effectiveness 248
Chapter 13 Case: Disruptive Innovation 250
CHAPTER 14: EBUSINESS 255
Ebusiness Models 255
Business-to-Business (B2B) 255
Business-to-Consumer (B2C) 256
Consumer-to-Business (C2B) 256
Consumer-to-Consumer (C2C) 256
Ebusiness Forms and Revenue-Generating Strategies 256
Ebusiness Tools for Connecting and Communicating 258
Email 258
Instant Messaging 259
Podcasting 259
Videoconferencing 259
Web Conferencing 260
Content Management Systems 260
The Challenges of Ebusiness 260
Identifying Limited Market Segments 260
Managing Consumer Trust 261
Ensuring Consumer Protection 261
Adhering to Taxation Rules 261
Chapter 14 Case: HelloFresh Hello Delicious 261
CHAPTER 15: CREATING COLLABORATIVE PARTNERSHIPS 266
Web 2.0: Advantages of Business 2.0 266
Content Sharing through Open Sourcing 266
User-Contributed Content 267
Collaboration inside the Organization 267
Collaboration outside the Organization 268
Networking Communities with Business 2.0 269
Social Tagging 270
Business 2.0 Tools for Collaborating 271
Blogs 271
Wikis 272
Mashups 272
The Challenges of Business 2.0 273
Technology Dependence 273
Information Vandalism 273
Violations of Copyright and Plagiarism 273
Web 3.0: Defining the Next Generation of Online Business
Opportunities 273
Egovernment: The Government Moves Online 274
Mbusiness: Supporting Anywhere Business 274
Chapter 15 Case: Pinterest—Billboards for the Internet 275
CHAPTER 16: INTEGRATING WIRELESS TECHNOLOGY IN
BUSINESS 282
Wireless Network Categories 282
Personal Area Networks 282
Wireless LANs 283
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x * Table of Contents
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Business Process Modeling Examples 391
Plug-In Summary 394
Key Terms 394
Making Business Decisions 394
B3: Hardware and Software Basics 396
Introduction 396
Hardware Basics 396
Central Processing Unit 397
Primary Storage 398
Secondary Storage 400
Input Devices 401
Communication Devices 403
Computer Categories 403
Software Basics 406
System Software 406
Application Software 407
Distributing Application Software 407
Key Terms 409
Plug-In Summary 409
Making Business Decisions 409
B4: MIS Infrastructures 412
The Business Benefits of a Solid MIS Infrastructure 412
Supporting Operations: Information MIS Infrastructure 413
Backup and Recovery Plan 414
Disaster Recovery Plan 415
Business Continuity Plan 417
Supporting Change: Agile MIS Infrastructure 419
Accessibility 419
Availability 420
Maintainability 421
Portability 421
Reliability 421
Scalability 422
Usability 422
Plug-In Summary 423
Key Terms 423
Making Business Decisions 423
B5: Networks and Telecommunications 428
Introduction 428
Network Basics 428
Architecture 429
Peer-to-Peer Networks 430
Client/Server Networks 431
Topology 431
Protocols 431
Ethernet 432
Transmission Control Protocol/Internet Protocol 433
Media 435
Wire Media 435
Wireless Media 436
Plug-In Summary 437
Key Terms 437
Making Business Decisions 437
Primary Project Planning Diagrams 342
Outsourcing Projects 345
Outsourcing Benefits 346
Outsourcing Challenges 346
Chapter 19 Case: Disaster at Denver International
Airport 347
Learning Outcome Review 348
Review Questions 348
Making Business Decisions 349
Unit Summary 351
Key Terms 351
Unit Closing Case One: To Share—Or Not To Share 352
Unit Closing Case Two: Box Up Your Data 355
Apply Your Knowledge 357
AYK Application Projects 362
Business Plug-Ins
B1: Business Basics 364
Introduction 364
Types of Business 364
Sole Proprietorship 365
Partnership 365
Corporation 365
Internal Operations of a Corporation 367
Accounting 367
Financial Statements 367
Finance 369
Financial Analysis 369
Human Resources 370
Management Techniques 370
Sales 371
The Sales Process 371
Market Share 371
Marketing 373
Marketing Mix 373
Customer Segmentation 373
The Product Life Cycle 375
Operations/Production 375
Transforming Corporations 375
Management Information Systems 376
Plug-In Summary 378
Key Terms 378
Making Business Decisions 379
B2: Business Process 380
Introduction 380
Examining Business Processes 380
Business Process Improvement 383
Business Process Reengineering (BPR) 384
Business Process Design 385
Business Process Management (BPM) 387
Is BPM for Business or IT? 388
BPM Tools 389
BPM Risks and Rewards 389
Critical Success Factors 390
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Table of Contents * xi
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Business Benefits of BI 492
Categories of BI Benefits 493
Plug-In Summary 496
Key Terms 496
Making Business Decisions 496
B11: Global Information Systems 500
Introduction 500
Globalization 500
Cultural Business Challenges 501
Political Business Challenges 501
Global Geoeconomic Business
Challenges 502
Global MIS Business Strategies 502
Governance and Compliance 503
Global Enterprise Architectures 505
Global Information Issues 506
Information Privacy 506
Europe 507
The United States 508
Canada 509
Global Systems Development 509
Plug-In Summary 510
Key Terms 510
Making Business Decisions 510
B12: Global Trends 512
Introduction 512
Reasons to Watch Trends 512
Trends Shaping Our Future 513
The World’s Population Will Double in the Next 40
Years 513
People in Developed Countries Are Living
Longer 514
The Growth in Information Industries Is Creating a
Knowledge-Dependent Global Society 514
The Global Economy Is Becoming More
Integrated 515
The Economy and Society Are Dominated by
Technology 515
Pace of Technological Innovation Is Increasing 516
Time Is Becoming One of the World’s Most Precious
Commodities 516
Technologies Shaping Our Future 516
The Digital Mesh 516
Smart Machines 517
The New IT Reality 518
Plug-In Summary 519
Key Terms 519
Making Business Decisions 519
Apply Your Knowledge Projects AYK-2
Glossary G-1
Notes N-1
Index I-1
B6: Information Security 440
The First Line of Defense—People 440
The Second Line of Defense—Technology 441
People: Authentication and Authorization 441
Data: Prevention and Resistance 444
Attack: Detection and Response 445
Plug-In Summary 447
Key Terms 447
Making Business Decisions 447
B7: Ethics 450
Developing Information Management Policies 450
Ethical Computer Use Policy 450
Information Privacy Policy 451
Acceptable Use Policy 452
Email Privacy Policy 452
Social Media Policy 453
Workplace Monitoring Policy 454
Plug-In Summary 456
Key Terms 456
Making Business Decisions 456
B8: Operations Management 460
Introduction 460
Operations Management Fundamentals 460
MIS’s Role in OM 463
OM Strategic Business Systems 463
Competitive OM Strategy 465
Cost 465
Quality 465
Delivery 466
Flexibility 466
Service 467
OM and the Supply Chain 467
PLUG-IN SUMMARY 468
KEY TERMS 468
MAKING BUSINESS DECISIONS 468
B9: Sustainable MIS Infrastructures 470
MIS and the Environment 470
Increased Electronic Waste 471
Increased Energy Consumption 471
Increased Carbon Emissions 471
Supporting the Environment: Sustainable MIS
Infrastructure 472
Grid Computing 472
Virtualized Computing 474
Cloud Computing 478
Utility Computing 483
Plug-In Summary 485
Key Terms 485
Making Business Decisions 485
B10: Business Intelligence 490
Operational, Tactical, and Strategic BI 490
BI’S Operational Value 491
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xii * About the Author
baL6732X_fm_i-xxx.indd xii 11/04/16 09:15 PM
A B O U T T H E A U T H O R
Paige Baltzan
Paige Baltzan is an Assistant Teaching Professor in the department of Business Information
and Analytics at the Daniels College of Business at the University of Denver. She holds a
BSBA specializing in Accounting/MIS from Bowling Green State University and an MBA
specializing in MIS from the University of Denver. She is a coauthor of several books, includ-
ing Business Driven Information Systems, Essentials of Business Driven Information Systems,
and I-Series, and is a contributor to Management Information Systems for the Information Age.
Before joining the Daniels College faculty in 1999, Paige spent several years working for
a large telecommunications company and an international consulting firm where she partici-
pated in client engagements in the United States as well as South America and Europe. Paige
lives in Lakewood, Colorado, with her husband, Tony, and daughters, Hannah and Sophie.
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The Technology Plug-Ins * xiii
The overall goal of the Technology Plug-Ins is to provide additional information not covered in the text such as personal
productivity using information technology, problem solving using Excel, and decision making using Access. These plug-ins
also offer an all-in-one text to faculty, avoiding their having to purchase an extra book to support Microsoft Office. These
plug-ins offer integration with the core chapters and provide critical knowledge using essential business applications, such
as Microsoft Excel, Microsoft Access, and Microsoft Project with hands-on tutorials for comprehension and mastery. Plug-
Ins T1 to T12 are located in McGraw-Hill Connect at http://connect.mheducation.com.
Plug-In Description
T1. Personal Productivity
Using IT
This plug-in covers a number of things to do to keep a personal computer running e ffectively
and efficiently. The topics covered in this plug-in are:
■ Creating strong passwords.
■ Performing good file management.
■ Implementing effective backup and recovery strategies.
■ Using Zip files.
■ Writing professional emails.
■ Stopping spam.
■ Preventing phishing.
■ Detecting spyware.
■ Threads to instant messaging.
■ Increasing PC performance.
■ Using antivirus software.
■ Installing a personal firewall.
T2. Basic Skills Using
Excel
This plug-in introduces the basics of using Microsoft Excel, a spreadsheet program for data analysis, along with
a few fancy features. The topics covered in this plug-in are:
■ Workbooks and worksheets.
■ Working with cells and cell data.
■ Printing worksheets.
■ Formatting worksheets.
■ Formulas.
■ Working with charts and graphics.
T3. Problem Solving Using
Excel
This plug-in provides a comprehensive tutorial on how to use a variety of Microsoft Excel functions and features
for problem solving. The areas covered in this plug-in are:
■ Lists
■ Conditional Formatting
■ AutoFilter
■ Subtotals
■ PivotTables
T4. Decision Making Using
Excel
This plug-in examines a few of the advanced business analysis tools used in Microsoft Excel that have the capabil-
ity to identify patterns, trends, and rules, and create “what-if” models. The four topics co vered in this plug-in are:
■ IF
■ Lookup
■ Goal Seek
■ Solver
■ Scenario Manager
T5. Designing Database
Applications
This plug-in provides specific details on how to design relational database applications. One of the most
efficient and powerful information management computer-based applications is the relational database. The
topics covered in this plug-in are:
■ Entities and data relationships.
■ Documenting logical data relationships.
■ The relational data model.
■ Normalization.
T H E T E C H N O L O G Y P L U G – I N S
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baL6732X_fm_i-xxx.indd xiv 11/04/16 09:15 PM
xiv * The Technology Plug-Ins
Plug-in Description
T6. Basic Skills Using Access This plug-in focuses on creating a Microsoft Access database file. One of the most efficient
information management computer-based applications is Microsoft Access. Access provides a powerful set of
tools for creating and maintaining a relational database. The topics covered in this plug-in are:
■ Create a new database file.
■ Create and modify tables.
T7. Problem Solving Using
Access
This plug-in provides a comprehensive tutorial on how to query a database in Microsoft Access. Queries are
essential for problem solving, allowing a user to sort information, summarize data (display totals, averages,
counts, and so on), display the results of calculations on data, and choose exactly which fields are shown. The
topics in this plug-in are:
■ Create simple queries using the simple query wizard.
■ Create advanced queries using calculated fields.
■ Format results displayed in calculated fields.
T8. Decision Making Using
Access
This plug-in provides a comprehensive tutorial on entering data in a well-designed form and
creating functional reports using Microsoft Access. A form is essential to use for data entry and a report is an ef-
fective way to present data in a printed format. The topics in this plug-in are:
■ Creating, modifying, and running forms.
■ Creating, modifying, and running reports.
T9. Designing Web Pages This plug-in provides a comprehensive assessment into the functional aspects of web design. Websites are
beginning to look more alike and to employ the same metaphors and conventions. The web has now become
an everyday thing whose design should not make users think. The topics in this plug-in are:
■ The World Wide Web.
■ Designing for the unknown(s).
■ The process of web design.
■ HTML basics.
■ Web fonts.
■ Web graphics.
T10. Creating Web Pages Us-
ing HTML
This plug-in provides an overview of creating web pages using the HTML language. HTML is a system of codes
that you use to create interactive web pages. It provides a means to describe the structure of text-based in-
formation in a document—by denoting certain text as headings, paragraphs, lists, and so on. The topics in this
plug-in are:
■ An introduction to HTML.
■ HTML tools.
■ Creating, saving, and viewing HTML documents.
■ Apply style tags and attributes.
■ Using fancy formatting.
■ Creating hyperlinks.
■ Displaying graphics.
T11. Creating Gantt Charts
with Excel and
Microsoft Project
This plug-in offers a quick and efficient way to manage projects. Excel and Microsoft Project are great for man-
aging all phases of a project, creating templates, collaborating on planning processes, tracking project prog-
ress, and sharing information with all interested parties. The two topics in this plug-in are:
■ Creating Gantt Charts with Excel.
■ Creating Gantt Charts with Microsoft Project.
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Preface * xv
P R E F A C E
Unlike any other MIS text, Business Driven Technology, 7e, discusses various business initia-
tives first and how technology supports those initiatives second. The premise for this unique
approach is that business initiatives should drive technology choices. Every discussion in the
text first addresses the business needs and then addresses the technology that supports those
needs.
Business Driven Technology offers you the flexibility to customize courses according to
your needs and the needs of your students by covering only essential concepts and topics in
the five core units, while providing additional in-depth coverage in the business and technol-
ogy plug-ins.
Business Driven Technology contains 19 chapters (organized into five units), 12 business
plug-ins, and 11 technology plug-ins offering you the ultimate flexibility in tailoring content
to the exact needs of your MIS course. The unique construction of this text allows you to
cover essential concepts and topics in the five core units while providing you with the ability
to customize a course and explore certain topics in greater detail with the business and tech-
nology plug-ins.
Plug-ins are fully developed modules of text that include student learning outcomes, case
studies, business vignettes, and end-of-chapter material such as key terms, individual and
group questions and projects, and case study exercises.
We realize that instructors today require the ability to cover a blended mix of topics in
their courses. While some instructors like to focus on networks and infrastructure throughout
their course, others choose to focus on ethics and security. Business Driven Technology was
developed to easily adapt to your needs. Each chapter and plug-in is independent so you can:
■ Cover any or all of the chapters as they suit your purpose.
■ Cover any or all of the business plug-ins as they suit your purpose.
■ Cover any or all of the technology plug-ins as they suit your purpose.
■ Cover the plug-ins in any order you wish.
LESS MANAGING. MORE TEACHING. GREATER LEARNING.
McGraw-Hill Connect MIS is an online assignment and assessment solu-
tion that connects students with the tools and resources they’ll need to
achieve success.
McGraw-Hill Connect MIS helps prepare students for their future by
enabling faster learning, more efficient studying, and higher retention of
knowledge.
MCGRAW-HILL CONNECT MIS FEATURES
Connect MIS offers a number of powerful tools and features to make managing assignments
easier, so faculty can spend more time teaching. With Connect MIS, students can engage with
their coursework anytime and anywhere, making the learning process more accessible and
efficient. Connect MIS offers you the features described next.
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Simple Assignment Management
With Connect MIS, creating assignments is easier than ever, so you can spend more time
teaching and less time managing. The assignment management function enables you to:
■ Create and deliver assignments easily with selectable interactive exercises, scenario-based
questions, and test bank items.
■ Streamline lesson planning, student progress reporting, and assignment grading to make
classroom management more efficient than ever.
■ Go paperless with the eBook and online submission and grading of student assignments.
Smart Grading
When it comes to studying, time is precious. Connect MIS helps students learn more effi-
ciently by providing feedback and practice material when they need it, where they need it.
When it comes to teaching, your time also is precious. The grading function enables you to:
■ Have assignments scored automatically, giving students immediate feedback on their work
and side-by-side comparisons with correct answers.
■ Access and review each response; manually change grades or leave comments for students
to review.
■ Reinforce classroom concepts with practice tests and instant quizzes.
Instructor Library
The Connect MIS Instructor Library is your repository for additional resources to improve
student engagement in and out of class. You can select and use any asset that enhances your
lecture. The Connect MIS Instructor Library includes:
■ Instructor’s Manual with
■ Classroom openers and exercises for each chapter.
■ Case discussion points and solutions.
■ Answers to all chapter questions and cases.
■ Video guides–discussion points, questions and answers.
■ PowerPoint Presentations with detail lecture notes.
■ Solution files to all Apply Your Knowledge problems.
Student Study Center
■ The Connect MIS Student Study Center is the place for students to access additional data
files, student versions of the PowerPoint slides and more.
Student Progress Tracking
Connect MIS keeps instructors informed about how each student, section, and class is per-
forming, allowing for more productive use of lecture and office hours. The progress-tracking
function enables you to:
■ View scored work immediately and track individual or group performance with assign-
ment and grade reports.
■ Access an instant view of student or class performance relative to learning objectives.
■ Collect data and generate reports required by many accreditation organizations, such as
AACSB.
Lecture Capture
Increase the attention paid to lecture discussion by decreasing the attention paid to note taking.
For an additional charge Lecture Capture offers new ways for students to focus on the in-class
discussion, knowing they can revisit important topics later. Lecture Capture enables you to:
■ Record and distribute your lecture with a click of a button.
■ Record and index PowerPoint presentations and anything shown on your computer so it is
easily searchable, frame by frame.
xvi * Preface
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Preface * xvii
■ Offer access to lectures anytime and anywhere by computer, iPod, or mobile device.
■ Increase intent listening and class participation by easing students’ concerns about note
taking. Lecture Capture will make it more likely you will see students’ faces, not the tops
of their heads.
McGraw-Hill Connect Plus MIS
McGraw-Hill reinvents the textbook learning experience for the modern student with Connect
Plus MIS. A seamless integration of an eBook and Connect MIS, Connect Plus MIS provides
all of the Connect MIS features plus the following:
■ SmartBook, our adaptive eBook, allowing for anytime, anywhere access to the textbook.
■ A powerful search function to pinpoint and connect key concepts in a snap.
In short, Connect MIS offers you and your students powerful tools and features that optimize
your time and energies, enabling you to focus on course content, teaching, and student learn-
ing. Connect MIS also offers a wealth of content resources for both instructors and students.
This state-of-the-art, thoroughly tested system supports you in preparing students for the
world that awaits.
For more information about Connect, go to connect.mheducation.com, or contact your
local McGraw-Hill sales representative.
Tegrity Campus: Lectures 24/7
Tegrity Campus is a service that makes class time avail-
able 24/7 by automatically capturing every lecture in a
searchable format for students to review when they study
and complete assignments. With a simple one-click start-
and-stop process, you capture all computer screens and corresponding audio. Students can
replay any part of any class with easy-to-use browser-based viewing on a PC or Mac.
Educators know that the more students can see, hear, and experience class resources, the
better they learn. In fact, studies prove it. With Tegrity Campus, students quickly recall key mo-
ments by using Tegrity Campus’s unique search feature. This search helps students efficiently
find what they need, when they need it, across an entire semester of class recordings. Help turn
all your students’ study time into learning moments immediately supported by your lecture.
Assurance of Learning Ready
Many educational institutions today are focused on the notion of assurance of learning, an
important element of some accreditation standards. Business Driven Technology, 7e, is designed
specifically to support your assurance of learning initiatives with a simple yet powerful solution.
Each test bank question for Business Driven Technology maps to a specific chapter learn-
ing outcome/objective listed in the text. You can use our test bank software, EZ Test, or in
Connect MIS to easily query for learning outcomes/objectives that directly relate to the learn-
ing objectives for your course. You can then use the reporting features of EZ Test to aggre-
gate student results in similar fashion, making the collection and presentation of assurance of
learning data simple and easy.
McGraw-Hill Customer Contact Information
At McGraw-Hill, we understand that getting the most from new technology can be chal-
lenging. That’s why our services don’t stop after you purchase our products. You can email
our Product Specialists 24 hours a day to get product-training online. Or you can search
our knowledge bank of Frequently Asked Questions on our support website. For Customer
Support, you can call 800-331-5094 or visit www.mhhe.com/support. One of our Technical
Support Analysts will be able to assist you in a timely fashion.
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Walkthrough
This text is organized around the
traditional sequence of topics and
concepts in information technology;
however, the presentation of this material
is nontraditional. That is to say, the text is
divided into four major sections: (1) units,
(2) chapters, (3) business plug-ins, and
(4) technology plug-ins. This represents
a substantial departure from existing
traditional texts. The goal is to provide both
students and faculty with only the most
essential concepts and topical coverage in
the text, while allowing faculty to customize
a course by choosing from among a set of
plug-ins that explore topics in more detail.
All of the topics that form the core of the
discipline are covered, including CRM,
SCM, Porter’s Five Forces Model, value
chain analysis, competitive advantage,
information security, and ethics.
Business Driven Technology
includes four major components:
■ 5 Core Units
■ 19 Chapters
■ 12 Business Plug-Ins
■ 11 Technology Plug-Ins
First Pages
iv * Brief Table of Contents
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1. Achieving Business Success
Chapter 1: Business Driven Technology
Chapter 2: Identifying Competitive Advantages
Chapter 3: Strategic Initiatives for Implementing Competitive Advantages
Chapter 4: Measuring the Success of Strategic Initiatives
Chapter 5: Organizational Structures That Support Strategic Initiatives
2 Exploring Business Intelligence
Chapter 6: Valuing and Storing Organizational Information—Databases
Chapter 7: Accessing Organizational Information—Data Warehouses
Chapter 8: Understanding Big Data and Its Impact on Business
3 Streamlining Business Operations
Chapter 9: Enabling the Organization—Decision Making
Chapter 10: Extending the Organization—Supply Chain Management
Chapter 11: Building a Customer-Centric Organization—Customer Relationship Management
Chapter 12: Integrating the Organization from End to End—Enterprise Resource Planning
4 Building Innovation
Chapter 13: Creating Innovative Organizations
Chapter 14: Ebusiness
Chapter 15: Creating Collaborative Partnerships
Chapter 16: Integrating Wireless Technology in Business
5 Transforming Organizations
Chapter 17: Developing Software to Streamline Operations
Chapter 18: Methodologies for Supporting Agile Organizations
Chapter 19: Managing Organizational Projects
B R I E F T A B L E O F C O N T E N T S
UNITS
B1 Business Basics
B2 Business Process
B3 Hardware and Software Basics
B4 MIS Infrastructures
B5 Networks and Telecommunications
B6 Information Security
B7 Ethics
B8 Operations Management
B9 Sustainable MIS Infrastructures
B10 Business Intelligence
B11 Global Information Systems
B12 Global Trends
T1 Personal Productivity Using IT
T2 Basic Skills Using Excel
T3 Problem Solving Using Excel
T4 Decision Making Using Excel
T5 Designing Database Applications
T6 Basic Skills Using Access
T7 Problem Solving Using Access
T8 Decision Making Using Access
T9 Designing Web Pages
T10 Creating Web Pages Using HTML
T11 Creating Gantt Charts with Excel and Microsoft
Project
BUSINESS PLUG-INS
TECHNOLOGY PLUG-INS (CONNECT ONLY)
Apply Your Knowledge Projects
Glossary
Notes
Index
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Format, Features, and Highlights
Business Driven Technology, 7e, is state of the art in its discussions, presents concepts in an easy-to- understand
format, and allows students to be active participants in learning. The dynamic nature of information technol-
ogy requires all students, more specifically business students, to be aware of both current and emerging tech-
nologies. Students are facing complex subjects and need a clear, concise explanation to be able to understand
and use the concepts throughout their careers. By engaging students with numerous case studies, exercises,
projects, and questions that enforce concepts, Business Driven Technology creates a unique learning experi-
ence for both faculty and students.
■ Logical Layout. Students and faculty will find the text well organized with the topics flowing logically
from one unit to the next and from one chapter to the next. The definition of each term is provided before it
is covered in the chapter and an extensive glossary is included at the back of the text. Each core unit offers
a comprehensive opening case study, introduction, learning outcomes, unit summary, closing case studies,
key terms, and making business decision questions. The plug-ins follow the same pedagogical elements
with the exception of the exclusion of opening case and closing case studies in the technology plug-ins.
■ Thorough Explanations. Complete coverage is provided for each topic that is introduced. Explanations are
written so that students can understand the ideas presented and relate them to other concepts presented in
the core units and plug-ins.
■ Solid Theoretical Base. The text relies on current theory and practice of information systems as they relate
to the business environment. Current academic and professional journals and websites upon which the text
is based are found in the References at the end of the book—a road map for additional, pertinent readings
that can be the basis for learning beyond the scope of the unit, chapter, or plug-in.
■ Material to Encourage Discussion. All units contain a diverse selection of case studies and individual
and group problem-solving activities as they relate to the use of information technology in business. Two
comprehensive cases at the end of each unit reflect the concepts from the chapters. These cases encourage
students to consider what concepts have been presented and then apply those concepts to a situation they
might find in an organization. Different people in an organization can view the same facts from different
points of view and the cases will force students to consider some of those views.
■ Flexibility in Teaching and Learning. While most textbooks that are “text only” leave faculty on their
own when it comes to choosing cases, Business Driven Technology goes much further. Several options
are provided to faculty with case selections from a variety of sources including CIO, Harvard Business
Journal, Wired, Forbes, and Time, to name just a few. Therefore, faculty can use the text alone, the text and
a complete selection of cases, or anything in between.
■ Integrative Themes. Several themes recur throughout the text, which adds integration to the material.
Among these themes are value-added techniques and methodologies, ethics and social responsibility, glo-
balization, and gaining a competitive advantage. Such topics are essential to gaining a full understanding
of the strategies that a business must recognize, formulate, and in turn implement. In addition to addressing
these in the chapter material, many illustrations are provided for their relevance to business practice. These
include brief examples in the text as well as more detail presented in the corresponding plug-in(s) (business
or technical).
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Visual Content Map
Located at the beginning of the text
and serving as a logical outline, the
visual content map illustrates the
relationship between each unit and
its associated plug-ins.
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Introduction * 5
Introduction
Information is everywhere. Most organizations value information as a strategic asset. Organi-
zational success depends heavily on the ability to gather and analyze information about opera-
tions, suppliers, customers, and markets. Information can answers such questions as who are
your best and worst customers? How much inventory do you need to meet demand? Where
can you source the cheapest raw materials? How can you increase sales or reduce costs?
Answering these questions incorrectly can lead directly to business failure. Estimating too
many buyers will lead to an excess of inventory; estimating too few buyers will potentially
lead to lost sales due to lack of product (resulting in even more lost revenues). 
Understanding the direct impact information has on an organization’s bottom line is crucial
to running a successful business. This text focuses on information, business, technology, and
the integrated set of activities used to run most organizations. Many of these activities are the
hallmarks of business today—supply chain management, customer relationship management,
enterprise resource planning, outsourcing, integration, ebusiness, and others. The five core
units of this text cover these important activities in detail. Each unit is divided into chapters
that provide individual learning outcomes and case studies. In addition to the five core units,
there are technology and business “plug-ins” (see Figure Unit 1.1) that further explore topics
presented in the five core units.
The chapters in Unit 1 are:
■ Chapter One—Business Driven Technology.
■ Chapter Two—Identifying Competitive Advantages.
■ Chapter Three—Strategic Initiatives for Implementing Competitive Advantages.
■ Chapter Four—Measuring the Success of Strategic Initiatives.
■ Chapter Five—Organizational Structures That Support Strategic Initiatives.
FIGURE UNIT 1.1
The Format and Approach of
This Text.
Business
Plug-Ins
Technology
Plug-Ins
Core
Units
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Introduction and Learning Outcomes
Introduction. Located after the Unit
Opening Case, the introduction familiarizes
students with the overall tone of the
chapters. Thematic concepts are also
broadly defined.
Learning Outcomes. These outcomes focus
on what students should learn and be able
to answer upon completion of the chapter or
plug-in.
Confirming Pages
* 163
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Introduction
Decision making and problem solving in today’s electronic world encompass large-scale,
opportunity-oriented, strategically focused solutions. The traditional “cookbook” approach to
decisions simply will not work in the ebusiness world. Decision-making and problem-solving
abilities are now the most sought-after traits in up-and-coming executives. To put it mildly,
decision makers and problem solvers have limitless career potential.
Ebusiness is the conducting of business on the Internet, not only buying and selling, but
also serving customers and collaborating with business partners. (Unit Four discusses ebusi-
ness in detail.) With the fast growth of information technology and the accelerated use of the
Internet, ebusiness is quickly becoming standard. This unit focuses on technology to help
make decisions, solve problems, and find new innovative opportunities. The unit highlights
how to bring people together with the best IT processes and tools in complete, flexible solu-
tions that can seize business opportunities (see Figure Unit 3.1). The chapters in Unit 3 are:
■ Chapter Nine—Enabling the Organization—Decision Making.
■ Chapter Ten—Extending the Organization—Supply Chain Management.
■ Chapter Eleven—Building a Customer-centric Organization—Customer Relationship
Management.
■ Chapter Twelve—Integrating the Organization from End to End—Enterprise Resource
Planning.
Customers
PartnersSuppliers
Employees
Supply Chain
Management (SCM)
Customer Relationship
Management (CRM)
Decision Support
Systems (DSS)
Executive Information
Systems (EIS)
Artificial Intelligence (AI)
Enterprise Resource
Planning (ERP)
Data Mining
FIGURE UNIT 3.1
Decision-Enabling, Problem-
Solving, and Opportunity-
Seizing Systems.
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Making Business Decisions
Porter’s strategies suggest entering markets with a competitive advantage in either overall
cost leadership, differentiation, or focus. To achieve these results, managers must be able
to make decisions and forecast future business needs and requirements. The most important
and most challenging question confronting managers today is how to lay the foundation for
tomorrow’s success while competing to win in today’s business environment. A company will
not have a future if it is not cultivating strategies for tomorrow. The goal of this section is to
expand on Porter’s Five Forces Model, three generic strategies, and value chain analysis to
demonstrate how managers can learn the concepts and practices of business decision making
to add value. It will also highlight how companies heading into the 21st century are taking
advantage of advanced MIS capable of generating significant competitive advantages across
the value chain.
As we discussed in Unit 1, decision making is one of the most important and chal-
lenging aspects of management. Decisions range from routine choices, such as how many
items to order or how many people to hire, to unexpected ones such as what to do if a key
employee suddenly quits or needed materials do not arrive. Today, with massive volumes of
information available, managers are challenged to make highly complex decisions—some
involving far more information than the human brain can comprehend—in increasingly
shorter time frames. Figure 9.1 displays the three primary challenges managers face when
making decisions.
THE DECISION-MAKING ESSENTIALS
The process of making decisions plays a crucial role in communication and leadership for
operational, managerial, and strategic projects. There are numerous academic decision-
making models; Figure 9.2 presents just one example.2
A few key concepts about organizational structure will help our discussion of MIS deci-
sion-making tools. The structure of a typical organization is similar to a pyramid, and the
different levels require different types of information to assist in decision making, problem
solving, and opportunity capturing (see Figure 9.3).
LO 9.1 Explain the importance
of decision making for managers
at each of the three primary
organization levels along
with the associated decision
characteristics.
systems, and explain how managers can use these
systems to make decisions and gain competitive
advantages.
9.3. Describe artificial intelligence, and identify its five
main types.
L E A R N I N G O U T C O M E S
9.1. Explain the importance of decision making for
managers at each of the three primary organization
levels along with the associated decision
characteristics.
9.2. Classify the different operational support systems,
managerial support systems, and strategic support
Enabling the
Organization—Decision
Making
C H A P T E R 9
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Unit Opening Case. To enhance student
interest, each unit begins with an opening
case study that highlights an organization
that has been time-tested and value-
proven in the business world. This feature
serves to fortify concepts with relevant
examples of outstanding companies.
Discussion of the case is threaded
throughout the chapters in each unit.
Opening Case Study
Questions. Located at the
end of each chapter, pertinent
questions connect the Unit
Opening Case with important
chapter concepts.
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U N I T O N E O P E N I N G C A S E
Buy Experiences, Not Things
Retail is one of the most competitive and stingiest industries in America boasting some of the
most dissatisfied workers across the board. Walmart Stores employees began a week-long
strike in Miami, Boston, and the San Francisco Bay Area to publicly display their immense dis-
satisfaction with the multinational corporation. Employees at Amazon.com fulfillment center in
Leipzig, Germany went on strike demanding higher wages and better benefits. Just search retail
strikes and you will find numerous examples of dissatisfied employees doing what they can to
improve their situations. However, there is one company that will not appear on the list – Costco
Wholesale!
Costco Wholesale, the second-largest retailer in the U.S. behind Walmart, is an anomaly in a
world where retailers are closing their doors due to the inability to compete with online prices.
Retail stores such as Aeropostale, Sears, and Macy’s are all feeling the pressure of the online
marketplaces of today’s digital world. Costco requires a $55-a-year membership fee for access
to its massive warehouses supplied floor to ceiling with generous portions of everything from
olive oil to paper towels. While many businesses are losing customers to the Internet Costco’s
sales have grown 40 percent and its stock price has doubled.
Treating employees exceptionally well is the secret to Costco’s success. Costco employees
make an average of $20 an hour, not including overtime and eighty-eight percent of Costco
employees have company-sponsored health insurance. Costco treats its employees well in the
belief that a happier work environment will result in a more profitable company. It is obvious
Costco is thriving in one of the toughest retail markets in history.
The style of Costco is minimalist with no-frills industrial shelving stocking the 4,000 different
products. Products are marked up 14 percent or less over cost. Items like diapers, suitcases, and
tissues, which it sells under its in-house Kirkland Signature brand, get a maximum 15 percent
bump. After accounting for expenses such as real estate costs and wages, Costco barely ekes
© nadla/Getty Images © Ariel Skelley/Blend Images LLC © Hero Images/Getty Images
Unit Opening Case and Opening Case
Study Questions
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MANAGING CONSUMER TRUST
Trust in the ebusiness exchange deserves special attention. The physical sepa-
ration of buyer and seller, the physical separation of buyer and merchandise,
and customer perceptions about the risk of doing business online provide
unique challenges. Internet marketers must develop a trustworthy relationship
to make that initial sale and generate customer loyalty. A few ways to build
trust when working online include being accessible and available to commu-
nicate in person with your customers; using customers’ testimonials that link
to your client website or to provide their contact information; and accepting
legitimate forms of payment such as credit cards.
ENSURING CONSUMER PROTECTION
An organization that wants to dominate with superior customer service as a competitive advan-
tage must not only serve but also protect its customers, guarding them against unsolicited
goods and communication, illegal or harmful goods, insufficient information about goods and
suppliers, invasion of privacy and misuse of personal information, and online fraud. System
security, however, must not make ebusiness websites inflexible or difficult to use.
ADHERING TO TAXATION RULES
Many believe that U.S. tax policy should provide a level playing field for traditional retail
businesses, mail-order companies, and online merchants. Yet the Internet marketplace remains
mostly free of traditional forms of sales tax, partly because ecommerce law is vaguely defined
and differs from state to state. For now, companies that operate online must obey a patchwork
of rules about which customers are subject to sales tax on their purchases and which are not.
FIGURE 14.7
Challenges Facing
Ebusiness.
Identifying
Limited Market
Segments
Managing
Consumer Trust
Ensuring
Consumer
Protection
Adhering to
Taxation Rules
1. What is the ebusiness model implemented by Slack?
2. What is the revenue model implemented by Slack?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
HelloFresh is at the forefront of disrupting a multi trillion-dollar industry at the very beginning of its
online transition. HelloFresh is a truly local food product, uniquely suited to individual tastes and
meal-time preferences offering delivery of a giant box of delicious food with recipes to enable easy
and enjoyable meal preparation for a weekly fee. 
HelloFresh aims to provide each and every household in its 7 markets with the opportunity to
enjoy wholesome home-cooked meals with no planning, no shopping, and no hassle required. Every-
thing required for weeknight meals, carefully planned, locally sourced and delivered to your door at
the most convenient time for each subscriber. Behind the scenes, a huge data driven technology plat-
form puts us in the prime position for disrupting the food supply chain and for fundamentally changing
the way consumers shop for food. HelloFresh has local founders across the globe who are able to
leverage the global platform, and at the same time ensure that the HelloFresh product in each market
truly reflects the local community.
Chapter Fourteen Case: HelloFresh Hello Delicious
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Case Studies. This text is packed with
case studies illustrating how a variety of
prominent organizations and businesses
have successfully implemented many of this
text’s concepts. All cases promote critical
thinking. Company profiles are especially
appealing and relevant to your students,
helping to stir classroom discussion and
interest.
Apply Your Knowledge. At the end
of this text is a set of 33 projects
aimed at reinforcing the business
initiatives explored in the text.
These projects help to develop the
application and problem-solving
skills of your students through
challenging and creative business-
driven scenarios.
Projects and Case Studies
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Using drones to drop off packages could be great for buyers, who might want to get certain items as
fast as humanly possible. Back in 2013, when Amazon revealed plans to begin delivering packages
via flying drones through Prime Air, some seemed skeptical about the reality of deploying such a
system. Recently, Amazon doubled down on those claims by releasing information on one of its new
drones in action, and it is seriously impressive.
A new video presented by former Top Gear host Jeremy Clarkson (who is working on a show for
Amazon), takes us through the entire process, from ordering, to warehouse launch, to delivery. The new
drone looks a lot different from the one Amazon showed us a couple of years ago. This one has a more
commercial and streamlined look, and instead of showing the package hanging in open air, the new
drone hides the item in a square compartment. Just Google Amazon Prime Air Drone video with Jeremy
Clarkson to see for yourself this amazing new drone that will dramatically impact the supply chain.
According to Amazon, the drone reaches a height of about 400 feet in vertical mode and then
switches to horizontal mode to travel up to 15 miles away from the warehouse. During the flight, the
drone uses what Amazon calls “sense and avoid technology” to avoid collisions with other objects in
its flight path.
Toward the end of the video, the drone alights atop an Amazon logo in the yard of a consumer
and spits out the package (in this case, shoes) and then takes off in a matter of seconds. The delivery
process, which Amazon is careful to note is real and not a simulation, comes off seamlessly, making
the prospect of drone deliveries seem like something that will be viable just a few months from now.
However, despite the encouraging footage, Amazon is still holding off on announcing exactly
when its drones will take to the skies. On the updated Prime Air page featuring the new flight footage,
a message reads, “Putting Prime Air into service will take some time, but we will deploy when we
have the regulatory support needed to realize our vision.”
The FAA’s Unmanned Aircraft Systems (UAS) Registration Task Force Aviation Rulemaking Commit-
tee is still hammering out rules for private and commercial drone use in U.S. air space, so Amazon’s
lack of a specific launch timeline for Prime Air is understandable. But based on the video, it’s becom-
ing increasingly clear that Prime Air might not be a mere marketing stunt but a real look at the future
of Amazon deliveries.
Retailers Racing to the Drone Games
Wal-Mart recently applied to U.S. regulators for permission to test drones for home delivery, curbside
pickup and checking warehouse inventories, a sign it plans to go head-to-head with Amazon in using
drones to fill and deliver online orders. 
Wal-Mart wants to start using drones in an effort to create a more efficient supply chain, and con-
nect their network of stores, distribution centers, fulfillment centers and transportation fleet. The
world’s largest retailer by revenue has for several months been conducting indoor tests of small
unmanned aircraft systems (drones) and is now seeking for the first time to test the machines out-
doors. In addition to having drones take inventory of trailers outside its warehouses and perform
other tasks aimed at making its distribution system more efficient, Wal-Mart is asking the Federal Avia-
tion Administration for permission to research drone use in “deliveries to customers at Walmart facili-
ties, as well as to consumer homes.” The move comes as Amazon, Google and other companies test
drones in the expectation that the FAA will soon establish rules for their widespread commercial use.2
Questions
1. How will drones impact the supply chain?
2. Why are big retailers racing to be the first to market with drone home delivery?
3. How can a CRM system help communicate issues in the supply chain between customers and drones?
4. How could BPR help uncover issues in a company’s supply chain that uses drones?
5. What are the pros and cons of using a drone to deliver packages?
Chapter Three Case: Amazon Drone Knocking
First Pages
AYK.2 * Apply Your Knowledge
Project
Number Project Name Project Type Plug-In Focus Area Project Level Skill Set
Page
Number
1 Financial
Destiny
Excel T2 Personal
Budget
Introductory Formulas AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory Formulas AYK.4
3 Technology
Budget
Excel T1, T2 Hardware and
Software
Introductory Formulas AYK.4
4 Tracking
Donations
Excel T2 Employee
Relationships
Introductory Formulas AYK.4
5 Convert
Currency
Excel T2 Global
Commerce
Introductory Formulas AYK.5
6 Cost
Comparison
Excel T2 Total Cost of
Ownership
Introductory Formulas AYK.5
7 Time
Management
Excel or Project T12 Project
Management
Introductory Gantt Charts AYK.6
8 Maximize
Profit
Excel T2, T4 Strategic
Analysis
Intermediate Formulas or
Solver
AYK.6
9 Security
Analysis
Excel T3 Filtering Data Intermediate Conditional
Formatting,
Autofilter,
Subtotal
AYK.7
10 Gathering
Data
Excel T3 Data Analysis Intermediate Conditional
Formatting
AYK.8
11 Scanner
System
Excel T2 Strategic
Analysis
Intermediate Formulas AYK.8
12 Competitive
Pricing
Excel T2 Profit
Maximization
Intermediate Formulas AYK.9
13 Adequate
Acquisitions
Excel T2 Break-Even
Analysis
Intermediate Formulas AYK.9
14 Customer
Relations
Excel T3 CRM Intermediate PivotTable AYK.9
15 Assessing
the Value of
Information
Excel T3 Data Analysis Intermediate PivotTable AYK.10
16 Growth,
Trends, and
Forecasts
Excel T2, T3 Data
Forecasting
Advanced Average,
Trend, Growth
AYK.11
17 Shipping Costs Excel T4 SCM Advanced Solver AYK.12
18 Formatting
Grades
Excel T3 Data Analysis Advanced If, LookUp AYK.12
(Continued)
A P P L Y Y O U R K N O W L E D G E
Apply Your Knowledge Project Overview
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xxiv * Walkthrough
baL6732X_fm_i-xxx.indd xxiv 11/04/16 09:15 PM
Making Business Decisions.
Small scenario-driven projects
help students focus on decision
making as they relate to the topical
elements in the chapters and
plug-ins. Confirming Pages
Chapter 8 Understanding Big Data and Its Impact on Business * 147
baL6732X_ch08_131-159.indd 147 09/28/16 11:57 PM
1. Two Trillion Rows of Data Analyzed Daily—No Problem
eBay is the world’s largest online marketplace, with 97 million global users selling anything to
anyone at a yearly total of $62 billion—more than $2,000 every second. Of course with this many
sales, eBay is collecting the equivalent of the Library of Congress worth of data every three days
that must be analyzed to run the business successfully. Luckily, eBay discovered Tableau!
Tableau started at Stanford when Chris Stolte, a computer scientist; Pat Hanrahan, an Academy
Award–winning professor; and Christian Chabot, a savvy business leader, decided to solve the problem
of helping ordinary people understand big data. The three created Tableau, which bridged two computer
science disciplines: computer graphics and databases. No more need to write code or understand the
relational database keys and categories; users simply drag and drop pictures of what they want to
analyze. Tableau has become one of the most successful data visualization tools on the market, winning
multiple awards, international expansion, and millions in revenue and spawning multiple new inventions.
Tableau is revolutionizing business analytics, and this is only the beginning. Visit the Tableau
website and become familiar with the tool by watching a few of the demos. Once you have a good
understanding of the tool, create three questions eBay might be using Tableau to answer, including
the analysis of its sales data to find patterns, business insights, and trends.
2. Track Your Life
With wearable technology, you can track your entire life. Nike’s Fuelband and Jawbone’s Up tracks all
of your physical activity, caloric burn, and sleep patterns. You can track your driving patterns, tooth-
brushing habits, and even laundry status. The question now becomes how to track all of your trackers.
A new company called Exist incorporates tracking devices with weather data, music choices,
Netflix favorites, and Twitter activity all in one digital dashboard. Exist wants to understand
every area of your life and provide correlation information between such things as your personal
productivity and mood. As the different types of data expand, so will the breadth of correlations
Exist can point out. For instance, do you tweet more when you are working at home? If so, does this
increase productivity? Exist wants to track all of your trackers and analyze the information to help
you become more efficient and more effective.
Create a digital dashboard for tracking your life. Choose four areas you want to track and
determine three ways you would measure each area. For example, if you track eating habits, you
might want to measure calories and place unacceptable levels in red and acceptable levels in green.
Once completed, determine whether you can find any correlations among the areas in your life.
3. Butterfly Effects
The butterfly effect, an idea from chaos theory in mathematics, refers to the way a minor event—like
the movement of a butterfly’s wing—can have a major impact on a complex system like the weather.
Dirty data can have the same impact on a business as the butterfly effect. Organizations depend
on the movement and sharing of data throughout the organization, so the impact of data quality
errors are costly and far-reaching. Such data issues often begin with a tiny mistake in one part of
the organization, but the butterfly effect can produce disastrous results, making its way through
MIS systems to the data warehouse and other enterprise systems. When dirty data or low-quality
data enters organizational systems, a tiny error such as a spelling mistake can lead to revenue loss,
process inefficiency, and failure to comply with industry and government regulations. Explain how
the following errors can affect an organization:
■ A cascading spelling mistake.
■ Inaccurate customer records.
■ Incomplete purchasing history.
M A K I N G B U S I N E S S D E C I S I O N S
Making Business Decisions
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End-of-Unit Elements
Each unit contains complete pedagogical support in the form of:
■ Unit Summary. Revisiting the unit highlights in summary format.
■ Key Terms. With page numbers referencing where they are discussed in the text.
■ Two Closing Case Studies. Reinforcing important concepts with prominent examples from businesses and
organizations. Discussion questions follow each case study.
■ Apply Your Knowledge. In-depth projects that help students focus on applying the skills and concepts they have
learned throughout the unit.
■ Apply Your Knowledge Application Projects. Highlights the different AYK projects available at the end of the text
that takes the MIS concepts and challenges the students to apply them using Excel, Access, and other tools.
Confirming Pages
U N I T C L O S I N G C A S E T W O
152 * Unit 2 Exploring Business Intelligence
baL6732X_ch08_131-159.indd 152 09/28/16 11:57 PM
Informing Information
Since the beginning of time, man has been using pictures and images to communicate, moving from
caveman drawings to hieroglyphics to the Internet. Today, it is easier than ever to paint a picture
worth 100,000 words, thanks to technological advances. The primary advantages are databases
and data warehouses that capture enormous amounts of data. Informing means accessing large
amounts of data from different management information systems. According to a recent analysis of
press releases by PR Newswire, an article or advertisement that uses visual images can significantly
improve the number of views a message generates. This can be a true competitive advantage in the
digital age.
An infographic (or information graphic) displays information graphically so it can be more easily
understood. Infographics cut straight to the point by taking complex information and presenting it in
a simple visual format. Infographics can present the results of large data analysis, looking for pat-
terns and relationships that monitor changes in variables over time. Because infographics can easily
become overwhelming, users need to be careful to not display too much data or the resulting info-
graphics can result in information overload. Effective infographics can achieve outstanding results for
marketing, advertising, and public relations. According to PR Newswire, infographics gain the great-
est competitive advantage when they have the following:
■ Survey results that are too hard to understand in text format.
■ Statistical data that are not interesting for readers.
■ Comparison research where the impact can be far more dramatic when presented visually.
■ Messages for multilingual audiences.
■ Any information that can use a visual element to make it more interesting (see Figure Unit 6.1
through Figure Unit 6.3 for examples).3
Source: NPS photo by Jim Peaco© Fuse/Getty Images© C. Borland/PhotoLink/Getty Images
Confirming Pages
Chapter 8 Understanding Big Data and Its Impact on Business * 147
baL6732X_ch08_131-159.indd 147 09/28/16 11:57 PM
1. Two Trillion Rows of Data Analyzed Daily—No Problem
eBay is the world’s largest online marketplace, with 97 million global users selling anything to
anyone at a yearly total of $62 billion—more than $2,000 every second. Of course with this many
sales, eBay is collecting the equivalent of the Library of Congress worth of data every three days
that must be analyzed to run the business successfully. Luckily, eBay discovered Tableau!
Tableau started at Stanford when Chris Stolte, a computer scientist; Pat Hanrahan, an Academy
Award–winning professor; and Christian Chabot, a savvy business leader, decided to solve the problem
of helping ordinary people understand big data. The three created Tableau, which bridged two computer
science disciplines: computer graphics and databases. No more need to write code or understand the
relational database keys and categories; users simply drag and drop pictures of what they want to
analyze. Tableau has become one of the most successful data visualization tools on the market, winning
multiple awards, international expansion, and millions in revenue and spawning multiple new inventions.
Tableau is revolutionizing business analytics, and this is only the beginning. Visit the Tableau
website and become familiar with the tool by watching a few of the demos. Once you have a good
understanding of the tool, create three questions eBay might be using Tableau to answer, including
the analysis of its sales data to find patterns, business insights, and trends.
2. Track Your Life
With wearable technology, you can track your entire life. Nike’s Fuelband and Jawbone’s Up tracks all
of your physical activity, caloric burn, and sleep patterns. You can track your driving patterns, tooth-
brushing habits, and even laundry status. The question now becomes how to track all of your trackers.
A new company called Exist incorporates tracking devices with weather data, music choices,
Netflix favorites, and Twitter activity all in one digital dashboard. Exist wants to understand
every area of your life and provide correlation information between such things as your personal
productivity and mood. As the different types of data expand, so will the breadth of correlations
Exist can point out. For instance, do you tweet more when you are working at home? If so, does this
increase productivity? Exist wants to track all of your trackers and analyze the information to help
you become more efficient and more effective.
Create a digital dashboard for tracking your life. Choose four areas you want to track and
determine three ways you would measure each area. For example, if you track eating habits, you
might want to measure calories and place unacceptable levels in red and acceptable levels in green.
Once completed, determine whether you can find any correlations among the areas in your life.
3. Butterfly Effects
The butterfly effect, an idea from chaos theory in mathematics, refers to the way a minor event—like
the movement of a butterfly’s wing—can have a major impact on a complex system like the weather.
Dirty data can have the same impact on a business as the butterfly effect. Organizations depend
on the movement and sharing of data throughout the organization, so the impact of data quality
errors are costly and far-reaching. Such data issues often begin with a tiny mistake in one part of
the organization, but the butterfly effect can produce disastrous results, making its way through
MIS systems to the data warehouse and other enterprise systems. When dirty data or low-quality
data enters organizational systems, a tiny error such as a spelling mistake can lead to revenue loss,
process inefficiency, and failure to comply with industry and government regulations. Explain how
the following errors can affect an organization:
■ A cascading spelling mistake.
■ Inaccurate customer records.
■ Incomplete purchasing history.
M A K I N G B U S I N E S S D E C I S I O N S
Confirming Pages
Chapter 8 Understanding Big Data and Its Impact on Business * 149
baL6732X_ch08_131-159.indd 149 09/28/16 11:57 PM
The five common characteristics of quality information are accuracy, completeness, consistency, uniqueness, and timeliness. The costs to an organization of having low-quality information can be enormous and could result in revenue losses and ultimately business failure. Databases main-
tain information about various types of objects, events, people, and places and help to alleviate many of
the problems associated with low-quality information such as redundancy, integrity, and security.
A data warehouse is a logical collection of information—gathered from many different operational
databases—that supports business analysis activities and decision-making tasks. Data marts contain
a subset of data warehouse information. Organizations gain tremendous insight into their business by
mining the information contained in data warehouses and data marts. As we enter the era of big data
the data-mining and data analysis techniques will become of critical importance to any company that
wants to succeed in business.
Understanding the value of information is key to business success. Employees must be able to
optimally access and analyze organizational information. The more knowledge employees have con-
cerning how the organization stores, maintains, provides access to, and protects information the bet-
ter prepared they will be when they need to use that information to make critical business decisions.
U N I T S U M M A R Y
One of the newest forms of legal requirements emerging from the data explosion is ediscovery, the
legal requirements mandating that an organization must archive all forms of software communications,
including email, text messages, and multimedia. Yes, the text message you sent four years ago could
come back to haunt you.
Organizations today have more data than they know what to do with and are frequently
overwhelmed with data management. Getting at such data and presenting them in a useful manner
for cogent analysis is a tremendous task that haunts managers. What do you think is involved in
data management? What is contained in the zettabytes of data stored by organizations? Why would
an organization store data? How long should an organization store its data? What are the risks
associated with failing to store organizational data?
K E Y T E R M S
Affinity grouping analysis, 137
Algorithms, 141
Analysis paralysis, 143
Analytical information, 100
Analytics, 141
Anomaly detection, 141
Attribute, 105
Backward integration, 112
Big data, 131
Business-critical integrity
constraints, 109
Business intelligence dashboard ,
144
Business rule, 109
Classification analysis, 138
Cluster analysis, 137
Comparative analysis, 125
Competitive monitoring, 125
Content creator, 110
Content editor, 110
Cube, 140
Data-driven decision
management, 126
Data aggregation, 121
Data artist, 143
Database, 104
Database management system
(DBMS), 104
Data broker, 124
Data dictionary, 105
Data-driven website, 110
Data element (or data field, 104
Data gap analysis, 103
Data governance, 104
Data lake, 124
Data latency, 109
Data map, 126
Data mart, 121
Data mining, 134
Data mining tools, 139
Data model, 104
Data point, 124
Data profiling, 135
Data replication, 135
Data scientist, 141
Data set, 125
Data steward, 103
Data stewardship, 103
Data validation, 104
Data visualization, 143
Data visualization tools, 144
Data warehouse, 119
Dirty data, 122
Distributed computing, 131
Dynamic catalog, 110
Dynamic information, 110
Entity, 105
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The plug-ins are designed to allow faculty to
customize their course and cover selected
topics in more detail. Students will read
core material related to all of the plug-ins in
the five units.
As an example, students will learn about
various facets of customer relationship
management (CRM) most notably in
Chapter 11. However, customer relationship
management has its own business plug-in.
The CRM business plug-in gives both faculty
and students the ability to cover CRM in
more detail if desired. Likewise, students
will receive an introduction to decision
making in Unit 3. The Excel technology
plug-ins allow coverage of decision-making
tools such as PivotTables, Goal Seek, and
Scenario Manager.
Confirming Pages
364 * Plug-In B1 Business Basics
baL6732X_pluginb01_364-379.indd 364 10/14/16 07:46 PM
P L U G – I N
Introduction
A sign posted beside a road in Colorado states, “Failing to plan is planning to fail.” Playnix
Toys posted the sign after successfully completing its 20th year in the toy business in Colo-
rado. The company’s mission is to provide a superior selection of high-end toys for children
of all ages. When the company began, it generated interest by using unique marketing strate-
gies and promotions. The toy business has a lot of tough competition. Large chain stores such
as Walmart and Target offer toys at deep discount prices. Finding the right strategy to remain
competitive is difficult in this industry, as FAO Schwarz discovered when it filed for bank-
ruptcy after 143 years in the toy business.
This plug-in introduces basic business fundamentals beginning with the three most com-
mon business structures—sole proprietorship, partnership, and corporation. It then focuses
on the internal operations of a corporation including accounting, finance, human resources,
sales, marketing, operations/production, and management information systems.
Types of Business
Businesses come in all shapes and sizes and exist to sell products or perform services.
Businesses make profits or incur losses. A profit occurs when businesses sell products or
services for more than they cost to produce. A loss occurs when businesses sell products
or services for less then they cost to produce. Businesses typically organize in one of the
following types:
1. Sole proprietorship
2. Partnership
3. Corporation
B1 Business Basics
L E A R N I N G O U T C O M E S
1. Define the three common business forms.
2. List and describe the seven departments commonly found in most organizations.
LO 1 Define the three common
business forms.
About the Plug-Ins
Technical Focus. If hands-on, technical skills are more important,
include technical plug-ins in your MIS course.
Management Focus. By focusing on the business plug-ins, your
course will take on a managerial approach to MIS.
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Confirming Pages
378 * Plug-In B1 Business Basics
baL6732X_pluginb01_364-379.indd 378 10/14/16 11:04 PM
The study of business begins with understanding the different types of businesses including a sole proprietorship, partnership, or a corporation. Figure B1.15 highlights seven departments found in a typical business.
All of these departments must be able to execute activities specific to their business function and
also be able to work with the other departments to create synergies throughout the entire business.
P L U G – I N S U M M A R Y
■ Accounting provides quantitative information about the finances of the business including recording,
measuring, and describing financial information.
■ Finance deals with the strategic financial issues associated with increasing the value of the business,
while observing applicable laws and social responsibilities.
■ Human resources (HR) includes the policies, plans, and procedures for the effective management of
employees (human resources).
■ Sales is the function of selling a good or service and focuses on increasing customer sales, which
increases company revenues.
■ Marketing is the process associated with promoting the sale of goods or services. The marketing
department supports the sales department by creating promotions that help sell the company’s
products.
■ Operations management (also called production management) is the management of systems or
processes that convert or transform resources (including human resources) into goods and services.
■ Management information systems (MIS) is a general name for the business function and academic
discipline covering the application of people, technologies, and procedures—collectively called
information systems—to solve business problems.
FIGURE B1.15
Common Departments in a Business.
K E Y T E R M S
Accounting 367
Accounting department 367
Asset 368
Balance sheet 368
Bookkeeping 367
Break-even point 370
Capital 365
Corporation
(also called, organization,
enterprise, or business) 365
Dividend 368
Expense 368
Finance 369
Financial accounting 367
Financial quarter 369
Financial statements 368
For profit corporation 365
Human resources (HR) 370
Income statement  368
Liability 368
Limited liability 365
Limited liability corporation (LLC) 366
Limited partnership 365
Loss 364
Managerial accounting 367
Marketing 373
Marketing communications 373
Marketing mix 373
Market segmentation 373
Net income 368
Not for profit (or nonprofit)
corporation 365
Operations management 375
Owner’s equity 368
Partnership 365
Partnership agreement 365
Product life cycle 375
Profit 364
Revenue 368
Sales 371
Shareholder 365
Sole proprietorship 365
Solvency 368
Statement of cash flows 369
Statement of owner’s equity 368
Transaction 367
Each business plug-in contains complete pedagogical support in the form of:
■ Plug-in Summary. Revisiting the plug-in highlights in summary format.
■ Key Terms. With page numbers referencing where they are discussed in the text.
■ Making Business Decisions. Small scenario-driven projects that help students focus individually on decision
making as they relate to the topical elements in the chapters.
End-of-Plug-In Elements
Confirming Pages
378 * Plug-In B1 Business Basics
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The study of business begins with understanding the different types of businesses including a sole proprietorship, partnership, or a corporation. Figure B1.15 highlights seven departments found in a typical business.
All of these departments must be able to execute activities specific to their business function and
also be able to work with the other departments to create synergies throughout the entire business.
P L U G – I N S U M M A R Y
■ Accounting provides quantitative information about the finances of the business including recording,
measuring, and describing financial information.
■ Finance deals with the strategic financial issues associated with increasing the value of the business,
while observing applicable laws and social responsibilities.
■ Human resources (HR) includes the policies, plans, and procedures for the effective management of
employees (human resources).
■ Sales is the function of selling a good or service and focuses on increasing customer sales, which
increases company revenues.
■ Marketing is the process associated with promoting the sale of goods or services. The marketing
department supports the sales department by creating promotions that help sell the company’s
products.
■ Operations management (also called production management) is the management of systems or
processes that convert or transform resources (including human resources) into goods and services.
■ Management information systems (MIS) is a general name for the business function and academic
discipline covering the application of people, technologies, and procedures—collectively called
information systems—to solve business problems.
FIGURE B1.15
Common Departments in a Business.
K E Y T E R M S
Accounting 367
Accounting department 367
Asset 368
Balance sheet 368
Bookkeeping 367
Break-even point 370
Capital 365
Corporation
(also called, organization,
enterprise, or business) 365
Dividend 368
Expense 368
Finance 369
Financial accounting 367
Financial quarter 369
Financial statements 368
For profit corporation 365
Human resources (HR) 370
Income statement  368
Liability 368
Limited liability 365
Limited liability corporation (LLC) 366
Limited partnership 365
Loss 364
Managerial accounting 367
Marketing 373
Marketing communications 373
Marketing mix 373
Market segmentation 373
Net income 368
Not for profit (or nonprofit)
corporation 365
Operations management 375
Owner’s equity 368
Partnership 365
Partnership agreement 365
Product life cycle 375
Profit 364
Revenue 368
Sales 371
Shareholder 365
Sole proprietorship 365
Solvency 368
Statement of cash flows 369
Statement of owner’s equity 368
Transaction 367
Confirming Pages
Plug-In B1 Business Basics * 379
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1. Setting Up a Business
Your friend, Olivia Graves, is going to start her own chocolate shop, called Chocolate-By-Design.
Olivia is an expert candy maker and one of the city’s top pastry chefs. Olivia has come to you for
advice on what type of business Chocolate-By-Design should be—a sole proprietorship, partner-
ship, or corporation. Create a report comparing the three different types of businesses, along with
your recommendation for Chocolate-By-Design’s business structure.
2. Guest Lecturing on Business
As a recent college graduate, your favorite professor, Dr. Henning, has asked you to come back
and guest lecture at his introduction to business course. Create a presentation defining the differ-
ent departments in a typical business, what roles each play, and why it is important that they all
work together.
3. Expanding Markets
J. R. Cash created a small business selling handmade cowboy boots, and within a year his busi-
ness is booming. J. R. currently builds all of the boots in his store and takes orders over the
phone and from walk-in customers. There is currently a three-month waiting list for boots. J. R.
is not sure how to grow his business and has come to you for advice. Describe the reasons and
ways some businesses increase market share and why J. R. might choose not to increase his
market share.
4. Segmenting Customers
Due to your vast marketing experience, you have been hired by a new company, Sugar, to
perform a strategic analysis on chewing gum. The company wants to understand the many mar-
ket segments for the different brands, flavors, sizes, and colors of gum. Create an analysis of
the different market segments for chewing gum. What market segment would you recommend
Sugar pursue?
5. Product Life Cycle
An associate, Carl Deadmarsh, has developed a new brand of laundry detergent called Clean. Carl
wants your opinion on his potential to enter and dominate the laundry detergent market. Using the
product life cycle create a recommendation for Carl’s new product.
6. Redesigning a Business
Tom Walton is the new CEO for Lakeside, a large cereal manufacturing company. Tom’s predeces-
sor had run the company for 50 years and did little in terms of process improvement; in fact, his
motto was “if it isn’t broke, why fix it?” Tom wants to take advantage of technology to create new
processes for the entire company. He believes that improving operations will increase efficiency
and lower costs.
Tom has a major hurdle to overcome before he can begin revamping the company—its
employees. Many of the employees have worked at the company for decades and are comfortable
with the motto “if it isn’t broke, why fix it?” Develop a plan Tom can use to communicate to his
employees the potential value gained from business process reengineering.
M A K I N G B U S I N E S S D E C I S I O N S
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baL6732X_fm_i-xxx.indd xxviii 11/04/16 09:15 PM
Supplements:
■ Business Driven Teaching Notes
■ Instructor Resource Library in
McGraw-Hill Connect
■ Instructor’s Manual and Video
Case Guide
■ PowerPoint Presentations
■ Classroom Exercises
■ Project Files
Support and Supplemental Material
All of the supplemental material supporting Business Driven Technology was
developed by the author to ensure you receive accurate, high-quality, and in-depth
content. Included are a complete set of materials that will assist students and faculty
in accomplishing course objectives.
Video Exercises. Many of the videos that accompany the text are supported by
detailed teaching notes on how to turn the videos into classroom exercises where
your students can apply the knowledge they are learning after watching the videos.
Test Bank. This computerized package allows instructors to custom design, save,
and generate tests. The test program permits instructors to edit, add, or delete
questions from the test banks; analyze test results; and organize a database of tests
and student results.
■ Instructor’s Manual (IM). The IM, written by the author, includes suggestions for
designing the course and presenting the material. Each chapter is supported by
answers to end-of-chapter questions and problems and suggestions concerning
the discussion topics and cases.
■ PowerPoint Presentations. A set of PowerPoint slides, created by the author,
accompanies each chapter that features bulleted items that provide a lecture
outline, plus key figures and tables from the text, and detailed teaching notes on
each slide.
■ Classroom Exercises. Choose from over 30 detailed classroom exercises that
engage and challenge students. For example, if you are teaching systems
development, start the class with the “Skyscraper Activity” where the students
build a prototype that takes them through each phase of the systems development
life cycle. All classroom exercises can be found in the IM.
■ Project Files. The author has provided files for all projects that need further
support, such as data files.
■ Cohesion Case. Now assignable through Connect, The Broadway Cafe is a
running case instructors can use to reinforce core material such as customer
relationship management, supply chain management, business intelligence, and
decision making. The case has 15 sections that challenge students to develop and
expand their grandfather’s coffee shop. Students receive hands-on experience in
business and learn technology’s true value of enabling business. Please note that
the Cohesion Case is not a McGraw-Hill product but a Baltzan direct product. 
■ Video Content. More than 20 videos accompany this text and cover topics from
entrepreneurship to disaster recovery. Video IMs are also available so you can turn
the videos into engaging classroom activities.
xxviii * Walkthrough
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Walkthrough * xxix
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McGraw-Hill Higher Education and Blackboard have teamed up. What does this mean
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ConnectTM assignments, all the tools you need are right where you want them—inside of
Blackboard.
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chronizing grades into Blackboard? We thought so. When a student completes an inte-
grated ConnectTM assignment, the grade for that assignment automatically (and instantly)
feeds your Blackboard grade center.
4. A solution for everyone. Whether your institution is already using Blackboard or you just
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your campus hosts it or we do. Be sure to ask your local McGraw-Hill representative for
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Craft your teaching resources to match the way you teach! With McGraw-Hill Create,
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baL6732X_fm_i-xxx.indd xxx 11/04/16 09:15 PM
xxx * Contributions By
Etido Akpan
Freed Hardemann University
Dennis Anderson
Bentley University
Kaan Ataman
Chapman University–Orange
Vikram Bhadauria
Southern Arkansas University
Utpal Bose
University of Houston–Downtown
Traci Carte
University of Oklahoma
Carey Cole
James Madison University
Charles DeSassure
Tarrant County College–SE Campus
Mike Eom
University of Portland
Ahmed Eshra
St. John’s University–Jamaica
Deborah Geil
Bowling Green State University
Naveen Gudigantala
University of Portland
Saurabh Gupta
University of North Florida
Vernard Harrington
Radford University
Shoreh Hashimi
University of Houston–Downtown
Tracey Hughes
Southern Arkansas University
Keri Larson
The University of Alabama–Birmingham
Linda Lynam
University of Central Missouri
Michael Magro
Shenandoah University
Richard McMahon
University of Houston–Downtown
Don Miller
Avila University
Allison Morgan
Howard University
Vincent Nestler
University of California–San Bernardino
Sandra Newton
Sonoma State University
Ahmet Ozkul
University of New Haven
Susan Peterson
University of California–San Diego
Julie Pettus
Missouri State University
Gerald Plumlee
Southern Arkansas University
Pauline Ratnasingham
University of Central Missouri
Julio Rivera
University of Alabama–Birmingham
Thomas Sandman
California State University–Sacramento
Dmitriy Shalteyev
Christopher Newport University
Lakisha Simmons
Belmont University
Ron Sones
Liberty University
Nathan Stout
University of Oklahoma
Stephen Taraszewski
Youngstown State University
Sharon Testa
Merrimack College
John Wee
University of Mississippi
Chuck West
Bradley University
Melody White
University of North Texas
Benjamin Yeo
Chapman University
Zehai Zhou
University of Houston–Downtown
There are numerous people whom we want to heartily thank for their hard work, enthusiasm,
and dedication on this edition of Business Driven Technology.
To the faculty at the Daniels College of Business at the University of Denver—Richard
Scudder, Don McCubbrey, Paul Bauer, Hans Hultgren, Daivd Paul, Dan Connolly, and Amy
Phillips—thank you. Your feedback, advice, and support are truly valued and greatly appreciated.
We offer our sincerest gratitude and deepest appreciation to our valuable reviewers, whose
feedback was instrumental.
A C K N O W L E D G M E N T S
Patricia A. McQuaid, Ph.D., CISA, is a Professor of Information Systems in the Orfalea
College of Business at California Polytechnic State University (Cal Poly). She has a doctorate
in Computer Science and Engineering, an MBA, and an undergraduate degree in Accounting.
Patricia is a Certified Information Systems Auditor (CISA), and a Certified Tester – Foundation
Level (CTFL), through the ISTQB, the International Software Testing Qualifications Board. She
has over 25 years of experience in software engineering, having taught in both the Colleges of
Business and Engineering throughout her career. She has worked in industry in the banking and
manufacturing industries as an information systems auditor, is a consultant, and a trainer.
Her research interests include software quality, software testing, project management, and pro-
cess improvement. She is a member of IEEE, and a Senior Member of the American Society for
Quality (ASQ). She is an Associate Editor for the Software Quality Professional journal, and also
participates on ASQ’s Software Division Council. Patricia is a frequent speaker and author, both
internationally and nationally. She is a frequent speaker, both nationally and internationally.
C O N T R I B U T I O N S B Y
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Business
Driven
Technology
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W h a t ’ s i n I T f o r M e ?
This unit sets the stage for diving into Business Driven Technology. It starts from the ground floor by providing
a clear description of what information technology is and how IT fits into business strategies and organizational
activities. It then provides an overview of how organizations operate in competitive environments and must
continually define and redefine their business strategies to create competitive advantages. Doing so allows
organizations to not only survive, but also thrive. Individuals who understand and can access and analyze the
many different enterprisewide information systems dramatically improve their decision-making and problem-
solving abilities. Most importantly, information technology is shown as a key enabler to help organizations oper-
ate successfully in highly competitive environments.
You, as a business student, must recognize the tight correlation between business and technology. You
must first understand information technology’s role in daily business activities, and then understand informa-
tion technology’s role in supporting and implementing enterprisewide initiatives and global business strategies.
After reading this unit, you should have acquired a solid grasp of business driven information systems, technol-
ogy fundamentals, and business strategies. You should also have gained an appreciation of the various kinds of
information systems employed by organizations and how you can use them to help make strategically informed
decisions. All leaders must appreciate the numerous ethical and security concerns voiced by customers today.
These concerns directly influence a customer’s likelihood to embrace electronic technologies and conduct busi-
ness over the web. In this sense, these concerns affect a company’s bottom line. You can find evidence in
recent news reports about how the stock price of organizations dramatically falls when information privacy and
security breaches are publicized. Further, organizations face potential litigation if they fail to meet their ethical,
privacy, and security obligations concerning the handling of information in their companies.
1UNIT Achieving Business Success
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U N I T O N E O P E N I N G C A S E
Buy Experiences, Not Things
Retail is one of the most competitive and stingiest industries in America boasting some of the
most dissatisfied workers across the board. Walmart Stores employees began a week-long
strike in Miami, Boston, and the San Francisco Bay Area to publicly display their immense dis-
satisfaction with the multinational corporation. Employees at Amazon.com fulfillment center in
Leipzig, Germany went on strike demanding higher wages and better benefits. Just search retail
strikes and you will find numerous examples of dissatisfied employees doing what they can to
improve their situations. However, there is one company that will not appear on the list – Costco
Wholesale!
Costco Wholesale, the second-largest retailer in the U.S. behind Walmart, is an anomaly in a
world where retailers are closing their doors due to the inability to compete with online prices.
Retail stores such as Aeropostale, Sears, and Macy’s are all feeling the pressure of the online
marketplaces of today’s digital world. Costco requires a $55-a-year membership fee for access
to its massive warehouses supplied floor to ceiling with generous portions of everything from
olive oil to paper towels. While many businesses are losing customers to the Internet Costco’s
sales have grown 40 percent and its stock price has doubled.
Treating employees exceptionally well is the secret to Costco’s success. Costco employees
make an average of $20 an hour, not including overtime and eighty-eight percent of Costco
employees have company-sponsored health insurance. Costco treats its employees well in the
belief that a happier work environment will result in a more profitable company. It is obvious
Costco is thriving in one of the toughest retail markets in history.
The style of Costco is minimalist with no-frills industrial shelving stocking the 4,000 different
products. Products are marked up 14 percent or less over cost. Items like diapers, suitcases, and
tissues, which it sells under its in-house Kirkland Signature brand, get a maximum 15 percent
bump. After accounting for expenses such as real estate costs and wages, Costco barely ekes
© nadla/Getty Images © Ariel Skelley/Blend Images LLC © Hero Images/Getty Images
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4
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out a profit on many of its products. Eighty percent of its gross profit comes from membership
fees; customers renew their memberships at a rate of close to 90 percent.
“They are buying and selling more olive oil, more cranberry juice, more throw rugs than
just about anybody,” says David Schick, an analyst at Stifel Nicolaus. And that allows Costco
to get bulk discounts from its suppliers, often setting the industry’s lowest price. Even Amazon
can’t beat Costco’s prices, which means that “showrooming,” or browsing in stores but buy-
ing online for the better price, isn’t much of a concern for Costco.
The company’s obsession with selling brand-name merchandise at cut-rate prices occa-
sionally gets it into trouble. Tiffany filed a multi-million-dollar trademark infringement suit
against Costco alleging it improperly labeled merchandise as “Tiffany engagement rings.”
Costco calls it “an honest mistake” and re-branded the label “Tiffany-style.” The suit is
pending.
Buying Happiness
When you work hard every single day you want to spend your hard-earned funds on what
science says will make you happy. The Commerce Department released data showing that
American consumers are spending their disposable income on eating out, upgrading cars,
renovating houses, sports, health, and beauty. Data shows restaurant spending has increased
10 percent over the last year, and automotive sales have increased seven percent. Analysts
say a wider shift is occurring in the mind of the American consumer, spurred by the popular-
ity of a growing body of scientific studies that appear to show that experiences, not objects,
bring the most happiness. The Internet is bursting with the “Buy Experiences, Not Things” type
of stories that give retailing executives nightmares. Millennials – the 20- and 30- something
consumers whom marketers covet are actively pursuing this new happiness mentality.
  A 20-year study conducted by Dr. Thomas Gilovich, a psychology professor at Cornell
University, reached a powerful and straightforward conclusion: don’t spend your money on
things. The trouble with things is that the happiness they provide fades quickly.  New pos-
sessions quickly become old and what once seemed novel and exciting quickly becomes
the norm. The bar is constantly rising and new purchases lead to new expectations. As soon
as we get used to a new possession, we look for an even better one. And of course we are
always comparing ourselves to the neighbors. By nature, we are always comparing our pos-
sessions and as soon as we buy a new car a friend buys a better one—and there’s always
someone with a better one.
Gilovich is not the only person believing experiences make us happier than possessions.
Dr. Elizabeth Dunn at the University of British Columbia attributes the temporary happiness
achieved by buying things to what she calls “puddles of pleasure.” In other words, that kind
of happiness evaporates quickly and leaves us wanting more. Things may last longer than
experiences, but the memories that linger are what matter most!1
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Introduction * 5
Introduction
Information is everywhere. Most organizations value information as a strategic asset. Organi-
zational success depends heavily on the ability to gather and analyze information about opera-
tions, suppliers, customers, and markets. Information can answers such questions as who are
your best and worst customers? How much inventory do you need to meet demand? Where
can you source the cheapest raw materials? How can you increase sales or reduce costs?
Answering these questions incorrectly can lead directly to business failure. Estimating too
many buyers will lead to an excess of inventory; estimating too few buyers will potentially
lead to lost sales due to lack of product (resulting in even more lost revenues). 
Understanding the direct impact information has on an organization’s bottom line is crucial
to running a successful business. This text focuses on information, business, technology, and
the integrated set of activities used to run most organizations. Many of these activities are the
hallmarks of business today—supply chain management, customer relationship management,
enterprise resource planning, outsourcing, integration, ebusiness, and others. The five core
units of this text cover these important activities in detail. Each unit is divided into chapters
that provide individual learning outcomes and case studies. In addition to the five core units,
there are technology and business “plug-ins” (see Figure Unit 1.1) that further explore topics
presented in the five core units.
The chapters in Unit 1 are:
■ Chapter One—Business Driven Technology.
■ Chapter Two—Identifying Competitive Advantages.
■ Chapter Three—Strategic Initiatives for Implementing Competitive Advantages.
■ Chapter Four—Measuring the Success of Strategic Initiatives.
■ Chapter Five—Organizational Structures That Support Strategic Initiatives.
FIGURE UNIT 1.1
The Format and Approach of
This Text.
Business
Plug-Ins
Technology
Plug-Ins
Core
Units
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Business Driven
Technology
L E A R N I N G O U T C O M E S
1.1. Describe the information age and the differences
among data, information, business intelligence, and
knowledge.
1.2. Identify the different departments in a company and
why they must work together to achieve success.
1.3. Explain systems thinking and how management
information systems enable business
communications.
Competing in the Information Age
Did you know that . . .
■ The movie Avatar took more than four years to create and cost $450 million.
■ Lady Gaga’s real name is Stefani Joanne Angelina Germanotta.
■ Customers pay $2.6 million for a 30-second advertising time slot during the Super Bowl.2
A fact is the confirmation or validation of an event or object. In the past, people primar-
ily learned facts from books. Today, by simply pushing a button people can find out any-
thing, from anywhere, at any time. We live in the information age, when infinite quantities
of facts are widely available to anyone who can use a computer. The impact of information
technology on the global business environment is equivalent to the printing press’s impact
on publishing and electricity’s impact on productivity. College student startups were mostly
unheard of before the information age. Now, it’s not at all unusual to read about a business
student starting a multimillion-dollar company from his or her dorm room. Think of Mark
Zuckerberg, who started Facebook from his dorm, or Michael Dell (Dell Computers) and Bill
Gates (Microsoft), who both founded their legendary companies as college students.
You may think only students well versed in advanced technology can compete in the infor-
mation age. This is simply not true. Many business leaders have created exceptional opportu-
nities by coupling the power of the information age with traditional business methods. Here
are just a few examples:
■ Amazon is not a technology company; its original business focus was to sell books, and it
now sells nearly everything including technology services.
■ Netflix is not a technology company; its primary business focus is to rent videos.
■ Zappos is not a technology company; its primary business focus is to sell shoes, bags,
clothing, and accessories.
Amazon’s founder, Jeff Bezos, at first saw an opportunity to change the way people pur-
chase books. Using the power of the information age to tailor offerings to each customer and
speed the payment process, he in effect opened millions of tiny virtual bookstores, each with
a vastly larger selection and far cheaper product than traditional bookstores. The success of
his original business model led him to expand Amazon to carry many other types of products.
LO 1.1 Describe the information
age and the differences among
data, information, business intel-
ligence, and knowledge.
C H A P T E R 1
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The founders of Netflix and Zappos have done the same thing for videos and shoes. All these
entrepreneurs were business professionals, not technology experts. However, they understood
enough about the information age to apply it to a particular business, creating innovative com-
panies that now lead entire industries.
Over 20 years ago a few professors at MIT began describing the Internet of Things (IoT) a
world where interconnected Internet-enabled devices or “things” have the ability to collect
and share data without human intervention. Another term commonly associated with The
Internet of Things is machine-to-machine (M2M), which refers to devices that connect
directly to other devices. With advanced technologies devices are connecting in ways not pre-
viously thought possible and researchers predict that over 50 billion IoT devices will be com-
municating by 2020. Kevin Ashton, cofounder and executive director of the Auto-ID Center
at MIT, first mentioned the Internet of Things in a presentation he made to Procter & Gamble.
Here’s Ashton explanation of the Internet of Things:
“Today computers—and, therefore, the Internet—are almost wholly dependent on human
beings for information. Nearly all of the roughly 50 petabytes (a petabyte is 1,024 terabytes)
of data available on the Internet were first captured and created by human beings by typing,
pressing a record button, taking a digital picture or scanning a bar code. The problem is,
people have limited time, attention and accuracy—all of which means they are not very good
at capturing data about things in the real world. If we had computers that knew everything
there was to know about things—using data they gathered without any help from us—we
would be able to track and count everything and greatly reduce waste, loss and cost. We
would know when things needed replacing, repairing or recalling and whether they were
fresh or past their best.”3
 IoT is transforming our world into a living information system as we control our intelligent
lighting from our smart phone to a daily health check from our smart toothbrush. Of course
with all great technological advances come unexpected risks and you have to be prepared to
encounter various security issues with IoT. Just imagine if your devices are hacked by some-
one who now has the ability to shut off your water, take control of your car, or unlock the
doors of your home from thousands of miles away. We are just beginning to understand the
security issues associated with IoT and M2M and you can be sure that sensitive data leakage
from your IoT device is something you will most likely encounter in your life.
Students who understand business along with the power associated with the information
age will create their own opportunities and perhaps even new industries. Realizing the value
of obtaining real-time data from connected “things” will allow you to make more informed
decisions, identify new opportunities, and analyze customer patterns to predict new behav-
iors. Our primary goal in this course is to arm you with the knowledge you need to compete in
the information age. The core drivers of the information age include:
■ Data
■ Information
■ Business intelligence
■ Knowledge (see Figure 1.1)
DATA
Data are raw facts that describe the characteristics of an event or object. Before the informa-
tion age, managers manually collected and analyzed data, a time-consuming and complicated
task without which they would have little insight into how to run their business. Structured
data has a defined length, type, and format and includes numbers, dates, or strings such as
Customer Address. Structured data is typically stored in a traditional system such as a rela-
tional database or spreadsheet and accounts for about 20 percent of the data that surrounds us.
The sources of structured data include:
■ Machine-generated data is created by a machine without human intervention. Machine-
generated structured data includes sensor data, point-of-sale data, and web log data.
■ Human-generated data is data that humans, in interaction with computers, generate.
Human-generated structured data includes input data, click-stream data, or gaming data.
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Unstructured data is not defined and does not follow a specified format and is typi-
cally free-form text such as emails, Twitter tweets, and text messages. Unstructured data
accounts for about 80 percent of the data that surrounds us. The sources of unstructured
data include:
■ Machine-generated unstructured data includes satellite images, scientific atmosphere data,
and radar data.
■ Human-generated unstructured data includes text messages, social media data, and
emails.
Big data is a collection of large complex data sets, including structured and unstructured
data, which cannot be analyzed using traditional database methods and tools. Lacking data,
managers often found themselves making business decisions about how many products to
make, how much material to order, or how many employees to hire based on intuition or gut
feelings. In the information age, successful managers compile, analyze, and comprehend mas-
sive amounts of data daily, which helps them make more successful business decisions.
A snapshot is a view of data at a particular moment in time. Figure 1.2 provides a snap-
shot of sales data for Tony’s Wholesale Company, a fictitious business that supplies snacks
to stores. The data highlight characteristics such as order date, customer, sales representative,
product, quantity, and profit. The second line in Figure 1.2, for instance, shows that Roberta
Cross sold 90 boxes of Ruffles to Walmart for $1,350, resulting in a profit of $450 (note that
Profit  =  Sales  −  Costs). These data are useful for understanding individual sales; however,
they do not provide us much insight into how Tony’s business is performing as a whole. Tony
needs to answer questions that will help him manage his day-to-day operations such as:
■ Who are my best customers?
■ Who are my least-profitable customers?
■ What is my best-selling product?
■ What is my slowest-selling product?
FIGURE 1.1
The Differences among
Data, Information, Business
Intelligence, and Knowledge.
Data Information Business
Intelligence
Knowledge
Data converted
into a meaningful
and useful
context
Information collected
from multiple sources
that analyzes patterns,
trends, and relationships
for strategic decision
making
The skills, experience,
and expertise, coupled
with information and
intelligence, that creates
a person’s intellectual
resources.
Choosing not to fire a
sales representative
who is underperforming
knowing that person is
experiencing family
problems
Listing products that are
about to expire first on
the menu or creating
them as a daily special
to move the product
Raw facts that
describe the
characteristics
of an event
or object
Order date
Amount sold
Customer
number
Quantity
ordered
Best-selling
product
Best customer
Worst-selling
product
Worst
customer
Lowest sales per week
compared with the
economic interest rates
Best-selling product by
month compared to
sports season and city
team wins and losses
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■ Who is my strongest sales representative?
■ Who is my weakest sales representative?
What Tony needs, in other words, is not data but information.
INFORMATION
Information is data converted into a meaningful and useful context.  The simple difference
between data and information is that computers or machines need data and humans need
information. Data is a raw building block that has not been shaped, processed, or analyzed
and frequently appears disorganized and unfriendly. Information gives meaning and con-
text to analyzed data making it insightful for humans providing context and structure that is
extremely valuable when making informed business decisions.
A report is a document containing data organized in a table, matrix, or graphical format
allowing users to easily comprehend and understand information. Reports can cover a wide
range of subjects or specific subject for a certain time period or event. A static report is cre-
ated once based on data that does not change. Static reports can include a sales report from
last year or salary report from five years ago. A dynamic report changes automatically during
creation. Dynamic reports can include updating daily stock market prices or the calculation
of available inventory.
Having the right information at the right moment in time can be worth a fortune. Having
the wrong information at the right moment; or the right information at the wrong moment
can be disastrous. The truth about information is that its value is only as good as the people
who use it. People using the same information can make different decisions depending on
how they interpret or analyze the information. Thus information has value only insofar as the
people using it do as well.
Tony can analyze his sales data and turn them into information to answer all the above
questions and understand how his business is operating. Figures  1.3 and 1.4, for instance,
show us that Walmart is Roberta Cross’s best customer, and that Ruffles is Tony’s best prod-
uct measured in terms of total sales. Armed with this information, Tony can identify and then
address such issues as weak products and under-performing sales representatives.
A variable is a data characteristic that stands for a value that changes or varies over
time. For example, in Tony’s data, price and quantity ordered can vary. Changing variables
allows managers to create hypothetical scenarios to study future possibilities. Tony may
find it valuable to anticipate how sales or cost increases affect profitability. To estimate
how a 20 percent increase in prices might improve profits, Tony simply changes the price
variable for all orders, which automatically calculates the amount of new profits. To esti-
mate how a 10 percent increase in costs hurts profits, Tony changes the cost variable for all
FIGURE 1.2
Tony’s Snack Company Data.
Order
Date Customer
Sales
Representative Product Qty
Unit
Price
Total
Sales
Unit
Cost
Total
Cost Profit
4-Jan Walmart PJHelgoth Doritos 41 $24 $ 984 $18 $738 $246
4-Jan Walmart Roberta Cross Ruffles 90 $15 $1,350 $10 $900 $450
5-Jan Safeway Craig Schultz Ruffles 27 $15 $ 405 $10 $270 $135
6-Jan Walmart Roberta Cross Ruffles 67 $15 $1,005 $10 $670 $335
7-Jan 7-Eleven Craig Schultz Pringles 79 $12 $ 948 $ 6 $474 $474
7-Jan Walmart Roberta Cross Ruffles 52 $15 $ 780 $10 $520 $260
8-Jan Kroger Craig Schultz Ruffles 39 $15 $ 585 $10 $390 $195
9-Jan Walmart Craig Schultz Ruffles 66 $15 $ 990 $10 $660 $330
10-Jan Target Craig Schultz Ruffles 40 $15 $ 600 $10 $400 $200
11-Jan Walmart Craig Schultz Ruffles 71 $15 $1,065 $10 $710 $355
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orders, which automatically calculates the amount of lost profits. Manipulating variables is
an important tool for any business.
BUSINESS INTELLIGENCE
Business intelligence (BI) is information collected from multiple sources such as suppliers,
customers, competitors, partners, and industries that analyzes patterns, trends, and relation-
ships for strategic decision making. BI manipulates multiple variables and in some cases even
hundreds of variables including such items as interest rates, weather conditions, and even gas
prices. Tony could use BI to analyze internal data such as company sales, along with exter-
nal data about the environment such as competitors, finances, weather, holidays, and even
sporting events. Both internal and external variables affect snack sales, and analyzing these
variables will help Tony determine ordering levels and sales forecasts. For instance, BI can
predict inventory requirements for Tony’s business for the week before the Super Bowl if, say,
FIGURE 1.3
Tony’s Data Sorted by
Customer “Walmart” and
Sales Representative
“Roberta Cross”.
Order
Date Customer
Sales
Representative Product Quantity
Unit
Price
Total
Sales
Unit
Cost
Total
Cost Profit
26-Apr Walmart Roberta Cross Fritos 86 $ 19 $ 1,634 $ 17 $ 1,462 $ 172
29-Aug Walmart Roberta Cross Fritos 76 $ 19 $ 1,444 $ 17 $ 1,292 $ 152
7-Sep Walmart Roberta Cross Fritos 20 $ 19 $ 380 $ 17 $ 340 $ 40
22-Nov Walmart Roberta Cross Fritos 39 $ 19 $ 741 $ 17 $ 663 $ 78
30-Dec Walmart Roberta Cross Fritos 68 $ 19 $ 1,292 $ 17 $ 1,156 $ 136
7-Jul Walmart Roberta Cross Pringles 79 $ 18 $ 1,422 $ 8 $ 632 $ 790
6-Aug Walmart Roberta Cross Pringles 21 $ 12 $ 252 $ 6 $ 126 $ 126
2-Oct Walmart Roberta Cross Pringles 60 $ 18 $ 1,080 $ 8 $ 480 $ 600
15-Nov Walmart Roberta Cross Pringles 32 $ 12 $ 384 $ 6 $ 192 $ 192
21-Dec Walmart Roberta Cross Pringles 92 $ 12 $ 1,104 $ 6 $ 552 $ 552
28-Feb Walmart Roberta Cross Ruffles 67 $ 15 $ 1,005 $ 10 $ 670 $ 335
6-Mar Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40
16-Mar Walmart Roberta Cross Ruffles 68 $ 15 $ 1,020 $ 10 $ 680 $ 340
23-Apr Walmart Roberta Cross Ruffles 34 $ 15 $ 510 $ 10 $ 340 $ 170
4-Aug Walmart Roberta Cross Ruffles 40 $ 15 $ 600 $ 10 $ 400 $ 200
18-Aug Walmart Roberta Cross Ruffles 93 $ 15 $ 1,395 $ 10 $ 930 $ 465
5-Sep Walmart Roberta Cross Ruffles 41 $ 15 $ 615 $ 10 $ 410 $ 205
12-Sep Walmart Roberta Cross Ruffles 8 $ 15 $ 120 $ 10 $ 80 $ 40
28-Oct Walmart Roberta Cross Ruffles 50 $ 15 $ 750 $ 10 $ 500 $ 250
21-Nov Walmart Roberta Cross Ruffles 79 $ 15 $ 1,185 $ 10 $ 790 $ 395
29-Jan Walmart Roberta Cross Sun Chips 5 $ 22 $ 110 $ 18 $ 90 $ 20
12-Apr Walmart Roberta Cross Sun Chips 85 $ 22 $ 1,870 $ 18 $ 1,530 $ 340
16-Jun Walmart Roberta Cross Sun Chips 55 $ 22 $ 1,210 $ 18 $ 990 $ 220
1,206 $ 383 $ 20,243 $ 273 $ 14,385 $ 5,858
Sorting the data reveals the information that Roberta Cross’s total sales to Walmart were $20,243 resulting in a profit of $5,858.
(Profit $5,858 = Sales $20,243 − Costs $14,385)
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the home team is playing, average temperature is above 80 degrees, and the stock market is
performing well. This is BI at its finest, incorporating all types of internal and external vari-
ables to anticipate business performance.
Analytics is the science of fact-based decision making. A big part of business intelligence
is called predictive analytics, which extracts information from data and uses it to predict
future trends and identify behavioral patterns. Top managers use predictive analytics to define
the future of the business, analyzing markets, industries, and economies to determine the
strategic direction the company must follow to remain profitable. Behavioral analytics uses
data about people’s behaviors to understand intent and predict future actions. Tony will set the
strategic direction for his firm, which might include introducing new flavors of potato chips or
sports drinks as new product lines or schools and hospitals as new market segments based on
both predictive and behavioral analytics.
KNOWLEDGE
Knowledge includes the skills, experience, and expertise, coupled with information and intel-
ligence, that creates a person’s intellectual resources. Knowledge workers are individuals
valued for their ability to interpret and analyze information. Today’s workers are commonly
referred to as knowledge workers and they use BI along with personal experience to make
decisions based on both information and intuition, a valuable resource for any company.
Imagine that Tony analyzes his data and finds his weakest sales representative for this
period is Craig Schultz. If Tony considered only this information, he might conclude that fir-
ing Craig was a good business decision. However, because Tony has knowledge about how the
company operates, he knows Craig has been out on medical leave for several weeks; hence,
his sales numbers are low. Without this additional knowledge, Tony might have executed a
bad business decision, delivered a negative message to the other employees, and sent his best
sales representatives out to look for other jobs.
The key point in this scenario is that it is simply impossible to collect all the information
about every situation, and yet without that, it can be easy to misunderstand the problem.
Using data, information, business intelligence, and knowledge to make decisions and solve
FIGURE 1.4
Information Gained after
Analyzing Tony’s Data.
Tony’s Business Information Name Total Profit
Who is Tony’s best customer by total sales? Walmart $ 560,789
Who is Tony’s least-valuable customer by total sales? Walgreens $ 45,673
Who is Tony’s best customer by profit? 7-Eleven $ 324,550
Who is Tony’s least-valuable customer by profit? King Soopers $ 23,908
What is Tony’s best-selling product by total sales? Ruffles $ 232,500
What is Tony’s weakest-selling product by total sales? Pringles $ 54,890
What is Tony’s best-selling product by profit? Tostitos $ 13,050
What is Tony’s weakest-selling product by profit? Pringles $ 23,000
Who is Tony’s best sales representative by profit? R. Cross $ 1,230,980
Who is Tony’s weakest sales representative by profit? Craig Schultz $ 98,980
What is the best sales representative’s best-selling product by total
profit?
Ruffles $ 98,780
Who is the best sales representative’s best customer by total profit? Walmart $ 345,900
What is the best sales representative’s weakest-selling product by total
profit?
Sun Chips $ 45,600
Who is the best sales representative’s weakest customer by total profit? Krogers $ 56,050
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problems is the key to finding success in business. These core drivers of the information age
are the building blocks of business systems. Figure 1.5 offers a few different examples of data
through knowledge.
The Challenge: Departmental Companies
A business unit is a segment of a company (such as accounting, production, marketing) repre-
senting a specific business function. The terms department, functional area, and business unit
are used interchangeably and corporations are typically organized by business unit such as:
■ Accounting: Records, measures, and reports monetary transactions.
■ Finance: Deals with strategic financial issues including money, banking, credit, invest-
ments, and assets.
■ Human resources: Maintains policies, plans, and procedures for the effective manage-
ment of employees.
■ Marketing: Supports sales by planning, pricing, and promoting goods or services.
■ Operations management: Manages the process of converting or transforming resources
into goods or services.
■ Sales: Performs the function of selling goods or services.
An information silo occurs when one business unit is unable to freely communicate
with other business units making it difficult or impossible for organizations to work cross-
functionally. Information silos exist because management does not believe there to be enough
benefit from sharing information across business units and because information might not
be useful to personnel in other business units. Figure 1.6 provides an example of how an
organization operates functionally causing information silos as each department performs its
own activities. Sales and marketing focus on moving goods or services into the hands of
consumers; they maintain transactional data. Finance and accounting focus on managing the
company’s resources and maintain monetary data. Operations management focuses on manu-
facturing and maintains production data, while human resources focuses on hiring and train-
ing people and maintains employee data. Although each department has its own focus and
data, none can work independently if the company is to operate as a whole.
LO 1.2 Identify the different
departments in a company and
why they must work together to
achieve success.
FIGURE 1.5
Transformation of Data to
Knowledge.
INFORMATION: The item I have is a product that has the most sales during the
month of December.
BUSINESS INTELLIGENCE: The month of December this year is going to see interest
rates rise by 10 percent and snow stores are expected to cause numerous problems
throughout the East coast.
KNOWLEDGE: Given the unexpected financial issues caused by the storms and the
interest rate hike we will o�er a discount on purchase in November and December
to ensure sales levels increase by 10 percent.
DATA: I have one item.
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It is easy to see how a business decision made by one department can affect other depart-
ments. Marketing needs to analyze production and sales data to come up with product promo-
tions and advertising strategies. Production needs to understand sales forecasts to determine
the company’s manufacturing needs. Sales needs to rely on information from operations to
understand inventory, place orders, and forecast consumer demand. All departments need to
understand the accounting and finance departments’ information for budgeting. For the firm
to be successful, all departments must work together as a single unit sharing common infor-
mation and not operate independently or in a silo (see Figure 1.7).
The Solution: Management Information Systems
You probably recall the old story of three blind men attempting to describe an elephant. The
first man, feeling the elephant’s girth, said the elephant seemed very much like a wall. The
second, feeling the elephant’s trunk, declared the elephant was like a snake. The third man
felt the elephant’s tusks and said the elephant was like a tree or a cane. Companies that oper-
ate departmentally are seeing only one part of the elephant, a critical mistake that hinders
successful operation.
Successful companies operate cross-functionally, integrating the operations of all depart-
ments. Systems are the primary enabler of cross-functional operations. A system is a collec-
tion of parts that link to achieve a common purpose. A car is a good example of a system,
since removing a part, such as the steering wheel or accelerator, causes the entire system to
stop working.
LO 1.3 Explain systems thinking
and how management informa-
tion systems enable business
communications.
FIGURE 1.6
Departments Working
Independently.
Finance
Tracks strategic financial
issues including money,
banking, credit,
investments, and assets.
Human resources
Maintains policies, plans,
and procedures for the
e�ective management of
employees.
Sales
Performs the function of
selling goods or services.
Operations
management
Manages the process of
converting or transforming
or resources into goods or
services.
Marketing
Supports sales by
planning, pricing, and
promoting goods or
services.
Accounting
Records, measures, and
reports monetary
transactions.
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Before jumping into how systems work, it is important to have a solid understanding of the
basic production process for goods and services. Goods are material items or products that
customers will buy to satisfy a want or need. Clothing, groceries, cell phones, and cars are
all examples of goods that people buy to fulfill their needs. Services are tasks performed by
people that customers will buy to satisfy a want or need. Waiting tables, teaching, and cutting
hair are all examples of services that people pay for to fulfill their needs (see Figure 1.8).
FIGURE 1.7
Departments Working
Together.
• Transactional data
• Purchasing data
• Payroll data
• Tax data
Accounting
Business Decisions
Finance
• Investment data
• Monetary data
• Reporting data
Human resources
• Employee data
• Promotion data
• Vacation data
Marketing
• Promotion data
• Sales data
• Advertising data
Operations management
• Manufacturing data
• Distribution data
• Production data
Sales
• Potential customer data
• Sales report data
• Commission data
• Customer support data
FIGURE 1.8
Different Types of Goods and
Services.
Cars
Groceries
Clothing
Teaching
Waiting
tables
Cutting hair
GOODS
Material items or products
that customers will buy to
satisfy a want or need.
SERVICES
Tasks performed by people
that customers will buy
to satisfy a want or need.
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FIGURE 1.9
Input, Process, Output
Example.
Input OutputProcess
Lettuce,
tomatoes, patty,
bun, ketchup
Cook the patty, put
the ingredients
together
Hamburger
FIGURE 1.10
Overview of Systems
Thinking.
Process
Computer program
that processes the
data
Output
The resulting
information from
the computer
program
Data that is
entered in a
computer
Input
Feedback
Controls to ensure
correct processing
Production is the process where a business takes raw materials and processes them or
converts them into a finished product for its goods or services. Just think about making a
hamburger (see Figure 1.9). First, you must gather all of the inputs or raw materials such as
the bun, patty, lettuce, tomato, and ketchup. Second, you process the raw materials, so in this
example you would need to cook the patty, wash and chop the lettuce and tomato, and place
all of the items in the bun. Finally, you would have your output or finished product—your
hamburger! Productivity is the rate at which goods and services are produced based upon
total output given total inputs. Given our previous example, if a business could produce the
same hamburger with less expensive inputs or more hamburgers with the same inputs it would
see a rise in productivity and possibly an increase in profits. Ensuring the input, process, and
output of goods and services work across all of the departments of a company is where sys-
tems add tremendous value to overall business productivity.
Systems thinking is a way of monitoring the entire system by viewing multiple inputs
being processed or transformed to produce outputs while continuously gathering feedback on
each part (see Figure 1.10). Feedback is information that returns to its original transmitter
(input, transform, or output) and modifies the transmitter’s actions. Feedback helps the sys-
tem maintain stability. For example, a car’s system continuously monitors the fuel level and
turns on a warning light if the gas level is too low. Systems thinking provides an end-to-end
view of how operations work together to create a product or service. Business students who
understand systems thinking are valuable resources because they can implement solutions
that consider the entire process, not just a single component.
Management information systems (MIS) is a business function, like accounting and
human resources, which moves information about people, products, and processes across
the company to facilitate decision making and problem solving. MIS incorporates systems
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thinking to help companies operate cross-functionally. For example, to fulfill product orders,
an MIS for sales moves a single customer order across all functional areas including sales,
order fulfillment, shipping, billing, and finally customer service. Although different func-
tional areas handle different parts of the sale, thanks to MIS, to the customer the sale is one
continuous process. If one part of the company is experiencing problems, however, then, like
the car without a steering wheel, the entire system fails. If order fulfillment packages the
wrong product, it will not matter that shipping, billing, and customer service did their jobs
right, since the customer will not be satisfied when he or she opens the package. Management
information systems are the key to breaking down information silos by allowing information
to flow across the organization.
MIS can be an important enabler of business success and innovation. This is not to say
that MIS equals business success and innovation, or that MIS represents business success and
innovation. MIS is a tool that is most valuable when it leverages the talents of people who
know how to use and manage it effectively. To perform the MIS function effectively, almost
all companies, particularly large and medium-sized ones, have an internal MIS department,
often called information technology (IT), information systems (IS), or management informa-
tion systems (MIS). For the purpose of this text, we will refer to it as MIS.
In his book The World Is Flat, Thomas Friedman describes the unplanned cascade of technological
and social shifts that effectively leveled the economic world and “accidentally made Beijing, Banga-
lore, and Bethesda next-door neighbors.” Chances are good that Bhavya in Bangalore will read your
next X-ray, or as Friedman learned firsthand, “Grandma Betty in her bathrobe” will make your JetBlue
plane reservation from her Salt Lake City home.
Friedman believes this is Globalization 3.0. “In Globalization 1.0, which began around 1492,
the world went from size large to size medium. In Globalization 2.0, the era that introduced us
to multinational companies, it went from size medium to size small. And then around 2000 came
Globalization 3.0, in which the world went from being small to tiny. There is a difference between
being able to make long-distance phone calls cheaper on the Internet and walking around
Chapter One Case: The World Is Flat—Thomas Friedman
1. Imagine you are working for Costco as a manager in its Chicago store. Your boss does not under-
stand the difference between data, information, business intelligence, and knowledge. Using
examples of products and services available at Costco provide examples of each to help your boss
understand these important concepts.
2. Explain why it is important for Costco’s corporate accounting, marketing, and operations manage-
ment business units to access and analyze information about your store’s sales. What could hap-
pen if your store sales were not shared with the different business units at Costco’s headquarters?
3. Explain systems thinking and how MIS solves the issue with information silos throughout Costco’s
entire worldwide organization.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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Riyadh with a PDA where you can have all of Google in your pocket. It is a difference in degree
that’s so enormous it becomes a difference in kind,” Friedman states. Below are Friedman’s list
of “flatteners.”
Friedman says these flatteners converged around the year 2000 and “created a flat world: a
global, Web-enabled platform for multiple forms of sharing knowledge and work, irrespective of time,
distance, geography, and increasingly, language.” At the very moment this platform emerged, three
huge economies materialized—those of India, China, and the former Soviet Union—“and 3 billion
people who were out of the game, walked onto the playing field.” A final convergence may determine
the fate of the United States in this chapter of globalization. A “political perfect storm,” as Friedman
describes it—the dot-com bust, the attacks of 9/11, and the Enron scandal—“distract us completely
as a country.” Just when we need to face the fact of globalization and the need to compete in a new
world, “we’re looking totally elsewhere.”
Friedman believes that the next great breakthrough in bioscience could come from a 5-year-old
who downloads the human genome in Egypt. Bill Gates’s view is similar: “Twenty years ago, would
you rather have been a B-student in Poughkeepsie or a genius in Shanghai? Twenty years ago you’d
rather be a B-student in Poughkeepsie. Today, it is not even close. You’d much prefer to be the genius
in Shanghai because you can now export your talents anywhere in the world.”4
Questions
1. Do you agree or disagree with Friedman’s assessment that the world is flat? Be sure to justify
your answer.
2. What are the potential impacts of a flat world for a student performing a job search?
3. What can students do to prepare themselves for competing in a flat world?
4. Identify a current flattener not mentioned on Friedman’s list.
1. Fall of the Berlin Wall Opened the world to free markets.
2. Netscape IPO Began the gigantic investments in connecting the world with
fiber-optic cables.
3. Work flow software Allowed employees to communicate and collaborate from all over
the world.
4. Open-sourcing Open source communities began creating free software.
5. Outsourcing Using labor from third world countries allowed companies to grow
while helping grow economies.
6. Offshoring Using China to manufacture goods helped the world-wide global
economy.
7. Supply-chaining Businesses gained monumental efficiencies by connecting net-
works of suppliers, retailers, distributors, and customers. 
8. Insourcing Small business gained global momentum.  
9. Informing Search gave the intelligence to the masses. 
10. Wireless Business mobility gave the power of collaboration to the people.
Thomas Friedman’s 10
Forces That Flattened the
World
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1.1. Describe the information age and the differences among data, information, business
intelligence, and knowledge.
We live in the information age, when infinite quantities of facts are widely available to anyone who
can use a computer. The core drivers of the information age include data, information, business
intelligence, and knowledge. Data are raw facts that describe the characteristics of an event or
object. Information is data converted into a meaningful and useful context. Business intelligence (BI)
is information collected from multiple sources such as suppliers, customers, competitors, partners,
and industries that analyzes patterns, trends, and relationships for strategic decision making. Knowl-
edge includes the skills, experience, and expertise, coupled with information and intelligence, that
create a person’s intellectual resources. As you move from data to knowledge, you include more
and more variables for analysis, resulting in better, more precise support for decision making and
problem solving.
1.2. Identify the different departments in a company and why they must work together to
achieve success.
■ Accounting: Records, measures, and reports monetary transactions.
■ Finance: Deals with strategic financial issues including money, banking, credit, investments,
and assets.
■ Human resources: Maintains policies, plans, and procedures for the effective management of
employees.
■ Marketing: Supports sales by planning, pricing, and promoting goods or services.
■ Operations management: Manages the process of converting or transforming resources into
goods or services.
■ Sales: Performs the function of selling goods or services.
It is easy to see how a business decision made by one department can affect other departments.
Marketing needs to analyze production and sales data to come up with product promotions and
advertising strategies. Production needs to understand sales forecasts to determine the company’s
manufacturing needs. Sales needs to rely on information from operations to understand inventory,
place orders, and forecast consumer demand. All departments need to understand the accounting
and finance departments’ information for budgeting. For the firm to be successful, all departments
must work together as a single unit sharing common information and not operate independently or
in a silo.
1.3. Explain systems thinking and how management information systems enable business
communications.
A system is a collection of parts that link to achieve a common purpose. Systems thinking is a way of
monitoring the entire system by viewing multiple inputs being processed or transformed to produce
outputs while continuously gathering feedback on each part. Feedback is information that returns to
its original transmitter (input, transform, or output) and modifies the transmitter’s actions. Feedback
helps the system maintain stability. Management information systems (MIS) is a business func-
tion, like accounting and human resources, which moves information about people, products, and
processes across the company to facilitate decision making and problem solving. MIS incorporates
systems thinking to help companies operate cross-functionally. For example, to fulfill product orders,
an MIS for sales moves a single customer order across all functional areas, including sales, order
fulfillment, shipping, billing, and finally customer service. Although different functional areas handle
different parts of the sale, thanks to MIS, to the customer the sale is one continuous process.
L E A R N I N G O U T C O M E R E V I E W
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1. What is data? Why is data important to a business?
2. How can a manager turn data into information?
3. What is the relationship between data, information, business intelligence, and knowledge?
4. Why is it important for a company to operate cross-functionally?
5. What is MIS and what role does it plays in an organization?
6. Do you agree that MIS is essential for businesses operating in the information age? Why or
why not?
7. What type of career are you planning to pursue? How will your specific career use data,
information, business intelligence, and knowledge?
8. How does system thinking support business operations?
1. View from a Flat World
Bill Gates, founder of Microsoft, stated that 20 years ago most people would rather have been a B
student in New York City than a genius in China because the opportunities available to students in
developed countries were limitless. Today, many argue that the opposite is now true due to techno-
logical advances making it easier to succeed as a genius in China than a B student in New York. As a
group, discuss whether you agree or disagree with Bill Gates’s statement.
2. Is Technology Making Us Dumber or Smarter?
There are numerous articles on how Facebook can make you dumber and Twitter can impede your
ability to make sound decisions. Do you believe technology is making mankind dumber? Choose a
side and debate the following:
Side A Living in the information age has made us smarter because we have a huge wealth of knowl-
edge at our fingertips whenever or wherever we need it.
Side B Living in the information age has caused people to become lazy and dumber because they
are no longer building up their memory banks to solve problems; machines give them the answers
they need to solve problems.
3. IOT in the Room
Each day you are surrounded by millions of bits of data flying around you and you probably have not
even noticed! As a collective group analyze all of the IOT devices currently in your classroom. What types
of data are they sending and receiving? How frequently are they sending and receiving the data? What
types of IOT device information are you using to manage your life? What types of IOT devices will be in
the room in 5 years and how will they help future students analyze and manage their lives?
4. Working for the Best
Each year, Fortune magazine creates a list of the top 100 companies to work for. Find the most
recent list. What types of data do you think Fortune analyzed to determine the company ranking?
What issues could occur if the analysis of the data was inaccurate? What types of information can
you gain by analyzing the list? Create five questions a student performing a job search could answer
by analyzing this list.
M A K I N G B U S I N E S S D E C I S I O N S
R E V I E W Q U E S T I O N S
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5. People in China and India Are Starving for Your Jobs
“When I was growing up in Minneapolis, my parents always said, ‘Tom, finish your dinner. There are
people starving in China and India.’ Today I tell my girls, ‘Finish your homework, because people in
China and India are starving for your jobs.’ And in a flat world, they can have them, because there’s
no such thing as an American job anymore.” Thomas Friedman.
In his book, The World Is Flat, Thomas Friedman describes the unplanned cascade of technologi-
cal and social shifts that effectively leveled the economic world, and “accidentally made Beijing,
Bangalore, and Bethesda next-door neighbors.” The video of Thomas Friedman’s lecture at MIT
discussing the flat world is available at http://mitworld.mit.edu/video/266. If you want to be prepared
to compete in a flat world you must watch this video and answer the following questions:
■ Do you agree or disagree with Friedman’s assessment that the world is flat?
■ What are the potential impacts of a flat world for a student performing a job search?
■ What can students do to prepare themselves for competing in a flat world?
6. Teddy The Guardian
Two London-based entrepreneurs are building an Internet of huggable things for sick children to
make any hospital visit more like a trip to Disneyland. Teddy The Guardian captures heart rate, tem-
peratures, and blood-oxygen levels when a child grabs it by the paw to give it a cuddle. All measure-
ments are sent wirelessly to nurses and parents, mobile devices. The new cute, cuddly teddy bear
is packed full of sensors designed to track children’s vital signs and help quickly find out potential
issues. Teddy The Guardian takes from 5 to 7 seconds to record measurements and is programmed
to run five times per hour. Future versions of Teddy The Guardian will be interactive, using machine
learning to find out the child’s favorite song or bedtime story and then play the related content for a
more soothing hospital visit. Big pharmaceutical companies in the United States have already placed
over $500,000 in orders and plan to donate the bears to hospitals and clinics.
This is clearly a brilliant idea, and soon we will see Teddy The Guardian in many local hospitals
and clinics. Can you identify any additional markets where Teddy The Guardian should focus? Can
you think of any ethical issues related to huggable things? Can you think of any security issues
related to huggable things?
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C H A P T E R 2
L E A R N I N G O U T C O M E S
2.1. Explain why competitive advantages are temporary
along with the four key areas of a SWOT analysis.
2.2. Describe Porter’s Five Forces Model and explain each
of the five forces.
2.3. Compare Porter’s three generic strategies.
2.4. Demonstrate how a company can add value by using
Porter’s value chain analysis.
Identifying Competitive Advantages
Running a company today is similar to leading an army; the top manager or leader ensures
all participants are heading in the right direction and completing their goals and objectives.
Companies lacking leadership quickly implode as employees head in different directions
attempting to achieve conflicting goals. To combat these challenges, leaders communi-
cate and execute business strategies (from the Greek word stratus for army and ago for
leading).
A business strategy is a leadership plan that achieves a specific set of goals or objectives
such as increasing sales, decreasing costs, entering new markets, or developing new products
or services. A stakeholder is a person or group that has an interest or concern in an organiza-
tion. Stakeholders drive business strategies, and depending on the stakeholder’s perspective,
the business strategy can change. It is not uncommon to find stakeholders’ business strate-
gies have conflicting interests such as investors looking to increase profits by eliminating
employee jobs. Figure 2.1 displays the different stakeholders found in an organization and
their common business interests.
Good leaders also anticipate unexpected misfortunes, from strikes and economic reces-
sions to natural disasters. Their business strategies build in buffers or slack, allowing the com-
pany the ability to ride out any storm and defend against competitive or environmental threats.
Of course, updating business strategies is a continuous undertaking as internal and external
environments rapidly change. Business strategies that match core company competencies to
opportunities result in competitive advantages, a key to success!
A competitive advantage is a feature of a product or service on which customers place a
greater value than they do on similar offerings from competitors. Competitive advantages
provide the same product or service either at a lower price or with additional value that can
fetch premium prices. Unfortunately, competitive advantages are typically temporary, because
competitors often quickly seek ways to duplicate them. In turn, organizations must develop a
strategy based on a new competitive advantage. Ways that companies duplicate competitive
advantages include acquiring the new technology, copying the business operations, and hir-
ing away key employees. The introduction of Apple’s iPod and iTunes, a brilliant merger of
technology, business, and entertainment, offers an excellent example.
In early 2000, Steve Jobs was fixated on developing video editing software when he sud-
denly realized that millions of people were using computers to listen to music, a new trend
Identifying Competitive
Advantages
LO 2.1 Explain why competitive
advantages are temporary along
with the four key areas of a SWOT
analysis.
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in the industry catapulted by illegal online services such as Napster. Jobs was worried that
he was looking in the wrong direction and had missed the opportunity to jump on the online
music bandwagon. He moved fast, however, and within four months he had developed the first
version of iTunes for the Mac. Jobs’s next challenge was to make a portable iTunes player that
could hold thousands of songs and be completely transportable. Within nine months the iPod
was born. With the combination of iTunes and iPod, Apple created a significant competitive
advantage in the marketplace. Many firms began following Apple’s lead by creating portable
music players to compete with the iPod. In addition, Apple continues to create new and excit-
ing products to gain competitive advantages, such as its iPad, a larger version of the iPod that
functions more as a computer than a music player.1
When a company is the first to market with a competitive advantage, it gains a particular
benefit, such as Apple did with its iPod. This first-mover advantage occurs when a com-
pany can significantly increase its market share by being first with a new competitive advan-
tage. FedEx created a first-mover advantage by developing its customer self-service software,
which allows people to request parcel pickups, print mailing slips, and track parcels online.
Other parcel delivery companies quickly began creating their own online services. Today,
customer self-service on the Internet is a standard feature of the parcel delivery business.
Competitive intelligence is the process of gathering information about the competitive
environment, including competitors’ plans, activities, and products, to improve a company’s
ability to succeed. It means understanding and learning as much as possible as soon as pos-
sible about what is occurring outside the company to remain competitive. Frito-Lay, a premier
provider of snack foods such as Cracker Jacks and Cheetos, does not send its sales representa-
tives into grocery stores just to stock shelves; they carry handheld computers and record the
FIGURE 2.1
Stakeholders’ Interests.
ORGANIZATION
GOVERNMENT
Adhere to
Regulations/Laws
Increase
Employment
Ethical Taxation
Reporting
PARTNERS/
SUPPLIERS
Reliable Contracts
Ethical Materials
Handling
Responsible
Production
SHAREHOLDERS/
INVESTORS
Maximize Profits
Grow Market 
Share
High Return on
Investment
COMMUNITY
Professional
Associations
Ethical Recycling
Increase
Employment
EMPLOYEES
Fair Compensation
Job Security
Ethical Conduct/
Treatment
CUSTOMERS
Exceptional
Customer Service
High-Quality
Products
Ethical Dealing
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product offerings, inventory, and even product locations of competitors. Frito-Lay uses this
information to gain competitive intelligence on everything from how well competing prod-
ucts are selling to the strategic placement of its own products.2 Managers use four common
tools to analyze competitive intelligence and develop competitive advantages as displayed
in Figure 2.2.
SWOT ANALYSIS: UNDERSTANDING BUSINESS STRATEGIES
A SWOT analysis evaluates an organization’s strengths, weaknesses, opportunities, and
threats to identify significant influences that work for or against business strategies (see
Figure 2.3). Strengths and weaknesses originate inside an organization, or internally. Oppor-
tunities and threats originate outside an organization, or externally, and cannot always be
anticipated or controlled.
■ Potential Internal Strengths (Helpful): Identify all key strengths associated with the
competitive advantage including cost advantages, new and/or innovative services, special
expertise and/or experience, proven market leader, and improved marketing campaigns.
■ Potential Internal Weaknesses (Harmful): Identify all key areas that require improve-
ment. Weaknesses focus on the absence of certain strengths, including absence of an
Internet marketing plan, damaged reputation, problem areas for service, and outdated tech-
nology employee issues.
■ Potential External Opportunities (Helpful): Identify all significant trends along with
how the organization can benefit from each, including new markets, additional customer
groups, legal changes, innovative technologies, population changes, and competitor issues.
FIGURE 2.2
Business Tools for Analyzing
Business Strategies.
SWOT ANALYSIS
Evaluates Project
Position
THE THREE GENERIC
STRATEGIES
Chooses Business
Focus
THE FIVE FORCES MODEL
Evaluates Industry
Attractiveness
VALUE CHAIN ANALYSIS
Executes Business
Strategy
FIGURE 2.3
Sample SWOT Analysis
STRENGTHS
Core Competencies
Market Leaders
Cost Advantages
Excellent Management
OPPORTUNITES
Expanded Product Line
Increase in Demand
New Markets
New Regulations
WEAKNESSES
Lack of Strategic Direction
Obsolete Technologies
Lack of Managerial Talent
Outdated Product Line
THREATS
New Entrants
Substitute Products
Shrinking Markets
Costly Regulatory
Requirements
HELPFUL
INTERNAL
EXTERNAL
HARMFUL
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■ Potential External Threats (Harmful): Identify all threats or risks detrimental to your
organization, including new market entrants, substitute products, employee turnover, differ-
entiating products, shrinking markets, adverse changes in regulations, and economic shifts.
The Five Forces Model—Evaluating Industry
Attractiveness
Michael Porter, a university professor at Harvard Business School, identified the following
pressures that can hurt potential sales:
■ Knowledgeable customers can force down prices by pitting rivals against each other.
■ Influential suppliers can drive down profits by charging higher prices for supplies.
■ Competition can steal customers.
■ New market entrants can steal potential investment capital.
■ Substitute products can steal customers.
Formally defined, Porter’s Five Forces Model analyzes the competitive forces within the
environment in which a company operates to assess the potential for profitability in an indus-
try. Its purpose is to combat these competitive forces by identifying opportunities, competitive
advantages, and competitive intelligence. If the forces are strong, they increase competition; if
the forces are weak, they decrease competition. This section details each of the forces and its
associated MIS business strategy (see Figure 2.4).3
BUYER POWER
Buyer power is the ability of buyers to affect the price they must pay for an item. Factors used
to assess buyer power include number of customers, their sensitivity to price, size of orders,
differences between competitors, and availability of substitute products. If buyer power is
high, customers can force a company and its competitors to compete on price, which typically
drives prices down.
One way to reduce buyer power is by manipulating switching costs, costs that make cus-
tomers reluctant to switch to another product or service. Switching costs include financial as
well as intangible values. The cost of switching doctors, for instance, includes the powerful
intangible components of having to build relationships with the new doctor and nurses, as well
LO 2.2 Describe Porter’s Five
Forces Model and explain each of
the five forces.
FIGURE 2.4
Porter’s Five Forces Model.
Threat of Substitute
Products or Services
The power of customers
to purchase alternatives
Rivalry among
Existing Competitors
The power of
competitors
Buyer Power
The power of customers
to drive down prices
Threat of New Entrants
The power of competitors to
enter a market
Supplier Power
The power of suppliers
to drive up prices of materials
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as transferring all your medical history. With MIS, however, patients can store their medical
records on DVDs or thumb drives, allowing easy transferability. The Internet also lets patients
review websites for physician referrals, which takes some of the fear out of trying someone new.4
Companies can also reduce buyer power with loyalty programs, which reward custom-
ers based on their spending. The airline industry is famous for its frequent-flyer programs,
for instance. Because of the rewards travelers receive (free airline tickets, upgrades, or hotel
stays), they are more likely to be loyal to or give most of their business to a single com-
pany. Keeping track of the activities and accounts of many thousands or millions of customers
covered by loyalty programs is not practical without large-scale business systems, however.
Loyalty programs are thus a good example of using MIS to reduce buyer power.5
SUPPLIER POWER
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw materi-
als or a product. In a typical supply chain, a company will be both a supplier (to customers)
and a customer (of other suppliers), as illustrated in Figure 2.5. Supplier power is the sup-
pliers’ ability to influence the prices they charge for supplies (including materials, labor, and
services). Factors used to appraise supplier power include number of suppliers, size of suppli-
ers, uniqueness of services, and availability of substitute products. If supplier power is high,
the supplier can influence the industry by:
■ Charging higher prices.
■ Limiting quality or services.
■ Shifting costs to industry participants.6
Typically, when a supplier raises prices, the buyers will pass on the increase to their cus-
tomers by raising prices on the end product. When supplier power is high, buyers lose revenue
because they cannot pass on the raw material price increase to their customers. Some power-
ful suppliers, such as pharmaceutical companies, can exert a threat over an entire industry
when substitutes are limited and the product is critical to the buyers. Patients who need to
purchase cancer-fighting drugs have no power over price and must pay whatever the drug
company asks because there are few available alternatives.
Using MIS to find alternative products is one way of decreasing supplier power. Cancer
patients can now use the Internet to research alternative medications and practices, something
that was next to impossible just a few decades ago. Buyers can also use MIS to form groups
or collaborate with other buyers, increasing the size of the buyer group and reducing supplier
power. For a hypothetical example, the collective group of 30,000 students from a university
has far more power over price when purchasing laptops than a single student.7
THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
The threat of substitute products or services is high when there are many alternatives to a
product or service and low when there are few alternatives from which to choose. For exam-
ple, travelers have numerous substitutes for airline transportation including automobiles,
trains, and boats. Technology even makes videoconferencing and virtual meetings possible,
eliminating the need for some business travel. Ideally, a company would like to be in a market
in which there are few substitutes for the products or services it offers.
Polaroid had this unique competitive advantage for many years until it forgot to observe
competitive intelligence. Then the firm went bankrupt when people began taking digital pic-
tures with everything from video cameras to cell phones.
A company can reduce the threat of substitutes by offering additional value through wider
product distribution. Soft-drink manufacturers distribute their products through vending
FIGURE 2.5
Traditional Supply Chain.
Suppliers Company Customers
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machines, gas stations, and convenience stores, increasing the availability of soft drinks rela-
tive to other beverages. Companies can also offer various add-on services, making the substi-
tute product less of a threat. For example, iPhones include capabilities for games, videos, and
music, making a traditional cell phone less of a substitute.8
THREAT OF NEW ENTRANTS
The threat of new entrants is high when it is easy for new competitors to enter a market and
low when there are significant entry barriers to joining a market. An entry barrier is a feature
of a product or service that customers have come to expect and entering competitors must
offer the same for survival. For example, a new bank must offer its customers an array of
MIS-enabled services, including ATMs, online bill paying, and online account monitoring.
These are significant barriers to new firms entering the banking market. At one time, the first
bank to offer such services gained a valuable first-mover advantage, but only temporarily, as
other banking competitors developed their own MIS services.9
RIVALRY AMONG EXISTING COMPETITORS
Rivalry among existing competitors is high when competition is fierce in a market and low
when competitors are more complacent. Although competition is always more intense in some
industries than in others, the overall trend is toward increased competition in almost every
industry. The retail grocery industry is intensively competitive. Kroger, Safeway, and Albert-
sons in the United States compete in many different ways, essentially trying to beat or match
each other on price. Most supermarket chains have implemented loyalty programs to provide
customers special discounts while gathering valuable information about their purchasing hab-
its. In the future, expect to see grocery stores using wireless technologies that track customer
movements throughout the store to determine purchasing sequences.
Product differentiation occurs when a company develops unique differences in its prod-
ucts or services with the intent to influence demand. Companies can use differentiation to
reduce rivalry. For example, while many companies sell books and videos on the Internet,
Amazon differentiates itself by using customer profiling. When a customer visits Amazon.
com repeatedly, Amazon begins to offer products tailored to that particular customer based on
his or her profile. In this way, Amazon has reduced its rivals’ power by offering its customers
a differentiated service.
To review, the Five Forces Model helps managers set business strategy by identifying the
competitive structure and economic environment of an industry. If the forces are strong, they
increase competition; if the forces are weak, they decrease it (see Figure 2.6).10
ANALYZING THE AIRLINE INDUSTRY
Let us bring Porter’s five forces together to look at the competitive forces shaping an industry
and highlight business strategies to help it remain competitive. Assume a shipping company is
  Weak Force: Decreases
Competition or Few Competitors
Strong Force: Increases
Competition or Lots of Competitors
Buyer Power An international hotel chain
purchasing milk
A single consumer purchasing milk
Supplier Power A company that makes airline
engines
A company that makes pencils
Threat of Substitute
Products or Services
Cancer drugs from a
pharmaceutical company
Coffee from McDonald’s
Threat of New Entrants A professional hockey team A dog walking business
Rivalry among
Existing Competitors
Department of Motor Vehicles A coffee shop
FIGURE 2.6
Strong and Weak Examples
of Porter’s Five Forces.
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deciding whether to enter the commercial airline industry. If performed correctly, an analysis
of the five forces should determine that this is a highly risky business strategy because all five
forces are strong. It will thus be difficult to generate a profit.
■ Buyer power: Buyer power is high because customers have many airlines to choose from
and typically make purchases based on price, not carrier.
■ Supplier power: Supplier power is high since there are limited plane and engine man-
ufacturers to choose from, and unionized workforces (suppliers of labor) restrict airline
profits.
■ Threat of substitute products or services: The threat of substitute products is high from
many transportation alternatives including automobiles, trains, and boats, and from trans-
portation substitutes such as videoconferencing and virtual meetings.
■ Threat of new entrants: The threat of new entrants is high because new airlines are con-
tinuously entering the market, including sky taxies offering low-cost on-demand air taxi
service.
■ Rivalry among existing competitors: Rivalry in the airline industry is high, and websites
such as Travelocity.com force them to compete on price (see Figure 2.7).11
The Three Generic Strategies—Choosing
a Business Focus
Once top management has determined the relative attractiveness of an industry and decided
to enter it, the firm must formulate a strategy for doing so. If our sample company decided to
join the airline industry, it could compete as a low-cost, no-frills airline or as a luxury airline
providing outstanding service and first-class comfort. Both options offer different ways of
achieving competitive advantages in a crowded marketplace. The low-cost operator saves on
expenses and passes the savings along to customers in the form of low prices. The luxury
airline spends on high-end service and first-class comforts and passes the costs on to the cus-
tomer in the form of high prices.
Porter’s three generic strategies are generic business strategies that are neither organiza-
tion nor industry specific and can be applied to any business, product, or service. These three
generic business strategies for entering a new market are: (1) broad cost leadership, (2) broad
differentiation, and (3) focused strategy. Broad strategies reach a large market segment, while
focused strategies target a niche or unique market with either cost leadership or differentia-
tion. Trying to be all things to all people is a recipe for disaster, since doing so makes it dif-
ficult to project a consistent image to the entire marketplace. For this reason, Porter suggests
adopting only one of the three generic strategies illustrated in Figure 2.8.12
LO 2.3 Compare Porter’s three
generic strategies.
FIGURE 2.7
Five Forces Model in the
Airline Industry.
  Strong (High) Force: Increases Competition
or Lots of Competitors
Buyer Power Many airlines for buyers to choose from forcing competition
based on price.
Supplier Power Limited number of plane and engine manufacturers to choose
from along with unionized workers.
Threat of Substitute Products
or Services
Many substitutes including cars, trains, and buses.
Even substitutes to travel such as video conferencing and
virtual meetings.
Threat of New Entrants Many new airlines entering the market all the time including
the latest sky taxis.
Rivalry among Existing Competitors Intense competition–many rivals.
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Figure 2.9 applies the three strategies to real companies, demonstrating the relationships
among strategies (cost leadership versus differentiation) and market segmentation (broad ver-
sus focused).
■ Broad market and low cost: Walmart competes by offering a broad range of products
at low prices. Its business strategy is to be the low-cost provider of goods for the cost-
conscious consumer.
■ Broad market and high cost: Neiman Marcus competes by offering a broad range of dif-
ferentiated products at high prices. Its business strategy offers a variety of specialty and
upscale products to affluent consumers.
■ Narrow market and low cost: Payless competes by offering a specific product, shoes, at
low prices. Its business strategy is to be the low-cost provider of shoes. Payless competes
with Walmart, which also sells low-cost shoes, by offering a far bigger selection of sizes
and styles.
■ Narrow market and high cost: Tiffany & Co. competes by offering a differentiated prod-
uct, jewelry, at high prices. Its business strategy allows it to be a high-cost provider of
premier designer jewelry to affluent consumers.
Value Chain Analysis—Executing
Business Strategies
Firms make profits by taking raw inputs and applying a business process to turn them into a
product or service that customers find valuable. A business process is a standardized set of
activities that accomplish a specific task, such as processing a customer’s order. Once a firm
identifies the industry it wants to enter and the generic strategy it will focus on, it must then
choose the business processes required to create its products or services. Of course, the firm
LO 2.4 Demonstrate how a
company can add value by using
Porter’s value chain analysis.
FIGURE 2.8
Porter’s Three Generic
Strategies.
Cost Leadership Di�erentiation
Focused Strategy
Low Cost High Cost
Cost Strategy
Broad
Market
Narrow
Market
Competitive
Scope
FIGURE 2.9
Examples of Porter’s Three
Generic Strategies.
Walmart Neiman Marcus
Payless Shoes Ti�any & Co.
Low Cost High Cost
Cost Strategy
Broad
Market
Narrow
Market
Competitive
Scope
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will want to ensure the processes add value and create competitive advantages. To identify
these competitive advantages, Michael Porter created value chain analysis, which views a
firm as a series of business processes that each add value to the product or service.
Value chain analysis is a useful tool for determining how to create the greatest possible
value for customers (see Figure 2.10). The goal of value chain analysis is to identify processes
in which the firm can add value for the customer and create a competitive advantage for itself,
with a cost advantage or product differentiation.
The value chain groups a firm’s activities into two categories, primary value activities, and
support value activities. Primary value activities, shown at the bottom of the value chain in
Figure 2.10, acquire raw materials and manufacture, deliver, market, sell, and provide after-
sales services.
1. Inbound logistics: acquires raw materials and resources and distributes to manufacturing
as required.
2. Operations: transforms raw materials or inputs into goods and services.
3. Outbound logistics: distributes goods and services to customers.
4. Marketing and sales: promotes, prices, and sells products to customers.
5. Service: Provides customer support after the sale of goods and services.13
Support value activities, along the top of the value chain in Figure 2.10, include firm
infrastructure, human resource management, technology development, and procurement. Not
surprisingly, these support the primary value activities.
■ Firm infrastructure: includes the company format or departmental structures, environ-
ment, and systems.
■ Human resource management: provides employee training, hiring, and compensation.
■ Technology development: applies MIS to processes to add value.
■ Procurement: purchases inputs such as raw materials, resources, equipment, and supplies.
It is easy to understand how a typical manufacturing firm takes raw materials such as
wood pulp and transforms it into paper. Adding value in this example might include using
high-quality raw materials or offering next-day free shipping on any order. How, though,
might a typical service firm take raw inputs such as time, knowledge, and MIS and trans-
form them into valuable customer service knowledge? A hotel might use MIS to track cus-
tomer reservations and then inform front-desk employees when a loyal customer is checking
in so the employee can call the guest by name and offer additional services, gift baskets,
or upgraded rooms. Examining the firm as a value chain allows managers to identify the
important business processes that add value for customers and then find MIS solutions that
support them. FIGURE 2.10
The Value Chain.
Support
Value
Activities
Primary
Value
Activities
Firm infrastructure (3.1%)
Human resource management (7.1%)
Technology development (and R&D) (4.2%)
Procurement (27%)
Receive
and
store raw
materials
(5.2%)
Make the
product or
service
(40.3%)
Deliver the
product or
service
(6.6%)
Market and
sell the
product or
service
(4.3%)
Service
after
the sale
(2.2%)
Value Added
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When performing a value chain analysis, a firm could survey customers about the extent
to which they believe each activity adds value to the product or service. This step gener-
ates responses the firm can measure, shown as percentages in Figure 2.10, to describe how
each activity adds (or reduces) value. Then the competitive advantage decision for the firm
is whether to (1) target high value-adding activities to further enhance their value, (2) tar-
get low value-adding activities to increase their value, or (3) perform some combination of
the two.
MIS adds value to both primary and support value activities. One example of a primary
value activity facilitated by MIS is the development of a marketing campaign management
system that could target marketing campaigns more efficiently, thereby reducing market-
ing costs. The system would also help the firm better pinpoint target market needs, thereby
increasing sales. One example of a support value activity facilitated by MIS is the develop-
ment of a human resources system that could more efficiently reward employees based on
performance. The system could also identify employees who are at risk of quitting, allowing
a manager time to find additional challenges or opportunities that would help retain these
employees and thus reduce turnover costs.
Value chain analysis is a highly useful tool that provides hard and fast numbers for
evaluating the activities that add value to products and services. Managers can find addi-
tional value by analyzing and constructing the value chain in terms of Porter’s Five Forces
Model (see Figure 2.11). For example, if the goal is to decrease buyer power, a company
can construct its value chain activity of “service after the sale” by offering high levels of
customer service. This will increase customers’ switching costs and reduce their power.
Analyzing and constructing support value activities can help decrease the threat of new
entrants. Analyzing and constructing primary value activities can help decrease the threat
of substitute products or services. Revising Porter’s three business strategies is critical.
Firms must continually adapt to their competitive environments, which can cause business
strategy to shift.14
FIGURE 2.11
The Value Chain and Porter’s
Five Forces Model.
Firm infrastructure (3.1%)
Human resource management (7.1%)
Technology development (and R&D) (4.2%)
Procurement (27%)
Receive
and
store raw
materials
(5.2%)
Make the
product or
service
(40.3%)
Deliver the
product or
service
(6.6%)
Market and
sell the
product or
service
(4.3%)
Service
after
the sale
(2.2%)
Value Added
Threat of New
Entrants
The power of competitors
to enter a market
Buyer Power
The power of
customers to drive
down prices
Supplier Power
The power of
suppliers to drive up
prices of materials
Threat of Substitute
Products or Services
The power of customers
to purchase alternatives
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Micheal Porter is a university professor at Harvard Business School, where he leads the Institute
on Strategy and Competitiveness, studying competitiveness for companies and nations—and as a
solution to social problems. He is the founder of numerous nonprofits, including The Initiative for
a Competitive Inner City, a nonprofit, private-sector organization to catalyze inner-city business
development.
Fortune magazine calls Michael Porter simply “the most famous and influential business professor
who has ever lived.” His books are part of foundational coursework for business students around the
world; he’s applied sharp insight to health care systems, American competitiveness, development in
rural areas. Now he’s taking on a massive question: the perceived disconnect between corporations
and society. He argues that companies must begin to take the lead in reconceiving the intersec-
tion between society and corporate interests—and he suggests a framework, that of “shared value,”
which involves creating economic value in a way that also creates value for society.15
Visit TED.com to watch Michael Porter’s video on why business can be good at solving social
problems.
https://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_
problems
Questions
1. In today’s global business environment, does the physical location of a business matter?
2. Do you agree or disagree that business can solve social problems? Justify your answer.
Chapter Two Case: Michael Porter on TED—The Case for Letting
Business Solve Social Problems
1. Imagine you are working for Costco as a manager in its Chicago store. Using Porter’s Five Forces
Model, analyze buyer power and supplier power for Costco.
2. Which of the three generic strategies is Costco following?
3. Only members of Costco can purchase products at Costco. Which of Porter’s Five Forces did
Costco address through the introduction of its members-only program?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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2.1. Explain why competitive advantages are temporary along with the four key areas of a
SWOT analysis.
A competitive advantage is a feature of a product or service on which customers place a greater
value than they do on similar offerings from competitors. Competitive advantages provide the same
product or service either at a lower price or with additional value that can fetch premium prices.
Unfortunately, competitive advantages are typically temporary because competitors often quickly
seek ways to duplicate them. In turn, organizations must develop a strategy based on a new com-
petitive advantage. Ways that companies duplicate competitive advantages include acquiring the
new technology, copying business processes, and hiring away employees.
A SWOT analysis evaluates an organization’s strengths, weaknesses, opportunities, and threats
to identify significant influences that work for or against business strategies. Strengths and weak-
nesses originate inside an organization, or internally. Opportunities and threats originate outside an
organization, or externally, and cannot always be anticipated or controlled.
2.2. Describe Porter’s Five Forces Model and explain each of the five forces.
Porter’s Five Forces Model analyzes the competitive forces within the environment in which a
company operates, to assess the potential for profitability in an industry.
■ Buyer power is the ability of buyers to affect the price they must pay for an item.
■ Supplier power is the suppliers’ ability to influence the prices they charge for supplies (including
materials, labor, and services).
■ Threat of substitute products or services is high when there are many alternatives to a product or
service and low when there are few alternatives from which to choose.
■ Threat of new entrants is high when it is easy for new competitors to enter a market and low
when there are significant entry barriers to entering a market.
■ Rivalry among existing competitors is high when competition is fierce in a market and low when
competition is more complacent.
2.3. Compare Porter’s three generic strategies.
Organizations typically follow one of Porter’s three generic strategies when entering a new market:
(1) broad cost leadership, (2) broad differentiation, and (3) focused strategy. Broad strategies reach a
large market segment. Focused strategies target a niche market. Focused strategies concentrate on
either cost leadership or differentiation.
2.4. Demonstrate how a company can add value by using Porter’s value chain
analysis.
To identify competitive advantages, Michael Porter created value chain analysis, which views a firm
as a series of business processes, each of which adds value to the product or service. The goal of
value chain analysis is to identify processes in which the firm can add value for the customer and
create a competitive advantage for itself, with a cost advantage or product differentiation. The
value chain groups a firm’s activities into two categories—primary value activities and support value
activities. Primary value activities acquire raw materials and manufacture, deliver, market, sell, and
provide after-sales services. Support value activities, along the top of the value chain in the figure,
include firm infrastructure, human resource management, technology development, and procure-
ment. Not surprisingly, these support the primary value activities.
L E A R N I N G O U T C O M E R E V I E W
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1. SWOT Your Students
What is your dream job? Do you have the right skills and abilities to land the job of your dreams? If
not, do you have a plan to acquire those sought-after skills and abilities? Do you have a personal
career plan or strategy? Just like a business, you can perform a personal SWOT analysis to ensure
your career plan will be successful. You want to know your strengths and recognize career oppor-
tunities while mitigating your weaknesses and any threats that can potentially derail your career
plans. A key area where many people struggle is technology, and without the right technical skills,
you might find you are not qualified for your dream job. One of the great benefits of this course is its
ability to help you prepare for a career in business by understanding the key role technology plays
in the different industries and functional areas. Regardless of your major, you will all use business
driven information systems to complete the tasks and assignments associated with your career.
Perform a personal SWOT analysis for your career plan, based on your current skills, talents, and
knowledge. Be sure to focus on your personal career goals, including the functional business area in
which you want to work and the potential industry you are targeting, such as health care, telecom-
munications, retail, or travel.
M A K I N G B U S I N E S S D E C I S I O N S
1. What is the relationship between a business strategy and stakeholders?
2. Who are the top three most important stakeholders in a business?
3. When would you use a SWOT analysis to help you make business decisions?
4. What is the role Porter’s Five Forces Model plays in decision making?
5. How could a company use loyalty programs to influence buyer power? 
6. How could a company use switching costs to lock in customers and suppliers?
7. What are Porter’s three generic strategies and why would a company want to follow only one?
8. How can a company use Porter’s value chain analysis to measure customer satisfaction?
R E V I E W Q U E S T I O N S
Personal Career SWOT
Analysis
STRENGTHS
OPPORTUNITIES
WEAKNESSES
THREATS
PERSONAL CAREER SWOT ANALYSIS
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After completing your personal SWOT analysis, take a look at the table of contents in this text and
determine whether this course will eliminate any of your weaknesses or create new strengths. Deter-
mine whether you can find new opportunities or mitigate threats based on the material we cover
over the next several weeks. For example, project management is a key skill for any business profes-
sional who must run a team. Learning how to assign and track work status will be a key tool for any
new business professional. Where would you place this great skill in your SWOT analysis? Did it help
eliminate any of your weaknesses? When you have finished this exercise, compare your SWOT with
your peers to see what kind of competition you will encounter when you enter the workforce.
2. Keeping Sensitive Data Safe When It’s Not in a Safe
In the past few years, data collection rates have skyrocketed, and some estimate we have collected
more data in the past four years than since the beginning of time. According to International Data
Corporation (IDC), data collection amounts used to double every four years. With the massive
growth of smart phones, tablets, and wearable technology devices, it seems as though data is being
collected from everything, everywhere, all the time. It is estimated that data collection is doubling
every two years, and soon it will double every six months. That is a lot of data! With the explosion
of data collection, CTOs, CIOs, and CSOs are facing extremely difficult times as the threats to steal
corporate sensitive data grows. Hackers and criminals have recently stolen sensitive data from retail
giant Target, Home Depot, TJ Maxx, and even the Federal Reserve Bank.
To operate, sensitive data has to flow outside an organization to partners, suppliers, community,
government, and shareholders. List 10 types of sensitive data found in a common organization.
Review the list of stakeholders; determine which types of sensitive data each has access to and
whether you have any concerns about sharing this data. Do you have to worry about employees and
sensitive data? How can using one of the four business strategies discussed in this section help you
address your data leakage concerns?
3. Pursuing Porter
There is no doubt that Michael Porter is one of the more influential business strategists of the 21st
century. Research Michael Porter on the Internet for interviews, additional articles, and new or
updated business strategies. Create a summary of your findings to share with your class. How can
learning about people such as Thomas Friedman and Michael Porter help prepare you for a career in
business? Name three additional business professionals you should follow to help prepare for your
career in business.
4. Choosing a Career
Choosing a career can be an overwhelming task! Let’s face facts, you are going to spend countless
hours working day-and-night at your job. If you choose the right career you can lead a life filled
with excitement, opportunities, and happiness. Choose the wrong career and you can lead a life
filled with boredom, suffering, and pain. The good news is the choice is yours! Create a list of your
top three career choices and then perform a SWOT analysis of each career. Be sure to include such
things as expectations, longevity, perks, benefits, and personal career goals. Hopefully, this great
little exercise can start you thinking about the numerious opportunties that will be available to you in
the near future.
5. Death of a Product
Porter’s Five Forces Model is an essential framework for understanding industries and market
forces. Choose one of the categories listed here and analyze what happened to the market using
Porter’s Five Forces:
■ PDA and laptop computer.
■ On-Demand Movies and Blue-ray player.
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■ Digital camera and Polaroid camera.
■ GPS device and a road atlas.
■ Digital books and printed books.
■ High-definition TV and radio.
6. Applying the Three Generic Strategies
The chapter discussed examples of companies that pursue differentiated strategies so that they are
not forced into positions where they must compete solely on the basis of price. Pick an industry and
have your team members find and compare two companies, one that is competing on the basis of
price and another that has chosen to pursue a differentiated strategy enabled by the creative use of
MIS. Some industries you may want to consider are clothing retailers, grocery stores, airlines, and
personal computers. Prepare a presentation for the class on the ways that MIS is being used to help
the differentiating company compete against the low-cost provider. Before you begin, spend some
class time to make sure each team selects a different industry if at all possible.
7. IOT Time Management
There is no doubt about it, poor time management is one of the leading causes of failure among
students. Without being able to manage due dates, deliverables, work, and of course life students
find themselves sinking instead of swimming in the vast college pool. You have decided that enough
is enough and you and a few friends are going to take advantage of technology to create an innova-
tive new IOT device to solve this monumental problem. In a group, brainstorm your new time man-
agement IOT device and then apply a Porter’s Five Forces model. Use the model to determine the
chances of success for your new product.
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Business Process Reegineering
This chapter introduces high-profile strategic initiatives that an organization can undertake to
help it gain competitive advantages and business efficiencies—business process reengineer-
ing, supply chain management, customer relationship management, and enterprise resource
planning (see Figure 3.1). Each of these strategic initiatives is covered in detail throughout
this text. This chapter provides a brief introduction only.
Most companies pride themselves on providing breakthrough products and services for
customers. But if customers do not receive what they want quickly, accurately, and hassle-
free, even fantastic offerings will not prevent a company from annoying customers and ulti-
mately eroding its own financial performance. To avoid this pitfall and protect its competitive
advantage, a company must continually evaluate all the business processes in its value chain.
LO 3.1 Identify how an organiza-
tion can use business process
reengineering to improve its
business.
3.3. Explain customer relationship management systems
and how they can help organizations understand their
customers.
3.4. Summarize the importance of enterprise resource
planning systems.
3.1. Identify how an organization can use
business process reengineering to improve its
business.
3.2. Explain supply chain management and its role
in business.
L E A R N I N G O U T C O M E S
Strategic Initiatives for
Implementing Competitive
Advantages
C H A P T E R 3
FIGURE 3.1
Strategic Initiatives for
Competitive Advantages.
Business
Process
Reengineering
Supply Chain
Management
Enterprise
Resource
Planning
Customer
Relationship
Management
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A business process is a standardized set of activities that accomplish a specific task, such
as processing a customer’s order. Business processes transform a set of inputs into a set
of outputs—goods or services—for another person or process by using people and tools.
Workflow includes the tasks, activities, and responsibilities required to execute each step in
a business process. Understanding business processes, workflow, customers’ expectations,
and the competitive environment provides managers with the necessary ingredients to design
and evaluate alternative business processes in order to maintain competitive advantages when
internal or external circumstances change. Workflow control systems monitor processes to
ensure tasks, activities, and responsibilities are executed as specified. 
A static process uses a systematic approach in an attempt to improve business effec-
tiveness and efficiency continuously. Managers constantly attempt to optimize static pro-
cess. Examples of static processes include running payroll, calculating taxes, and creating
financial statements. A dynamic process is continuously changing and provides business
solutions to ever-changing business operations. As the business and its strategies change,
so do the dynamic processes. Examples of dynamic processes include managing layoffs of
employees, changing order levels based on currency rates, and canceling business travel due
to extreme weather.
Systems thinking offers a great story to help differentiate between static and dynamic
processes. If you throw a rock in the air, you can predict where it will land. If you throw
a bird in the air you can’t predict where it will land. The bird, a living dynamic, system,
will sense its environment and fly in any direction. The bird gathers and processes input
and interacts with its environment. The rock is an example of a static process and the bird
is an example of a dynamic process. Organizations have people and are characteristically
dynamic, making it difficult to predict how the business will operate. Managers must antici-
pate creating and deploying both static and dynamic processes to keep pace with the every
changing business needs. 
The business processes outlined in Figure 3.2 reflect functional thinking. Some processes,
such as a programming process, may be contained wholly within a single department. How-
ever, most, such as ordering a product, are cross-functional or cross-departmental processes
and span the entire organization. The process of “order to delivery” focuses on the entire
customer order process across functional departments (see Figure 3.3). Another example is
“product realization,” which includes not only the way a product is developed, but also the
way it is marketed and serviced. Some other cross-functional business processes are taking a
product from concept to market, acquiring customers, loan processing, providing post-sales
service, claim processing, and reservation handling.
Customer-facing processes, also called front-office processes, result in a product or ser-
vice received by an organization’s external customer. They include fulfilling orders, commu-
nicating with customers, and sending out bills and marketing information. Business-facing
processes, also called back-office processes, are invisible to the external customer but essential
to the effective management of the business; they include goal setting, day-to-day planning,
giving performance feedback and rewards, and allocating resources. Figure 3.4 displays the
different categories of customer-facing and business-facing processes along with an example
of each. A company’s strategic vision should provide guidance on which business processes
are core, that is, which are directly linked to the firm’s critical success factors. Mapping these
core business processes to the value chain reveals where the processes touch the customers
and affect their perceptions of value.
BUSINESS PROCESS REENGINEERING
Business process reengineering (BPR) is the analysis and redesign of workflow within and
between enterprises. During a BPR effort a company begins with a blank sheet of paper
evaluating existing processes to create new processes that deliver added-value to customers
and eliminate redundancies in workflows. The primary goals of BPR efforts are to reduce
organizational layers and eliminate unproductive activities by redesigning functional depart-
ments into cross-functional teams and promote the dissemination of information throughout
the organizations.
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FIGURE 3.3
Five Steps in the Order-to-
Delivery Business Process.
Marketing Sales
Operations
Management
Accounting and
Finance
Customer
Service
Create campaign
Check inventory
Step One Place order
Notify production
Check credit
Step Two
Manufacture goods
Step Three Deliver goods
Bill customer
Step Four
Support sale
Step Five
FIGURE 3.2
Sample Business Processes.
Human Resources
Hiring employees
Enrolling employees in health care
Tracking vacation and sick time
Operations Management
Ordering inventory
Creating production schedules
Manufacturing goods
Marketing and Sales
Promoting of discounts
Communicating marketing campaigns
Attracting customers
Processing sales
Accounting and Finance
Creating financial statements
Paying of Accounts Payable
Collecting of Accounts Receivable
Figure 3.5 highlights an analogy to business process reengineering by explaining the dif-
ferent means of traveling along the same route. A company could improve the way it travels
by changing from foot to horse and then from horse to car. With a BPR mind-set, however,
it would look beyond automating and streamlining to find a completely different approach.
It would ignore the road and travel by air to get from point A to point B. Companies often
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follow the same indirect path for doing business, not realizing there might be a different,
faster, and more direct way.
Creating value for the customer is the leading reason for instituting BPR, and MIS often
plays an important enabling role. Fundamentally new business processes enabled Progres-
sive Insurance to slash its claims settlement time from 31 days to four hours, for instance.
Typically, car insurance companies follow this standard claims resolution process: The cus-
tomer gets into an accident, has the car towed, and finds a ride home. The customer then
calls the insurance company to begin the claims process, which includes an evaluation of
the damage, assignment of fault, and an estimate of the cost of repairs, which usually takes
about a month (see Figure 3.6). Progressive Insurance’s innovation was to offer a mobile
claims process. When a customer has a car accident, he or she calls in the claim on the
spot. The Progressive claims adjuster comes to the accident site, surveys the scene, and
takes digital photographs. The adjuster then offers the customer on-site payment, towing
services, and a ride home. A true BPR effort does more for a company than simply improve
FIGURE 3.4
Customer-Facing, Industry-
Specific, and Business-
Facing Processes.
Order processing
Customer service
Sales process
Customer billing
Order shipping
Customer-Facing
Processes
Banking—Loan processing
Insurance—Claims processing
Government—Grant allocation
Hotel—Reservation handling
Airline—Baggage handling
Industry-Specific Customer
Facing Processes
Strategic planning
Tactical planning
Budget forecasting
Training
Purchasing raw materials
Business-Facing
Processes
FIGURE 3.5
Different Ways to Travel the
Same Route.
Better, Faster, Cheaper
FIGURE 3.6
Auto Insurance Claims
Processes Reengineering.
Progressive Insurance: Claims Resolution Process
Resolution Cycle Time: 30 minutes–3 hours
Company A: Claims Resolution Process
Resolution Cycle Time: 3–8 weeks
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a process by performing it better, faster, and cheaper. Progressive Insurance’s BPR effort
redefined best practices for an entire industry.
When selecting a business process to reengineer, wise managers focus on those core pro-
cesses that are critical to performance, rather than marginal processes that have little impact.
The effort to reengineer a business process as a strategic activity requires a different mind-set
than that required in continuous business process improvement programs. Because companies
have tended to overlook the powerful contribution that processes can make to strategy, they
often undertake process improvement efforts using their current processes as the starting point.
Managers focusing on reengineering can instead use several criteria to identify opportunities:
■ Is the process broken?
■ Is it feasible that reengineering of this process will succeed?
■ Does it have a high impact on the agency’s strategic direction?
■ Does it significantly impact customer satisfaction?
■ Is it antiquated?
■ Does it fall far below best-in-class?
■ Is it crucial for productivity improvement?
■ Will savings from automation be clearly visible?
■ Is the return on investment from implementation high and preferably immediate?
A business process patent is a patent that protects a specific set of procedures for conduct-
ing a particular business activity. A firm can create a value chain map of the entire industry
to extend critical success factors and business process views beyond its boundaries. Core
processes are business processes, such as manufacturing goods, selling products, and provid-
ing service, that make up the primary activities in a value chain.
BUSINESS PROCESS MODELING
Business process modeling, or mapping, is the activity of creating a detailed flowchart
or process map of a work process that shows its inputs, tasks, and activities in a structured
sequence. A business process model is a graphic description of a process, showing the
sequence of process tasks, which is developed for a specific purpose and from a selected
viewpoint. A set of one or more process models details the many functions of a system or
subject area with graphics and text, and its purpose is to:
■ Expose process detail gradually and in a controlled manner.
■ Encourage conciseness and accuracy in describing the process model.
■ Focus attention on the process model interfaces.
■ Provide a powerful process analysis and consistent design vocabulary. (See the end of the
chapter for business process model examples.)
Business Process Model and Notation (BPMN) is a graphical notation that depicts the
steps in a business process. BPMN provides businesses with a graphical view of the end-
to-end flow of their business processes. Diagramming business processes allows for easy
communication and understanding of how core business processes are helping or hindering
the business. Figure 3.7 displays the standard notation from www.BPMN.org and Figure 3.8
displays a sample BPMN diagram for hiring a taxi cab. 
Business process modeling usually begins with a functional process representation of the
process problem, or an As-Is process model. As-Is process models represent the current state
of the operation that has been mapped, without any specific improvements or changes to
existing processes. The next step is to build a To-Be process model that displays how the pro-
cess problem will be solved or implemented. To-Be process models show the results of apply-
ing change improvement opportunities to the current (As-Is) process model. This approach
ensures that the process is fully and clearly understood before the details of a process solution
are decided on. The To-Be process model shows how “the what” is to be realized. You need
to be careful not to become inundated in excessive detail when creating an As-Is process model.
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The primary goal is to simplify, eliminate, and improve the To-Be processes. Process improve-
ment efforts focus on defining the most efficient and effective process identifying all of the
illogical, missing, or irrelevant processes. Figure 3.9 displays the As-Is and To-Be process
models for ordering a hamburger.
As-Is and To-Be process models are both integral in business process reengineering
projects because these diagrams are very powerful in visualizing the activities, processes,
and data flow of an organization. A swimlane diagram (or cross-functional diagram) docu-
ments the steps or activities of a workflow by grouping activities into swimlanes, which are
FIGURE 3.7
BPMN Notation.
BUSINESS PROCESS MODEL AND NOTATION (BPMN)
EVENT BPMN event is anything that happens during the course of a business process.
An event is represented by a circle in a business process model. In Figure 3.8 ,
the events include customer requests, time requests, or the end of the process.
ACTIVITY BPMN activity is a task in a business process. An activity is any work that is
being performed in a process. An activity is represented by a rounded-corner
rectangle in a business process model. In Figure 3.8, the activities include
checking availability, picking up the customers, and confirming the booking.

request.
FLOW BPMN flows display the path in which the process flows. Flows are represented
by arrows in a business process model. In Figure 3.8, the arrows show the path
the customer takes through the taxi cab booking process.12
GATEWAY BPMN gateway is used to control the flow of a process. Gateways handle the
forking, merging, and joining of paths within a process. Gateways are repre-
sented by a diamond shape in a business process model. In Figure 3.8, the
gateways include determining availability status or accepting/declining the
FIGURE 3.8
BPMN Sample Diagram for
Hiring a Taxi Cab.
Request
Booking
Calls for
Cab Booking
Get
Booking
Request
Check
Availability
Get
Alternative
Time
Propose
Booking Status
Not Accepted
Assign Cab
Operator
Notify Agent
Complete
Assignment
Pick Up
Customer
End
Accepted
Confirm
Booking
End
Response
Availability
Status
Assignment
Complete
Booking Details
Cab Booking Process Diagram
C
u
st
o
m
e
r
Tr
a
ve
l A
g
e
n
t
C
a
b
D
ri
ve
r
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horizontal or vertical columns containing all associated activities for that category or depart-
ment. A process owner is the person responsible for the end-to-end functioning of a business
process. Swimlane diagrams help identify process owners who can repair delays, bottlenecks,
or redundancies. Figure 3.10 illustrates an As-Is process model of the order-to-delivery pro-
cess, using swimlanes to represent the relevant departments. 
Investigating business processes can help an organization find bottlenecks, remove redun-
dant tasks, and recognize smooth-running processes. For example, a florist might have a key
success factor of reducing delivery time. A florist that has an inefficient ordering process or
a difficult distribution process will be unable to achieve this goal. Taking down inaccurate
orders, recording incorrect addresses, or experiencing shipping delays can cause errors in
the delivery process.
FIGURE 3.9
As-Is and To-Be Process
Models for Ordering a
Hamburger.
Order
Combo
Meal
Customer
Approaches
Cashier
Customer
Pays
Cashier
To-Be Burger Order ProcessAs-Is Burger Order Process
Order
Fries
Want Fries?
Customer
Pays
Cashier
Order
Drink
No
Yes
Yes
No
Order
Burger
Customer
Approaches
Cashier
Want Drink?
FIGURE 3.10
As-Is Process Model for
Order Fulfillment.
As-Is Order Fulfillment Process
C
us
to
m
er
Order
Submitted
Order
Generated
Order
Received
Credit
Checked
Credit
OK?
Credit
OK?
Invoice
Prepared
Credit
Issues
Assessed
Order
Canceled
Credit
Approved
Order
Entered
Inventory
Available?
Inventory
Ordered
Order
Shipped
Order
Picked and
Packaged
Process
Payment
Shipped
Order?
Invoice
SentBi
lli
ng
In
ve
nt
or
y
Sh
ip
pi
ng
Sa
le
s
Yes
Yes
No
No
Yes
No
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Improving order entry, production, or scheduling processes can improve the delivery pro-
cess. Business processes should drive MIS choices and should be based on business strategies
and goals (see Figure 3.11 A). Only after determining the most efficient and effective busi-
ness process should an organization choose the MIS that supports that business process. Of
course, this does not always happen, and managers may find themselves in the difficult posi-
tion of changing a business process because the system cannot support the ideal solution (see
Figure 3.11 B). Managers who make MIS choices and only then determine how their business
processes should perform typically fail.
Supply Chain Management
Trek, a leader in bicycle products and accessories, gained more than 30 percent of the
worldwide market by streamlining operations through the implementation of several MIS
systems. According to Jeff Stang, director of MIS and operational accounting, the most
significant improvement realized from the new systems was the ability to obtain key man-
agement information to drive business decisions in line with the company’s strategic goals.
Other system results included a highly successful website developed for the 1,400 Trek
dealers where they could enter orders directly, check stock availability, and view accounts
LO 3.2 Explain supply chain
management and its role in
business.
FIGURE 3.11
For Best Results, Business
Processes Should Drive MIS
Choices.
Order to Delivery
Product Realization
Customer
Acquisition
Order to Delivery
Product Realization
Customer
Acquisition
A)
B)
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receivable and credit summaries. Tonja Green, Trek channel manager for North America,
stated, “We wanted to give our dealers an easier and quicker way to enter their orders and
get information. Every week the number of web orders increases by 25 to 30 percent due to
the new system.”
A supply chain includes all parties involved, directly or indirectly, in obtaining raw materi-
als or a product. To understand a supply chain, consider a customer purchasing a Trek bike
from a dealer. On one end, the supply chain has the customer placing an order for the bike
with the dealer. The dealer purchases the bike from the manufacturer, Trek. Trek purchases
raw materials such as packaging material, metal, and accessories from many different suppli-
ers to make the bike. The supply chain for Trek encompasses every activity and party involved
in the process of fulfilling the order from the customer for the new bike. Figure 3.12 displays
a typical supply chain for a bike manufacturer including all processes and people required
to fulfill the customer’s order. Figure 3.13 highlights the five basic supply chain activities a
company undertakes to manufacture and distribute products. 
Supply chain management (SCM) is the management of information flows between and
among activities in a supply chain to maximize total supply chain effectiveness and corpo-
rate profitability. Complex SCM systems provide demand forecasting, inventory control, and
information flows between suppliers and customers.
 In the past, manufacturing efforts focused primarily on quality improvement efforts within
the company; today these efforts reach across the entire supply chain, including customers,
customers’ customers, suppliers, and suppliers’ suppliers. Today’s supply chain is an intricate
network of business partners linked through communication channels and relationships. Sup-
ply chain management systems manage and enhance these relationships with the primary goal
of creating a fast, efficient, and low-cost network of business relationships that take products
from concept to market. SCM systems create the integrations or tight process and information
linkages between all participants in the supply chain.
Walmart and Procter & Gamble (P&G) implemented a tremendously successful SCM
system. The system linked Walmart distribution centers directly to P&G’s manufacturing
centers. Every time a Walmart customer purchases a P&G product, the system sends a mes-
sage directly to the factory alerting P&G to restock the product. The system also sends an
automatic alert to P&G whenever a product is running low at one of Walmart’s distribution
centers. This real-time information allows P&G to efficiently make and deliver products to
Walmart without having to maintain large inventories in its warehouses. The system also
generates invoices and receives payments automatically. The SCM system saves time, reduces
inventory, and decreases order-processing costs for P&G. P&G passes on these savings to
Walmart in the form of discounted prices.1
FIGURE 3.12
Supply Chain for a Bike
Manufacturer.
Distribution of
Finished Bikes
to Retailers
Bike
Production
Aluminum Manufacturer
Tire Manufacturer
Brake Manufacturer
Packaging Manufacturer
Bike Accessory
Manufacturers
CustomerRaw Materials
Storage
Retailer
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Figure 3.14 diagrams the stages of the SCM system for a customer purchasing a product from
Walmart. The diagram demonstrates how the supply chain is dynamic and involves the constant
flow of information between the different parties. For example, the customer generates order
information by purchasing a product from Walmart. Walmart supplies the order information to
its warehouse or distributor. The warehouse or distributor transfers the order information to the
manufacturer, who provides pricing and availability information to the store and replenishes the
product to the store. Payment funds among the various partners are transferred electronically.
FIGURE 3.13
The Five Basic Supply Chain
Activities.PLAN
SOURCE
MAKE
DELIVER
Prepare to manage
all resources required
to meet demand
Build relationships
with suppliers to
procure raw materials
Manufacture
products and create
production schedules
Plan for
transportation of
goods to customers
Support
customers and
product returns
RETURN
FIGURE 3.14
Supply Chain for a Product
Purchased from Walmart.
Procter &
Gamble
Walmart
warehouse
or distributor
Indicates information flows for products,
pricing, scheduling, and availability
Paper
manufacturer
Packaging
supplier
Scented oil
manufacturer
Cocoa oil
manufacturer
Walmart
store
Customer
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Effective and efficient supply chain management systems can enable an organization to:
■ Decrease the power of its buyers.
■ Increase its own supplier power.
■ Increase switching costs to reduce the threat of substitute products or services.
■ Create entry barriers thereby reducing the threat of new entrants.
■ Increase efficiency while seeking a competitive advantage through cost leadership (see
Figure 3.15).
Customer Relationship Management
Today, most competitors are simply a mouse-click away. This intense marketplace has forced
organizations to switch from being sales focused to being customer focused. Customer
relationship management (CRM) involves managing all aspects of a customer’s relationship
with an organization to increase customer loyalty and retention and an organization’s profit-
ability. CRM allows an organization to gain insights into customers’ shopping and buying
behaviors in order to develop and implement enterprisewide strategies. The key players in
CRM initiatives are outlined in Figure 3.16. CRM strategic goals include:
■ Identify sales opportunities.
■ Classify low-value customers and create marketing promotions to increase consumer
spending.
LO 3.3 Explain customer relation-
ship management systems and
how they can help organizations
understand their customers.
FIGURE 3.15
Effective and Efficient Supply
Chain Management’s Effect
on Porter’s Five Forces.
Decrease
Increase
Organization’s
Supply Chain
Supplier Power
Buyer Power
Threat of Substitute
Products or Services
Threat of New
Entrants
FIGURE 3.16
Customer Relationship
Management Key Players.
Account: An existing business
relationship exists and can
include customers, prospects,
partners, and competitors.
Contact: Specific individual
representing the account.
Sales Opportunity: An opportunity
exists for a potential sale of goods
or services related to an account
or contact.
Lead: A person or company
that is unknown to your business.
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■ Classify high-value customers and create marketing promotions to increase consumer
loyalty.
■ Analyze marketing promotions by product, market segment, and sales region.
■ Identify customer relationship issues along with strategies for quick resolution.
The complicated piece of the CRM puzzle is identifying customers and the many commu-
nication channels they use to contact companies including call centers, web access, email,
sales representatives, faxes, and cell phones. A single customer may access an organization
multiple times through many different channels (see Figure 3.17). CRM systems can help
to collect all of the points of customer contact along with sales and financial information
to provide a complete view of each customer (see Figure 3.18). CRM systems track every
communication between the customer and the organization and provide access to cohesive
customer information for all business areas from accounting to order fulfillment. Under-
standing all customer communications allows the organization to communicate effectively
with each customer. It gives the organization a detailed understanding of each customer’s
products and services record regardless of the customer’s preferred communication channel.
For example, a customer service representative can easily view detailed account informa-
tion and history through a CRM system when providing information to a customer such as
expected delivery dates, complementary product information, and customer payment and
billing information.
Companies that understand individual customer needs are best positioned to achieve suc-
cess. Of course, building successful customer relationships is not a new business practice;
however, implementing CRM systems allows a company to operate more efficiently and
effectively in the area of supporting customer needs. CRM moves far beyond technology by
identifying customer needs and designing specific marketing campaigns tailored to each. This
enables a firm to treat customers as individuals, gaining important insights into their buying
preferences and shopping behaviors. Firms that treat their customers well reap the rewards
and generally see higher profits and highly loyal customers. Identifying the most valuable
customers allows a firm to ensure that these customers receive the highest levels of customer
service and are offered the first opportunity to purchase new products.  Customer analytics
involves gathering, classifying, comparing, and studying customer data to identify buying
trends, at-risk customers, and potential future opportunities. Sales analytics involves gather-
ing, classifying, comparing, and studying company sales data to analyze product cycles, sales
FIGURE 3.17
Customer Contact Points.
Text Message
Instant Message
Twitter
Facebook
Blog
Customer
Meeting or
Customer
Service Call
Web Order
Phone Order
Email
Letter
Voice Mail
Voice Call
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pipelines, and competitive intelligence. Software with advanced analytics capabilities helps
you attract and retain loyal and profitable customers and gives you the insight you need to
increase revenues, customer satisfaction, and customer loyalty.
Firms can find their most valuable customers by using the RFM formula—recency,
frequency, and monetary value. In other words, an organization must track:
■ How recently a customer purchased items.
■ How frequently a customer purchases items.
■ The monetary value of each customer purchase.
After gathering this initial CRM information, the firm can analyze it to identify patterns
and create marketing campaigns and sales promotions for different customer segments. For
example, if a customer buys only at the height of the season, the firm should send a special
offer during the off-season. If a certain customer segment purchases shoes but never acces-
sories, the firm can offer discounted accessories with the purchase of a new pair of shoes. If
the firm determines that its top 20 percent of customers are responsible for 80 percent of the
revenue, it can focus on ensuring these customers are always satisfied and receive the highest
levels of customer service.
There are three phases of CRM: (1) reporting, (2) analyzing, and (3) predicting. CRM
reporting technologies help organizations identify their customers across other applica-
tions. CRM analysis technologies help organizations segment their customers into categories
such as best and worst customers. CRM predicting technologies help organizations predict
FIGURE 3.18
CRM Overview.
Customer
service
system
Inventory
system
Order
fulfillment
system
Accounting
system
Customer Relationship Management System
Customer information flows
are represented by arrows.
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customer behavior, such as which customers are at risk of leaving. Figure 3.19  highlights
a few of the important questions an organization can answer in these areas by using CRM
technologies.
Enterprise Resource Planning
Today’s business leaders need significant amounts of information to be readily accessible
with real-time views into their businesses so that decisions can be made when they need
to be, without the added time of tracking data and generating reports. Enterprise resource
planning (ERP) integrates all departments and functions throughout an organization into
a single system (or integrated set of MIS systems) so that employees can make decisions
by viewing enterprisewide information on all business operations. To truly understand the
complexity of ERP systems you must think about the many different functional business
areas and their associated business processes as well as cross-functional business processes
such as supply chain management and customer relationship management and beyond. At
its most basic level, ERP software integrates these various business functions into one com-
plete system to streamline business processes and information across the entire organiza-
tion. Essentially, ERP helps employees do their jobs more efficiently by breaking down
barriers between business units.
Many organizations fail to maintain consistency across business operations. If a single
department, such as sales, decides to implement a new system without considering the other
departments, inconsistencies can occur throughout the company. Not all systems are built to
talk to each other and share data, and if sales suddenly implements a new system that mar-
keting and accounting cannot use or is inconsistent in the way it handles information, the
company’s operations become siloed. Figure 3.20 displays sample data from a sales database,
and Figure 3.21 displays samples from an accounting database. Notice the differences in data
formats, numbers, and identifiers. Correlating this data would be difficult, and the inconsis-
tencies would cause numerous reporting errors from an enterprisewide perspective.
The two key components of an ERP system help to resolve these issues and include a
common data repository and modular software design. A common data repository allows
every department of a company to store and retrieve information in real-time allowing infor-
mation to be more reliable and accessible. Module software design divides the system into
a set of functional units (named modules) that can be used independently or combined with
other modules for increased business flexibility. Module software design allows customers to
mix-and-match modules so they purchase only the required modules. If a company wants to
LO 3.4 Summarize the importance
of enterprise resource planning
systems.
FIGURE 3.19
Three Phases of CRM.ANALYZING
Customer Segmentation:
Asking Why It Happened
Why did sales not meet
forecasts?
Why was production so
low?
Why did we not sell as
many units as previous
years?
Who are our customers?
Why was revenue
so high?
Why are inventory
levels low?
PREDICTING
Customer Prediction:
Asking What Will Happen
What customers are at
risk of leaving?
Which products will our
customers buy?
Who are the best
customers for a
marketing campaign?
How do we reach our
customers?
What will sales be this
year?
How much inventory do
we need to preorder?
REPORTING
Customer Identification:
Asking What Happened
What is the total
revenue by customer?
How many units did we
make?
What were total sales
by product?
How many customers
do we have?
What are the current
inventory levels?
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implement the system slowly it can begin with just one module, such as accounting, and then
incorporate additional modules such as purchasing and scheduling.
ERP systems share data supporting business processes within and across departments.
In practice, this means that employees in different divisions—for example, accounting and
sales—can rely on the same information for their specific needs. ERP software also offers
some degree of synchronized reporting and automation. Instead of forcing employees to
FIGURE 3.21
Accounting Information
Sample.
FIGURE 3.20
Sales Information Sample.
Source: Microsoft Office 2016
Source: Microsoft Office 2016
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maintain separate databases and spreadsheets that have to be manually merged to generate
reports, some ERP solutions allow staff to pull reports from one system. For instance, with
sales orders automatically flowing into the financial system without any manual re-keying,
the order management department can process orders more quickly and accurately, and the
finance department can close the books faster. Other common ERP features include a por-
tal or dashboard to enable employees to quickly understand the business’s performance on
key metrics.
 Figure 3.22 shows how an ERP system takes data from across the enterprise, consolidates
and correlates it, and generates enterprisewide organizational reports.  Original ERP imple-
mentations promised to capture all information onto one true “enterprise” system, with the
ability to touch all the business processes within the organization. Unfortunately, ERP solu-
tions have fallen short of these promises, and typical implementations have penetrated only
15 to 20 percent of the organization. The issue ERP intends to solve is that knowledge within
a majority of organizations currently resides in silos that are maintained by a select few, with-
out the ability to be shared across the organization, causing inconsistency across business
operations.
FIGURE 3.22
Enterprise Resource
Planning System.
A B C D E F
Corporate Data
Employees
Orders
Customers
Sales
Inventory
Global Shipping Report
Global Manufacturing Report
Global Sales Report
1
2
3
4
5
6
7
8
9
A B C D E FERP
1. Imagine you are working for Apple as a manager in its Chicago store. Explain how you could use a
CRM system to help support customers.
2. Create an argument against the following statement: “Apple should not invest any resources to
build a supply chain management system.”
3. Explain how an ERP system can help Apple run its business.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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Using drones to drop off packages could be great for buyers, who might want to get certain items as
fast as humanly possible. Back in 2013, when Amazon revealed plans to begin delivering packages
via flying drones through Prime Air, some seemed skeptical about the reality of deploying such a
system. Recently, Amazon doubled down on those claims by releasing information on one of its new
drones in action, and it is seriously impressive.
A new video presented by former Top Gear host Jeremy Clarkson (who is working on a show for
Amazon), takes us through the entire process, from ordering, to warehouse launch, to delivery. The new
drone looks a lot different from the one Amazon showed us a couple of years ago. This one has a more
commercial and streamlined look, and instead of showing the package hanging in open air, the new
drone hides the item in a square compartment. Just Google Amazon Prime Air Drone video with Jeremy
Clarkson to see for yourself this amazing new drone that will dramatically impact the supply chain.
According to Amazon, the drone reaches a height of about 400 feet in vertical mode and then
switches to horizontal mode to travel up to 15 miles away from the warehouse. During the flight, the
drone uses what Amazon calls “sense and avoid technology” to avoid collisions with other objects in
its flight path.
Toward the end of the video, the drone alights atop an Amazon logo in the yard of a consumer
and spits out the package (in this case, shoes) and then takes off in a matter of seconds. The delivery
process, which Amazon is careful to note is real and not a simulation, comes off seamlessly, making
the prospect of drone deliveries seem like something that will be viable just a few months from now.
However, despite the encouraging footage, Amazon is still holding off on announcing exactly
when its drones will take to the skies. On the updated Prime Air page featuring the new flight footage,
a message reads, “Putting Prime Air into service will take some time, but we will deploy when we
have the regulatory support needed to realize our vision.”
The FAA’s Unmanned Aircraft Systems (UAS) Registration Task Force Aviation Rulemaking Commit-
tee is still hammering out rules for private and commercial drone use in U.S. air space, so Amazon’s
lack of a specific launch timeline for Prime Air is understandable. But based on the video, it’s becom-
ing increasingly clear that Prime Air might not be a mere marketing stunt but a real look at the future
of Amazon deliveries.
Retailers Racing to the Drone Games
Wal-Mart recently applied to U.S. regulators for permission to test drones for home delivery, curbside
pickup and checking warehouse inventories, a sign it plans to go head-to-head with Amazon in using
drones to fill and deliver online orders. 
Wal-Mart wants to start using drones in an effort to create a more efficient supply chain, and con-
nect their network of stores, distribution centers, fulfillment centers and transportation fleet. The
world’s largest retailer by revenue has for several months been conducting indoor tests of small
unmanned aircraft systems (drones) and is now seeking for the first time to test the machines out-
doors. In addition to having drones take inventory of trailers outside its warehouses and perform
other tasks aimed at making its distribution system more efficient, Wal-Mart is asking the Federal Avia-
tion Administration for permission to research drone use in “deliveries to customers at Walmart facili-
ties, as well as to consumer homes.” The move comes as Amazon, Google and other companies test
drones in the expectation that the FAA will soon establish rules for their widespread commercial use.2
Questions
1. How will drones impact the supply chain?
2. Why are big retailers racing to be the first to market with drone home delivery?
3. How can a CRM system help communicate issues in the supply chain between customers and drones?
4. How could BPR help uncover issues in a company’s supply chain that uses drones?
5. What are the pros and cons of using a drone to deliver packages?
Chapter Three Case: Amazon Drone Knocking
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3.1. Identify how an organization can use business process reengineering to improve its
business. 
A business process is a standardized set of activities that accomplish a specific task, such as pro-
cessing a customer’s order. Business processes transform a set of inputs into a set of outputs (goods
or services) for another person or process by using people and tools. Without processes, organiza-
tions would not be able to complete activities.
3.2. Explain supply chain management and its role in business. 
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw materials or
a product. To automate and enable sophisticated decision making in these critical areas, compa-
nies are turning to systems that provide demand forecasting, inventory control, and information
flows between suppliers and customers. Supply chain management (SCM) is the management of
information flows between and among activities in a supply chain to maximize total supply chain
effectiveness and corporate profitability. In the past, manufacturing efforts focused primarily on
quality improvement efforts within the company; today these efforts reach across the entire sup-
ply chain, including customers, customers’ customers, suppliers, and suppliers’ suppliers. Today’s
supply chain is an intricate network of business partners linked through communication channels
and relationships. Improved visibility across the supply chain and increased profitability for the
firm are the primary business benefits received when implementing supply chain management
systems. Supply chain visibility is the ability to view all areas up and down the supply chain in real
time. The primary challenges associated with supply chain management include costs and com-
plexity. The next wave in supply chain management will be home-based supply chain fulfillment.
No more running to the store to replace your products because your store will come to you as
soon as you need a new product.
3.3. Explain customer relationship management systems and how they can help
organizations understand their customers. 
Customer relationship management (CRM) is a means of managing all aspects of a customer’s
relationship with an organization to increase customer loyalty and retention and an organization’s
profitability. CRM allows an organization to gain insights into customers’ shopping and buying
behaviors. Every time a customer communicates with a company, the firm has the chance to
build a trusting relationship with that particular customer. Companies that understand individual
customer needs are best positioned to achieve success. Building successful customer relation-
ships is not a new business practice; however, implementing CRM systems allows a company to
operate more efficiently and effectively in the area of supporting customer needs. CRM moves far
beyond technology by identifying customer needs and designing specific marketing campaigns
tailored to each.
3.4. Summarize the importance of enterprise resource planning systems.
Enterprise resource planning (ERP) integrates all departments and functions throughout an organiza-
tion into a single IT system (or integrated set of IT systems) so employees can make decisions by
viewing enterprisewide information about all business operations.
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1. What is a business process and what role does it play in an organization?
2. Why do managers need to understand business processes? Can you make a correlation
between systems thinking and business processes?
3. Why would a manager need to review an As-Is and To-Be process model?
4. How can a manager use automation, streamlining, and business process reengineering to gain
operational efficiency and effectiveness?
5. Explain the difference between customer-facing processes and business-facing processes.
Which one is more important to an organization?
6. Explain how finding different ways to travel the same road relates to automation, streamlining,
and business process reengineering.
7. What is supply chain management and why is it important to a company?
8. What are the five primary activities in a supply chain?
9. What is a supply chain inventory visibility system?
10. Why are customer relationships important to an organization? Do you agree that every business
needs to focus on customers to survive in the information age?
11. What is an enterprise resource planning system?
12. What does a company need to integrate to become connected?
R E V I E W Q U E S T I O N S
M A K I N G B U S I N E S S D E C I S I O N S
1. Cool College Start-Ups
Not long ago, people would call college kids who started businesses quaint. Now they call them the
boss. For almost a decade, Inc. magazine has been watching college start-ups and posting a list of
the nation’s top start-ups taking campuses by storm. Helped in part by low-cost technologies and
an increased prevalence of entrepreneurship training at the university level, college students—and
indeed those even younger—are making solid strides at founding companies. And they’re not just
launching local pizza shops and fashion boutiques. They are starting up businesses that could scale
into much bigger companies and may already cater to a national audience. 
Research Inc. magazine at www.inc.com and find the year’s current Coolest College Start-up
listing. Choose one of the startups and explain how the business can use BPR, CRM, SCM, and ERP
to help it gain traction in the market. Be sure to explain how the company can gain a competitive
advantage by using each enterprise system efficiently and effectively. 
2. Managing Bad Customer Relationships
There is a common saying that the customer is always right. Clearly this can create many issues with
customer relationship management as many times the customer is actually incorrect, but you can’t
tell the customer they are wrong. Research the Internet and find an example of a customer relation-
ship gone wrong and determine if the customer was at fault for the problem. What can you do as a
manager when a customer is angry but clearly wrong about a situation? What strategies can a man-
ager use when dealing with angry customers?
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3. Fixing Broken School Processes
There are numerous simultaneous business processes occurring to keep your school running.
Choose one area of your school and diagram all of the business processes occurring in one common
day. For example, administration is registering students, creating class schedules, hiring faculty,
recruiting students, and finding graduates jobs. Imagine the level of effort it takes to keep your
school running day after day. List all of the processes associated with your chosen area.
4. School Supply Chains
The food industry has to operate tough schedules with supplies that have limited shelf-life and
quickly approaching expiration dates. Imagine all of the food coming into your school to feed the
students living in the dorms. List the different types of products being sourced by your school and
what types of issues they might be encountering. What does your school do with out-dated prod-
ucts? How does your school estimate the food demand? What does your school do with leftover
food? How can you improve your school’s supply chain? 
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C H A P T E R 4 Measuring the Success of Strategic Initiatives
L E A R N I N G O U T C O M E S
4.1. Define the primary MIS roles along with their
associated responsibilities.
4.2. Define critical success factors (CSFs) and key performance
indicators (KPIs), and explain how managers use them to
measure the success of MIS projects.
4.3. Explain why a business would use metrics to measure
the success of strategic initiatives.
MIS Roles and Responsibilities
Management information systems is a relatively new functional area, having been around for-
mally in most organizations only for about 40 years. Job titles, roles, and responsibilities often
differ dramatically from organization to organization. Nonetheless, clear trends are develop-
ing toward elevating some MIS positions within an organization to the strategic level.
Most organizations maintain positions such as chief executive officer (CEO), chief finan-
cial officer (CFO), and chief operations officer (COO) at the strategic level. Recently there
are more MIS-related strategic positions such as chief information officer (CIO), chief data
officer (CDO), chief technology officer (CTO), chief security officer (CSO), chief privacy
officer (CPO), and chief knowledge officer (CKO). See Figure 4.1.
The chief information officer (CIO) is responsible for (1) overseeing all uses of infor-
mation technology and (2) ensuring the strategic alignment of MIS with business goals and
objectives. The CIO often reports directly to the CEO. CIOs must possess a solid and detailed
understanding of every aspect of an organization coupled with tremendous insight into the
capability of MIS. Broad functions of a CIO include:
1. Manager—ensure the delivery of all MIS projects, on time and within budget.
2. Leader—ensure the strategic vision of MIS is in line with the strategic vision of the
organization.
3. Communicator—advocate and communicate the MIS strategy by building and maintaining
strong executive relationships.
The chief data officer (CDO) is responsible for determining the types of information
the enterprise will capture, retain, analyze, and share. The difference between the CIO and
CDO is that the CIO is responsible for the information systems through which data is stored
and processed, while the CDO is responsible for the data, regardless of the information
system.
The chief technology officer (CTO) is responsible for ensuring the throughput, speed,
accuracy, availability, and reliability of an organization’s information technology. CTOs are
similar to CIOs, except that CIOs take on the additional responsibility for effectiveness of
ensuring that MIS is aligned with the organization’s strategic initiatives. CTOs have direct
responsibility for ensuring the efficiency of MIS systems throughout the organization.
LO 4.1 Define the primary
MIS roles along with their
associated responsibilities.
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Most CTOs possess well-rounded knowledge of all aspects of MIS, including hardware, soft-
ware, and telecommunications.
The chief security officer (CSO) is responsible for ensuring the security of MIS systems
and developing strategies and MIS safeguards against attacks from hackers and viruses. The
role of a CSO has been elevated in recent years because of the number of attacks from hack-
ers and viruses. Most CSOs possess detailed knowledge of networks and telecommunica-
tions because hackers and viruses usually find their way into MIS systems through networked
computers.
The chief privacy officer (CPO) is responsible for ensuring the ethical and legal use of
information within an organization. CPOs are the newest senior executive position in MIS.
Recently, 150 of the Fortune 500 companies added the CPO position to their list of senior
executives. Many CPOs are lawyers by training, enabling them to understand the often
complex legal issues surrounding the use of information.1
FIGURE 4.1
The Roles and
Responsibilities of MIS.
MIS Department Roles
and Responsibilities
Chief information o�cer (CIO)
Chief knowledge o�cer (CKO)
Responsible for collecting,
maintaining, and distributing
company knowledge.
Chief privacy o�cer (CPO)
Responsible for ensuring the ethical and
legal use of information within a
company.
Chief data o�cer (CDO)
Responsible for determining the types of
information the enterprise will capture, retain,
analyze, and share.
Chief security o�cer (CSO)
Responsible for ensuring the security
of business systems and developing
strategies and safeguards against
attacks by hackers and viruses.
Chief technology o�cer (CTO)
Responsible for ensuring the
speed, accuracy, availability,
and reliability of the MIS.
Responsible for (1) overseeing all uses of
MIS and (2) ensuring that MIS strategically
aligns with business goals and objectives.
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The chief knowledge officer (CKO) is responsible for collecting, maintaining, and dis-
tributing the organization’s knowledge. The CKO designs programs and systems that make it
easy for people to reuse knowledge. These systems create repositories of organizational docu-
ments, methodologies, tools, and practices, and they establish methods for filtering the infor-
mation. The CKO must continuously encourage employee contributions to keep the systems
up-to-date. The CKO can contribute directly to the organization’s bottom line by reducing the
learning curve for new employees or employees taking on new roles.
Danny Shaw was the first CKO at Children’s Hospital in Boston. His initial task was to
unite information from disparate systems to enable analysis of both the efficiency and effec-
tiveness of the hospital’s care. Shaw started by building a series of small, integrated informa-
tion systems that quickly demonstrated value. He then gradually built on those successes,
creating a knowledge-enabled organization one layer at a time. Shaw’s information systems
have enabled administrative and clinical operational analyses.2
With the election of President Barack Obama comes the appointment of the first-ever
national chief technology officer (CTO). The job description, as listed on Change.gov, states
that the first CTO must “ensure the safety of our networks and lead an interagency effort,
working with chief technology and chief information officers of each of the federal agencies,
to ensure that they use best-in-class technologies and share best practices.” A federal-level
CTO demonstrates the ongoing growth of technology positions outside corporate America.
In the future expect to see many more technology positions in government and nonprofit
organizations.
All the above MIS positions and responsibilities are critical to an organization’s success.
While many organizations may not have a different individual for each of these positions, they
must have leaders taking responsibility for all these areas of concern. The individuals respon-
sible for enterprisewide MIS and MIS-related issues must provide guidance and support to the
organization’s employees. According to Fast Company magazine a few executive levels you
might see created over the next decade include:
■ Chief intellectual property officer will manage and defend intellectual property, copy-
rights, and patents. The world of intellectual property law is vast and complicated as new
innovations continually enter the market. Companies in the near future will need a core
leadership team member who can not only wade through the dizzying sea of intellectual
property laws and patents to ensure their own compliance, but also remain vigilant to pro-
tect their own company against infringement.
■ Chief automation officer determines if a person or business process can be replaced by a
robot or software. As we continue to automate jobs a member of the core leadership team
of the future will be put in charge of identifying opportunities for companies to become
more competitive through automation.
■ Chief user experience officer will create the optimal relationship between user and
technology. User experience used to be an afterthought for hardware and software design-
ers. Now that bulky instruction manuals are largely (and thankfully) a thing of the past,
technology companies need to ensure that their products are intuitive from the moment they
are activated.3
MIS skills gap is the difference between existing MIS workplace knowledge and the
knowledge required to fulfill the business goals and strategies. Closing the MIS skills gap by
aligning the current workforce with potential future business needs is a complicated propo-
sition. Today, employers often struggle to locate and retain qualified MIS talent, especially
individuals with application development, information security, and data analysis skills.
Common approaches to closing an MIS skills gap include social recruiting, off-site train-
ing, mentoring services, and partnerships with universities. In many instances, an MIS job
will remain unfilled for an extended period of time when an employer needs to hire someone
who has a very specific set of skills. In recruiting lingo, such candidates are referred to as
purple squirrels. Because squirrels in the real world are not often purple, the implication
is that finding the perfect job candidate with exactly the right qualifications, education and
salary expectations can be a daunting—if not impossible—task.
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Metrics: Measuring Success
A project is a temporary activity a company undertakes to create a unique product, service, or
result. For example, the construction of a new subway station is a project, as is a movie theater
chain’s adoption of a software program to allow online ticketing. Peter Drucker, a famous
management writer, once said that if you cannot measure something, you cannot manage it.
How do managers measure the progress of a complex business project?
Metrics are measurements that evaluate results to determine whether a project is meet-
ing its goals. Two core metrics are critical success factors and key performance indicators.
Critical success factors (CSFs) are the crucial steps companies perform to achieve their goals
and objectives and implement their strategies (see Figure 4.2). Key performance indicators
(KPIs) are the quantifiable metrics a company uses to evaluate progress toward critical suc-
cess factors. KPIs are far more specific than CSFs.
It is important to understand the relationship between critical success factors and key per-
formance indicators. CSFs are elements crucial for a business strategy’s success. KPIs mea-
sure the progress of CSFs with quantifiable measurements, and one CSF can have several
KPIs. Of course, both categories will vary by company and industry. Imagine improve gradu-
ation rates as a CSF for a college. The KPIs to measure this CSF can include:
■ Average grades by course and gender.
■ Student dropout rates by gender and major.
■ Average graduation rate by gender and major.
■ Time spent in tutoring by gender and major.
KPIs can focus on external and internal measurements. A common external KPI is market
share, or the proportion of the market that a firm captures. We calculate it by dividing the
firm’s sales by the total market sales for the entire industry. Market share measures a firm’s
external performance relative to that of its competitors. For example, if a firm’s total sales
(revenues) are $2 million and sales for the entire industry are $10 million, the firm has cap-
tured 20 percent of the total market (2/10 = 20%) or a 20 percent market share.
LO 4.2 Define critical success fac-
tors (CSFs) and key performance
indicators (KPIs), and explain how
managers use them to measure
the success of MIS projects.
FIGURE 4.2
CSF and KPI Metrics.

Crucial steps companies
perform to achieve their
goals and objectives and
implement their strategies
Create high-quality
products
Retain competitive
advantages
Reduce product costs
Increase customer
satisfaction
Hire and retain the best
business professionals
Critical
Success
Factors
Quantifiable metrics a
company uses to evaluate
progress toward critical
success factors
Turnover rates of
employees
Percentage of help desk
calls answered in the first
minute
Number of product
returns
Number of new
customers
Average customer
spending
Key
Performance
Indicators
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A common internal KPI is return on investment (ROI), which indicates the earning power
of a project. We measure it by dividing the profitability of a project by the costs. This sounds
easy, and for many departments where the projects are tangible and self-contained it is; how-
ever, for projects that are intangible and cross departmental lines (such as MIS projects), ROI
is challenging to measure. Imagine attempting to calculate the ROI of a fire extinguisher. If
the fire extinguisher is never used, its ROI is low. If the fire extinguisher puts out a fire that
could have destroyed the entire building, its ROI is astronomically high.
Creating KPIs to measure the success of an MIS project offers similar challenges. Think
about a firm’s email system. How could managers track departmental costs and profits
associated with company email? Measuring by volume does not account for profitability,
because one sales email could land a million-dollar deal while 300 others might not gener-
ate any revenue. Non-revenue-generating departments such as human resources and legal
require email but will not be using it to generate profits. For this reason, many managers
turn to higher-level metrics, such as efficiency and effectiveness, to measure MIS projects.
Best practices are the most successful solutions or problem-solving methods that have been
developed by a specific organization or industry. Measuring MIS projects helps determine
the best practices for an industry.
EFFICIENCY AND EFFECTIVENESS METRICS
Efficiency MIS metrics measure the performance of MIS itself, such as throughput, transac-
tion speed, and system availability. Effectiveness MIS metrics measure the impact MIS has
on business processes and activities, including customer satisfaction and customer conversion
rates. Efficiency focuses on the extent to which a firm is using its resources in an optimal way,
while effectiveness focuses on how well a firm is achieving its goals and objectives. Peter
Drucker offers a helpful distinction between efficiency and effectiveness: Doing things right
addresses efficiency—getting the most from each resource. Doing the right things addresses
effectiveness—setting the right goals and objectives and ensuring they are accomplished.
Figure 4.3 describes a few of the common types of efficiency and effectiveness MIS metrics.
KPIs that measure MIS projects include both efficiency and effectiveness metrics. Of course,
these metrics are not as concrete as market share or ROI, but they do offer valuable insight
into project performance.4
Large increases in productivity typically result from increases in effectiveness, which
focus on CSFs. Efficiency MIS metrics are far easier to measure, however, so most manag-
ers tend to focus on them, often incorrectly, to measure the success of MIS projects. Con-
sider measuring the success of automated teller machines (ATMs). Thinking in terms of MIS
efficiency metrics, a manager would measure the number of daily transactions, the average
amount per transaction, and the average speed per transaction to determine the success of the
ATM. Although these offer solid metrics on how well the system is performing, they miss
many of the intangible or value-added benefits associated with ATM effectiveness. Effective-
ness MIS metrics might measure how many new customers joined the bank due to its ATM
locations or the ATMs’ ease of use. They can also measure increases in customer satisfaction
due to reduced ATM fees or additional ATM services such as the sale of stamps and movie
tickets, significant time savers and value-added features for customers. Being a great manager
means taking the added viewpoint offered by effectiveness MIS metrics to analyze all benefits
associated with an MIS project.
THE INTERRELATIONSHIP BETWEEN EFFICIENCY AND EFFECTIVENESS MIS METRICS
Efficiency and effectiveness are definitely related. However, success in one area does not
necessarily imply success in the other. Efficiency MIS metrics focus on the technology
itself. While these efficiency MIS metrics are important to monitor, they do not always
guarantee effectiveness. Effectiveness MIS metrics are determined according to an orga-
nization’s goals, strategies, and objectives. Here, it becomes important to consider a com-
pany’s CSFs, such as a broad cost leadership strategy (Walmart, for example), as well as
KPIs such as increasing new customers by 10 percent or reducing new-product develop-
ment cycle times to six months. 
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Figure 4.4  depicts the interrelationships between efficiency and effectiveness. Ideally, a
firm wants to operate in the upper right-hand corner of the graph, realizing both significant
increases in efficiency and effectiveness. However, operating in the upper left-hand corner
(minimal effectiveness with increased efficiency) or the lower right-hand corner (significant
effectiveness with minimal efficiency) may be in line with an organization’s particular strate-
gies. In general, operating in the lower left-hand corner (minimal efficiency and minimal
effectiveness) is not ideal for the operation of any organization.
Regardless of what process is measured, how it is measured, and whether it is performed
for the sake of efficiency or effectiveness, managers must set benchmarks, or baseline val-
ues the system seeks to attain. Benchmarking is a process of continuously measuring sys-
tem results, comparing those results to optimal system performance (benchmark values), and
identifying steps and procedures to improve system performance. Benchmarks help assess
how an MIS project performs over time. For instance, if a system held a benchmark for a
response time of 15 seconds, the manager would want to ensure response time continued to
decrease until it reached that point. If response time suddenly increased to 1 minute, the man-
ager would know the system was not functioning correctly and could start looking into poten-
tial problems. Continuously measuring MIS projects against benchmarks provides feedback
so managers can control the system.
FIGURE 4.3
Common Types of Efficiency
and Effectiveness Metrics.
Throughput—The amount of information
that can travel through a system at any
point in time.
E�ciency Metrics
E�ectiveness
Metrics
Usability—The ease with which people perform
transactions and/or find information.
Customer satisfaction—Measured by
satisfaction surveys, percentage of existing
customers retained, and increases in revenue
dollars per customer.
Conversion rates—The number of customers
an organization “touches” for the first time and
persuades to purchase its products or services.
This is a popular metric for evaluating the
e�ectiveness of banner, pop-up, and pop-under
ads on the Internet.
Financial—Such as return on investment (the
earning power of an organization’s assets), cost-
benefit analysis (the comparison of projected
revenues and costs including development,
maintenance, fixed, and variable), and break-
even analysis (the point at which constant
revenues equal ongoing costs).
Transaction speed—The amount of time
a system takes to perform a transaction.
System availability—The number of
hours a system is available for users.
Information accuracy—The extent to
which a system generates the correct
results when executing the same
transaction numerous times.
Response time—The time it takes to
respond to user interactions such as a
mouse click.
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Metrics for Strategic Initiatives
What is a metric? A metric is nothing more than a standard measure to assess performance
in a particular area. Metrics are at the heart of a good, customer-focused management system
and any program directed at continuous improvement. A focus on customers and performance
standards shows up in the form of metrics that assess the ability to meet customers’ needs and
business objectives.
Business leaders want to monitor key metrics in real time to actively track the health of
their business. Most business professionals are familiar with financial metrics. Different
financial ratios are used to evaluate a company’s performance. Companies can gain additional
insight into their performance by comparing financial ratios against other companies in their
industry. A few of the more common financial ratios include:
■ Internal rate of return (IRR)—the rate at which the net present value of an investment
equals zero.
■ Return on investment (ROI)—indicates the earning power of a project and is measured by
dividing the benefits of a project by the investment.
■ Payback method—number of years to recoup the cost of an initiative based on projected
annual net cash flow.
■ Break-even analysis—determines the volume of business required to make a profit at the cur-
rent prices charged for the products or services. For example, if a promotional mailing costs
$1,000 and each item generates $50 in revenue, the company must generate 20 sales to break
even and cover the cost of the mailing. The break-even point is the point at which revenues equal
costs. The point is located by performing a break-even analysis. All sales over the break-even
point produce profits; any drop in sales below that point will produce losses (see Figure 4.5).
LO 4.3 Explain why a business
would use metrics to measure the
success of strategic initiatives.
FIGURE 4.4
The Interrelationships
between Efficiency and
Effectiveness.
High
E�
ci
en
cy
Low
Low HighE�ectiveness
Optimal area
in which to
operate
FIGURE 4.5
Break-Even Analysis.
Break-Even
Point
Break-Even Point
Quantity
D
ol
la
rs
Costs
Sales
Profit
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Most managers are familiar with financial metrics but unfamiliar with information system
metrics. Most companies measure the traffic on a website as the primary determinant of the
website’s success. However, heavy website traffic does not necessarily indicate large sales.
Many organizations with lots of website traffic have minimal sales. A company can use web
traffic analysis or web analytics to determine the revenue generated, the number of new
customers acquired, any reductions in customer service calls, and so on. Figure 4.6 displays
a few metrics managers should be familiar with to help measure website success along with
an organization’s strategic initiatives. A web-centric metric is a measure of the success of
web and ebusiness initiatives. Of the hundreds of web-centric metrics available, some are
general to almost any web or ebusiness initiative and others are dependent on the particular
initiative.5
Supply chain management metrics can help an organization understand how it’s operat-
ing over a given time period. Supply chain measurements can cover many areas includ-
ing procurement, production, distribution, warehousing, inventory, transportation, and
customer service. However, a good performance in one part of the supply chain is not
sufficient. A supply chain is only as strong as its weakest link. The solution is to measure
all key areas of the supply chain. Figure 4.7 displays common supply chain management
metrics.6
Wondering what CRM metrics to track and monitor using reporting and real-time per-
formance dashboards? Best practice is no more than seven (plus or minus two) metrics out
Website Metrics
■ Abandoned registrations: Number of visitors who start the process of completing a registration page
and then abandon the activity.
■ Abandoned shopping carts: Number of visitors who create a shopping cart and start shopping and
then abandon the activity before paying for the merchandise.
■ Click-through: Count of the number of people who visit a site, click on an ad, and are taken to the site
of the advertiser.
■ Conversion rate: Percentage of potential customers who visit a site and actually buy something.
■ Cost-per-thousand (CPM): Sales dollars generated per dollar of advertising. This is commonly used to
make the case for spending money to appear on a search engine.
■ Page exposures: Average number of page exposures to an individual visitor.
■ Total hits: Number of visits to a website, many of which may be by the same visitor.
■ Unique visitors: Number of unique visitors to a site in a given time. This is commonly used by Nielsen/
Net ratings to rank the most popular websites.
FIGURE 4.6
Website Metrics.
FIGURE 4.7
Supply Chain Management
Metrics.
Supply Chain Management Metrics
■ Back order: An unfilled customer order. A back order is demand (immediate or past due) against an
item whose current stock level is insufficient to satisfy demand.
■ Customer order promised cycle time: The anticipated or agreed upon cycle time of a purchase order.
It is a gap between the purchase order creation date and the requested delivery date.
■ Customer order actual cycle time: The average time it takes to actually fill a customer’s purchase
order. This measure can be viewed on an order or an order line level.
■ Inventory replenishment cycle time: Measure of the manufacturing cycle time plus the time included
to deploy the product to the appropriate distribution center.
■ Inventory turns (inventory turnover): The number of times that a company’s inventory cycles or turns
over per year. It is one of the most commonly used supply chain metrics.
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of the hundreds possible should be used at any given management level. Figure 4.8 displays
common CRM metrics tracked by organizations.7
Business process reengineering and enterprise resource planning are large, organization-
wide initiatives. Measuring these types of strategic initiatives is extremely difficult. One of
the best methods is the balanced scorecard. This approach to strategic management was devel-
oped in the early 1990s by Dr. Robert Kaplan of the Harvard Business School and Dr. David
Norton. Addressing some of the weaknesses and vagueness of previous measurement tech-
niques, the balanced scorecard approach provides a clear prescription as to what companies
should measure in order to balance the financial perspective.
The balanced scorecard is a management system, in addition to a measurement system,
that enables organizations to clarify their vision and strategy and translate them into action.
It provides feedback around both the internal business processes and external outcomes in
order to continuously improve strategic performance and results. When fully deployed, the
balanced scorecard transforms strategic planning from an academic exercise into the nerve
center of an enterprise. Kaplan and Norton describe the innovation of the balanced score-
card as follows:
The balanced scorecard retains traditional financial measures. But financial measures tell the story
of past events, an adequate story for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success. These financial measures are
inadequate, however, for guiding and evaluating the journey that information age companies must
make to create future value through investment in customers, suppliers, employees, processes, tech-
nology, and innovation.8
The balanced scorecard views the organization from four perspectives, and users should
develop metrics, collect data, and analyze their business relative to each of these perspectives:
■ The learning and growth perspective.
■ The internal business process perspective.
■ The customer perspective.
■ The financial perspective (see Figure 4.9).
FIGURE 4.8
CRM Metrics.
Sales Metrics Service Metrics Marketing Metrics
■ Number of prospective
customers
■ Cases closed same day ■ Number of marketing
campaigns
■ Number of new customers ■ Number of cases handled
by agent
■ New customer retention
rates
■ Number of retained customers ■ Number of service calls ■ Number of responses by
marketing campaign
■ Number of open leads ■ Average number of service
requests by type
■ Number of purchases by
marketing campaign
■ Number of sales calls ■ Average time to resolution ■ Revenue generated by
marketing campaign
■ Number of sales calls per lead ■ Average number of service
calls per day
■ Cost per interaction by
marketing campaign
■ Amount of new revenue ■ Percentage compliance with
service-level agreement
■ Number of new customers
acquired by marketing
campaign
■ Amount of recurring revenue ■ Percentage of service
renewals
■ Customer retention rate
■ Number of proposals given ■ Customer satisfaction level ■ Number of new leads by
product
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FIGURE 4.9
The Four Primary
Perspectives of the Balanced
Scorecard.
Financial
O
bj
ec
tiv
es
M
ea
su
re
s
Ta
rg
et
s
In
iti
at
iv
es
“To succeed
financially, how
should we
appear to our
shareholders?”
Learning and
Growth
O
bj
ec
tiv
es
M
ea
su
re
s
Ta
rg
et
s
In
iti
at
iv
es
“To achieve our
vision, how will
we sustain our
ability to
change and
improve?”
Customer
O
bj
ec
tiv
es
M
ea
su
re
s
Ta
rg
et
s
In
iti
at
iv
es
“To achieve our
vision, how
should we
appear to our
customers?”
Internal Business
Processes
O
bj
ec
tiv
es
M
ea
su
re
s
Ta
rg
et
s
In
iti
at
iv
es
“To satisfy our
shareholders
and customers,
what business
processes must
we excel at?”
Vision
and
Strategy
Recall that companies cannot manage what they cannot measure. Therefore, metrics must
be developed based on the priorities of the strategic plan, which provides the key business
drivers and criteria for metrics that managers most desire to watch.
One warning regarding metrics—do not go crazy. The trick is to find a few key metrics to
track that provide significant insight. Remember to tie metrics to other financial and business
objectives in the firm. The key is to get good insight without becoming a slave to metrics. The
rule of thumb is to develop seven key metrics, plus or minus two.
1. Explain the difference between efficiency MIS metrics and effectiveness MIS metrics.
2. Imagine you are working for Costco as a manager in its Chicago store.  List three CRM metrics
Costco should track, along with the reasons these metrics will add value to Costco’s business
strategy.
3. List three SCM metrics Costco should track, along with the reasons these metrics will add value to
Costco’s business strategy.
4. How can Costco use the balanced scorecard to make its business more efficient?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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How can global warming be real when there is so much snow and cold weather? That’s what some
people wondered after a couple of massive snowstorms buried Washington, DC, in the winter of
2009–2010. Politicians across the capital made jokes and built igloos as they disputed the existence
of climate change. Some concluded the planet simply could not be warming with all the snow on
the ground.
These comments frustrated Joseph Romm, a physicist and climate expert with the Center for
American Progress. He spent weeks turning data into information and graphs to educate anyone
who would listen as to why this reasoning was incorrect. Climate change is all about analyzing data,
turning it into information to detect trends. You cannot observe climate change by looking out the
window; you have to review decades of weather data with advanced tools to really understand
the trends.
Increasingly we see politicians, economists, and newscasters taking tough issues and boiling
them down to simplistic arguments over what the data mean, each interpreting the data and spinning
the data to support their views and agendas. You need to understand the data and turn them into
useful information or else you will not understand when someone is telling the truth and when you
are being lied to.
Brainstorm two or three types of data economists use to measure the economy.9
Questions
1. How do they turn the data into information?
2. What issues do they encounter when attempting to measure the economy?
3. As a manager, what do you need to understand when reading or listening to economic and busi-
ness reports?
Chapter Four Case: Manipulating the Data to Find Your Version
of the Truth
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R E V I E W Q U E S T I O N S
1. What are the responsibilities of a chief information officer?
2. What are the responsibilities of a chief privacy officer?
3. What are the responsibilities of a chief data officer?
4. What are the responsibilities of a chief security officer?
5. Why would a company want to have a CIO, CPO, and CSO?
6. What is the difference between MIS efficiency metrics and MIS effectiveness metrics?
7. What is the difference between CSFs and KPIs?
8. How can metrics be used to measure the success of supply chain management systems and
CRM systems?
9. What is the purpose of the balanced scorecard?
4.1. Define the primary MIS roles along with their associated responsibilities.
The chief information officer (CIO)is responsible for (1) overseeing all uses of information technology
and (2) ensuring the strategic alignment of MIS with business goals and objectives. The chief data
officer (CDO) is responsible for determining the types of information the enterprise will capture,
retain, analyze, and share. The chief technology officer (CTO) is responsible for ensuring the
throughput, speed, accuracy, availability, and reliability of an organization’s information technology.
The chief security officer (CSO) is responsible for ensuring the security of MIS systems and develop-
ing strategies and MIS safeguards against attacks from hackers and viruses. The chief privacy officer
(CPO) is responsible for ensuring the ethical and legal use of information within an organization. The
chief knowledge officer (CKO) is responsible for collecting, maintaining, and distributing the organi-
zation’s knowledge.
4.2. Define critical success factors (CSFs) and key performance indicators (KPIs), and
explain how managers use them to measure the success of MIS projects.
Metrics are measurements that evaluate results to determine whether a project is meeting its goals.
Two core metrics are critical success factors and key performance indicators. Critical success factors
(CSFs) are the crucial steps companies perform to achieve their goals and objectives and implement
their strategies. Key performance indicators (KPIs) are the quantifiable metrics a company uses to
evaluate progress toward critical success factors. KPIs are far more specific than CSFs.
4.3. Explain why a business would use metrics to measure the success of strategic
initiatives.
Business leaders want to monitor key metrics in real time to actively track the health of their
business. Most business professionals are familiar with financial metrics. Different financial ratios are
used to evaluate a company’s performance. Companies can gain additional insight into their perfor-
mance by comparing financial ratios against other companies in their industry
L E A R N I N G O U T C O M E R E V I E W
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1. Who Really Won the Winter Olympics?
If you were watching the 2014 Winter Olympics, I bet you were excited to see your country and its
amazing athletes compete. As you were following the Olympics day by day, you were probably
checking different websites to see how your country ranked. And depending on the website you
visited, you could get a very different answer to this seemingly easy question. On the NBC and ESPN
networks, the United States ranked second, and on the official Sochie Olympic website, the United
States ranked fourth. The simple question of who won the 2014 Winter Olympics changes signifi-
cantly, depending on whom you asked.
In a group, take a look at the following two charts and brainstorm the reasons each internation-
ally recognized source has a different listing for the top five winners. What measurement is each
chart using to determine the winner? Who do you believe is the winner? As a manager, what do you
need to understand when reading or listening to business forecasts and reports?
M A K I N G B U S I N E S S D E C I S I O N S
Winter Olympics 2014 Medal Ranking According to O�cial Sochie Olympic Website
Rank Country Gold Silver Bronze Total
1 Russian Fed. 13 11 9 33
2 Norway 11 5 10 26
3 Canada 10 10 5 25
4 United States 9 7 12 28
5 Netherlands 8 7 9 24
Winter Olympics 2014 Medal Ranking According to NBC News
Rank Country Gold Silver Bronze Total
1 Russian Fed. 13 11 9 33
2 United States 9 7 12 28
3 Norway 11 5 10
4 Canada 10 10 5 25
26
5 Netherlands 8 7 9 24
2. Starting Your Own Business
Josh James recently sold his web analytics company, Omniture, to Adobe for $1.8 billion. Yes, James
started Omniture from his dorm room! Have you begun to recognize the unbelievable opportunities
available to those students who understand the power of MIS, regardless of their major? What’s
stopping you from starting your own business today? You are living in the information age and, with
the power of MIS, it is easier than ever to jump into the business game with very little capital invest-
ment. Why not start your own business today?
■ Why is it so easy today for students to create start-ups while still in college and how can this
course help prepare you to start your own business?
■ Explain three CSFs and KPIs you would use to measure the success of your business.
■ Choose two CRM and SCM metrics you could use to measure your business and explain how
they can help you achieve success.
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3. The Competitive Landscape for Students
According to the Economic Policy Institute, over the past decade the United States has lost an
estimated 2.4 million factory jobs to China. Factories in South Korea, Taiwan, and China are produc-
ing toys, toothpaste, running shoes, computers, appliances, and cars. For a long time, U.S. firms did
not recognize these products as competition; they regarded Asia’s high-tech products as second-
rate knockoffs and believed Asian countries maintained a factory culture—they could imitate but
not innovate.
In hindsight, it is obvious that once these countries did begin designing and creating high-end
products, they would have obvious competitive advantages, with high-value research and devel-
opment coupled with low-cost manufacturing of unbeatable goods and services. Asia is now on
the rise in all industries from wind turbines to high-speed bullet trains. According to Bloomberg
Businessweek ’s ranking of the most innovative companies, 15 of the top 50 are Asian, up from just
5 in the previous year. In fact, for the first time, the majority of the top 25 are based outside the
United States.
How do you, as a business student, view these statistics? What type of global business climate
will you be competing in when you graduate? If you wanted to gather competitive intelligence
about the job market, where would you look and what types of data would you want to analyze?
What can you do to create personal competitive advantages to differentiate yourself when search-
ing for a job?
4. Roles and Responsibilities
You are the chief executive officer for a start-up telecommunications company. The company
currently has 50 employees and plans to ramp up to 3,000 by the end of the year.
Your first task is to determine how you are going to model your organization. You decide to
address the MIS department’s organizational structure first. You need to consider if you want to have
a CIO, CPO, CSO, CTO, CDO, and CKO, and if so, what their reporting structure will look like and why.
You also need to determine the different roles and responsibilities for each executive position. Once
you have compiled this information, put together a presentation describing your MIS department’s
organizational structure.
5. One Laptop per Child
Nicholas Negroponte is the founder of the MIT Media Lab and has spent his career pushing the
edge of the information revolution as an inventor, thinker, and angel investor. His latest project, One
Laptop per Child, plans to build $100 laptops that he hopes to put in the hands of the millions of
children in developing countries around the globe. The XO (the “$100 laptop”) is a wireless, Internet-
enabled, pedal-powered computer costing roughly $100. What types of competitive advantages
could children gain from Negroponte’s $100 laptop? What types of issues could result from the $100
laptop? Explain each of the efficiency metrics and effectiveness metrics that are required for each
laptop to be considered successful.
6. Is it Effective or Is It Efficient?
Making business decisions is a key skill for all managers. Review the following list and, in a group,
determine whether the question is focusing on efficiency, effectiveness, or both.
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Business Decision Efficiency Effectiveness
What is the best route for dropping off products?
Should we change suppliers?
Should we reduce costs by buying lower-quality materials?
Should we sell products to a younger market?
Did we make our sales targets?
What was the turnover rate of employees?
What is the average customer spending?
How many new customers purchased products?
Did the amount of daily transactions increase?
Is there a better way to restructure a store to increase sales?
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C H A P T E R 5
L E A R N I N G O U T C O M E S
5.1. Explain information ethics and its associated issues. 5.2. Describe information security and the difference
between hackers and viruses.
Information Ethics
Ethics and security are two fundamental building blocks for all organizations. In recent years,
enormous business scandals along with 9/11 have shed new light on the meaning of ethics and
security. When the behavior of a few individuals can destroy billion-dollar organizations, the
value of ethics and security should be evident.
Copyright is the legal protection afforded an expression of an idea, such as a song, book,
or video game. Intellectual property is intangible creative work that is embodied in physical
form and includes copyrights, trademarks, and patents. A patent is an exclusive right to make,
use, and sell an invention and is granted by a government to the inventor. As it becomes easier
for people to copy everything from words and data to music and video, the ethical issues sur-
rounding copyright infringement and the violation of intellectual property rights are consum-
ing the ebusiness world. Technology poses new challenges for our ethics—the principles and
standards that guide our behavior toward other people.
The protection of customers’ privacy is one of the largest, and murkiest, ethical issues
facing organizations today. Privacy is the right to be left alone when you want to be, to have
control over your personal possessions, and not to be observed without your consent. Privacy
is related to confidentiality, which is the assurance that messages and information remain
available only to those authorized to view them. Each time  employees make a decision about
a privacy issue, the outcome could sink the company.
Trust among companies, customers, partners, and suppliers is the support structure of
ebusiness. Privacy is one of its main ingredients. Consumers’ concerns that their privacy will
be violated because of their interactions on the web continue to be one of the primary barriers
to the growth of ebusiness.
Information ethics govern the ethical and moral issues arising from the development
and use of information technologies as well as the creation, collection, duplication, distribu-
tion, and processing of information itself (with or without the aid of computer technologies).
Ethical dilemmas in this area usually arise not as simple, clear-cut situations but as clashes
among competing goals, responsibilities, and loyalties. Inevitably, there will be more than one
socially acceptable or correct decision. The two primary areas concerning software include
pirated software and counterfeit software. Pirated software is the unauthorized use, dupli-
cation, distribution, or sale of copyrighted software. Counterfeit software is software that
is manufactured to look like the real thing and sold as such. Digital rights management is
a technological solution that allows publishers to control their digital media to discourage,
limit, or prevent illegal copying and distribution. Figure 5.1 contains examples of ethically
questionable or unacceptable uses of information technology.
LO 5.1 Explain information ethics
and its associated issues.
Organizational Structures
That Support Strategic
Initiatives
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Unfortunately, few hard and fast rules exist for always determining what is ethical. Many
people can either justify or condemn the actions in Figure 5.1, for example. Knowing the law
is important, but that knowledge will not always help because what is legal might not always
be ethical, and what might be ethical is not always legal. For example, Joe Reidenberg received
an offer for AT&T cell phone service. AT&T used Equifax, a credit reporting agency, to iden-
tify potential customers such as Joe Reidenberg. Overall, this seemed like a good business
opportunity between Equifax and AT&T wireless. Unfortunately, the Fair Credit Reporting
Act (FCRA) forbids repurposing credit information except when the information is used for
“a firm offer of credit or insurance.” In other words, the only product that can be sold based on
credit information is credit. A representative for Equifax stated, “As long as AT&T Wireless
(or any company for that matter) is offering the cell phone service on a credit basis, such as
allowing the use of the service before the consumer has to pay, it is in compliance with the
FCRA.” However, the question remains—is it ethical?1
Figure 5.2 shows the four quadrants where ethical and legal behaviors intersect. The goal
for most businesses is to make decisions within quadrant I that are both legal and ethical.
There are times when a business will find itself in the position of making a decision in quad-
rant III, such as hiring child labor in foreign countries, or in quadrant II when a business might
pay a foreigner who is getting her immigration status approved because the company is in
the process of hiring the person. A business should never find itself operating in quadrant IV.
Ethics are critical to operating a successful business today.
INFORMATION DOES NOT HAVE ETHICS: PEOPLE DO
Information itself has no ethics. It does not care how it is used. It will not stop itself from
spamming customers, sharing itself if it is sensitive or personal, or revealing details to third
parties. Information cannot delete or preserve itself. Therefore, it falls to those who own the
information to develop ethical guidelines about how to manage it.
FIGURE 5.1
Ethically Questionable or
Unacceptable Information
Technology Use.
Individuals copy, use, and distribute software.
Employees search organizational databases for sensitive corporate and personal information.
Organizations collect, buy, and use information without checking the validity or accuracy of the information.
Individuals create and spread viruses that cause trouble for those using and maintaining IT systems.
Individuals hack into computer systems to steal proprietary information.
Employees destroy or steal proprietary organization information such as schematics, sketches, customer
lists, and reports.
FIGURE 5.2
Acting Ethically and Acting
Legally Are Not Always the
Same Thing.
UNETHICAL
ETHICAL
LEGAL ILLEGAL
Quadrant III
Legal but Unethical
Quadrant IV
Illegal and Unethical
Quadrant I
Legal and Ethical
Quadrant II
Illegal but Ethical
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A few years ago, the ideas of information management, governance, and compliance
were relatively obscure. Today, these concepts are a must for virtually every company, both
domestic and global, primarily due to the role digital information plays in corporate legal
proceedings or litigation. Frequently, digital information serves as key evidence in legal
proceedings, and it is far easier to search, organize, and filter than paper documents. Digital
information is also extremely difficult to destroy, especially if it is on a corporate network
or sent by email. In fact, the only reliable way to obliterate digital information reliably is to
destroy the hard drives on which the file was stored. Ediscovery (or electronic discovery)
refers to the ability of a company to identify, search, gather, seize, or export digital informa-
tion in responding to a litigation, audit, investigation, or information inquiry. As the impor-
tance of ediscovery grows, so does information governance and information compliance.
The Child Online Protection Act (COPA) was passed to protect minors from accessing
inappropriate material on the Internet. Figure 5.3 displays the ethical guidelines for infor-
mation management.
Information Security
To reflect the crucial interdependence between MIS and business processes accurately, we
should update the old business axiom “Time is money” to say “Uptime is money.” Downtime
refers to a period of time when a system is unavailable. Unplanned downtime can strike at any
time for any number of reasons, from tornadoes to sink overflows to network failures to power
outages (see Figure 5.4). Although natural disasters may appear to be the most devastating
LO 5.2 Describe information
security and the difference
between hackers and viruses.
FIGURE 5.3
Ethical Guidelines for
Information Management.
Information Secrecy
The category of computer security
that addresses the protection of
data from unauthorized disclosure
and confirmation of data source
authenticity.
Information Management
Examines the organizational resource
of information and regulates its
definitions, uses, value, and
distribution, ensuring that it has the
types of data/information required
to function and grow e�ectively.
Information Property
An ethical issue that focuses on who
owns information about individuals and
how information can be sold and
exchanged.
Information Compliance
The act of conforming, acquiescing,
or yielding information.
Information Governance
A method or system of government
for information management or
control.
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causes of MIS outages, they are hardly the most frequent or most expensive. A few questions
managers should ask when determining the cost of downtime are:
■ How many transactions can the company afford to lose without significantly harming business?
■ Does the company depend on one or more mission-critical applications to conduct business?
■ How much revenue will the company lose for every hour a critical application is unavailable?
■ What is the productivity cost associated with each hour of downtime?
■ How will collaborative business processes with partners, suppliers, and customers be affected
by an unexpected MIS outage?
■ What is the total cost of lost productivity and lost revenue during unplanned downtime?
The reliability and resilience of MIS systems have never been more essential for success
as businesses cope with the forces of globalization, 24/7 operations, government and trade
regulations, global recession, and overextended MIS budgets and resources. Any unexpected
downtime in today’s business environment has the potential to cause both short- and long-
term costs with far-reaching consequences. Figure 5.5 demonstrates that the costs of down-
time are associated not only with lost revenues but also with financial performance, damage
to reputations, and even travel or legal expenses.
Information security is a broad term encompassing the protection of information from
accidental or intentional misuse by persons inside or outside an organization. Information
security is perhaps the most fundamental and critical of all the technologies/disciplines an
organization must have squarely in place to execute its business strategy. Without solid secu-
rity processes and procedures, none of the other technologies can develop business advan-
tages. Understanding how to secure information systems is critical to keeping downtime to a
minimum and uptime to a maximum. Hackers and viruses are two of the hottest issues cur-
rently facing information security.
SECURITY THREATS CAUSED BY HACKERS AND VIRUSES
Hackers are experts in technology who use their knowledge to break into computers and
computer networks, either for profit or simply for the challenge. Smoking is not just bad for
a person’s health; it seems it is also bad for company security because hackers regularly use
FIGURE 5.4
Sources of Unplanned
Downtime.
Sources of Unplanned Downtime
Bomb threat Frozen Pipe Snowstorm
Burst pipe Hail Sprinkler malfunction
Chemical spill Hurricane Static electricity
Construction Ice storm Strike
Corrupted data Insects Terrorism
Earthquake Lightning Theft
Electrical short Network failure Tornado
Epidemic Plane crash Train derailment
Equipment failure Power interruption Smoke damage
Evacuation Power outage Vandalism
Explosion Power surge Vehicle crash
Fire Rodents Virus
Flood Sabotage Water damage (various)
Fraud Shredded data Wind
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smoking entrances to gain building access. Once inside, they pose as employees from the MIS
department and either ask for permission to use an employee’s computer to access the corpo-
rate network or find a conference room where they simply plugin their own laptop. Drive-by
hacking is a computer attack by which an attacker accesses a wireless computer network,
intercepts data, uses network services, and/or sends attack instructions without entering the
office or organization that owns the network. Figure 5.6 lists the various types of hackers for
organizations to be aware of, and Figure 5.7 shows how a virus is spread.
One of the most common forms of computer vulnerabilities is a virus. A virus is software
written with malicious intent to cause annoyance or damage. Some hackers create and leave
viruses, causing massive computer damage. A worm spreads itself not only from file to file
but also from computer to computer. The primary difference between a virus and a worm is
that a virus must attach to something, such as an executable file, to spread. Worms do not
FIGURE 5.5
The Cost of Downtime.
Financial Performance
Revenue recognition
Cash flow
Payment guarantees
Credit rating
Stock price
Revenue
Direct loss
Compensatory payments
Lost future revenue
Billing losses
Investment losses
Lost productivity
Damaged Reputation
Customers
Suppliers
Financial markets
Banks
Business partners
Other Expenses
Temporary employees
Equipment rentals
Overtime costs
Extra shipping charges
Travel expenses
Legal obligations
Know your cost of
downtime per hour,
per day, per week.
FIGURE 5.6
Hacker Overview.
Common Types of Hackers
Crackers have criminal intent when hacking.
Black-hat hackers break into other people’s computer systems and may just look around or may steal and destroy information.
Cyberterrorists seek to cause harm to people or to destroy critical systems or information and use the Internet as a weapon of mass destruction.
Hactivists have philosophical and political reasons for breaking into systems and will often deface the website as a protest.
Script kiddies or script bunnies find hacking code on the Internet and click-and-point their way into systems to cause damage or spread viruses.
White-hat hackers work at the request of the system owners to find system vulnerabilities and plug the holes.
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need to attach to anything to spread and can tunnel themselves into computers. Figure 5.8
provides an overview of the most common types of viruses.
Two additional computer vulnerabilities include adware and spyware. Adware is software
that, although purporting to serve some useful function and often fulfilling that function, also
allows Internet advertisers to display advertisements without the consent of the computer
user. Spyware is a special class of adware that collects data about the user and transmits
it over the Internet without the user’s knowledge or permission. Spyware programs collect
specific data about the user, ranging from general demographics such as name, address, and
browsing habits to credit card numbers, Social Security numbers, and user names and pass-
words. Not all adware programs are spyware and, used correctly, it can generate revenue
for a company, allowing users to receive free products. Spyware is a clear threat to privacy.
Ransomware is a form of malicious software that infects your computer and asks for money.
Simplelocker is a new ransomware program that encrypts your personal files and demands
payment for the files’ decryption keys. Figure 5.9 displays a few additional weapons hackers
use for launching attacks.
Organizational information is intellectual capital. Just as organizations protect their tan-
gible assets—keeping their money in an insured bank or providing a safe working environ-
ment for employees—they must also protect their intellectual capital, everything from patents
to transactional and analytical information. With security breaches and viruses on the rise and
computer hackers everywhere, an organization must put in place strong security measures to
survive.
FIGURE 5.7
How Computer Viruses
Spread.
A hacker creates a
virus and attaches
it to a program,
document, or
website.
Thinking the file is legitimate,
the user downloads it, and the
virus infects other files and
programs on the computer.
Quickly, the virus spreads in
email attachments and shared
files to co-workers and friends.
FIGURE 5.8
Common Forms of Viruses.
Backdoor programs open a way into the network for future attacks.
Denial-of-service attack (DoS) floods a website with so many requests for service that it slows down or
crashes.
Distributed denial-of-service attack (DDoS) attacks from multiple computers that flood a website with so
many requests for service that it slows down or crashes. A common type is the Ping of Death, in which thou-
sands of computers try to access a website at the same time, overloading it and shutting it down.
Polymorphic viruses and worms change their form as they propagate.
Trojan-horse virus hides inside other software, usually as an attachment or a downloadable file.
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1. Imagine you are working for Apple as a manager in its Chicago store. Explain why it would be
unethical for Apple to allow its customers to download free music from iTunes.
2. Evaluate the effects on Apple’s business if it failed to secure its customer information and all of it
was accidentally posted to an anonymous website.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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FIGURE 5.9
Hacker Weapons.
Elevation of privilege is a process by which a user misleads a system into granting unauthorized rights, usually for the purpose of compromising or
destroying the system. For example, an attacker might log on to a network by using a guest account and then exploit a weakness in the software that
lets the attacker change the guest privileges to administrative privileges.
Hoaxes attack computer systems by transmitting a virus hoax with a real virus attached. By masking the attack in a seemingly legitimate message,
unsuspecting users more readily distribute the message and send the attack on to their co-workers and friends, infecting many users along the way.
Malicious code includes a variety of threats such as viruses, worms, and Trojan horses.
Packet tampering consists of altering the contents of packets as they travel over the Internet or altering data on computer disks after penetrating a
network. For example, an attacker might place a tap on a network line to intercept packets as they leave the computer. The attacker could eavesdrop
or alter the information as it leaves the network.
A sni�er is a program or device that can monitor data traveling over a network. Sni�ers can show all the data being transmitted over a network,
including passwords and sensitive information. Sni�ers tend to be a favorite weapon in the hacker’s arsenal.
Spoofing consists of forging the return address on an email so that the message appears to come from someone other than the actual sender. This
is not a virus but rather a way by which virus authors conceal their identities as they send out viruses.
Splogs (spam blogs) are fake blogs created solely to raise the search engine rank of a�liated websites. Even blogs that are legitimate are plagued
by spam, with spammers taking advantage of the Comment feature of most blogs to comment with links to spam sites.
Spyware is software that comes hidden in free downloadable software and tracks online movements, mines the information stored on a computer,
or uses a computer’s CPU and storage for some task the user knows nothing about.
The biggest retail hack in U.S. history wasn’t particularly inventive, nor did it appear destined for
success. In the days prior to Thanksgiving 2013, someone installed malware in Target’s security and
payments system designed to steal every credit card used at the company’s 1,797 U.S. stores. At the
critical moment—when the Christmas gifts had been scanned and bagged and the cashier asked for a
swipe—the malware would step in, capture the shopper’s credit card number, and store it on a Target
server commandeered by the hackers.
It’s a measure of how common these crimes have become, and how conventional the hackers’
approach in this case, that Target was prepared for such an attack. Six months earlier, the company
began installing a $1.6 million malware detection tool made by the computer security firm FireEye,
whose customers also include the CIA and the Pentagon. Target had a team of security specialists
in Bangalore to monitor its computers around the clock. If Bangalore noticed anything suspicious,
Target’s security operations center in Minneapolis would be notified.
On Saturday, Nov. 30, 2013, the hackers had set their traps and had just one thing to do before
starting the attack: plan the data’s escape route. As they uploaded exfiltration malware to move
Chapter Five Case: Targeting Target
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stolen credit card numbers—first to staging points spread around the U.S. to cover their tracks, then
into their computers in Russia—FireEye spotted them. Bangalore got an alert and flagged the security
team in Minneapolis. And then . . .
Nothing Happened!
For some reason, Minneapolis didn’t react to the sirens. Bloomberg Businessweek spoke to more
than 10 former Target employees familiar with the company’s data security operation, as well as eight
people with specific knowledge of the hack and its aftermath, including former employees, security
researchers, and law enforcement officials. The story they tell is of an alert system, installed to pro-
tect the bond between retailer and customer, that worked beautifully. But then, Target stood by as
40  million credit card numbers—and 70 million addresses, phone numbers, and other pieces of per-
sonal information—gushed out of its mainframes.
When asked to respond to a list of specific questions about the incident and the company’s
lack of an immediate response to it, Target chairman, president, and chief executive officer Gregg
Steinhafel issued an emailed statement: “Target was certified as meeting the standard for the pay-
ment card industry (PCI) in September 2013. Nonetheless, we suffered a data breach. As a result, we
are conducting an end-to-end review of our people, processes and technology to understand our
opportunities to improve data security and are committed to learning from this experience. While we
are still in the midst of an ongoing investigation, we have already taken significant steps, including
beginning the overhaul of our information security structure and the acceleration of our transition to
chip-enabled cards. However, as the investigation is not complete, we don’t believe it’s constructive
to engage in speculation without the benefit of the final analysis.”
More than 90 lawsuits have been filed against Target by customers and banks for negligence
and compensatory damages. That’s on top of other costs, which analysts estimate could run into the
billions. Target spent $61 million through February 1, 2014, responding to the breach, according to its
fourth-quarter report to investors. It set up a customer response operation, and in an effort to regain
lost trust, Steinhafel promised that consumers won’t have to pay any fraudulent charges stemming
from the breach. Target’s profit for the holiday shopping period fell 46 percent from the same quar-
ter the year before; the number of transactions suffered its biggest decline since the retailer began
reporting the statistic in 2008.15 Questions How did the hackers steal Target’s customer data? What
types of technology could big retailers use to prevent identity thieves from stealing information? What
can organizations do to protect themselves from hackers looking to steal account data? In a team,
research the Internet and find the best ways to protect yourself from identity theft.
Questions
1. Identify the different types of hackers and viruses and explain how a company can protect itself
from hackers looking to steal account data.
2. Authorities frequently tap online service providers to track down hackers. Do you think it is ethical
for authorities to tap an online service provider and read people’s email? Why or why not?
3. Do you think it was ethical for authorities to use one of the high-ranking members to trap other
gang members? Why or why not?
4. In a team, research the Internet and find the best ways to protect yourself from identity theft.
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1. What are ethics and why are they important to a company?
2. What is the correlation between privacy and confidentiality?
3. What is the difference between pirated software and counterfeit software?
4. What are the reasons a company experiences downtime?
5. What are the costs associated with downtime?
6. What is the relationship between adware and spyware?
7. What are the positive and negative effects associated with monitoring employees?
8. What is the relationship between hackers and viruses?
R E V I E W Q U E S T I O N S
5.1. Explain information ethics and its associated issues.
Information ethics govern the ethical and moral issues arising from the development and use of
information technologies as well as the creation, collection, duplication, distribution, and processing
of information itself (with or without the aid of computer technologies). Ethical dilemmas in this area
usually arise not as simple, clear-cut situations but as clashes among competing goals, responsibili-
ties, and loyalties. Inevitably, there will be more than one socially acceptable or correct decision.
5.2. Describe information security and the difference between hackers and viruses.
Information security is a broad term encompassing the protection of information from accidental or
intentional misuse by persons inside or outside an organization. Information security is perhaps the
most fundamental and critical of all the technologies/disciplines an organization must have squarely
in place to execute its business strategy. Without solid security processes and procedures, none of
the other technologies can develop business advantages. Understanding how to secure informa-
tion systems is critical to keeping downtime to a minimum and uptime to a maximum. Hackers and
viruses are two of the hottest issues currently facing information security. Hackers are experts in
technology who use their knowledge to break into computers and computer networks, either for
profit or simply for the challenge. A virus is software written with malicious intent to cause annoy-
ance or damage.
L E A R N I N G O U T C O M E R E V I E W
M A K I N G B U S I N E S S D E C I S I O N S
1. The Internet of Things Is Wide Open—for Everyone!
IoT is transforming our world into a living information system as we control our intelligent lighting
from our smartphone to a daily health check from our smart toilet. Of course, with all great techno-
logical advances come unexpected risks, and you have to be prepared to encounter various security
issues with IoT. Just imagine if your devices are hacked by someone who now can shut off your
water, take control of your car, or unlock the doors of your home from thousands of miles away.
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We are just beginning to understand the security issues associated with IoT and M2M, and you can
be sure that sensitive data leakage from your IoT device is something you will most likely encounter
in your life.
In a group, identify a few IoT devices you are using today. These can include fitness trackers that
report to your iPhone, sports equipment that provides immediate feedback to an app, or even smart
vacuum cleaners. If you are not using any IoT devices today, brainstorm a few you might purchase
in the future. How could a criminal or hacker use your IoT to steal your sensitive data? What poten-
tial problems or issues could you experience from these types of illegal data thefts? What might be
some of the signs that someone had accessed your IoT data illegally? What could you do to protect
the data in your device?
2. Information Issues in the Information Age
We live in the information age, when the collection, storage, and use of data are hot topics. One
example of inappropriate data handling occurred at a college where the monitoring of restrooms
occurred every 15 seconds to observe the use of toilets, mirrors, and sinks. Students, faculty, and
staff began complaining that the data collection was an invasion of their privacy and a violation of
their rights.
Another example of inappropriate data handling occurred when a professor of accounting at
a college lost a flash drive containing information for more than 1,800 students, including Social
Security numbers, grades, and names. Social Security numbers were included because the data
went back to before 1993, when the college used Social Security numbers to identify students.
What types of student data does your college collect? What could happen if your professor lost a
thumb drive with all of your personal information? What types of issues could you encounter if some-
one stole your personal data? What can your college do to ensure this type of data storage violation
does not occur?
3. WikiBlunders—Thin Ice Reports
According to PC World these false facts all appeared on Wikipedia:
■ David Beckham was a Chinese goalkeeper in the 18th century.
■ Paul Reiser’s dead. (Reiser is an actor.)
■ Sinbad’s dead. (Sinbad is an actor.)
■ Sergey Brin’s sexy, dating Jimmy Wales, and both are dead. (Brin founded Google and Wales
founded Wikipedia.)
■ Tony Blair worships Hitler. (Blair is the former prime minister of the United Kingdom.)
■ The Duchess of Cornwall’s Christian name is Cow-miller.
■ The University of Cincinnati’s former president is a lady of the night.
■ Conan O’Brien assaults sea turtles while canoeing.
We know that people use information technology to work with information. Knowing this, how could
these types of errors occur? What could happen if you decided to use Wikipedia to collect business
intelligence for a research paper? What could Wikipedia do to help prevent these types of errors?
4. Yes, I Started the Internet
Imagine your favorite co-worker Mary, a hard working employee who is excelling at her job and
continuously receives outstanding performance reviews. Suddenly, after two years of hard work,
Mary is fired and you are wondering what happened. What will you say when you find out that Mary
lied on her résumé about having a master’s degree? Will you feel that Mary got what she deserved,
or should her outstanding job performance have helped management look past this issue? After all,
she is excellent at her job.
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Every student should know that if dishonesty is discovered, it is often grounds for termination
and possibly legal action. Information integrity is a measure of the quality of information. According
to Steven D. Levitt, co-author of Freakonomics and a renowned economics professor at the Univer-
sity of Chicago, more than 50 percent of people lie on their résumés. Given such repercussions as
Mary’s fate, you will want to think twice before ever lying on your résumé. The integrity of the infor-
mation on your résumé is a direct representation of your personal integrity. How would you handle
Mary’s situation if you were her manager?
5. What Happens on YouTube Stays on YouTube FOREVER!
Are you looking for great career advice? Here it is: Never post anything on publicly accessible
websites that you would not feel comfortable showing a recruiter or hiring manager. This includes
inappropriate photos; negative comments about jobs, professors, or people; and binge drinking at a
holiday party. Future employers will Google you!
The bad news: You have to continue to keep your cyber profile squeaky clean for the rest of
your life. Companies can and will fire you for inappropriate online postings. One interesting story
occurred when two employees created a private, password-protected group on Facebook where
they would complain about their jobs, post derogatory comments about their managers, and high-
light new top-secret product information. The managers, being computer savvy, obtained the pass-
word and immediately fired the two individuals after reviewing the site. Now one of the individuals is
suing the former managers for invasion of privacy.
Do you agree that if you post something online it is open for the world to see? What do you con-
sider is inappropriate material that you should never post to the web? What can you do to remove
inappropriate material posted to the web by a friend that identifies you? How do efficiency and
effectiveness enter into this scenario? Was social media the most efficient and effective way for
the two employees to communicate? What is the potential argument each of these sides might use
in order to win the lawsuit?
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Understanding and working with technology have become an integral part of business. Most students take courses in various disciplines in their educational careers, such as in market-ing, operations management, management, finance, accounting, and information systems,
each of which is designed to provide insight into the tasks of each functional area. In the business
world, these are all intertwined and inextricably linked.
Management information systems can be an important enabler of business success and innova-
tion and is most useful when it leverages the talents of people. Technology in and of itself is not useful
unless the right people know how to use and manage it effectively.
Organizations use management information systems to capture, process, organize, distribute, and
massage information. MIS enables an organization to:
■ Integrate all functional areas and the tasks they perform.
■ Gain an enterprisewide view of its operations.
■ Efficiently and effectively utilize resources.
■ Realize tremendous market and industry growth by gaining insight into the market at large
(through environmental scanning) and insight into internal operations.
U N I T S U M M A R Y
K E Y T E R M S
Adware 76
Analytics 11
As-Is Process Model 40
Balanced scorecard 64
Behavioral analytics 11
Benchmark 61
Benchmarking 61
Best practices 60
Business-facing processes 37
Business intelligence (BI) 10
Business process 28
Business process model 40
Business process modelling 40
Business Process Model and
Notation (BPMN) 40
Business process patent 40
Business process reengineering
(BPR) 37
Business strategy 21
Buyer power 24
Business unit 12
Chief automation officer 58
Chief data officer (CDO) 56
Chief information officer (CIO) 56
Chief intellectual property
officer 58
Chief knowledge officer (CKO) 58
Chief privacy officer (CPO) 57
Chief security officer (CSO) 57
Chief technology officer (CTO) 56
Chief user experience officer 58
Child Online Protection Act
(COPA) 73
Common data repository 49
Competitive advantage 21
Competitive intelligence 22
Confidentiality 71
Copyright 71
Counterfeit software 71
Critical success factors (CSFs) 59
CRM reporting technologies 48
CRM analysis technologies 48
CRM predicting technologies 48
Customer analytics 47
Customer-facing processes 37
Customer relationship
management (CRM) 46
Data 7
Digital rights management 71
Downtime 73
Drive-by hacking 75
Dynamic process 37
Dynamic report 9
Ediscovery 73
Efficiency MIS metrics 60
Effectiveness MIS metrics 60
Enterprise resource planning
(ERP) 49
Entry barrier 26
Fact 6
Feedback 15
First-mover advantage 22
Goods 14
Hacker 74
Human-generated data 7
Information 9
Information age 6
Information ethics 71
Information security 74
Information silo 12
Intellectual property 71
Internet of things (IOT) 7
Key performance indicator
(KPI) 59
Knowledge 11
Knowledge workers 11
Loyalty program 25
Machine-to-machine (M2M) 7
Machine-generated data 7
Management information systems
(MIS) 15
Market share 59
Metrics 59
MIS skills gap 58
Module software design 49
Patent 71
Pirated software 71
Porter’s Five Forces Model 24
Predictive analytics 11
Primary value activities 29
Privacy 71
Process owner 42
Production 15
Productivity 15
Project 59
Product differentiation 26
Ransomware 76
Report 9
Return on investment (ROI) 60
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The Internet of Things
Over 20 years ago a few professors at MIT began describing The Internet of Things (IoT), which is a
world where interconnected Internet-enabled devices or “things” have the ability to collect and share
data without human intervention. Another term for The Internet of Things is machine-to-machine
(M2M), which allows devices to connect directly to other devices. With advanced technologies devices
are connecting in ways not previously thought possible and researchers predict that over 50 billion
IoT devices will be communicating by 2020. Kevin Ashton, cofounder and executive director of the
Auto-ID Center at MIT, first mentioned the Internet of Things in a presentation he made to Procter &
Gamble. Here’s Ashton explanation of the Internet of Things:
“Today computers—and, therefore, the Internet—are almost wholly dependent on human beings
for information. Nearly all of the roughly 50 petabytes (a petabyte is 1,024 terabytes) of data available
on the Internet were first captured and created by human beings by typing, pressing a record button,
taking a digital picture or scanning a bar code.
The problem is, people have limited time, attention and accuracy—all of which means they are not
very good at capturing data about things in the real world. If we had computers that knew everything
there was to know about things—using data they gathered without any help from us—we would be
able to track and count everything and greatly reduce waste, loss and cost. We would know when
things needed replacing, repairing or recalling and whether they were fresh or past their best.”
Imagine your toothbrush telling you to visit your dentist because it senses a cavity. How would you
react if your refrigerator placed an order at your local grocery store because your milk and eggs had
expired? Predictions indicate that over the next decade almost every device you own—and almost
every object imaginable—will be connected to the Internet as people share, store, and manage
their lives online. Smoke detectors, alarms, refrigerators, stoves, and windows are just a few home
devices already connected to the Internet sharing information on how to make everything in your life
more efficient, effective, safe, and healthy. The Internet of Things is reaching further into our daily
lives by combining data from sensors in wearable devices and equipment with analytic programs to
© Phil Boorman/Getty Images© Ariel Skelley/Blend Images LLC© C. Sherburne/Photo Link/Getty Images
U N I T C L O S I N G C A S E O N E
Rivalry among existing
competitors 26
Sales analytics 47
Services 14
Snapshot 8
Spyware 76
Stakeholder 21
Static process 37
Static report 9
Structured data 7
Supplier power 25
Supply chain 25
Supply chain management
(SCM) 44
Support value activities 29
Swimlane diagram 41
SWOT analysis 21
System 13
Systems thinking 15
Switching cost 24
To-Be process 40
Threat of new entrants 26
Threat of substitute products or
services 27
Unstructured data 8
Value chain analysis 29
Variable 9
Virus 75
Workflow 37
Workflow control systems 37
Worm 75
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help improve the performance of individuals by gaining insights that were traditionally impossible to
detect. A few examples of the incredible power of the IoT era include:
■ Smart Yoga Mat: Smart yoga mats include sensors that provide feedback on yoga postures, calo-
ries burned, and can even provide users with guided practice in the comfort of their own home.
■ Smart Thermostats: IoTs share information in real-time to help homeowners manage energy
more efficiently. The system will notify the homeowner if a door is left open, change the tempera-
ture in each room when it is occupied, and turn the furnace up or down depending on the weather
and homeowner preferences.
■ Smart Diapers: Pixie Scientific created disposable diapers with sensors that monitor babies’
urine for signs of infection, dehydration, or kidney problems before symptoms appear.
■ Smart Trash Cans: In Allentown, Pennsylvania, the city connected community trash and recycling
cans allowing them to monitor fill rates, which are then used to recommend the most efficient
routes for trash pickup services.
■ Smart Tennis Racket: Babolat, a French tennis racket manufacturer, created the Play Pure Drive,
a $400 smart tennis racket that has the capability to record data on every single shot a user takes
and sends the data along with an analysis to the user’s smartphone.
■ Smart Frying Pan: Pantelligent is an innovative sensor-embedded frying pan that actually helps
its users learn how to cook by measuring the temperature of the food and communicating with a
smartphone when to add ingredients, change heat, flip, cover, and even when the food is done.
The future of business will focus on big data as IoT devices create, capture, and share massive amounts
of data. The business environment is currently collecting more data from IoT devices in one second than
all of the data collected from the beginning of time until the year 2000. In fact, over 90% of the data in the
world was created over the last two years. Every minute over 204 million emails are sent and 200 thou-
sand photos are uploaded to Facebook. The terms analytics, data analysis, and business intelligence are
all referring to big data and the massive volumes of data being generated around the globe.
Understanding big data will be a critical skill for knowledge workers in every business regard-
less of size, focus, or industry. Future managers will be responsible for analyzing data in ways that
were not even possible a decade ago allowing managers to predict customer behaviors, optimize and
improve business processes, and analyze multiple variables for trends and patterns. The total amount
of business data roughly doubles every 1.2 years. Estimates predict that a total of 6 million new jobs
were created thanks to big data and will assist companies by the following:
■ Understand consumer behaviors by combining purchasing data with social media data, weather
data, competitor data, and economic data.
■ Improve the delivery of products by combining delivery process information with current traffic
data, vehicle maintenance data, and map data.
■ Optimize health care treatments by capturing diagnosis, tracking pharmaceuticals, and eventu-
ally predicting diseases.
■ Prevent cyber-attacks by analyzing credit card fraud, security system data, and police data.2
Questions
1. Explain the Internet of Things along with its potential impact on business. Also, list three IoT
devices that you are currently using in your own personal life.
2. Explain why it is important for business managers to understand that data collection rates from
IoT devices is increasing exponentially.
3. Demonstrate how data from an IoT device can be transformed into information and business intelligence.
4. Propose a plan for how a start-up company can use IoT device data to make better business decisions.
5. Argue for or against the following statement: “The Internet of Things is just a passing fad and will
be gone within a decade.”
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Five Ways Hackers Can Get Into Your Business
Did you know:
■ Once every 3 minutes, the average company comes into contact with viruses and malware.
■ One in every 291 email messages contains a virus.
■ Three things hackers want most are customer data, intellectual property, and bank account
information.
■ The top five file names used in phishing scams are Details.zip, UPS_document.zip, DCIM.zip,
Report.zip, and Scan.zip.
■ The average annual cost of a cyberattack on a small or medium-sized business is $188,242.
Cyberthieves are always looking for new ways to gain access to your business data, business
networks, and business applications. The best way to protect your business from cybertheft is to build
U N I T C L O S I N G C A S E T W O
© Chad Baker/Ryan McVay/Getty Images RF © Image Source RF, all rights reserved.© Mikkel William Nielsen/Getty Images RF
WEAK PASSWORDS
With a $300 graphics card, a hacker can run 420 billion simple, lowercase, eight-character pass-
word combinations a minute.
Cyberattacks involve weeak passwords 80% of the time, 55% of people use one password
for all logins
In 2012, hackers cracked 6.4 million LinkedIn passwords and 1.5 million eHarmony passwords in
separate attacks.
Your Best Defense:
Use a unique password for each account.
Aim for at least 20 characters and preferably gibberish, not real words.
Insert special characters: @#$*&.
Try a password manager such as LastPass or Dashlane.
MALWARE ATTACKS
An infected website, USB drive, or application delivers software that can capture keystrokes, pass-
words, and data.
An 8% increase in malware attacks against small businesses has occurred since 2012; the average
loss from a targeted attack was $92,000.
In February, hackers attacked about 40 companies, including Apple, Facebook, and Twitter, by first
infecting a mobile developer’s site.
Your Best Defense:
Run robust malware-detection software such as Norton Toolbar.
Keep existing software updated.
Use an iPhone— Android phones are targeted more than any other mobile operating system.
FIGURE UNIT 1.2
Five ways hackers gain
access to your business.
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PHISHING EMAILS
Bogus but o�cial-looking emails prompt you to enter your password or click links to infected
websites.
A 125% rise in social-media phishing attacks has occurred since 2012. Phishers stole $1 billion
from small businesses in 2012.
Many small businesses were targeted in 2012 with phishing emails designed to look like Better
Business Bureau warnings.
Your Best Defense:
Keep existing software, operating systems, and browsers updated with the latest patches.
Don’t automatically click links in emails to external sites—retype the URL in your browser.
SOCIAL ENGINEERING
Think 21st-century con artist tactics, e.g., hackers pretend to be you to reset your passwords.
Twenty-nine percent of all security breaches involve some form of social engineering. Average loss
is $25,000 to $100,000 per incident.
In 2009, social engineers posed as Coca-Cola’s CEO, persuading an exec to open an email with
software that infiltrated the network.
Your Best Defense:
Rethink what you reveal on social media—it’s all fodder for social engineers.
Develop policies for handling sensitive requests such as password resets over the phone.
Have a security audit done.
RANSOMWARE
Hackers hold your website hostage, often posting embarrassing content such as porn, until you pay
a ransom.
Five million dollars is extorted each year. The real cost is the data loss—paying the ransom doesn’t
mean you get your files back.
Hackers locked the network at an Alabama ABC TV station, demanding a ransom to remove a red
screen on every computer.
Your Best Defense:
As with malware, do not click suspicious links or unknown websites.
Regularly back up your data.
Use software that specifically checks for new exploits. 1
FIGURE UNIT 1.2
Continued
a strong defense and be able to identify vulnerabilities and weak spots. According to John Brandon
of Inc. magazine, the top five ways hackers will try to gain access to your businesses are highlighted
in Figure Unit 1.2. (Please note that there are far more than five ways; these are just the five most
common.)
Questions
1. Explain why data, information, business intelligence, and knowledge are important to success-
fully running a business. Be sure to list examples of for each.
2. Why would hackers want to steal organizational information?
3. What problems can occur for a business that experiences a data theft from a CRM system? Would
the problems be the same is the data theft occurred from an SCM system? Why or why not?
4. Define information ethics and information security and explain whether they are important to help
prevent hackers from gaining access to an organization.
5. What type of metrics would an organization gather to help identify illegal system access?
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A P P L Y Y O U R K N O W L E D G E
1. Capitalizing on Your Career
Business leaders need to be involved in information technology—any computer-based tool that
people use to work with information and support the information and information-processing needs
of an organization—for the following (primary) reasons:
■ The sheer magnitude of the dollars spent on MIS must be managed to ensure business value.
■ Research has consistently shown that when business leaders are involved in information tech-
nology, it enables a number of business initiatives, such as gaining a competitive advantage,
streamlining business processes, and even transforming entire organizations.
■ Research has consistently shown that when business leaders are not involved in MIS, systems
fail, revenue is lost, and even entire companies can fail as a result of poorly managed MIS.
One of the biggest challenges facing organizations is, “How do we get general business leaders
involved in MIS?” Research has shown that involvement is highly correlated with personal experience
with MIS and MIS education, including university classes and MIS executive seminars. Once general
business leaders understand MIS through experience and education, they are more likely to be
involved in MIS, and more likely to lead their organizations in achieving business success through MIS.
1. Search the Internet to find examples of the types of technologies that are currently used in
the field or industry that you plan to pursue. For example, if you are planning on a career
in accounting or finance, you should become familiar with financial systems such as Oracle
Financials. If you are planning a career in logistics or distribution, you should research supply
chain management systems. If you are planning a career in marketing, you should research
customer relationship management systems, blogs, and emarketing.
2. MIS is described as an enabler/facilitator of competitive advantage, organizational effec-
tiveness, and organizational efficiency. As a competitive tool, MIS can differentiate an orga-
nization’s products, services, and prices from its competitors by improving product quality,
shortening product development or delivery time, creating new MIS-based products and
services, and improving customer service before, during, and after a transaction. Search the
Internet and find several examples of companies in the industry where you plan to work that
have achieved a competitive advantage through MIS.
3. Create a simple report of your findings; include a brief overview of the type of technologies you
found and how organizations are using them to achieve a competitive advantage.
2. Achieving Alignment
Most companies would like to be in the market-leading position of JetBlue, Dell, or Walmart, all of
which have used information technology to secure their respective spots in the marketplace. These
companies have a relentless goal of keeping the cost of technology down by combining the best of
MIS and business leadership.
It takes more than a simple handshake between groups to start on the journey toward financial
gains; it requires operational discipline and a linkage between business and technology units. Only
recently have companies not on the “path for profits” followed the lead of their successful counter-
parts, requiring more operational discipline from their MIS groups as well as more MIS participation
from their business units. Bridging this gap is one of the greatest breakthroughs a company can make.
Companies that master the art of finely tuned, cost-effective MIS management will have a major
advantage. Their success will force their competitors to also master the art or fail miserably. This
phenomenon has already occurred in the retail and wholesale distribution markets, which have
had to react to Walmart’s MIS mastery, as one example. Other industries will follow. This trend will
change not only the face of MIS, but also the future of corporate America.
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As world markets continue to grow, the potential gains are greater than ever. However, so are the
potential losses. The future belongs to those who are perceptive enough to grasp the significance of
MIS and resourceful enough to synchronize business management and information technology.
1. Use any resource to answer the question, “Why is business-MIS alignment so difficult?” Use the
following questions to begin your analysis:
a. How do companies prioritize the demands of various business units as they relate to MIS?
b. What are some of the greatest MIS challenges for the coming year?
c. What drives MIS decisions?
d. Who or what is the moving force behind MIS decisions?
e. What types of efficiency metrics and effectiveness metrics might these companies use to
measure the impact of MIS?
f. How can a company use financial metrics to monitor and measure MIS investments?
g. What are some of the issues with using financial metrics to evaluate MIS?
3. Market Dissection
To illustrate the use of the three generic strategies, consider Figure AYK.1. The matrix shown dem-
onstrates the relationships among strategies (cost leadership versus differentiation) and market
segmentation (broad versus focused).
■ Hyundai is following a broad cost leadership strategy. Hyundai offers low-cost vehicles, in
each particular model stratification, that appeal to a large audience.
■ Audi is pursuing a broad differentiation strategy with its Quattro models available at several
price points. Audi’s differentiation is safety and it prices its various Quattro models (higher
than Hyundai) to reach a large, stratified audience.
■ Kia has a more focused cost leadership strategy. Kia mainly offers low-cost vehicles in the
lower levels of model stratification.
■ Hummer offers the most focused differentiation strategy of any in the industry (including
Mercedes-Benz).
FIGURE AYK.1
Porter’s Three Generic
Strategies
Broad market
Cost leadership strategy Di�erentiation strategy
Focused market
(top left): © otomobil/Shutterstock (top right): © Yauhen_D/Shutterstock
(bottom left): © Zavatskiy Aleksandr/Shutterstock (bottom right): © Getty Images.
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Create a similar graph displaying each strategy for a product of your choice. The strategy must
include an example of the product in each of the following markets: (1) cost leadership, broad mar-
ket, (2) differentiation, broad market, (3) cost leadership, focused market, and (4) differentiation,
focused market. Potential products include:
■ Cereal
■ Dog food
■ Soft drinks
■ Computers
■ Shampoo
■ Snack foods
■ Jeans
■ Sneakers
■ Sandals
■ Mountain bikes
■ TV shows
■ Movies
4. Measuring Efficiency and Effectiveness
In a group, create a plan to measure the efficiency and effectiveness of this course and recom-
mendations on how you could improve the course to make it more efficient and more effective. You
must determine ways to benchmark current efficiency and effectiveness and ways to continuously
monitor and measure against the benchmarks to determine if the course is becoming more or less
efficient and effective (class quizzes and exams are the most obvious benchmarks). Be sure your
plan addresses the following:
■ Design of the classroom.
■ Room temperature.
■ Lighting and electronic capabilities of the classroom.
■ Technology available in the classroom.
■ Length of class.
■ Email and instant messaging.
■ Students’ attendance.
■ Students’ preparation.
■ Students’ arrival time.
■ Quizzes and exams (frequency, length, grades).
5. Adding Value
To identify these competitive advantages, Michael Porter created value chain analysis, which views
a firm as a series of business processes that each add value to the product or service. Value chain
analysis is a useful tool for determining how to create the greatest possible value for customers. The
goal of value chain analysis is to identify processes in which the firm can add value for the customer
and create a competitive advantage for itself, with a cost advantage or product differentiation.
Starbucks has hired you after your graduation for a temporary position that could turn into a
full-time opportunity. With new cafés and juice shops popping up on every corner, coupled with the
global recession, Starbucks is worried about losing market share to competitors. Your boss, Heather
Sweitzer, is out of ideas for ways to improve the company’s profitability. You decide that one of the
most useful tools for identifying competitive advantages is Porter’s value chain analysis. Of course,
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you do not yet have the detailed knowledge to complete all of the elements required, but you know
enough to get started and plan to take your draft to Sweitzer next week. Using your knowledge of
Starbucks, create a value chain analysis. Feel free to make assumptions about operations; just be
sure to list any that you make. Also, be sure to write an overview of the tool and its potential value
so Sweitzer can understand how it works.
6. I Love TED!
A small nonprofit started in 1984, TED (Technology, Entertainment, Design) hosts conferences for
Ideas Worth Spreading. TED brings people from all over the globe to share award-winning talks
covering the most innovative, informative, and exciting speeches ever given in 20 minutes. You can
find TED talks by Al Gore, Bill Gates, Steve Jobs, Douglas Adams, Steven Levitt, Seth Godin, Malcolm
Gladwell, and so on.
Visit www.ted.com and peruse the thousands of videos that are available; then answer the
following:
■ Review the TED website and find three talks you would want to watch. Why did you pick these
three and will you make time outside of class to watch them?
■ How can you gain a competitive advantage by watching TED?
■ How can you find innovative ideas for a start-up by watching TED?
■ How can you find competitive intelligence by watching TED?
7. Listen to Spider-Man; He Knows What He’s Talking About!
Spider-Man’s infamous advice—“With great power comes great responsibility”—should be applied to
every type of technology you encounter in business. Technology provides countless opportunities for
businesses, but it can also lead to countless pitfalls and traps. A great example is how many compa-
nies profited from online trading and how many people lost their life savings in online trading scams.
For example, Bernard Madoff, the owner of a high-profile New York investment company, was able
to forge investment statements and allegedly spent almost $50 billion of his client’s money.
Texting and email are great assets for any company that require instant communication, but they
also digitize conversations that can be tracked and retrieved. David Petraeus, director of the CIA,
resigned after investigators found evidence from his emails indicating an extramarital affair with his
biographer, Paula Broadwell. It should be crystal clear that email is a dangerous tool if it has the abil-
ity to take down the director of the CIA.
Craigslist allows anyone to become a provider of goods and services. Unfortunately, Craigslist
does not describe exactly what types of goods and services are allowed. Adam Vitale was sentenced
to two years in prison after he found a way to bypass Craigslist security and was caught running an
online prostitution ring through Craigslist.
When competing in business, you must analyze the good and the bad associated with every
technology you encounter. Choose a company that primarily operates online—such as eBay, Netflix,
or Amazon—and analyze all of the business opportunities along with the potential pitfalls you might
encounter if you were the owner of the company.
8. Fixing the Post Office
Is there anything more frustrating than waiting in line at the post office? Not only are those lines
frustrating, but they are also unprofitable. The U.S. Postal Service has faced multibillion-dollar losses
every year for the past few years, making for one of the greatest challenges in its history. What is
killing the post office? Perhaps it is Stamps.com, a website that allows you to customize and print
your own stamps 24 hours a day. Getting married? Place a photo of the happy couple right on the
stamp for the invitations. Starting a business? Place your business logo on your stamps. Stamps.com
even keeps track of a customer’s postal spending and can recommend optimal delivery methods.
Plus, Stamps.com gives you postage discounts you can’t get at the post office or with a postage
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meter. Evaluate the U.S. Postal Service, using Porter’s Five Forces Model. How could the Postal Ser-
vice create new products and services to help grow its business? What types of competitive advan-
tages can you identify for the Postal Service? Can you fix or create any new business processes that
could fundamentally change the way the post office operates to reduce costs or increase revenues?
9. The iPad—the Greatest Product in History or Just Another Gadget?
Apple sold 300,000 units of its highly anticipated iPad in the first 15 hours it was available for sale.
Hundreds of thousands of Apple devotees flocked to stores during Passover and Easter to be the
first to obtain the new device, even though it is neither a phone nor a laptop computer and many
people are still wondering what it’s for. The controversy over the usefulness of Apple’s portable tab-
let began as soon as Apple announced the device was heading to market. At first glance, the iPad
is little more than a touch screen the size of a slim book, with a few control buttons along the edges
and a home button at the bottom. Shrink it, and it would look like an iPod Touch. What is the value of
this device? That’s the question everyone wants to answer.
The iPad’s modest features might represent an entirely new way of consuming media—video,
web pages, music, pictures, and even books. Break into groups and review the current value of the
iPad for business. Find three examples of the ways businesses are using, or could use, the iPad. Do
you consider it the next revolutionary device or just an overpriced music player?
10. Finding Your College Start-up
Derek Johnson, a student at the University of Houston, was having lunch with his friend who hap-
pened to be the communications director for her sorority. During lunch, Derek’s friend was telling
him how hard it was to communicate with all of her sisters in the sorority. She had to send out
important announcements about meetings, charitable events, and even dues. She had tried every-
thing, including Facebook, email, and message boards, but so far nothing was working. As Derek
pondered his friend’s dilemma, he came up with a solution: mass text messaging. Johnson began
researching mass text messaging products and was surprised to find that none existed for the aver-
age consumer. Spotting an entrepreneurial opportunity, Derek quickly began working on a product.
Within a few months, he launched his website, Tatango, and began offering group text messaging
at a reasonable price. Now, a few years later, Tatango offers customers subscription plans starting
under $20 a month that allow groups to send text messages to all members at once—whether 10 or
10,000—from any device.
In a group, brainstorm a list of problems you are currently experiencing. Decide whether any
present potential new business opportunities and, if so, analyze the potential, using the tools intro-
duced in this unit. Be prepared to present your new business to the class.
11. Get the Cow Out of the Ditch
Fortune magazine asked Anne Mulcahy, former Chairman and CEO of Xerox, what the best advice
she had ever received in business was. She said it occurred at a breakfast meeting in Dallas, to
which she had invited a group of business leaders. One of them, a plainspoken, self-made, street-
wise guy, came up to Mulcahy and said:
When everything gets really complicated and you feel overwhelmed, think about it this way. You
gotta do three things. First, get the cow out of the ditch. Second, find out how the cow got into the
ditch. Third, make sure you do whatever it takes so the cow doesn’t go into the ditch again.
You are working for an international app developer that produces games. For months, you have
been collecting metrics on usage by players from all over the world. You notice the metrics on
the Asian and European players are falling sharply and sales are dropping. The United States and
Canada metrics are still growing strongly, and sales are increasing. What can you do to get this cow
out of the ditch?
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If you are looking for Excel projects to incorporate into your class, try any of the following to test
your knowledge.
A Y K A P P L I C A T I O N P R O J E C T S
Project
Number Project Name
Project
Type
Plug-In
Focus Area Project Level Skill Set
Page
Number
1 Financial
Destiny
Excel T2 Personal
Budget
Introductory
Formulas
AYK.4
2 Cash Flow Excel T2 Cash Flow Introductory
Formulas
AYK.4
3 Technology
Budget
Excel T1, T2 Hardware
and Software
Introductory
Formulas
AYK.4
4 Tracking
Donations
Excel T2 Employee
Relationships
Introductory
Formulas
AYK.4
5 Convert
Currency
Excel T2 Global
Commerce
Introductory
Formulas
AYK.5
6 Cost
Comparison
Excel T2 Total Cost of
Ownership
Introductory
Formulas
AYK.5
7 Time
Management
Excel or
Project
T12 Project
Management
Gantt
Charts
AYK.6
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This unit introduces the concept of information and its relative importance to organizations. It distinguishes
between data stored in transactional databases and information housed in enterprise data warehouses. This
unit also provides an overview of database fundamentals and the steps required to integrate various bits of
data stored across multiple, operational data stores into a comprehensive and centralized repository of sum-
marized information, which can be turned into powerful business intelligence.
You, as a business student, must understand the difference between transactional data and summarized
information and the different types of questions you would use a transactional database or enterprise data
warehouse to answer. You need to be aware of the complexity of storing data in databases and the level of
effort required to transform operational data into meaningful, summarized information. You need to realize
the power of information and the competitive advantage a data warehouse brings an organization in terms of
facilitating business intelligence. Understanding the power of information will help you prepare to compete in a
global marketplace. Armed with the power of information, you will make smart, informed, and data-supported
managerial decisions.
W h a t ’ s i n I T f o r M e ?
Exploring Business
Intelligence2UNIT
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Big Data, Big Business, Big Opportunities
Imagine working 10 years to become the lead marketing executive at a large retail organization
to find that your competitor is invading your market share by 20 percent each year. You quickly
decided to launch several online marketing promotions while improving your products only to
find your efforts are fruitless as your competitor continues to steal your customers destroying
your profits while raising its own.
As you begin to analyze your competitor’s business strategy you find that while you were
focused on sales reports, product inventory analysis, and other traditional marketing efforts
your competitor was making a massive investment in upgrading all of its management infor-
mation systems. This included systems capable of collecting, storing, and analyzing data from
every store, product, and sales representative in the market. In fact, your competitor now knows
more about your products and sales cycles than you do. The new systems not only collect data
throughout its company, but also from a group of suppliers, retailers, and distributors around
the globe. These new systems provide your competitor with the ability to adjust prices instantly
based on daily customer traffic patterns, reorder automatically from every entity in the supply
chains, and even move items within a store or between stores for maximum selling efficiencies. 
Your competitor has won and not because it had a higher quality product or better sales and
marketing strategies, but because it identified the value of management information systems
coupled with the ability to instantly access big data within and beyond the organization. You
quickly realize that your competitor’s agility simply cannot be mimicked offering it a huge com-
petitive advantage. You sigh as you realize your company is in big trouble because it did not
understand the dynamics of the big data age.
We are all familiar with the information age and the improvements made to organizations
around the world as they are able to better manage employees, track sales information, and ana-
lyze customer purchasing patterns. However, this scenario is an example of the game-changing
U N I T T W O O P E N I N G C A S E
© Image Source/Getty Images RF © Maciej Frolow/Getty Images RF © C. Zachariasen/PhotoAlto
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impact of big data, the massive amounts of data being collected by humans and machines
over the last few years. Companies are now capturing hundreds of terabytes of data on every-
thing from operations and finances to weather patterns and stock market trends. Sensors are
now embedded in everything from products and machines to store floors collecting real time
data on operations and customers. Radical customization, continuous experimentation, and
information-driven business models are the new trademarks of competition as organizations
analyze massive volumes of data. Data volumes are exploding and more data has been cre-
ated in the past two years than in the entire previous history of the human race. Here are the
top twenty facts every manager should know about big data according to Forbes magazine.1 
■ Data volumes are exploding and more data has been created in the past 2 years than in
the entire previous history of the human race.
■ Data is growing faster than ever before and by the year 2020, about 1.7 megabytes of
new information will be created every second for every human being on the planet.
■ By 2020 our accumulated digital universe of data will grow from 4.4 zettabytes today to
around 44 zettabytes, or 44 trillion gigabytes.
■ Every second we create new data. For example, we perform 40,000 search queries every
second (on Google alone), which makes it 3.5 searches per day and 1.2 trillion searches
per year.
■ In 2015 over 1 billion people used Facebook each day.
■ Facebook users send on average 31.25 million messages and view 2.77 million videos
every minute.
■ Every minute up to 300 hours of video are uploaded to YouTube alone.
■ In 2015, a staggering 1 trillion photos will be taken and billions of them will be shared
online. By 2017, nearly 80% of photos will be taken on smart phones.
■ This year, over 1.4 billion smart phones will be shipped—all packed with sensors capable
of collecting all kinds of data, not to mention the data the users create themselves.
■ By 2020, we will have over 6.1 billion smartphone users globally (overtaking basic fixed
phone subscriptions).
■ Within five years there will be over 50 billion smart connected devices in the world, all
developed to collect, analyze, and share data.
■ By 2020, at least a third of all data will pass through the cloud (a network of servers con-
nected over the Internet).
■ Distributed computing (performing computing tasks using a network of computers in the
cloud) is very real. Google uses it every day to involve about 1,000 computers in answer-
ing a single search query, which takes no more than a second to complete.
■ The Hadoop (open source software for distributed computing) market is forecast to grow
at a compound annual growth rate 58% surpassing $1 billion by 2020.
■ Estimates suggest that by better integrating big data, healthcare could save as much
as $300 billion a year—that’s equal to reducing costs by $1,000 a year for every man,
woman, and child.
■ The White House has already invested more than $200 million in big data projects.
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■ For a typical Fortune 1000 company, just a 10% increase in data accessibility will result in
more than $65 million additional net income.
■ Retailers who leverage the full power of big data could increase their operating margins
by as much as 60%.
■ Almost eighty percent of organizations have already invested or plan to invest in big data.
■ At the moment less than 0.5% of all data is ever analyzed or used.
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Introduction
Information is powerful. Information is useful in telling an organization how its current oper-
ations are performing and estimating and strategizing how future operations might perform.
New perspectives open up when people have the right information and know how to use it.
The ability to understand, digest, analyze, and filter information is a key to success for any
professional in any industry. Unit Two demonstrates the value an organization can uncover
and create by learning how to manage, access, analyze, and protect organizational informa-
tion. The chapters in Unit Two are:
■ Chapter Six—Valuing and Storing Organizational Information—Databases
■ Chapter Seven—Accessing Organizational Information—Data Warehouses
■ Chapter Eight—Understanding Big Data and Its Impact on Business 
© Digital Vision/Getty Images
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The Business Benefits of High-Quality
Information
Information is powerful. Information can tell an organization how its current operations are
performing and help it estimate and strategize about how future operations might perform.
The ability to understand, digest, analyze, and filter information is key to growth and success
for any professional in any industry. Remember that new perspectives and opportunities can
open up when you have the right data that you can turn into information and ultimately busi-
ness intelligence.
Information is everywhere in an organization. Managers in sales, marketing, human
resources, and management need information to run their departments and make daily deci-
sions. When addressing a significant business issue, employees must be able to obtain and
analyze all the relevant information so they can make the best decision possible. Information
comes at different levels, formats, and granularities. Information granularity refers to the
extent of detail within the information (fine and detailed or coarse and abstract). Employees
must be able to correlate the different levels, formats, and granularities of information when
making decisions. For example, a company might be collecting information from various
suppliers to make needed decisions, only to find that the information is in different lev-
els, formats, and granularities. One supplier might send detailed information in a spread-
sheet, while another supplier might send summary information in a Word document, and still
another might send a collection of information from emails. Employees will need to com-
pare these different types of information for what they commonly reveal to make strategic
decisions. Figure 6.1 displays the various levels, formats, and granularities of organizational
information.
Successfully collecting, compiling, sorting, and finally analyzing information from mul-
tiple levels, in varied formats, and exhibiting different granularities can provide tremendous
insight into how an organization is performing. Exciting and unexpected results can include
potential new markets, new ways of reaching customers, and even new methods of doing
business. After understanding the different levels, formats, and granularities of informa-
tion, managers next want to look at the four primary traits that help determine the value of
information (see Figure 6.2).
6.4. Explain the business benefits of a data-driven website.
6.5. Explain why an organization would want to integrate its
databases.
6.1. Explain the four primary traits that determine the value
of information.
6.2. Describe a database, a database management system,
and the relational database model.
6.3. Identify the business advantages of a relational
database.
L E A R N I N G O U T C O M E S
Valuing and
Storing Organizational
Information—Databases
C H A P T E R 6
LO 6.1 Explain the four primary
traits that determine the value of
information.
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INFORMATION TYPE: TRANSACTIONAL AND ANALYTICAL
Transactional information encompasses all of the information contained within a single
business process or unit of work, and its primary purpose is to support daily operational tasks.
Organizations need to capture and store transactional information to perform operational
tasks and repetitive decisions such as analyzing daily sales reports and production sched-
ules to determine how much inventory to carry. Consider Walmart, which handles more than
1 million customer transactions every hour, and Facebook, which keeps track of 400 million
active users (along with their photos, friends, and web links). In addition, every time a cash
register rings up a sale, a deposit or withdrawal is made from an ATM, or a receipt is given at
the gas pump, capturing and storing of the transactional information are required.
Analytical information encompasses all organizational information, and its primary purpose
is to support the performing of managerial analysis tasks. Analytical information is useful when
making important decisions such as whether the organization should build a new manufacturing
plant or hire additional sales personnel. Analytical information makes it possible to do many
things that previously were difficult to accomplish, such as spot business trends, prevent diseases,
and fight crime. For example, credit card companies crunch through billions of transactional pur-
chase records to identify fraudulent activity. Indicators such as charges in a foreign country or
consecutive purchases of gasoline send a red flag highlighting potential fraudulent activity.
FIGURE 6.2
The Four Primary Traits of
the Value of Information.
Information Type
Information Timeliness
Information Quality
Information Governance
FIGURE 6.1
Levels, Formats,
and Granularities of
Organizational Information.
Information Granularities
Detail (Fine), Summary, Aggregate
(Coarse)
Individual knowledge,
goals, and strategies
Departmental goals,
revenues, expenses,
processes, and strategies
Enterprise revenues,
expenses, processes, and
strategies
Letters, memos, faxes, emails, reports,
marketing materials, and training materials
Product, strategy, process, financial,
customer, and competitor
Sales, marketing, industry, financial,
competitor, customer, and order
spreadsheets
Customer, employee, sales, order,
supplier, and manufacturer databases
Reports for each salesperson, product, and part
Reports for all sales personnel, all products, and
all parts
Reports across departments, organizations, and
companies
Information Levels
Individual, Department, Enterprise
Information Formats
Document, Presentation, Spreadsheet,
Database
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Walmart was able to use its massive amount of analytical information to identify many
unusual trends, such as a correlation between storms and Pop-Tarts. Yes, Walmart discovered an
increase in the demand for Pop-Tarts during the storm season. Armed with the valuable infor-
mation the retail chain was able to stock up on Pop-Tarts that were ready for purchase when cus-
tomers arrived. Figure 6.3 displays different types of transactional and analytical information.
INFORMATION TIMELINESS
Timeliness is an aspect of information that depends on the situation. In some firms or indus-
tries, information that is a few days or weeks old can be relevant, while in others information
that is a few minutes old can be almost worthless. Some organizations, such as 911 response
centers, stock traders, and banks, require up-to-the-second information. Other organizations,
such as insurance and construction companies, require only daily or even weekly information.
Real-time information means immediate, up-to-date information. Real-time systems pro-
vide real-time information in response to requests. Many organizations use real-time systems
to uncover key corporate transactional information. The growing demand for real-time infor-
mation stems from organizations’ need to make faster and more effective decisions, keep
smaller inventories, operate more efficiently, and track performance more carefully. Infor-
mation also needs to be timely in the sense that it meets employees’ needs, but no more. If
employees can absorb information only on an hourly or daily basis, there is no need to gather
real-time information in smaller increments.
Most people request real-time information without understanding one of the biggest pitfalls
associated with real-time information—continual change. Imagine the following scenario: Three
managers meet at the end of the day to discuss a business problem. Each manager has gathered
information at different times during the day to create a picture of the situation. Each manager’s
picture may be different because of the time differences. Their views on the business problem
may not match because the information they are basing their analysis on is continually changing.
This approach may not speed up decision making, and it may actually slow it down. Business
decision makers must evaluate the timeliness for the information for every decision. Organiza-
tions do not want to find themselves using real-time information to make a bad decision faster.
INFORMATION QUALITY
Business decisions are only as good as the quality of the information used to make them.
Information inconsistency occurs when the same data element has different values. Take
for example the amount of work that needs to occur to update a customer who had changed
her last name due to marriage. Changing this information in only a few organizational sys-
tems will lead to data inconsistencies causing customer 123456 to be associated with two last
names. Information integrity is a measure of the quality of information. Data integrity issues
can cause managers to consider the system reports invalid and will make decisions based on
other sources.
FIGURE 6.3
Transactional versus
Analytical Information.
Packing Slip
Airline Ticket
Sales
Receipt
Database
Transactional Information
Trends
Sales
Projections
Analytical Information
Future
Growth
Product
Statistics
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To ensure your systems do not suffer from data integrity issues, review Figure 6.4 for
the five characteristics common to high-quality information: accuracy, completeness, consis-
tency, timeliness, and uniqueness. Figure 6.5 provides an example of several problems associ-
ated with using low-quality information including:
1. Completeness. The customer’s first name is missing.
2. Another issue with completeness. The street address contains only a number and not a
street name.
3. Consistency. There may be a duplication of information since there is a slight difference
between the two customers in the spelling of the last name. Similar street addresses and
phone numbers make this likely.
4. Accuracy. This may be inaccurate information because the customer’s phone and fax num-
bers are the same. Some customers might have the same number for phone and fax, but the
fact that the customer also has this number in the email address field is suspicious.
FIGURE 6.4
Five Common Characteristics
of High-Quality Information.
Is there an incorrect value in the information?
Example: Is the name spelled correctly? Is the dollar amount
recorded properly?
Is a value missing from the information?
Example: Is the address complete including street, city, state,
and zip code?
Is aggregate or summary information in agreement with detailed
information?
Example: Do all total columns equal the true total of the individual item?
Is the information current with respect to business needs?
Example: Is information updated weekly, daily, or hourly?
Is each transaction and event represented only once in the
information?
Example: Are there any duplicate customers?
Timely
Consistent
Complete
Unique
Accurate
FIGURE 6.5
Example of Low-Quality
Information.
113
114
115
116
Smith
Jones
Roberts
Robert
First
Name City
Je�
Jenny
Jenny
1. Missing information
(no first name)
3. Probable duplicate information
(similar names, same
address, phone number)
4. Potential wrong information
(are the phone and fax numbers
the same or is this an error?)
5. Inaccurate information
(invalid email)
6. Incomplete information
(missing area codes)
Street
123 S. Main
12A
1244 Colfax
1244 Colfax
Denver
Denver
Denver
Denver
State
CO
CO
CO
CO
Zip
80210
80224
85231
85231
Phone
(303) 777-1258
(303) 666-6868
759-5654
759-5654
Fax
(303) 777-5544
(303) 666-6868
853-6584
853-6584
Email
ssmith@aol.com
(303) 666-6868
jr@msn.com
jr@msn.com
ID
Last
Name
2. Incomplete information
(no street)
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5. Another issue with accuracy. There is inaccurate information because a phone number is
located in the email address field.
6. Another issue with completeness. The information is incomplete because there is not a
valid area code for the phone and fax numbers.
Nestlé uses 550,000 suppliers to sell more than 100,000 products in 200 countries. How-
ever, due to poor information, the company was unable to evaluate its business effectively.
After some analysis, it found that it had 9 million records of vendors, customers, and materials,
half of which were duplicated, obsolete, inaccurate, or incomplete. The analysis discovered that
some records abbreviated vendor names while other records spelled out the vendor names.
This created multiple accounts for the same customer, making it impossible to determine the
true value of Nestlé’s customers. Without being able to identify customer profitability, a com-
pany runs the risk of alienating its best customers.2
Knowing how low-quality information issues typically occur can help a company correct
them. Addressing these errors will significantly improve the quality of company informa-
tion and the value to be extracted from it. The four primary reasons for low-quality infor-
mation are:
1. Online customers intentionally enter inaccurate information to protect their privacy.
2. Different systems have different information entry standards and formats.
3. Data-entry personnel enter abbreviated information to save time or erroneous information
by accident.
4. Third-party and external information contains inconsistencies, inaccuracies, and errors.
Understanding the Costs of Using Low-Quality Information
Using the wrong information can lead managers to make erroneous decisions. Erroneous
decisions in turn can cost time, money, reputations, and even jobs. Some of the serious busi-
ness consequences that occur due to using low-quality information to make decisions are:
■ Inability to accurately track customers.
■ Difficulty identifying the organization’s most valuable customers.
■ Inability to identify selling opportunities.
■ Lost revenue opportunities from marketing to nonexistent customers.
■ The cost of sending non-deliverable mail.
■ Difficulty tracking revenue because of inaccurate invoices.
■ Inability to build strong relationships with customers.
A data gap analysis occurs when a company examines its data to determine if it can meet
business expectations, while identifying possible data gaps or where missing data might exist. 
Understanding the Benefits of Using High-Quality Information
High-quality information can significantly improve the chances of making a good decision
and directly increase an organization’s bottom line. Data stewardship is the management and
oversight of an organization’s data assets to help provide business users with high-quality
data that is easily accessible in a consistent manner. A data steward is responsible for ensur-
ing the policies and procedures are implemented across the organization and acts as a liaison
between the MIS department and the business. One company discovered that even with its
large number of golf courses, Phoenix, Arizona, is not a good place to sell golf clubs. An
analysis revealed that typical golfers in Phoenix are tourists and conventioneers who usually
bring their clubs with them. The analysis further revealed that two of the best places to sell
golf clubs in the United States are Rochester, New York, and Detroit, Michigan. Equipped
with this valuable information, the company was able to strategically place its stores and
launch its marketing campaigns.
High-quality information does not automatically guarantee that every decision made is
going to be a good one, because people ultimately make decisions and no one is perfect.
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However, such information ensures that the basis of the decisions is accurate. The success of
the organization depends on appreciating and leveraging the true value of timely and high-
quality information.
INFORMATION GOVERNANCE
Information is a vital resource and users need to be educated on what they can and cannot do
with it. To ensure a firm manages its information correctly, it will need special policies and
procedures establishing rules on how the information is organized, updated, maintained, and
accessed. Every firm, large and small, should create an information policy concerning data
governance. Data governance refers to the overall management of the availability, usability,
integrity, and security of company data. Master data management (MDM) is the practice of
gathering data and ensuring that it is uniform, accurate, consistent, and complete, including
such entities as customers, suppliers, products, sales, employees, and other critical entities
that are commonly integrated across organizational systems. MDM is commonly included
in data governance. A company that supports a data governance program has a defined a
policy that specifies who is accountable for various portions or aspects of the data, includ-
ing its accuracy, accessibility, consistency, timeliness, and completeness. The policy should
clearly define the processes concerning how to store, archive, back up, and secure the data.
In addition, the company should create a set of procedures identifying accessibility levels for
employees. Then, the firm should deploy controls and procedures that enforce government
regulations and compliance with mandates such as Sarbanes-Oxley.
It is important to note the difference between data governance and data stewardship.  Data
governance focuses on enterprisewide policies and procedures, while data stewardship
focuses on the strategic implementation of the policies and procedures.  Data validation
includes the tests and evaluations used to determine compliance with data governance
polices to ensure correctness of data. Data validation helps to ensure that every data value
is correct and accurate.  In Excel you can use data validation to control the type of data or
the values that users enter into a cell. For example, you may want to restrict data entry to a
certain range of dates, limit choices by using a list, or make sure that only positive whole
numbers are entered.
Storing Information Using a Relational Database
Management System
The core component of any system, regardless of size, is a database and a database man-
agement system. Broadly defined, a database maintains information about various types of
objects (inventory), events (transactions), people (employees), and places (warehouses). A
database management system (DBMS) creates, reads, updates, and deletes data in a database
while controlling access and security. Managers send requests to the DBMS, and the DBMS
performs the actual manipulation of the data in the database. Companies store their informa-
tion in databases, and managers access these systems to answer operational questions such as
how many customers purchased Product A in December or what were the average sales by
region. There are two primary tools available for retrieving information from a DBMS. First
is a query-by-example (QBE) tool that helps users graphically design the answer to a question
against a database. Second is a structured query language (SQL) that asks users to write lines
of code to answer questions against a database. Managers typically interact with QBE tools,
and MIS professionals have the skills required to code SQL. Figure 6.6 displays the relation-
ship between a database, a DBMS, and a user. Some of the more popular examples of DBMS
include MySQL, Microsoft Access, SQL Server, and Oracle.
A data element (or data field) is the smallest or basic unit of information. Data elements
can include a customer’s name, address, email, discount rate, preferred shipping method,
product name, quantity ordered, and so on. Data models are logical data structures that detail
the relationships among data elements using graphics or pictures.
LO 6.2 Describe a database, a
database management system,
and the relational database
model.
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FIGURE 6.6
Relationship of Database,
DBMS, and User.
Metadata provides details about data. For example, metadata for an image could include
its size, resolution, and date created. Metadata about a text document could contain document
length, data created, author’s name, and summary. Each data element is given a description,
such as Customer Name; metadata is provided for the type of data (text, numeric, alphanu-
meric, date, image, binary value) and descriptions of potential predefined values such as a
certain area code; and finally the relationship is defined. A data dictionary compiles all of
the metadata about the data elements in the data model. Looking at a data model along with
reviewing the data dictionary provides tremendous insight into the database’s functions, pur-
pose, and business rules.
DBMS use three primary data models for organizing information—hierarchical, network,
and the relational database, the most prevalent. A relational database model stores information
in the form of logically related two-dimensional tables. A relational database management
system allows users to create, read, update, and delete data in a relational database. Although
the hierarchical and network models are important, this text focuses only on the relational
database model.
STORING DATA ELEMENTS IN ENTITIES AND ATTRIBUTES
For flexibility in supporting business operations, managers need to query or search for the
answers to business questions such as which artist sold the most albums during a certain month.
The relationships in the relational database model help managers extract this information.
Figure 6.7  illustrates the primary concepts of the relational database model—entities, attri-
butes, keys, and relationships. An entity (also referred to as a table) stores information about
a person, place, thing, transaction, or event. The entities, or tables, of interest in Figure 6.7  
are TRACKS, RECORDINGS, MUSICIANS, and CATEGORIES. Notice that each entity is
stored in a different two-dimensional table (with rows and columns).
Attributes (also called columns or fields) are the data elements associated with an entity.
In Figure 6.7 the attributes for the entity TRACKS are TrackNumber, TrackTitle, TrackLength,
and RecordingID. Attributes for the entity MUSICIANS are MusicianID, MusicianName,
MusicianPhoto, and MusicianNotes. A record is a collection of related data elements (in the
MUSICIANS table these include “3, Lady Gaga, gag , Do not bring young kids to live
shows”). Each record in an entity occupies one row in its respective table.
CREATING RELATIONSHIPS THROUGH KEYS
To manage and organize various entities within the relational database model, you use pri-
mary keys and foreign keys to create logical relationships. A primary key is a field (or group
of fields) that uniquely identifies a given record in a table. In the table RECORDINGS, the
primary key is the field RecordingID that uniquely identifies each record in the table. Primary
keys are a critical piece of a relational database because they provide a way of distinguish-
ing each record in a table; for instance, imagine you need to find information on a customer
named Steve Smith. Simply searching the customer name would not be an ideal way to find
the information because there might be 20 customers with the name Steve Smith. This is
Customers
Orders
Products
Distributors
DBMSDatabase
1. Enter New
Customer
2. Find Customer
Order
3. Enter New
Products
User
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the reason the relational database model uses primary keys to uniquely identify each record.
Using Steve Smith’s unique ID allows a manager to search the database to identify all infor-
mation associated with this customer.
A foreign key is a primary key of one table that appears as an attribute in another table
and acts to provide a logical relationship between the two tables. For instance, Black Eyed
Peas in Figure 6.7  is one of the musicians appearing in the MUSICIANS table. Its primary
key, MusicianID, is “2.” Notice that MusicianID also appears as an attribute in the RECORD-
INGS table. By matching these attributes, you create a relationship between the MUSICIANS
and RECORDINGS tables that states the Black Eyed Peas (MusicianID 2) have several
recordings including The E.N.D., Monkey Business, and Elepunk. In essence, MusicianID
in the RECORDINGS table creates a logical relationship (who was the musician that made
the recording) to the MUSICIANS table. Creating the logical relationship between the tables
allows managers to search the data and turn it into useful information.
COCA-COLA RELATIONAL DATABASE EXAMPLE
Figure 6.8 illustrates the primary concepts of the relational database model for a sample order
of soda from Coca-Cola. Figure 6.8  offers an excellent example of how data is stored in a
database. For example, the order number is stored in the ORDER table and each line item
is stored in the ORDER LINE table. Entities include CUSTOMER, ORDER, ORDER LINE,
PRODUCT, and DISTRIBUTOR. Attributes for CUSTOMER include Customer ID, Customer
Name, Contact Name, and Phone. Attributes for PRODUCT include Product ID, Description,
and Price. The columns in the table contain the attributes. Consider Hawkins Shipping, one
of the distributors appearing in the DISTRIBUTOR table. Its primary key, Distributor ID, is
DEN8001. Notice that Distributor ID also appears as an attribute in the ORDER table. This
establishes the fact that Hawkins Shipping (Distributor ID DEN8001) was responsible for
delivering orders 34561 and 34562 to the appropriate customer(s). Therefore, Distributor ID
in the ORDER table creates a logical relationship (who shipped what order) between ORDER
and DISTRIBUTOR.
Attributes
1
2
3
4
5
6
Pop
R&B
Rock
Country
Blues
Classical
Entities Foreign keys
TRACKS
TrackNumber TrackTitle TrackLength RecordingID
1 I Won’t 3:45 1
RECORDINGS
RecordingID RecordingTitle MuscianID CategoryID
1 Breakthrough 1 1Primary
keys
3 You Got Me 4:00 1
4 Fallin For you 3:35 1
1 I Gotta Feelin 4:49 2
2 Imma Be 4:17 2
2 The E.N.D. 2 1
3
4
5
3 Boom Boom Pow 4:11 2
4 Meet Me Halfway 4:44 2
6
Monkey Business
Elephunk
The Fame Monster
Raymond v. Raymond
2
2
3
4
1
1
1
2
MUSICIANS
MusicianID MusicianName MusicianPhoto MusicianNotes
1 Colby Caillat Colby Next concert in Boston 7/1/2011
CategoryID CategoryName
2 Black Eyed Peas BYP.bmp New album due 12/25/2011
3 Lady Gaga Gaga.ti� Do not bring young kids to live shows
4 Usher Usher.bmp Current album #1 on Billboard
Records
2 Begin Again 4:14 1
CATEGORIES
FIGURE 6.7
Primary Concepts of the
Relational Database Model.
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FIGURE 6.8
Potential Relational
Database for Coca-Cola
Bottling Company of Egypt
(TCCBCE).
CUSTOMER
Customer ID Customer Name Contact Name Phone
23 Dave’s Sub Shop David Logan (555)333-4545
43 Pizza Palace Debbie Fernandez (555)345-5432
765 T’s Fun Zone Tom Repicci (555)565-6655
ORDER LINE
Order ID Line Item Product ID Quantity
34561 1 12345AA 75
34561 2 12346BB 50
34561 3 12347CC 100
34562 1 12349EE 100
34563 1 12345AA 100
34563 2 12346BB 100
34563 3 12347CC 50
34563 4 12348DD 50
34563 5 12349EE 100
DISTRIBUTOR
Distributor ID Distributor Name
Hawkins Shipping
ABC Trucking
DEN8001
CHI3001
NY9001 Van Distributors
PRODUCT
Product ID Product Description Price
12345AA
12346BB
12347CC
12348DD
12349EE
Coca-Cola
Diet Coke
Sprite
Diet Sprite
Vanilla Coke
$0.55
$0.55
$0.55
$0.55
$0.55
ORDER
Order ID Order Date Customer ID Distributor ID Distributor Fee Total Due
34561 7/4/2008 23 DEN8001 $22.00
34562 8/6/2008 23 DEN8001 $12.95
34563 6/5/2008 765 NY9001 $29.50
$145.75
$67.95
$249.50
Coca-Cola Bottling Company of Egypt
Sample Sales Order
Order Number: 34562
Date:Customer:
8/6/2008Dave’s Sub Shop
ProductQuantity
Order Total
Price Amount
Vanilla Coke100 $0.55 $55
$67.95
$12.95Distributor Fee
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Using a Relational Database for Business
Advantages
Many business managers are familiar with Excel and other spreadsheet programs they can use
to store business data. Although spreadsheets are excellent for supporting some data analy-
sis, they offer limited functionality in terms of security, accessibility, and flexibility and can
rarely scale to support business growth. From a business perspective, relational databases
offer many advantages over using a text document or a spreadsheet, as displayed in Figure 6.9.
INCREASED FLEXIBILITY
Databases tend to mirror business structures, and a database needs to handle changes quickly
and easily, just as any business needs to be able to do. Equally important, databases need to
provide flexibility in allowing each user to access the information in whatever way best suits
his or her needs. The distinction between logical and physical views is important in under-
standing flexible database user views. The physical view of information deals with the physi-
cal storage of information on a storage device. The logical view of information focuses on
how individual users logically access information to meet their own particular business needs.
In the database illustration from Figure 6.7 , for example, one user could perform a query
to determine which recordings had a track length of four minutes or more. At the same time,
another user could perform an analysis to determine the distribution of recordings as they
relate to the different categories. For example, are there more R&B recordings than rock, or
are they evenly distributed? This example demonstrates that while a database has only one
physical view, it can easily support multiple logical views that provides for flexibility.
Consider another example—a mail-order business. One user might want a report presented
in alphabetical format, in which case last name should appear before first name. Another user,
working with a catalog mailing system, would want customer names appearing as first name
and then last name. Both are easily achievable, but different logical views of the same physi-
cal information.
INCREASED SCALABILITY AND PERFORMANCE
In its first year of operation, the official website of the American Family Immigration History
Center, www.ellisisland.org, generated more than 2.5 billion hits. The site offers immigration
information about people who entered America through the Port of New York and Ellis Island
between 1892 and 1924. The database contains more than 25 million passenger names that
are correlated to 3.5 million images of ships’ manifests.3
FIGURE 6.9
Business Advantages of a
Relational Database.
Increased
Flexibility
Increased
Scalability
and
Performance
Increased
Information
Security
Increased
Information
Integrity
Reduced
Information
Redundance
LO 6.3 Identify the business
advantages of a relational
database.
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The database had to be scalable to handle the massive volumes of information and the large
numbers of users expected for the launch of the website. In addition, the database needed to per-
form quickly under heavy use. Data latency is the time it takes for data to be stored or retrieved.
Some organizations must be able to support hundreds or thousands of users including employ-
ees, partners, customers, and suppliers, who all want to access and share the same information
with minimal data latency. Databases today scale to exceptional levels, allowing all types of
users and programs to perform information-processing and information-searching tasks.
REDUCED INFORMATION REDUNDANCY
Information redundancy is the duplication of data, or the storage of the same data in multiple
places. Redundant data can cause storage issues along with data integrity issues, making it
difficult to determine which values are the most current or most accurate. Employees become
confused and frustrated when faced with incorrect information causing disruptions to business
processes and procedures. One primary goal of a database is to eliminate information redun-
dancy by recording each piece of information in only one place in the database. This saves disk
space, makes performing information updates easier, and improves information quality. 
INCREASED INFORMATION INTEGRITY (QUALITY)
Information integrity is a measure of the quality of information. Integrity constraints are
rules that help ensure the quality of information. The database design needs to consider integ-
rity constraints. The database and the DBMS ensure that users can never violate these con-
straints. There are two types of integrity constraints: (1) relational and (2) business critical.
Relational integrity constraints are rules that enforce basic and fundamental information-
based constraints. For example, a relational integrity constraint would not allow someone to
create an order for a nonexistent customer, provide a markup percentage that was negative, or
order zero pounds of raw materials from a supplier. A business rule defines how a company
performs certain aspects of its business and typically results in either a yes/no or true/false
answer. Stating that merchandise returns are allowed within 10 days of purchase is an example
of a business rule. Business-critical integrity constraints enforce business rules vital to an
organization’s success and often require more insight and knowledge than relational integ-
rity constraints. Consider a supplier of fresh produce to large grocery chains such as Kroger.
The supplier might implement a business-critical integrity constraint stating that no product
returns are accepted after 15 days past delivery. That would make sense because of the chance
of spoilage of the produce. Business-critical integrity constraints tend to mirror the very rules
by which an organization achieves success.
The specification and enforcement of integrity constraints produce higher-quality infor-
mation that will provide better support for business decisions. Organizations that establish
specific procedures for developing integrity constraints typically see an increase in accuracy,
which then increases the use of organizational information by business professionals.
INCREASED INFORMATION SECURITY
Managers must protect information, like any asset, from unauthorized users or misuse. As
systems become increasingly complex and highly available over the Internet on many differ-
ent devices, security becomes an even bigger issue. Databases offer many security features
including passwords to provide authentication, access levels to determine who can access the
data, and access controls to determine what type of access they have to the information.
For example, customer service representatives might need read-only access to customer
order information so they can answer customer order inquiries; they might not have or need the
authority to change or delete order information. Managers might require access to employee
files, but they should have access only to their own employees’ files, not the employee files
for the entire company. Various security features of databases can ensure that individuals have
only certain types of access to certain types of information.
Identity management is a broad administrative area that deals with identifying individu-
als in a system (such as a country, a network, or an enterprise) and controlling their access to
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resources within that system by associating user rights and restrictions with the established
identity. Security risks are increasing as more and more databases and DBMS systems are
moving to data centers run in the cloud. The biggest risks when using cloud computing are
ensuring the security and privacy of the information in the database. Implementing data gov-
ernance policies and procedures that outline the data management requirements can ensure
safe and secure cloud computing.
Driving Websites with Data
Websites change for site visitors depending on the type of information they request. Con-
sider, for example, an automobile dealer. The dealer would create a database containing
data elements for each car it has available for sale including make, model, color, year, miles
per gallon, a photograph, and so on. Website visitors might click on Porsche and then enter
their specific requests such as price range or year made. Once the user hits “go” the website
automatically provides a custom view of the requested information. The dealer must create,
update, and delete automobile information as the inventory changes.
A data-driven website is an interactive website kept constantly updated and relevant to
the needs of its customers using a database. Data-driven capabilities are especially useful
when a firm needs to offer large amounts of information, products, or services. Visitors can
become quickly annoyed if they find themselves buried under an avalanche of information
when searching a website. A data-driven website can help limit the amount of information
displayed to customers based on unique search requirements. Companies even use data-
driven websites to make information in their internal databases available to customers and
business partners.
There are a number of advantages to using the web to access company databases. First, web
browsers are much easier to use than directly accessing the database using a custom-query
tool. Second, the web interface requires few or no changes to the database model. Finally, it
costs less to add a web interface in front of a DBMS than to redesign and rebuild the system
to support changes. Additional data-driven website advantages include:
■ Easy to manage content: Website owners can make changes without relying on MIS pro-
fessionals; users can update a data-driven website with little or no training.
■ Easy to store large amounts of data: Data-driven websites can keep large volumes of
information organized. Website owners can use templates to implement changes for lay-
outs, navigation, or website structure. This improves website reliability, scalability, and
performance.
■ Easy to eliminate human errors: Data-driven websites trap data-entry errors, eliminating
inconsistencies while ensuring all information is entered correctly.
WEBSITE DATA
A content creator is the person responsible for creating the original website content. A
content editor is the person responsible for updating and maintaining website content.
Static information includes fixed data incapable of change in the event of a user action.
Dynamic information includes data that change based on user actions. For example, static
websites supply only information that will not change until the content editor changes the
information. Dynamic information changes when a user requests information. A dynamic
website changes information based on user requests such as movie ticket availability, airline
prices, or restaurant reservations. Dynamic website information is stored in a dynamic cata-
log, or an area of a website that stores information about products in a database.
Zappos credits its success as an online shoe retailer to its vast inventory of nearly 3 million
products available through its dynamic data-driven website. The company built its data-
driven website catering to a specific niche market: consumers who were tired of finding that
their most-desired items were always out of stock at traditional retailers. Zappos’s highly
LO 6.4 Explain the business ben-
efits of a data-driven website.
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flexible, scalable, and secure database helped it rank as the most-available Internet retailer.
Figure 6.10  displays Zappos’s data-driven website illustrating a user querying the database
and receiving information that satisfies the user’s request.4
Companies can gain valuable business knowledge by viewing the data accessed and ana-
lyzed from their website. Figure 6.11 displays how running queries or using analytical tools,
such as a PivotTable, on the database that is attached to the website can offer insight into the
business, such as items browsed, frequent requests, items bought together, and so on.
FIGURE 6.10
Zappos.com—a Data-Driven
Website.
Source: Zappos.com
Search
query
Zappos Web Server
Results
Database
FIGURE 6.11
BI in a Data-Driven Website.
Source: Best Mobile
Web Page
Database
1
2
PivotTable3
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Integrating Information among Multiple
Databases
Until the 1990s, each department in the United Kingdom’s Ministry of Defense (MOD) and
army headquarters had its own systems, each system had its own database, and sharing infor-
mation among the departments was difficult. Manually inputting the same information mul-
tiple times into the different systems was also time consuming and inefficient. In many cases,
management could not even compile the information it required to answer questions and make
decisions.
The army solved the problem by integrating its systems, or building connections between
its many databases. These integrations allow the army’s multiple systems to automatically
communicate by passing information between the databases, eliminating the need for manual
information entry into multiple systems because after entering the information once, the inte-
grations send the information immediately to all other databases. The integrations not only
enable the different departments to share information but have also dramatically increased the
quality of the information. The army can now generate reports detailing its state of readiness
and other vital issues, nearly impossible tasks before building the integrations among the
separate systems.
DATA INTEGRATION
An integration allows separate systems to communicate directly with each other, eliminating
the need for manual entry into multiple systems. Similar to the UK’s army, an organization
will probably maintain multiple systems, with each system having its own database. Without
integrations, an organization will (1) spend considerable time entering the same information
in multiple systems and (2) suffer from the low quality and inconsistency typically embedded
in redundant information. While most integrations do not completely eliminate redundant
information, they can ensure the consistency of it across multiple systems.
An organization can choose from two integration methods. The first is to create forward
and backward integrations that link processes (and their underlying databases) in the value
chain. A forward integration takes information entered into a given system and sends it
automatically to all downstream systems and processes. A backward integration takes infor-
mation entered into a given system and sends it automatically to all upstream systems and
processes.
Figure 6.12  demonstrates how this method works across the systems or processes of
sales, order entry, order fulfillment, and billing. In the order entry system, for example, an
employee can update the information for a customer. That information, via the integrations,
would be sent upstream to the sales system and downstream to the order fulfillment and bill-
ing systems.
LO 6.5 Explain why an
organization would want to
integrate its databases.
FIGURE 6.12
A Forward and Backward
Customer Information
Integration Example.
Forward integration of
customer information
Backward integration of
customer information
PB0092
Craig Schultz
PB0092
Craig Schultz
PB0092
Craig Schultz
PB0092
Craig Schultz
Sales System
Order Entry
System
Order Fulfillment
System Billing System
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Ideally, an organization wants to build both forward and backward integrations, which pro-
vide the flexibility to create, update, and delete information in any of the systems. However,
integrations are expensive and difficult to build and maintain and most organizations build
only forward integrations (sales through billing in Figure 6.12). Building only forward inte-
grations implies that a change in the initial system (sales) will result in changes occurring in
all the other systems. Integration of information is not possible for any changes occurring
outside the initial system, which again can result in inconsistent organizational information.
To address this issue, organizations can enforce business rules that all systems, other than the
initial system, have read-only access to the integrated information. This will require users to
change information in the initial system only, which will always trigger the integration and
ensure that organizational information does not get out of sync.
The second integration method builds a central repository for a particular type of infor-
mation. Figure 6.13  provides an example of customer information integrated using this
method across four different systems in an organization. Users can create, update, and delete
customer information only in the central customer information database. As users perform
these tasks on the central customer information database, integrations automatically send
the new and/or updated customer information to the other systems. The other systems limit
users to read-only access of the customer information stored in them. Again, this method
does not eliminate redundancy—but it does ensure consistency of the information among
multiple systems.
FIGURE 6.13
Integrating Customer
Information among
Databases.
Sales System
Order Entry
System
Order Fulfillment
System
Customer Information
System
Billing System
PB0092
Craig Schultz
PB0092
Craig Schultz
PB0092
Craig Schultz
PB0092
Craig Schultz
PB0092
Craig Schultz
1. Categorize the five common characteristics of high-quality information and rank them in order of
importance for big data.
2. Explain how issues with low-quality information will impact big data. 
3. Develop a list of some possible entities located in a database that tracks students and grades. 
4. Develop a list of some possible attributes located in a database that tracks students and grades. 
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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In his presidential inauguration speech, President Barack Obama spoke a word rarely expressed—
data—referencing indicators of economic and other crises. It is not surprising that the word data
was spoken in his inauguration speech because capturing and analyzing data has been crucial to
Obama’s rise to power. Throughout Obama’s historic campaign he used the Internet not only for
social networking and fund raising, but also to identify potential swing voters. Obama’s team carefully
monitored contested states and congressional districts, because 1,000 to 2,000 voters could prove
decisive—meaning the focus was on only a tiny fraction of the voting public. Both political parties
hired technology wizards to help sift through the mountains of consumer and demographic details to
recognize these important voters.
Ten “Tribes”
Spotlight Analysis, a Democratic consultancy, used political microtargeting to analyze neighborhood
details, family sizes, and spending patterns to categorize every American of voting age—175 million of
us—into 10 “values tribes.” Individual tribe members do not necessarily share the same race, religion,
or income bracket, but they have common mind-sets about political issues: God, community, respon-
sibility, opportunity. Spotlight identified a particular morally guided (but not necessarily religious) tribe
of some 14 million voters that it dubbed “Barn Raisers.” Barn Raisers comprise many races, religions,
and ethnic groups and around 40 percent of Barn Raisers favor Democrats and 27 percent favor
Republicans. Barn Raisers are slightly less likely to have a college education than Spotlight’s other
swing groups. They are active in community organizations, are ambivalent about government, and
care deeply about “playing by the rules” and “keeping promises,” to use Spotlight’s definitions. Spot-
light believed that the Barn Raisers held the key to the race between Obama and his Republican chal-
lenger, Arizona Senator John McCain.
Not typically seen outside of such corporate American icons as Google, Amazon, and eBay, political
microtargeting, which depends on data, databases, and data analysis techniques, is turning political
parties into sophisticated, intelligent, methodical machines. In nanoseconds, computers sort 175 million
voters into segments and quickly calculate the potential that each individual voter has to swing from
red or purple to blue or vice versa.
For some, political microtargeting signals the dehumanization of politics. For others, this type of
sophisticated analysis is a highly efficient way of pinpointing potential voters. For example, analyzing
a voter in Richmond, Virginia, traditionally simply identifies the number of school-age children, type of
car, zip code, magazine subscriptions, and mortgage balance. But data crunching could even indicate
if the voter has dogs or cats. (Cat owners lean slightly for Democrats, dog owners trend Republican.)
After the analysis, the voter is placed into a political tribe, and analyzers can draw conclusions about
the issues that matter to this particular voter. Is that so horrible?
Behavioral Grouping
For generations, governments lacked the means to study individual behaviors and simply placed all
citizens into enormous groupings such as Hispanics, Jews, union members, hunters, soccer moms,
etc. With the use of sophisticated databases and data analysis techniques, companies such as Spot-
light can group individuals based more on specific behavior and choices and less on the names,
colors, and clans that mark us from birth.
When Spotlight first embarked on its research, the company interviewed thousands of voters the
old-fashioned way. At first, the Barn Raisers did not seem significant and the tribe represented about
9 percent of the electorate. However, when Spotlight’s analysts dug deeper, they discovered that
Barn Raisers stood at the epicenter of America’s political swing. In 2004, 90 percent of them voted
for President Bush, but then the group’s political leanings shifted, with 64 percent of them saying
Chapter Six Case: Political Microtargeting: What Data Crunchers
Did for Obama
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they voted for Democrats in the 2006 election. Spotlight surveys showed that political scandals, tax-
funded boondoggles like Alaska’s Bridge to Nowhere, and the botched job on Hurricane Katrina sent
them packing.
Suddenly, Spotlight identified millions of potential swing voters. The challenge then became locat-
ing the swing voters by states. For this, the company analyzed the demographics and buying patterns
of the Barn Raisers they surveyed personally. Then it began correlating data from the numerous com-
mercially available databases with matching profiles. By Spotlight’s count, this approach nailed Barn
Raisers three times out of four. So Democrats could bet that at least three-quarters of them would be
likely to welcome an appeal stressing honesty and fair play.
Still Swing Voters
It is still undetermined to what extent Spotlight’s strategy worked, and the company has not corre-
lated the Barn Raisers to their actual votes. However, it is reasonable to presume that amid that sea of
humanity stretched out before Obama on Washington’s Mall on January 20, 2008, at least some were
moved by microtargeted appeals. And if Obama and his team fail to honor their mathematically honed
vows, the Barn Raisers may abandon them in droves. They are swing voters, after all.5
QUESTIONS
1. Describe the difference between transactional and analytical information, and determine which
of these types Spotlight used to identify its 10 tribes.
2. Explain the importance of high-quality information for political microtargeting.
3. Review the five common characteristics of high-quality information, and rank them in order of
importance for political microtargeting.
4. In terms of political microtargeting, explain the following sentence: It is never possible to have all
of the information required to make a 100 percent accurate prediction.
5. Do you agree that political microtargeting signals the dehumanization of politics?
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6.1. Explain the four primary traits that determine the value of information. 
Information is data converted into a meaningful and useful context. Information can tell an organiza-
tion how its current operations are performing and help it estimate and strategize about how future
operations might perform. It is important to understand the different levels, formats, and granulari-
ties of information along with the four primary traits that help determine the value of information,
which include (1) information type: transactional and analytical; (2) information timeliness; (3) infor-
mation quality; and (4) information governance.
6.2. Describe a database, a database management system, and the relational database
model. 
A database maintains information about various types of objects (inventory), events (transactions),
people (employees), and places (warehouses). A database management system (DBMS) creates,
reads, updates, and deletes data in a database while controlling access and security. A DBMS pro-
vides methodologies for creating, updating, storing, and retrieving data in a database. In addition, a
DBMS provides facilities for controlling data access and security, allowing data sharing and enforc-
ing data integrity. The relational database model allows users to create, read, update, and delete
data in a relational database.
6.3. Identify the business advantages of a relational database. 
Many business managers are familiar with Excel and other spreadsheet programs they can use to
store business data. Although spreadsheets are excellent for supporting some data analysis, they
offer limited functionality in terms of security, accessibility, and flexibility and can rarely scale to
support business growth. From a business perspective, relational databases offer many advantages
over using a text document or a spreadsheet, including increased flexibility, increased scalability
and performance, reduced information redundancy, increased information integrity (quality), and
increased information security.
6.4. Explain the business benefits of a data-driven website. 
A data-driven website is an interactive website kept constantly updated and relevant to the needs
of its customers using a database. Data-driven capabilities are especially useful when the website
offers a great deal of information, products, or services because visitors are frequently annoyed if
they are buried under an avalanche of information when searching a website. Many companies use
the web to make some of the information in their internal databases available to customers and
business partners.
6.5. Explain why an organization would want to integrate its databases.
An integration allows separate systems to communicate directly with each other. An organization
can choose from two integration methods. The first is to create forward and backward integrations
that link processes (and their underlying databases) in the value chain. A forward integration takes
information entered into a given system and sends it automatically to all downstream systems and
processes. A backward integration takes information entered into a given system and sends it auto-
matically to all upstream systems and processes.
L E A R N I N G O U T C O M E R E V I E W
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Determining Information Quality Issues
ID First Name
Middle
Initial Last Name Street City State
Zip
Code
433 M J Jones 13 Denver Denver CO 87654
434 Margaret J Jones 13 First Ave. Denver CO 87654
434 Brian F Hoover Lake Ave. Columbus OH 87654
435 Nick H Schweitzer 65 Apple Lane San Francisco OH 65664
436 Richard A 567 55th St. New York CA 98763
437 Alana B Smith 121 Tenny Dr. Buffalo NY 142234
438 Trevor D Darrian 90 Fresrdestil Dallas TX 74532
1. Determining Information Quality Issues
Real People magazine is geared toward working individuals and provides articles and advice on
everything from car maintenance to family planning. The magazine is currently experiencing prob-
lems with its distribution list. More than 30 percent of the magazines mailed are returned because
of incorrect address information, and each month it receives numerous calls from angry customers
complaining that they have not yet received their magazines. Below is a sample of Real People ’s
customer information. Create a report detailing all the issues with the information, potential causes
of the information issues, and solutions the company can follow to correct the situation.
M A K I N G B U S I N E S S D E C I S I O N S
1. How does a database turn data elements into information?
2. Why does a business need to be concerned with the quality of its data?
3. Why would a company care about the timeliness of its data?
4. What are the five characteristics common to high-quality information?
5. What is data governance and why is it important to a company?
6. What are the four primary traits that help determine the value of information?
7. What is the difference between an entity and an attribute?
8. What are the advantages of a relational database?
9. What are the advantages of a data-driven website?
R E V I E W Q U E S T I O N S
2. Excel or Access?
Excel is a great tool with which to perform business analytics. Your friend, John Cross, owns a suc-
cessful publishing company specializing in Do It Yourself books. John started the business 10 years
ago and it has slowly grown to 50 employees and $1 million in sales. John has been using Excel to
run the majority of his business, tracking book orders, production orders, shipping orders, and bill-
ing. John even uses Excel to track employee payroll and vacation dates. To date, Excel has done the
job, but as the company continues to grow, the tool is becoming inadequate. 
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You believe John could benefit from moving from Excel to Access. John is skeptical of the change
because Excel has done the job up to now, and his employees are comfortable with the current pro-
cesses and technology. John has asked you to prepare a presentation explaining the limitations of
Excel and the benefits of Access. In a group, prepare the presentation that will help convince John to
make the switch.
3. Improving Information Quality
HangUps Corporation designs and distributes closet organization structures. The company operates
five different systems: order entry, sales, inventory management, shipping, and billing. The company
has severe information quality issues including missing, inaccurate, redundant, and incomplete
information. The company wants to implement a data warehouse containing information from the
five different systems to help maintain a single customer view, drive business decisions, and perform
multidimensional analysis. Identify how the organization can improve its information quality when it
begins designing and building its data warehouse.
4. Information Timeliness
Information timeliness is a major consideration for all organizations. Organizations need to decide
the frequency of backups and the frequency of updates to a data warehouse. In a team, describe the
timeliness requirements for backups and updates to a data warehouse for
■ Weather tracking systems.
■ Car dealership inventories.
■ Vehicle tire sales forecasts.
■ Interest rates.
■ Restaurant inventories.
■ Grocery store inventories.
5. Entities and Attributes
Martex Inc. is a manufacturer of athletic equipment and its primary lines of business include running,
tennis, golf, swimming, basketball, and aerobics equipment. Martex currently supplies four primary
vendors including Sam’s Sports, Total Effort, The Underline, and Maximum Workout. Martex wants
to build a database to help it organize its products. In a group, identify the different types of entity
classes and the related attributes that Martex will want to consider when designing the database.
6. Integrating Information
You are currently working for the Public Transportation Department of Chatfield. The department
controls all forms of public transportation including buses, subways, and trains. Each department has
about 300 employees and maintains its own accounting, inventory, purchasing, and human resource
systems. Generating reports across departments is a difficult task and usually involves gathering and
correlating the information from the many different systems. It typically takes about two weeks to
generate the quarterly balance sheets and profit and loss statements. Your team has been asked
to compile a report recommending what the Public Transportation Department of Chatfield can do to
alleviate its information and system issues. Be sure that your report addresses the various reasons
departmental reports are presently difficult to obtain as well as how you plan to solve this problem.
7. Explaining Relational Databases
You have been hired by Vision, a start-up clothing company. Your manager, Holly Henningson, is
unfamiliar with databases and their associated business value. Henningson has asked you to create
a report detailing the basics of databases. She would also like you to provide a detailed explanation
of relational databases along with their associated business advantages.
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C H A P T E R 7 Accessing Organizational Information—Data
Warehouses
L E A R N I N G O U T C O M E S
7.1. Describe the roles and purposes of data warehouses
and data marts in an organization.
7.2. Identify the advantages of using business intelligence
to support managerial decision making.
Data Warehousing
Applebee’s Neighborhood Grill & Bar posts annual sales in excess of $3.2 billion and is
actively using information from its data warehouse to increase sales and cut costs. The com-
pany gathers daily information for the previous day’s sales into its data warehouse from
1,500  restaurants located in 49 states and seven countries. Understanding regional prefer-
ences, such as patrons in Texas preferring steaks more than patrons in New England, allows
the company to meet its corporate strategy of being a neighborhood grill appealing to local
tastes. The company has found tremendous value in its data warehouse by being able to make
business decisions about customers’ regional needs. The company also uses data warehouse
information to perform the following:
■ Base labor budgets on actual number of guests served per hour.
■ Develop promotional sale item analysis to help avoid losses from overstocking or under-
stocking inventory.
■ Determine theoretical and actual costs of food and the use of ingredients.
HISTORY OF THE DATA WAREHOUSE
In the 1990s as organizations began to need more timely information about their business,
they found that traditional management information systems were too cumbersome to pro-
vide relevant information efficiently and effectively. Most of the systems were in the form of
operational databases that were designed for specific business functions, such as accounting,
order entry, customer service, and sales, and were not appropriate for business analysis for the
reasons shown in Figure 7.1.
During the latter half of the 20th century, the numbers and types of operational databases
increased. Many large businesses found themselves with information scattered across multiple
systems with different file types (such as spreadsheets, databases, and even word processing
files), making it almost impossible for anyone to use the information from multiple sources.
Completing reporting requests across operational systems could take days or weeks using
antiquated reporting tools that were ineffective for running a business. From this idea, the data
warehouse was born as a place where relevant information could be stored and accessed for
making strategic queries and reports.
A repository is a central location in which data is stored and managed. A data warehouse is
a logical collection of information—gathered from many different operational databases—that
supports business analysis activities and decision-making tasks. The primary purpose of a data
warehouse is to combine information, more specifically, strategic information, throughout an
LO 7.1 Describe the roles and
purposes of data warehouses and
data marts in an organization.
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organization into a single repository in such a way that the people who need that information
can make decisions and undertake business analysis. A key idea within data warehousing
is to collect information from multiple systems in a common location that uses a universal
querying tool. This allows operational databases to run where they are most efficient for the
business, while providing a common location using a familiar format for the strategic or enter-
prisewide reporting information.
Data warehouses go even a step further by standardizing information. Gender, for instance
can be referred to in many ways (Male, Female, M/F, 1/0), but it should be standardized on
a data warehouse with one common way of referring to each data element that stores gender
(M/F). Standardization of data elements allows for greater accuracy, completeness, and con-
sistency and increases the quality of the information in making strategic business decisions.
The data warehouse then is simply a tool that enables business users, typically managers, to
be more effective in many ways, including:
■ Developing customer profiles.
■ Identifying new-product opportunities.
■ Improving business operations.
■ Identifying financial issues.
■ Analyzing trends.
■ Understanding competitors.
■ Understanding product performance. (See Figure 7.2.)
FIGURE 7.1
Reasons Business Analysis
Is Difficult from Operational
Databases.
Every department had its own method for recording
data so when trying to share information, data did
not match and users did not get the data they really
needed.
Inconsistent
Data Definitions
Managers needed to perform cross-functional
analysis using data from all departments, which
di�ered in granularities, formats, and levels.
Lack of Data
Standards
Users could not get the data they needed; what was
collected was not always useful for intended
purposes.
Inadequate Data
Usefulness
Most data stored in operational databases did not
allow users direct access; users had to wait to have
their queries or questions answered by MIS
professionals who could code SQL.
Ine�ective
Direct Data
Access
The data, if available, were often incorrect or
incomplete. Therefore, users could not rely on the
data to make decisions.
Poor Data
Quality
FIGURE 7.2
Data Warehousing
Components. Data Mart
Information
Cleansing
Business
Intelligence
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DATA MART
Data aggregation is the collection of data from various sources for the purpose of data pro-
cessing. One example of a data aggregation is to gather information about particular groups
based on specific variables such as age, profession, or income. Businesses collect a tremen-
dous amount of transactional information as part of their routine operations. Marketing, sales,
and other departments would like to analyze these data to understand their operations better.
Although databases store the details of all transactions (for instance, the sale of a product) and
events (hiring a new employee), data warehouses store that same information but in an aggre-
gated form more suited to supporting decision-making tasks. Aggregation, in this instance,
can include totals, counts, averages, and the like.
The data warehouse modeled in Figure 7.3 compiles information from internal databases or
transactional/operational databases and external databases through extraction, transformation,
and loading (ETL), which is a process that extracts information from internal and external data-
bases, transforms the information using a common set of enterprise definitions, and loads the
information into a data warehouse. The data warehouse then sends subsets of the information to
data marts. A data mart contains a subset of data warehouse information. To distinguish between
data warehouses and data marts, think of data warehouses as having a more organizational focus
and data marts as having focused information subsets particular to the needs of a given business
unit such as finance or production and operations. Figure 7.3 provides an illustration of a data
warehouse and its relationship to internal and external databases, ETL, and data marts.
Lands’ End created an organization-wide data warehouse so all its employees could access
organizational information. Lands’ End soon found out that there could be “too much of a
good thing.” Many of its employees would not use the data warehouse because it was simply
too big, was too complicated, and had too much irrelevant information. Lands’ End knew
there was valuable information in its data warehouse, and it had to find a way for its employ-
ees to easily access the information. Data marts were the perfect solution to the company’s
information overload problem. Once the employees began using the data marts, they were
ecstatic at the wealth of information. Data marts were a huge success for Lands’ End.
FIGURE 7.3
Model of a Typical
Data Warehouse.
Data Warehouse
Data Warehouse Model
Marketing Sales
ETL
ETL
Inventory Billing
Competitor
information
Industry
information
Mailing
lists
Stock market
analysis
Internal Databases
External Databases
Marketing
data
mart
Inventory
data
mart
Exploring
and
mining
• Marketing information
• Inventory information
• Sales information
• Billing information
• Competitor information
• Industry information
• Mailing list information
• Stock market analysis
ETL
ETL
ETL
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INFORMATION CLEANSING (OR SCRUBBING)
Maintaining quality information in a data warehouse or data mart is extremely important.
The Data Warehousing Institute estimates that low-quality information costs U.S. businesses
$600 billion annually. That number may seem high, but it is not. If an organization is using
a data warehouse or data mart to allocate dollars across advertising strategies, low-quality
information will definitely have a negative impact on its ability to make the right decision.
Dirty data is erroneous or flawed data (see Figure 7.4). The complete removal of dirty data
from a source is impractical or virtually impossible. According to Gartner Inc., dirty data is a
business problem, not an MIS problem. Over the next two years, more than 25 percent of criti-
cal data in Fortune 1000 companies will continue to be flawed; that is, the information will be
inaccurate, incomplete, or duplicated.
Obviously, maintaining quality information in a data warehouse or data mart is extremely
important. To increase the quality of organizational information and thus the effectiveness of
decision making, businesses must formulate a strategy to keep information clean. Information
cleansing or scrubbing is a process that weeds out and fixes or discards inconsistent, incor-
rect, or incomplete information.
Specialized software tools exist that use sophisticated procedures to analyze, standardize,
correct, match, and consolidate data warehouse information. This step is vitally important
because data warehouses often contain information from several databases, some of which can
be external to the organization. In a data warehouse, information cleansing occurs first dur-
ing the ETL process and again once the information is in the data warehouse. Companies can
choose information cleansing software from several vendors, including Oracle, SAS, Ascential
Software, and Group 1 Software. Ideally, scrubbed information is accurate and consistent.
Looking at customer information highlights why information cleansing is necessary. Cus-
tomer information exists in several operational systems. In each system, all the details could
change—from the customer ID to contact information—depending on the business process
the user is performing (see Figure 7.5).
Figure 7.6 displays a customer name entered differently in multiple operational systems.
Information cleansing allows an organization to fix these types of inconsistencies and cleans
the information in the data warehouse. Figure 7.7 displays the typical events that occur during
information cleansing.
Achieving perfect information is almost impossible. The more complete and accurate an
organization wants its information to be, the more it costs (see Figure 7.8). The trade-off for
perfect information lies in accuracy versus completeness. Accurate information means it is
FIGURE 7.4
Dirty Data Problems.
Duplicate
Data
 
Inaccurate
Data
 
 
Non-
integrated
Data
 
Violates
Business
Rules
Data
 
Misleading
Data
 
Incorrect
Data
Non-
formatted
Data
 
DIRTY DATA
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correct, while complete information means there are no blanks. A birth date of 2/31/10 is
an example of complete but inaccurate information (February 31 does not exist). An address
containing Denver, Colorado, without a zip code is an example of incomplete information that
is accurate. For their information, most organizations determine a percentage high enough to
make good decisions at a reasonable cost, such as 85 percent accurate and 65 percent complete.
FIGURE 7.5
Contact Information in
Operational Systems.
Billing
Sales
Contact: Paul Bauer 555-2211
Contact: Don McCubbrey 555-3434
Contact: Paul Bauer 555-2211
Contact: Don McCubbrey 555-3434
Marketing
Customer Service
Contact: Hans Hultgren 555-1211 Contact: Anne Logan 555-1288
Contact: Deborah Bridge 555-6543
The billing system has “accounts payable”
customer contact information.
The marketing and sales system has “decision maker” customer contact information.
The customer service system has the “product”
customer contact information.
FIGURE 7.6
Standardizing Customer
Name from Operational
Systems.
Customers:
JD0021 Jane Doe
BL0557 Bob Lake
JS0288 Judy Smith
PB0092 Pat Burton
Sales
Customers:
000980 Burton, Tricia
002670 Smith, Judie
000466 Burton, Patricia
006777 Lake, RobertP.
Billing
Customers:
10622FA Susan Brown
10472FB Judie R Smithe
10772FA Patti Burten
10922MC Larry Trump
Customer Service Customers:
10001 Jane Doe
10002 Robert P. Lake
10003 Judie R. Smith
10004 Patricia Burton
Customer Information
FIGURE 7.7
Information Cleansing
Activities.
Cleansing
Missing records or attributes
Redundant records
Missing keys or other required data
Erroneous relationships
Inaccurate data
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Business Intelligence
Many organizations today find it next to impossible to understand their own strengths and weak-
nesses, let alone their biggest competitors’, because the enormous volume of organizational data
is inaccessible to all but the MIS department. A data point is an individual item on a graph or a
chart. Organizational data includes far more than simple structured data elements in a database;
the set of data also includes unstructured data such as voice mail, customer phone calls, text
messages, video clips, along with numerous new forms of data, such as tweets from Twitter.
An early reference to business intelligence occurs in Sun Tzu’s book titled The Art of War.
Sun Tzu claims that to succeed in war, one should have full knowledge of one’s own strengths
and weaknesses and full knowledge of the enemy’s strengths and weaknesses. Lack of either
one might result in defeat. A certain school of thought draws parallels between the challenges
in business and those of war, specifically:
■ Collecting information.
■ Discerning patterns and meaning in the information.
■ Responding to the resultant information.
Before the start of the information age in the late 20th century, businesses sometimes
collected information from non-automated sources. Businesses then lacked the computing
resources to properly analyze the information and often made commercial decisions based
primarily on intuition. A data broker is a business that collects personal information about
consumers and sells that information to other organizations.
As businesses started automating more and more systems, more and more information
became available. However, collection remained a challenge due to a lack of infrastructure
for information exchange or to incompatibilities between systems. Reports sometimes took
months to generate. Such reports allowed informed long-term strategic decision making. How-
ever, short-term tactical decision making continued to rely on intuition. In modern businesses,
increasing standards, automation, and technologies have led to vast amounts of available
information. Data warehouse technologies have set up repositories to store this information.
Improved ETL has increased the speedy collecting of information. Business intelligence has
now become the art of sifting through large amounts of data, extracting information, and turn-
ing that information into actionable knowledge.
A data lake is a storage repository that holds a vast amount of raw data in its original
format until the business needs it. While a traditional data warehouse stores data in files or
folders, a data lake uses a flat architecture to store data. Each data element in a data lake is
assigned a unique identifier and tagged with a set of extended metadata tags. When a business
question arises, the data lake can be queried for all of the relevant data providing a smaller
data set that can then be analyzed to help answer the question.
LO 7.2 Identify the advantages
of using business intelligence
to support managerial
decision making.
FIGURE 7.8
Accurate and Complete
Information.
10
0%
C
om
pl
et
en
es
s
100%Accuracy
Complete but
with known
errors
Not very useful
May be a proto-
type only
Perfect
information
Pricey
Very incomplete
but accurate
Quality Management
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THE PROBLEM: DATA RICH, INFORMATION POOR
An ideal business scenario would be as follows: As a business manager on his way to meet with a
client reviews historical customer data, he realizes that the client’s ordering volume has substan-
tially decreased. As he drills down into the data, he notices the client had a support issue with a par-
ticular product. He quickly calls the support team to find out all of the information and learns that
a replacement for the defective part can be shipped in 24 hours. In addition, he learns that the client
has visited the website and requested information on a new product line. Armed with all this infor-
mation, the business manager is prepared for a productive meeting with his client. He now under-
stands the client’s needs and issues, and he can address new sales opportunities with confidence.
For many companies the above example is simply a pipe dream. Attempting to gather all of the
client information would actually take hours or even days to compile. With so much data available,
it is surprisingly hard for managers to get information, such as inventory levels, past order history,
or shipping details. Source data identifies the primary location where data is collected. Source
data can include invoices, spreadsheets, time-sheets, transactions, and electronic sources such as
other databases. Managers send their information requests to the MIS department where a dedi-
cated person compiles the various reports. In some situations, responses can take days, by which
time the information may be outdated and opportunities lost. Many organizations find themselves
in the position of being data rich and information poor. Even in today’s electronic world, manag-
ers struggle with the challenge of turning their business data into business intelligence.
THE SOLUTION: BUSINESS INTELLIGENCE
Employee decisions are numerous and they include providing service information, offering
new products, and supporting frustrated customers. A data set is an organized collection of
data. A comparative analysis can compare two or more data sets to identify patterns and trends.
Employees can base their decisions on data sets, experience, or knowledge and preferably a
combination of all three. Business intelligence can provide managers with the ability to make
better decisions. A few examples of how different industries use business intelligence include:
■ Airlines: Analyze popular vacation locations with current flight listings.
■ Banking: Understand customer credit card usage and nonpayment rates.
■ Health care: Compare the demographics of patients with critical illnesses.
■ Insurance: Predict claim amounts and medical coverage costs.
■ Law enforcement: Track crime patterns, locations, and criminal behavior.
■ Marketing: Analyze customer demographics.
■ Retail: Predict sales, inventory levels, and distribution.
■ Technology: Predict hardware failures.
Figure 7.9 displays how organizations using BI can find the cause to many issues and prob-
lems simply by asking “Why?” The process starts by analyzing a report such as sales amounts
by quarter. Managers will drill down into the report looking for why sales are up or why sales
are down. Once they understand why a certain location or product is experiencing an increase
in sales, they can share the information in an effort to raise enterprisewide sales. Once they
understand the cause for a decrease in sales, they can take effective action to resolve the issue.
BI can help managers with competitive monitoring where a company keeps tabs of its com-
petitor’s activities on the web using software that automatically tracks all competitor website
activities such as discounts and new products. Here are a few examples of how managers can
use BI to answer tough business questions:
■ Where has the business been? Historical perspective offers important variables for deter-
mining trends and patterns.
■ Where is the business now? Looking at the current business situation allows managers to
take effective action to solve issues before they grow out of control.
■ Where is the business going? Setting strategic direction is critical for planning and creat-
ing solid business strategies.
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Ask a simple question—such as who is my best customer or what is my worst-selling prod-
uct—and you might get as many answers as you have employees. Databases, data warehouses,
and data marts can provide a single source of “trusted” data that can answer questions about
customers, products, suppliers, production, finances, fraud, and even employees. A data map
is a technique for establishing a match, or balance, between the source data and the target data
warehouse. This technique identifies data shortfalls and recognizes data issues. They can also
alert managers to inconsistencies or help determine the cause and effects of enterprisewide
business decisions.
All business aspects can benefit from the added insights provided by business intelligence,
and you, as a business student, will benefit from understanding how MIS can help you make
data-driven decisions. Data-driven decision management is an approach to business gov-
ernance that values decisions that can be backed up with verifiable data. The success of the
data-driven approach is reliant upon the quality of the data gathered and the effectiveness of
its analysis and interpretation.
In the early days of computing, it usually took a specialist with a strong background in
technology to mine data for information because it was necessary for that person to under-
stand how databases and data warehouses worked. Today, business intelligence tools often
require very little, if any, support from the MIS department. Business managers can customize
dashboards to display the data they want to see and run custom reports on the fly. The changes
in how data can be mined and visualized allows business executives who have no technology
backgrounds to be able to work with analytics tools and make data-driven decisions.
Data-driven decision management is usually undertaken as a way to gain a competitive
advantage. A study from the MIT Center for Digital Business found that organizations driven
most by data-based decision making had 4% higher productivity rates and 6% higher profits.
However, integrating massive amounts of information from different areas of the business and
combining it to derive actionable data in real time can be easier said than done. Errors can
creep into data analytics processes at any stage of the endeavor, and serious issues can result
when they do.
FIGURE 7.9
How BI Can Answer Tough
Customer Questions.
Why are sales below target?
Why did we sell less in the West?
Why did X sales drop?
Why did customer
complaints increase?
Because we sold less
in the Western region.
Because sales of product X
dropped.
Because customer
complaints increased.
Because late deliveries went up
60 percent.
AnswerQuestion
1. Explain how a data warehouse stores enterprisewide data.
2. List the different types of dirty data and why it is important to cleanse data.
3. Describe how the marketing department could use a data mart that includes external and internal
data to help analyze sales patterns.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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Zillow.com is an online, web-based real estate site helping homeowners, buyers, sellers, renters,
real estate agents, mortgage professionals, property owners, and property managers find and
share information about real estate and mortgages. Zillow allows users to access, anonymously
and free of charge, the kinds of tools and information previously reserved for real estate profes-
sionals. Zillow’s databases cover more than 90 million homes, which represents 95 percent of the
homes in the United States. Adding to the sheer size of its databases, Zillow recalculates home
valuations for each property every day, so it can provide historical graphs on home valuations over
time. In some areas, Zillow is able to display 10 years of valuation history, a value-added benefit for
many of its customers. This collection of data represents an operational data warehouse for anyone
visiting the website.
As soon as Zillow launched its website, it immediately generated a massive amount of traffic. As
the company expanded its services, the founders knew the key to its success would be the site’s
ability to process and manage massive amounts of data quickly, in real time. The company identi-
fied a need for accessible, scalable, reliable, secure databases that would enable it to continue to
increase the capacity of its infrastructure indefinitely without sacrificing performance. Zillow’s traffic
continues to grow despite the weakened real estate market; the company is experiencing annual
traffic growth of 30 percent, and about a third of all U.S. mortgage professionals visit the site in
a given month.
Business Intelligence
Zestimate values on Zillow use data-mining features for spotting trends across property valuations.
Data mining also allows the company to see how accurate Zestimate values are over time. Zillow has
also built the industry’s first search by monthly payment, allowing users to find homes that are for sale
and rent based on a monthly payment they can afford. Along with the monthly payment search, users
can also enter search criteria such as the number of bedrooms or bathrooms.
Zillow also launched a new service aimed at changing the way Americans shop for mortgages.
Borrowers can use Zillow’s new Mortgage Marketplace to get custom loan quotes from lenders
without having to give their names, addresses, phone numbers, or Social Security numbers, or field
unwanted telephone calls from brokers competing for their business. Borrowers reveal their identities
only after contacting the lender of their choice. The company is entering a field of established mort-
gage sites such as LendingTree.com and Experian Group’s Lowermybills.com, which charge mortgage
companies for borrower information. Zillow, which has an advertising model, says it does not plan
to charge for leads.
For mortgage companies, the anonymous leads come free; they can make a bid based on
information provided by the borrower, such as salary, assets, credit score, and the type of loan.
Lenders can browse borrower requests and see competing quotes from other brokers before mak-
ing a bid.1
Questions
1. What is the source data for Zillow?
2. Describe how Zillow uses business intelligence to create a unique product for its customers.
3. Why would a person searching Zillow want to use a data mart?
4. Why would Zillow use a data lake?
5. Explain dirty data and its impact on a business.
6. What would happen to Zillow if it experienced dirty data?
Chapter Seven Case: Zillow
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7.1. Describe the roles and purposes of data warehouses and data marts in an
organization.
A data warehouse is a logical collection of information, gathered from many different operational
databases, that supports business analysis and decision making. The primary value of a data ware-
house is to combine information, more specifically, strategic information, throughout an organization
into a single repository in such a way that the people who need that information can make decisions
and undertake business analysis.
7.2. Identify the advantages of using business intelligence to support managerial
decision making.
Many organizations today find it next to impossible to understand their own strengths and weak-
nesses, let alone their biggest competitors’, due to enormous volumes of organizational data being
inaccessible to all but the MIS department. Organizational data includes far more than simple struc-
tured data elements in a database; the set of data also includes unstructured data such as voice
mail, customer phone calls, text messages, video clips, along with numerous new forms of data,
such as tweets from Twitter. Managers today find themselves in the position of being data rich and
information poor, and they need to implement business intelligence systems to solve this challenge.
L E A R N I N G O U T C O M E R E V I E W
R E V I E W Q U E S T I O N S
1. What is a data warehouse and why would a business want to implement one?
2. How does ETL help transfer data in and out of the data warehouse?
3. What is the purpose of information cleansing (or scrubbing)?
4. What are the causes of dirty data?
5. What is business intelligence and how can it help a company achieve success?
6. What is the difference between business intelligence and data?
7. Why would a marketing department want a data mart instead of just accessing the entire
data warehouse?
8. Why would a business be data rich but information poor?
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1. Gathering Business Intelligence
When considering new business opportunities, you need knowledge about the competition. One
of the things many new business owners fail to do is to gather business intelligence on their
competitors, such as how many there are and what differentiates each of them. You may find there
are too many and that they would be tough competition for you. Or, you may find that there are
few competitors and the ones who are out there offer very little value.
Generate a new business idea you could launch on the Internet. Research the Internet to find
similar businesses in the area you have chosen. How many sites did you find that are offering the
same products or services you are planning to offer? Did you come across any sites from another
country that have a unique approach that you did not see on any of the sites in your own country?
How would you use this information in pursuing your business idea?
2. Information—Business Intelligence or a Diversion from the Truth?
President Obama used part of his commencement address at Virginia’s Hampton University to
criticize the flood of incomplete information or downright incorrect information that flows in the
24-hour news cycle. The president said, “You’re coming of age in a 24/7 media environment
that bombards us with all kinds of content and exposes us to all kinds of arguments, some of
which don’t always rank all that high on the truth meter. With iPods and iPads and Xboxes and
PlayStations—none of which I know how to work—information becomes a distraction, a diversion, a
form of entertainment, rather than a tool of empowerment, rather than the means of emancipation.”
Do you agree or disagree with President Obama’s statement? Who is responsible for verifying the
accuracy of online information? What should happen to companies that post inaccurate information?
What should happen to individuals who post inaccurate information? What should you remember
when reading or citing sources for online information?
3. Google Books
Google is scanning all or parts of the book collections of the University of Michigan, Harvard
University, Stanford University, the New York Public Library, and Oxford University as part of its
Google Print Library Project. It intends to make those texts searchable on Google. The Authors
Guild filed a lawsuit against Google, alleging that its scanning and digitizing of library books
constitutes a “massive” copyright infringement. Do you view Google’s Print Library Project as a
violation of copyright laws? If you were a publisher, how would you feel about Google’s project?
If you were an author, how would you feel about having your book posted for free on Google
Books? What do you think the future of the book publishing industry will look like based on
Google’s radical new Google Book’s website?
4. That Is Not My Mother in the Casket
Information—you simply can’t put a value on having the right (or the cost of having the wrong)
information. Just look at the mistake made at the Crib Point cemetery in Victoria, Australia, when
they were burying Mrs. Ryan, an 85-year-old woman with almost 70 children, grandchildren, and
great-grandchildren attending her funeral. The bereaved family of Mrs. Ryan was shocked to lift the
lid of her coffin during the funeral to discover another woman lying in her clothes and jewelry. Where
was the body of Mrs. Ryan? Mrs. Ryan had been buried earlier that day in the other woman’s clothes,
jewelry, and plot. What type of information blunder could possibly occur to allow someone to be
buried in the wrong clothes, coffin, and plot? What could the cemetery do to ensure its customers
are buried in the correct places? Why is the quality of information important to any business? What
issues can occur when a business uses low-quality information to make decisions?
M A K I N G B U S I N E S S D E C I S I O N S
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5. Data Storage
Information is one of the most important assets of any business. Businesses must ensure information
accuracy, completeness, consistency, timeliness, and uniqueness. In addition, business must have
a reliable backup service. In part thanks to cloud computing, there are many data storage services
on the Internet. These sites offer storage of information that can be accessed from anywhere in the
world. These data storage services include Google Docs, Box, and DropBox to name a few.
Visit a few of these sites along with several others you find through research. Which sites are
free? Are there limits to how much you can store? If so, what is the limit? What type of information
can you store (video, text, photos, etc.)? Can you allow multiple users with different passwords to
access your storage area? Are you contractually bound for a certain duration (annual, etc.)? Does
it make good business sense to store business data on the Internet? What about personal data?
6. Sorry, I Didn’t Mean to Post Your Social Security Number on the Internet
Programming 101 teaches all students that security is the crucial part of any system. You must secure
your data! It appears that some people working for the State of Oklahoma forgot this important lesson
when tens of thousands of Oklahoma residents had their sensitive data—including numbers—posted
on the Internet for the general public to access. You have probably heard this type of report before,
but have you heard that the error went unnoticed for three years? A programmer reported the prob-
lem, explaining how he could easily change the page his browser was pointing to and grab the entire
database for the State of Oklahoma. Also, because of the programming, malicious users could easily
tamper with the database by changing data or adding fictitious data. If you are still thinking that isn’t
such a big deal, it gets worse. The website also posted the Sexual and Violent Offender Registry. Yes,
the Department of Corrections employee data were also available for the general public to review.
In a group, discuss the following:
■ Why is it important to secure data?
■ What can happen if someone accesses your customer database?
■ What could happen if someone changes the information in your customer database and adds
fictitious data?
■ Who should be held responsible for the State of Oklahoma data breech?
■ What are the business risks associated with database security?
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C H A P T E R 8 Understanding Big Data and Its Impact on Business
L E A R N I N G O U T C O M E S
8.1. Identify the four common characteristics of big data.
8.2. Explain data mining and identify the three elements of
data mining.
8.3. Explain the importance of data analytics and data
visualization.
The Power of Big Data
Big data is a collection of large, complex data sets, including structured and unstructured
data, which cannot be analyzed using traditional database methods and tools. Big data
came into fruition primary due to the last 50 years of technology evolution. Revolutionary
technological advances in software, hardware, storage, networking, and computing models
have transformed the data landscape, making new opportunities for data collection pos-
sible. Big data is one of the latest trends emerging from the convergence of technological
factors. For example, cell phones generate tremendous amounts of data and much of it is
available for use with analytical applications. Big data includes data sources that include
extremely large volumes of data, with high velocity, wide variety, and an understanding of
the data veracity. The four common characteristics of big data are detailed in Figure 8.1
and Figure 8.2.
The move to big data combines business with science, research, and government activ-
ities. A company can now analyze petabytes of data for patterns, trends, and anomalies
gaining insights into data in new and exciting ways. A petabyte of data is equivalent to
20 million four-drawer file cabinets filled with text files or 13 years of HDTV content. Big
data requires sophisticated tools to analyze all of the structured and unstructured data from
millions of customers, devices, and machine interactions (see Figure 8.3). The two primary
computing models that have shaped the collection of big data include distributed computing
and vitalization.
DISTRIBUTED COMPUTING
Distributed computing processes and manages algorithms across many machines in a
computing environment (see Figure 8.4). A key component of big data is a distributed
computing environment that shares resources ranging from memory to networks to stor-
age. With distributed computing individual computers are networked together across geo-
graphical areas and work together to execute a workload or computing processes as if they
were one single computing environment. For example, you can distribute a set of programs
on the same physical server and use a message service to allow them to communicate and
pass information. You can also have a distributed computing environment where many dif-
ferent systems or servers, each with its own computing memory, work together to solve a
common problem.
LO 8.1 Identify the four common
characteristics of big data.
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FIGURE 8.1
Four Common
Characteristics of Big Data.
VARIETY
VERACITY
VOLUME
VELOCITY
Di�erent forms of structured and unstructured
data
Data from spreadsheets and databases as well
as from email, videos, photos, and PDFs, all of
which must be analyzed
The uncertainty of data, including biases, noise,
and abnormalities
The scale of data
Includes enormous volumes of data
generated daily
Massive volume created by machines and
networks
Big data tools necessary to analyze zettabytes and
brontobytes
The analysis of streaming data as it travels
around the Internet
Analysis necessary of social media messages
spreading globally
Uncertainty or untrustworthiness of data
Data must be meaningful to the problem
being analyzed
Must keep data clean and implement
processes to keep dirty data from accumulating
in systems
FIGURE 8.2
Four V’s of Big Data.
Big Data Will Create 4.4 Million Global MIS Jobs
VOLUME
Scale of Data
VELOCITY
Analysis of Streaming Data
VERACITY
Uncertainty of Data
VARIETY
Di�erent Forms of Data
• 40 Zettabytes of Data Created by 2020
• 2.5 Quintillion Bytes of Data Created
Daily (10 Million Blue-Rays)
• 100 Terabytes of Data per Company
• 6 Billion Cell Phones Creating Data
• 90 Percent of Data has been Created
Daily (10 Million Blue-Rays)
• Every Minute We Create 72 Hours of
You Tube Video, 200,000 Instagram
Posts, 205 Million Emails
• 100 Sensors in Every Connetced Cars
• 19 Billion Network Connections
• 90 Percent of Data Created is
Unstructured
• 400 Million Wireless Monitors
• 4 Billion Hours of Video Created
• 400 Million Tweets
• 30 Billion Pieces of Content Shared on
Facebook Monthly
• 1 in 3 Business Leaders Do Not Trust
Data to Make Decisions
• $3.1 Trillion in Poor Data Costs per Year
Copyright © IBM Used with permission.
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VIRTUALIZATION
Virtualization is the creation of a virtual (rather than actual) version of computing resources,
such as an operating system, a server, a storage device, or network resources (see Figure 8.5).
With big data it is now possible to virtualize data so that it can be stored efficiently and
cost-effectively. Improvements in network speed and network reliability have removed the
physical limitations of being able to manage massive amounts of data at an acceptable pace.
The decrease in price of storage and computer memory allow companies to leverage data that
would have been inconceivable to collect only 10 years ago.
ANALYZING BIG DATA
With the onset of big data, organizations are collecting more data than ever. Historically,
data were housed in functional systems that were not integrated, such as customer service,
finance, and human resources. Today companies can gather all of the functional data together
by the petabyte, but finding a way to analyze the data is incredibly challenging. Figure 8.6
displays the three focus areas business are using to dissect, analyze, and understand organi-
zational data.
Structured Data Unstructured Data
Sensor Data Satellite Images
Weblog Data Photographic Data
Financial Data Video Data
Click-stream Data Social Media Data
Point of Sale Data Text Messages
Accounting Data Voice Mail Data
FIGURE 8.3
Structured and Unstructured
Data Examples.
FIGURE 8.4
Distributed Computing
Environment.
Internet
Server
Server
Server
Distributed
Computing
Environment
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Data Mining
Reports piled on a manager’s desk provide summaries of past business activities and stock
market data. Unfortunately, these reports don’t offer much insight into why these things
are happening or what might happen over the next few months. Data mining to the rescue!
Data mining is the process of analyzing data to extract information not offered by the raw
data alone. Data mining can also begin at a summary information level (coarse granularity)
LO 8.2 Explain data mining
and identify the three elements
of data mining.
FIGURE 8.6
Business Focus Areas
of Big Data.
Data Visualization
Data Analysis
Data Mining
FIGURE 8.5
Virtualization Example.
Application
Traditional Computing
Environment
Virtualized Computing
Environment
Application Application
Application Application Application
Operating System
Operating System
Application
Server Server
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and progress through increasing levels of detail (drilling down) or the reverse (drilling up).
Companies use data-mining techniques to compile a complete picture of their operations, all
within a single view, allowing them to identify trends and improve forecasts. The three ele-
ments of data mining include:
1. Data: Foundation for data-directed decision making.
2. Discovery: Process of identifying new patterns, trends, and insights.
3. Deployment: Process of implementing discoveries to drive success.
One retailer discovered that loyalty program customers spent more over time and it stra-
tegically invested in specific marketing campaigns focusing on these high spenders, thereby
maximizing revenue and reducing marketing costs. One manufacturer discovered a sequence
of events that preceded accidental releases of toxic chemicals, allowing the factory to remain
operational while it prevented dangerous accidents. One insurance company discovered that
one of its offices was able to process certain common claim types more quickly than others of
comparable size. Armed with this valuable information the company mimicked this office’s
best practices across its entire organization, improving customer service.
DATA-MINING PROCESS MODEL
Data mining is a continuous process or cycle of activity where you continually revisit the
problems with new projects. This allows past models to be effectively reused to look for
new opportunities in the present and future. Data mining allows users to recycle their work
to become more effective and efficient on solving future problems. It is similar to creating a
household budget and reusing the same basic budget year after year even though expenses
and income change. There are six primary phases in the data-mining process, outlined in
Figure 8.7 and detailed in Figure 8.8.
DATA-MINING ANALYSIS TECHNIQUES
Data profiling is the process of collecting statistics and information about data in an existing
source. Insights extracted from data profiling can determine how easy or difficult it will be to use
existing data for other purposes along with providing metrics on data quality. Data replication
is the process of sharing information to ensure consistency between multiple data sources.
FIGURE 8.7
Data-Mining Process
Model Overview.
Data
3. Data
Preparation
2. Data
Understanding
1. Business
Understanding
4. Data Modeling
5. Evaluation
6. Deployment
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Data mining can determine relationships among such internal factors as price, product posi-
tioning, or staff skills, and external factors such as economic indicators, competition, and cus-
tomer demographics. In addition, it can determine the impact on sales, customer satisfaction,
and corporate profits and drill down into summary information to view detailed transactional
data. With data mining, a retailer could use point-of-sale records of customer purchases to
send targeted promotions based on an individual’s purchase history. By mining demographic
data from comment or warranty cards, the retailer could develop products and promotions to
appeal to specific customer segments.
A recommendation engine is a data-mining algorithm that analyzes a customer’s pur-
chases and actions on a website and then uses the data to recommend complementary prod-
ucts. Netflix uses a recommendation engine to analyze each customer’s film-viewing habits
to provide recommendations for other customers with Cinematch, its movie recommendation
system. Using Cinematch, Netflix can present customers with a number of additional movies
they might want to watch based on the customer’s current preferences. Netflix’s innovative
use of data mining provides its competitive advantage in the movie rental industry. Figure 8.9
displays the common data-mining techniques used to perform advanced analytics such as
Netflix’s Cinematch.
Estimation Analysis
An estimation analysis determines values for an unknown continuous variable behavior or
estimated future value. Estimation models predict numeric outcomes based on historical
data. For example, the percentage of high school students that will graduate based on stu-
dent-teacher ratio or income levels. An estimate is similar to a guess and is one of the least
expensive modeling techniques. Many organizations use estimation analysis to determine the
Phase Definition Activities
1 Business Understanding Gain a clear understanding of
the business problem that must
be solved and how it impacts
the company
■ Identify business goals
■ Situation assessment
■ Define data-mining goals
■ Create project plan
2 Data Understanding Analysis of all current data along
with identifying any data quality
issues
■ Gather data
■ Describe data
■ Explore data
■ Verify data quality
3 Data Preparation Gather and organize the data in
the correct formats and structures
for analysis
■ Select data
■ Cleanse data
■ Integrate data
■ Format data
4 Data Modeling Apply mathematical techniques
to identify trends and patterns in
the data
■ Select modeling technique
■ Design tests
■ Build models
5 Evaluation Analyze the trends and patterns
to assess the potential for solving
the business problem
■ Evaluate results
■ Review process
■ Determine next steps
6 Deployment Deploy the discoveries to the
organization for work in everyday
business
■ Plan deployment
■ Monitor deployment
■ Analyze results
■ Review final reports
FIGURE 8.8
Data-Mining Process
Model Activities
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overall costs of a project from start to completion or estimates on the profits from introducing
a new product line.
Affinity Grouping Analysis
Affinity grouping analysis reveals the relationship between variables along with the nature
and frequency of the relationships. Many people refer to affinity grouping algorithms as asso-
ciation rule generators because they create rules to determine the likelihood of events occur-
ring together at a particular time or following each other in a logical progression. Percentages
usually reflect the patterns of these events, for example, “55 percent of the time, events A and
B occurred together” or “80 percent of the time that items A and B occurred together, they
were followed by item C within three days.”
One of the most common forms of association detection analysis is market basket analysis.
Market basket analysis evaluates such items as websites and checkout scanner information to
detect customers’ buying behavior and predict future behavior by identifying affinities among
customers’ choices of products and services (see Figure 8.10). Market basket analysis is fre-
quently used to develop marketing campaigns for cross-selling products and services (espe-
cially in banking, insurance, and finance) and for inventory control, shelf-product placement,
and other retail and marketing applications.
Cluster Analysis
Cluster analysis is a technique used to divide an information set into mutually exclusive
groups such that the members of each group are as close together as possible to one another
and the different groups are as far apart as possible. Cluster analysis identifies similari-
ties and differences among data sets allowing similar data sets to be clustered together. A
customer database includes attributes such as name and address, demographic information
such as gender and age, and financial attributes such as income and revenue spent. A cluster
analysis groups similar attributes together to discover segments or clusters, and then exam-
ine the attributes and values that define the clusters or segments. Marketing managers can
drive promotion strategies that target the specific group identified by the cluster analysis
(see Figure 8.11).
A great example of using cluster analysis in business is to create target-marketing strat-
egies based on zip codes. Evaluating customer segments by zip code allows a business to
FIGURE 8.9
Data-Mining Techniques.
Estimation Analysis
Determines values for an unknown continuous
variable behavior or estimated future value.
A�nity Grouping Analysis
Reveals the relationship between variables
along with the nature and frequency
of the relationships.
Cluster Analysis
A technique used to divide an information
set into mutually exclusive groups such that
the members of each group are as close
together as possible to one another and
the di�erent groups are as far apart
as possible.
Classification Analysis
The process of organizing data into
categories or groups for its most
e�ective and e�cient use.
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assign a level of importance to each segment. Zip codes offer valuable insight into such things
as income levels, demographics, lifestyles, and spending habits. With target marketing, a busi-
ness can decrease its costs while increasing the success rate of the marketing campaign.
Classification Analysis
Classification analysis is the process of organizing data into categories or groups for its most
effective and efficient use. For example, groups of political affiliation and charity donors. The
primary goal of a classification analysis is not to explore data to find interesting segments, but
FIGURE 8.11
Example of Cluster Analysis.
–3
–2
–1
0
1
2
–2 –1 0 1 2 3
FIGURE 8.10
Market Basket Analysis
Example.
© Purestock/Superstock
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to decide the best way to classify records. It is important to note that classification analysis
is similar to cluster analysis because it segments data into distinct segments called classes;
however, unlike cluster analysis, a classification analysis requires that all classes are defined
before the analysis begins. For example, in a classification analysis the analyst defines two
classes: (1) a class for customers who default on a loan; (2) a class for customers who did not
default on a loan. Cluster analysis is exploratory analysis and classification analysis is much
less exploratory and more grouping. (See Figure 8.12.)
DATA MINING MODELING TECHNIQUES FOR PREDICTIONS
To perform data mining, users need data-mining tools. Data mining tools use a variety of
techniques to find patterns and relationships in large volumes of information that predict
future behavior and guide decision making. Data mining uncovers trends and patterns, which
analysts use to build models that, when exposed to new information sets, perform a variety
of information analysis functions. Data-mining tools for data warehouses help users uncover
business intelligence in their data. Data mining uncovers patterns and trends for business
analysis such as:
■ Analyzing customer buying patterns to predict future marketing and promotion campaigns.
■ Building budgets and other financial information.
■ Detecting fraud by identifying deceptive spending patterns.
■ Finding the best customers who spend the most money.
■ Keeping customers from leaving or migrating to competitors.
■ Promoting and hiring employees to ensure success for both the company and the individual.
A prediction is a statement about what will happen or might happen in the future, for
example, predicting future sales or employee turnover. Figure 8.13 displays the three common
data-mining techniques for predictions. Please note the primary difference between forecasts
FIGURE 8.12
Classification Analysis
Example.
CREDIT
SCRORE
STUDENT
YES NO YES NO
Young Old
AGE
CR
SCR
CRE
RO
REDIT
ORE
RRE
O
CCR
R
CREDIT
SCRORE
DESTUDENTSTUDENT
NOOOOYESYESYEYEYESESESYES NO NOOOOYESYESYEYEYESESESYES NO
Young Old
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FIGURE 8.14
A Cube of Information
for Performing a
Multidimensional Analysis
on Three Different Stores,
for Five Different Products,
and Four Different
Promotions.
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube a
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube b
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
Pr
om
o
I
Product A
Store 1
Store 2
Store 3
Cube c
Product B
Product C
Product D
Product E
Pr
om
o
II
Pr
om
o
III
Pr
om
o
IV
Prediction Model Definition Example
Optimization Model A statistical process that finds the way to make a design,
system, or decision as effective as possible, for example,
finding the values of controllable variables that determine
maximal productivity or minimal waste.
■ Determine which products to produce given
a limited amount of ingredients
■ Choose a combination of projects to maximize
overall earnings
Forecasting Model Time-series information is time-stamped information
collected at a particular frequency. Forecasts are predictions
based on time-series information allowing users to
manipulate the time series for forecasting activities.
■ Web visits per hour
■ Sales per month
■ Customer service calls per day
Regression Model A statistical process for estimating the relationships among
variables. Regression models include many techniques for
modeling and analyzing several variables when the focus is
on the relationship between a dependent variable and one
or more independent variables.
■ Predict the winners of a marathon based
on gender, height, weight, hours of training
■ Explain how the quantity of weekly sales of
a popular brand of beer depends on its price
at a small chain of supermarkets
FIGURE 8.13
Data Mining Modeling
Techniques for Predictions.
and predictions. All forecasts are predictions, but not all predictions are forecasts. For exam-
ple, when you would use regression to explain the relationship between two variables this is a
prediction but not a forecast.
Data Analysis
A relational database contains information in a series of two-dimensional tables. With big data
information is multidimensional, meaning it contains layers of columns and rows. A dimen-
sion is a particular attribute of information. Each layer in big data represents information
according to an additional dimension. A cube is the common term for the representation of
multidimensional information. Figure 8.14 displays a cube (cube a) that represents store infor-
mation (the layers), product information (the rows), and promotion information (the columns).
Once a cube of information is created, users can begin to slice and dice the cube to drill
down into the information. The second cube (cube b) in Figure 8.14 displays a slice rep-
resenting promotion II information for all products, at all stores. The third cube (cube c)
in Figure 8.14 displays only information for promotion III, product B, at store 2. By using
multidimensional analysis, users can analyze information in a number of different ways and
with any number of different dimensions. For example, users might want to add dimensions
of information to a current analysis including product category, region, and even forecasts for
LO 8.3 Explain the importance
of data analytics and data
visualization.
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actual weather. The true value of big data is its ability to provide multidimensional analysis
that allows users to gain insights into their information.
Big data is ideal for off-loading some of the querying against a database. For example,
querying a database to obtain an average of sales for product B at store 2 while promotion III
is under way might create a considerable processing burden for a database, essentially slow-
ing down the time it takes another person to enter a new sale into the same database. If an
organization performs numerous queries against a database (or multiple databases), aggregat-
ing that information into big data databases could be beneficial.
ADVANCED DATA ANALYTICS
Algorithms are mathematical formulas placed in software that performs an analysis on a data
set. Analytics is the science of fact-based decision making. Analytics uses software-based
algorithms and statistics to derive meaning from data. Advanced analytics uses data pat-
terns to make forward-looking predictions to explain to the organization where it is headed.
Anomaly detection is the process of identifying rare or unexpected items or events in a data
set that do not conform to other items in the data set. One of the key advantages of perform-
ing advanced analytics is to detect anomalies in the data to ensure they are not used in models
creating false results. An outlier is a data value that is numerically distant from most of the
other data points in a set of data. Anomaly detection helps to identify outliers in the data that
can cause problems with mathematical modeling.
Fast data is the application of big data analytics to smaller data sets in near-real or real-
time in order to solve a problem or create business value. The term fast data is often associ-
ated with business intelligence and the goal is to quickly gather and mine structured and
unstructured data so that action can be taken. As the flood of data from sensors, actuators
and machine-to-machine (M2M) communication in the Internet of Things (IoT) continues to
grow, it has become more important than ever for organizations to identify what data is time-
sensitive and should be acted upon right away and what data can sit in a data warehouse or
data lake until there is a reason to mine it.
A data scientist extracts knowledge from data by performing statistical analysis, data min-
ing, and advanced analytics on big data to identify trends, market changes, and other relevant
information. Figure 8.15 displays the techniques a data scientist will use to perform big data
advanced analytics. FIGURE 8.15
Advanced Data Analytics.
Analytics Description
Behavioral Analysis Using data about people’s behaviors to understand intent and predict future actions.
Correlation Analysis Determines a statistical relationship between variables, often for the purpose of identifying predictive
factors among the variables.
Exploratory Data Analysis Identifies patterns in data, including outliers, uncovering the underlying structure to understand
relationships between the variables.
Pattern Recognition Analysis The classification or labeling of an identified pattern in the machine learning process.
Social Media Analysis Analyzes text flowing across the Internet, including unstructured text from blogs and messages.
Speech Analysis The process of analyzing recorded calls to gather information; brings structure to customer interactions and
exposes information buried in customer contact center interactions with an enterprise. Speech analysis is
heavily used in the customer service department to help improve processes by identifying angry customers
and routing them to the appropriate customer service representative.
Text Analysis Analyzes unstructured data to find trends and patterns in words and sentences. Text mining a firm’s
customer support email might identify which customer service representative is best able to handle the
question, allowing the system to forward it to the right person.
Web Analysis Analyzes unstructured data associated with websites to identify consumer behavior and website navigation.
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DATA VISUALIZATION
Traditional bar graphs and pie charts are boring and at best confusing and at worst misleading.
As databases and graphics collide more and more, people are creating infographics, which
display information graphically so it can be easily understood. Infographics (information
graphics) present the results of data analysis, displaying the patterns, relationships, and trends
in a graphical format. Infographics are exciting and quickly convey a story users can understand
without having to analyze numbers, tables, and boring charts (see Figure 8.16 and Figure 8.17).
FIGURE 8.16
Infographic News Example.
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FIGURE 8.17
Infographic Health Example.
NORMAL WEIGHTLOW WEIGHT OVERWEIGHT OBESE
AGE GROUPS
18–34 35–49 50–64 65–74 75+
A data artist is a business analytics specialist who uses visual tools to help people under-
stand complex data. Great data visualizations provide insights into something new about the
underlying patterns and relationships. Just think of the periodic table of elements and imagine
if you had to look at an Excel spreadsheet showing each element and the associated attributes
in a table format. This would be not only difficult to understand but easy to misinterpret. By
placing the elements in the visual periodic table, you quickly grasp how the elements relate
and the associated hierarchy and data artists are experts at creating a story from the informa-
tion. Infographics perform the same function for business data as the periodic table does for
chemical elements.
Analysis paralysis occurs when the user goes into an emotional state of over-analysis
(or over-thinking) a situation so that a decision or action is never taken, in effect paralyzing
the outcome. In the time of big data, analysis paralysis is a growing problem. One solu-
tion is to use data visualizations to help people make decisions faster. Data visualization
describes technologies that allow users to see or visualize data to transform information into
© Echelon Insights
FIGURE 8.16 (Continued)
Infographic News Example.
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a business perspective. Data visualization is a powerful way to simplify complex data sets
by placing data in a format that is easily grasped and understood far quicker than the raw
data alone. Data visualization tools move beyond Excel graphs and charts into sophisticated
analysis techniques such as controls, instruments, maps, time-series graphs, and more. Data
visualization tools can help uncover correlations and trends in data that would otherwise
go unrecognized.
Business intelligence dashboards track corporate metrics such as critical success fac-
tors and key performance indicators and include advanced capabilities such as interactive
controls, allowing users to manipulate data for analysis. The majority of business intel-
ligence software vendors offer a number of data visualization tools and business intel-
ligence dashboards.
Big data is one of the most promising technology trends occurring today. Of course, nota-
ble companies such as Facebook, Google, and Netflix are gaining the most business insights
from big data currently, but many smaller markets are entering the scene, including retail,
insurance, and health care. Over the next decade, as big data starts to improve your everyday
life by providing insights into your social relationships, habits, and careers, you can expect to
see the need for data scientists and data artists dramatically increase.
1. List the reasons a business would want to display big data in a graphic or visual format.
2. Describe how a business could use a few of the data analysis techniques to understand how the
business is operating.
3. Explain how a marketing department could use data visualization tools to help with the release of
a new product.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
According to a Merrill Lynch survey in 2006, business intelligence software and data-mining tools
were at the top of CIOs’ technology spending list. Following are a few examples of how companies
are using data warehousing and data-mining tools to gain valuable business intelligence.
Ben & Jerry’s
These days, when we all scream for ice cream, Ben & Jerry’s cuts through the din by using inte-
grated query, reporting, and online analytical processing technology from BI software vendor Busi-
ness Objects. Through an Oracle database and with BI from Business Objects, Ben & Jerry’s tracks
the ingredients and life of each pint. If a consumer calls in with a complaint, the consumer affairs staff
matches the pint with which supplier’s milk, eggs, cherries, or whatever did not meet the organiza-
tion’s near-obsession with quality.
The BI tools let Ben & Jerry’s officials access, analyze, and act on customer information collected
by the sales, finance, purchasing, and quality-assurance departments. The company can determine
what milk customers prefer in the making of the ice cream. The technology helped Ben & Jerry’s track
more than 12,500 consumer contacts in 2005. The information ranged from comments about the
ingredients used in ice cream to queries about social causes supported by the company.
Chapter Eight Case: Mining the Data Warehouse
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California Pizza Kitchen
California Pizza Kitchen (CPK) is a leading casual dining chain in the premium pizza segment with a
recognized consumer brand and an established, loyal customer base. Founded in 1985, there are
currently more than 130 full-service restaurants in more than 26 states, the District of Columbia, and
five foreign countries.
Before implementing its BI tool, Cognos, CPK used spreadsheets to plan and track its financial
statements and line items. The finance team had difficulty managing the volumes of data, complex
calculations, and constant changes to the spreadsheets. It took several weeks of two people working
full-time to obtain one version of the financial statements and future forecast. In addition, the team
was limited by the software’s inability to link cells and calculations across multiple spreadsheets, so
updating other areas of corporate records became a time-consuming task. With Cognos, quarterly
forecasting cycles have been reduced from eight days to two days. The finance team can now spend
more time reviewing the results rather than collecting and entering the data.
Noodles & Company
Noodles & Company has more than 70 restaurants throughout Colorado, Illinois, Maryland, Michigan,
Minnesota, Texas, Utah, Virginia, and Wisconsin. The company recently purchased Cognos BI tools
to help implement reporting standards and communicate real-time operational information to field
management throughout the United States.
Before implementing the first phase of the Cognos solution, IT and finance professionals spent
days compiling report requests from numerous departments including sales and marketing, human
resources, and real estate. Since completing phase one, operational Cognos reports are being
accessed on a daily basis through the Noodles & Company website. This provides users with a single,
360-degree view of the business and consistent reporting throughout the enterprise.
Noodles & Company users benefit from the flexible query and reporting capabilities, allowing them
to see patterns in the data to leverage new business opportunities. Cognos tools can pull information
directly from a broad array of relational, operational, and other systems.1
Questions
1. Explain how Ben & Jerry’s is using business intelligence tools to remain successful and competi-
tive in a saturated market.
2. Identify why information cleansing is critical to California Pizza Kitchen’s business intelligence
tool’s success.
3. Illustrate why 100 percent accurate and complete information is impossible for Noodles & Com-
pany to obtain.
4. Describe how each of the companies above is using BI to gain a competitive advantage.
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8.1. Identify the four common characteristics of big data.
The four V’s of big data include variety, veracity, voluminous, and velocity. Variety includes different
forms of structured and unstructured data. Veracity includes the uncertainty of data, including
biases, noise, and abnormalities. Voluminous is the scale of data. Velocity is the analysis of
streaming data as it travels around the Internet.
8.2. Explain data mining and identify the three elements of data mining.
Data mining is the process of analyzing data to extract information not offered by the raw data
alone. The three elements of data mining include data, discovery, and deployment.
■ Data: Foundation for data-directed decision making.
■ Discovery: Process of identifying new patterns, trends, and insights.
■ Deployment: Process of implementing discoveries to drive success.
8.3. Explain the importance of data analytics and data visualization.
Algorithms are mathematical formulas placed in software that performs an analysis on a data set.
Analytics is the science of fact-based decision making. Analytics uses software-based algorithms
and statistics to derive meaning from data. Advanced analytics uses data patterns to make
forward-looking predictions to explain to the organization where it is headed. Data visualization
describes technologies that allow users to see or visualize data to transform information into a
business perspective. Data visualization is a powerful way to simplify complex data sets by placing
data in a format that is easily grasped and understood far quicker than the raw data alone.
L E A R N I N G O U T C O M E R E V I E W
R E V I E W Q U E S T I O N S
1. What is big data?
2. What are the four common characteristics of big data?
3. What is distributed computing and how has it helped drive the big data era?
4. What is virtualization and how has it helped drive the big data era?
5. What are the six steps in the data-mining process and why is each important?
6. What are the four data-mining techniques? Provide examples of how you would use each one
in business.
7. What is data-driven decision management?
8. What are the four data-mining techniques for predictions and why are they important to
a business?
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1. Two Trillion Rows of Data Analyzed Daily—No Problem
eBay is the world’s largest online marketplace, with 97 million global users selling anything to
anyone at a yearly total of $62 billion—more than $2,000 every second. Of course with this many
sales, eBay is collecting the equivalent of the Library of Congress worth of data every three days
that must be analyzed to run the business successfully. Luckily, eBay discovered Tableau!
Tableau started at Stanford when Chris Stolte, a computer scientist; Pat Hanrahan, an Academy
Award–winning professor; and Christian Chabot, a savvy business leader, decided to solve the problem
of helping ordinary people understand big data. The three created Tableau, which bridged two computer
science disciplines: computer graphics and databases. No more need to write code or understand the
relational database keys and categories; users simply drag and drop pictures of what they want to
analyze. Tableau has become one of the most successful data visualization tools on the market, winning
multiple awards, international expansion, and millions in revenue and spawning multiple new inventions.
Tableau is revolutionizing business analytics, and this is only the beginning. Visit the Tableau
website and become familiar with the tool by watching a few of the demos. Once you have a good
understanding of the tool, create three questions eBay might be using Tableau to answer, including
the analysis of its sales data to find patterns, business insights, and trends.
2. Track Your Life
With wearable technology, you can track your entire life. Nike’s Fuelband and Jawbone’s Up tracks all
of your physical activity, caloric burn, and sleep patterns. You can track your driving patterns, tooth-
brushing habits, and even laundry status. The question now becomes how to track all of your trackers.
A new company called Exist incorporates tracking devices with weather data, music choices,
Netflix favorites, and Twitter activity all in one digital dashboard. Exist wants to understand
every area of your life and provide correlation information between such things as your personal
productivity and mood. As the different types of data expand, so will the breadth of correlations
Exist can point out. For instance, do you tweet more when you are working at home? If so, does this
increase productivity? Exist wants to track all of your trackers and analyze the information to help
you become more efficient and more effective.
Create a digital dashboard for tracking your life. Choose four areas you want to track and
determine three ways you would measure each area. For example, if you track eating habits, you
might want to measure calories and place unacceptable levels in red and acceptable levels in green.
Once completed, determine whether you can find any correlations among the areas in your life.
3. Butterfly Effects
The butterfly effect, an idea from chaos theory in mathematics, refers to the way a minor event—like
the movement of a butterfly’s wing—can have a major impact on a complex system like the weather.
Dirty data can have the same impact on a business as the butterfly effect. Organizations depend
on the movement and sharing of data throughout the organization, so the impact of data quality
errors are costly and far-reaching. Such data issues often begin with a tiny mistake in one part of
the organization, but the butterfly effect can produce disastrous results, making its way through
MIS systems to the data warehouse and other enterprise systems. When dirty data or low-quality
data enters organizational systems, a tiny error such as a spelling mistake can lead to revenue loss,
process inefficiency, and failure to comply with industry and government regulations. Explain how
the following errors can affect an organization:
■ A cascading spelling mistake.
■ Inaccurate customer records.
■ Incomplete purchasing history.
M A K I N G B U S I N E S S D E C I S I O N S
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■ Inaccurate mailing address.
■ Duplicate customer numbers for different customers.
4. Unethical Data Mining
Mining large amounts of data can create a number of benefits for business, society, and governments,
but it can also create a number of ethical questions surrounding an invasion of privacy or misuse of infor-
mation. Facebook recently came under fire for its data-mining practices as it followed 700,000 accounts
to determine whether posts with highly emotional content are more contagious. The study concluded that
highly emotional texts are contagious, just as with real people. Highly emotional positive posts received
multiple positive replies, whereas highly emotional negative posts received multiple negative replies.
Although the study seems rather innocent, many Facebook users were outraged; they felt the study was
an invasion of privacy because the 700,000 accounts had no idea Facebook was mining their posts.
As a Facebook user, you willingly consent that Facebook owns every bit and byte of data you post and,
once you press submit, Facebook can do whatever it wants with your data. Do you agree or disagree that
Facebook has the right to do whatever it wants with the data its 1.5 billion users post on its site?
5. News Dots
Gone are the days of staring at boring spreadsheets and trying to understand how the data correlate.
With innovative data visualization tools, managers can arrange different ways to view the data,
providing new forms of pattern recognition not offered by simply looking at numbers. Slate, a
news publication, developed a new data visualization tool, called News Dots, that offers readers a
different way of viewing the daily news through trends and patterns. The News Dots tool scans about
500  stories a day from major publications and then tags the content with important keywords such as
people, places, companies, and topics. Surprisingly, the majority of daily news overlaps as the people,
places, and stories are frequently connected. Using News Dots, you can visualize how the news fits
together, almost similar to a giant social network. News Dots uses circles (or dots) to represent the
tagged content and arranges them according to size. The more frequently a certain topic is tagged,
the larger the dot and its relationship to other dots. The tool is interactive and users simply click a dot
to view which stories mention that topic and which other topics it connects to in the network such as
a correlation among the U.S. government, Federal Reserve, Senate, bank, and Barack Obama.
How can data visualization help identify trends? What types of business intelligence could you
identify if your college used a data visualization tool to analyze student information? What types of
business intelligence could you identify if you used a data visualization tool to analyze the industry
in which you plan to compete?
6. Free Data!
The U.S. Bureau of Labor Statistics states that its role is as the “principal fact-finding agency for
the federal government in the broad field of labor economics and statistics.” And the data that the
bureau provides via its website are available to anyone, free. This can represent a treasure trove of
business intelligence and data mining for those who take advantage of this resource.
Visit the website www.bls.gov. What type of information does the site provide? What information do
you find most useful? What sort of information concerning employment and wages is available? How
is this information categorized? How would this type of information be helpful to a business manager?
What type of demographic information is available? How could this benefit a new start-up business?
7. Follow the Data
There is a classic line in the movie All the President’s Men, which covers the Watergate investigation,
where Deep Throat meets with Bob Woodward and coolly advises him to “follow the money.” Woodward
follows the money, and the Watergate investigation ends with President Nixon’s resignation. If you want
to find out what is happening in today’s data-filled world, you could probably change those words to
“follow the data.”
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The five common characteristics of quality information are accuracy, completeness, consistency, uniqueness, and timeliness. The costs to an organization of having low-quality information can be enormous and could result in revenue losses and ultimately business failure. Databases main-
tain information about various types of objects, events, people, and places and help to alleviate many of
the problems associated with low-quality information such as redundancy, integrity, and security.
A data warehouse is a logical collection of information—gathered from many different operational
databases—that supports business analysis activities and decision-making tasks. Data marts contain
a subset of data warehouse information. Organizations gain tremendous insight into their business by
mining the information contained in data warehouses and data marts. As we enter the era of big data
the data-mining and data analysis techniques will become of critical importance to any company that
wants to succeed in business.
Understanding the value of information is key to business success. Employees must be able to
optimally access and analyze organizational information. The more knowledge employees have con-
cerning how the organization stores, maintains, provides access to, and protects information the bet-
ter prepared they will be when they need to use that information to make critical business decisions.
U N I T S U M M A R Y
One of the newest forms of legal requirements emerging from the data explosion is ediscovery, the
legal requirements mandating that an organization must archive all forms of software communications,
including email, text messages, and multimedia. Yes, the text message you sent four years ago could
come back to haunt you.
Organizations today have more data than they know what to do with and are frequently
overwhelmed with data management. Getting at such data and presenting them in a useful manner
for cogent analysis is a tremendous task that haunts managers. What do you think is involved in
data management? What is contained in the zettabytes of data stored by organizations? Why would
an organization store data? How long should an organization store its data? What are the risks
associated with failing to store organizational data?
K E Y T E R M S
Affinity grouping analysis, 137
Algorithms, 141
Analysis paralysis, 143
Analytical information, 100
Analytics, 141
Anomaly detection, 141
Attribute, 105
Backward integration, 112
Big data, 131
Business-critical integrity
constraints, 109
Business intelligence dashboard ,
144
Business rule, 109
Classification analysis, 138
Cluster analysis, 137
Comparative analysis, 125
Competitive monitoring, 125
Content creator, 110
Content editor, 110
Cube, 140
Data-driven decision
management, 126
Data aggregation, 121
Data artist, 143
Database, 104
Database management system
(DBMS), 104
Data broker, 124
Data dictionary, 105
Data-driven website, 110
Data element (or data field, 104
Data gap analysis, 103
Data governance, 104
Data lake, 124
Data latency, 109
Data map, 126
Data mart, 121
Data mining, 134
Data mining tools, 139
Data model, 104
Data point, 124
Data profiling, 135
Data replication, 135
Data scientist, 141
Data set, 125
Data steward, 103
Data stewardship, 103
Data validation, 104
Data visualization, 143
Data visualization tools, 144
Data warehouse, 119
Dirty data, 122
Distributed computing, 131
Dynamic catalog, 110
Dynamic information, 110
Entity, 105
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Data Visualization: Stories for the Information Age
At the intersection of art and algorithm, data visualization schematically abstracts information to bring
about a deeper understanding of the data, wrapping it in an element of awe. While the practice of
visually representing information is arguably the foundation of all design, a newfound fascination with
data visualization has been emerging. After The New York Times and The Guardian recently opened
their online archives to the public, artists rushed to dissect nearly two centuries worth of information,
elevating this art form to new prominence.
For artists and designers, data visualization is a new frontier of self-expression, powered by the
proliferation of information and the evolution of available tools. For enterprise, it is a platform for
displaying products and services in the context of the cultural interaction that surrounds them, reflect-
ing consumers’ increasing demand for corporate transparency.
“Looking at something ordinary in a new way makes it extraordinary,” says Aaron Koblin, one of the
more recent pioneers of the discipline. As technology lead of Google’s Creative Labs in San Francisco,
he spearheaded the search giant’s Chrome Experiments series designed to show off the speed and
reliability of the Chrome browser.
Forget Pie Charts and Bar Graphs
Data visualization has nothing to do with pie charts and bar graphs. And it’s only marginally related to
“infographics,” information design that tends to be about objectivity and clarification. Such represen-
tations simply offer another iteration of the data—restating it visually and making it easier to digest.
Data visualization, on the other hand, is an interpretation, a different way to look at and think about
data that often exposes complex patterns or correlations.
U N I T C L O S I N G C A S E O N E
Estimation analysis, 136
Extraction, transformation, and
loading (ETL), 121
Fast data, 141
Foreign key, 106
Forward integration, 112
Identity management, 109
Infographics (information
graphics), 142
Information cleansing or
scrubbing, 122
Information granularity, 99
Information inconsistency, 101
Information integrity, 101, 109
Information integrity issues, 101
Information redundancy, 109
Integration, 112
Integrity constraint, 109
Logical view of information, 108
Market basket analysis, 137
Metadata, 105
Outlier, 141
Physical view of information, 108
Prediction, 139
Primary key, 105
Query-by-example (qbe) tool, 104
Real-time information, 101
Real-time system, 101
Recommendation engine, 136
Record, 105
Relational database management
system, 105
Relational database model, 105
Relational integrity constraints, 109
Repository, 119
Source data, 125
Static information, 110
Structured query language
(SQL), 104
Transactional information, 100
Virtualization, 133
© Roz Woodward/Getty Images © Getty Images/Digital Vision © Epoxy/Getty Images
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Data visualization is a way to make sense of the ever-increasing stream of information with which
we’re bombarded and provides a creative antidote to the analysis paralysis that can result from the
burden of processing such a large volume of information. “It’s not about clarifying data,” says Koblin.
“It’s about contextualizing it.”
Today algorithmically inspired artists are reimagining the art-science continuum through work
that frames the left-brain analysis of data in a right-brain creative story. Some use data visualiza-
tion as a bridge between alienating information and its emotional impact—see Chris Jordan’s por-
traits of global mass culture. Others take a more technological angle and focus on cultural utility—the
Zoetrope project offers a temporal and historical visualization of the ephemeral web. Still others are
pure artistic indulgence—like Koblin’s own Flight Patterns project, a visualization of air traffic over
North America.
How Business Can Benefit
There are real implications for business here. Most cell phone providers, for instance, offer a state-
ment of a user’s monthly activity. Most often it’s an overwhelming table of various numerical mea-
sures of how much you talked, when, with whom, and how much it cost. A visual representation of
these data might help certain patterns emerge, revealing calling habits and perhaps helping users
save money.
Companies can also use data visualization to gain new insight into consumer behavior. By observ-
ing and understanding what people do with the data—what they find useful and what they dismiss as
worthless—executives can make the valuable distinction between what consumers say versus what
they do. Even now, this can be a tricky call to make from behind the two-way mirror of a traditional
qualitative research setting.
It’s essential to understand the importance of creative vision along with the technical mastery of soft-
ware. Data visualization isn’t about using all the data available, but about deciding which patterns and ele-
ments to focus on, building a narrative, and telling the story of the raw data in a different, compelling way.
Ultimately, data visualization is more than complex software or the prettying up of spreadsheets.
It’s not innovation for the sake of innovation. It’s about the most ancient of social rituals: storytelling.
It’s about telling the story locked in the data differently, more engagingly, in a way that draws us in,
makes our eyes open a little wider and our jaw drop ever so slightly. And as we process it, it can
sometimes change our perspective altogether.2
Questions
1. Identify the effects poor information might have on a data visualization project.
2. How does data visualization use database technologies?
3. How could a business use data visualization to identify new trends?
4. What is the correlation between data mining and data visualization?
5. Is data visualization a form of business intelligence? Why or why not?
6. What security issues are associated with data visualization?
7. What could happen to a data visualization project if it failed to cleanse or scrub its data?
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Informing Information
Since the beginning of time, man has been using pictures and images to communicate, moving from
caveman drawings to hieroglyphics to the Internet. Today, it is easier than ever to paint a picture
worth 100,000 words, thanks to technological advances. The primary advantages are databases
and data warehouses that capture enormous amounts of data. Informing means accessing large
amounts of data from different management information systems. According to a recent analysis of
press releases by PR Newswire, an article or advertisement that uses visual images can significantly
improve the number of views a message generates. This can be a true competitive advantage in the
digital age.
An infographic (or information graphic) displays information graphically so it can be more easily
understood. Infographics cut straight to the point by taking complex information and presenting it in
a simple visual format. Infographics can present the results of large data analysis, looking for pat-
terns and relationships that monitor changes in variables over time. Because infographics can easily
become overwhelming, users need to be careful to not display too much data or the resulting info-
graphics can result in information overload. Effective infographics can achieve outstanding results for
marketing, advertising, and public relations. According to PR Newswire, infographics gain the great-
est competitive advantage when they have the following:
■ Survey results that are too hard to understand in text format.
■ Statistical data that are not interesting for readers.
■ Comparison research where the impact can be far more dramatic when presented visually.
■ Messages for multilingual audiences.
■ Any information that can use a visual element to make it more interesting (see Figure Unit 6.1
through Figure Unit 6.3 for examples).3
Source: NPS photo by Jim Peaco© Fuse/Getty Images© C. Borland/PhotoLink/Getty Images
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FIGURE UNIT 6.1
Hotels.com Travel
Infographic.
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FIGURE UNIT 6.2
Emerson’s Food Waste
Infographic.
FIGURE UNIT 6.3
SC Johnson Consumer
Environmental
Behaviors Infographic.
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A P P L Y Y O U R K N O W L E D G E
1. Mining the Data Warehouse
Alana Smith is a senior buyer for a large wholesaler that sells different types of arts and crafts
to greeting card stores such as Hallmark. Alana’s latest marketing strategy is to send all of her
customers a new line of hand-made picture frames from Russia. Alana’s data support her decision
for the new line. Her analysis predicts that the frames should sell an average of 10 to 15 per store,
per day. Alana is excited about the new line and is positive it will be a success.
One month later Alana learns that the frames are selling 50 percent below expectations and
averaging between five and eight frames sold daily in each store. Alana decides to access the
company’s data warehouse to determine why sales are below expectations. Identify several
different dimensions of data that Alana will want to analyze to help her decide what is causing
the problems with the picture frame sales.
2. Cleansing Information
You are working for BI, a start-up business intelligence consulting company. You have a new client
that is interested in hiring BI to clean up its information. To determine how good your work is, the
client would like your analysis of the spreadsheet in Figure AYK.1.
3. Different Dimensions
The focus of data warehousing is to extend the transformation of data into information. Data
warehouses offer strategic-level, external, integrated, and historical information so businesses can
make projections, identify trends, and make key business decisions. The data warehouse collects
and stores integrated sets of historical information from multiple operational systems and feeds
them to one or more data marts. It may also provide end-user access to support enterprisewide
views of information.
Project Focus
You are currently working on a marketing team for a large corporation that sells jewelry around the
world. Your boss has asked you to look at the following dimensions of data to determine which ones
you want in your data mart for performing sales and market analysis (see Figure AYK.2). As a team,
categorize the different dimensions, ranking them from 1 to 5, with 1 indicating that the dimension
offers the highest value and must be in your data mart and 5 indicating that the dimension offers the
lowest value and does not need to be in your data mart.
4. Understanding Search
Pretend that you are a search engine. Choose a topic to query. It can be anything such as your
favorite book, movie, band, or sports team. Search your topic on Google, pick three or four pages
from the results, and print them out. On each printout, find the individual words from your query
(such as “Boston Red Sox” or “The Godfather”) and use a highlighter to mark each word with color.
Do that for each of the documents that you print out. Now tape those documents on a wall, step
back a few feet, and review your documents. If you did not know what the rest of a page said and
could only judge by the colored words, which document do you think would be most relevant? Is
there anything that would make a document look more relevant? Is it better to have the words be
in a large heading or to occur several times in a smaller font? Do you prefer it if the words are at
the top or the bottom of the page? How often do the words need to appear? Come up with two or
three things you would look for to see if a document matched a query well. This exercise mimics
search engine processes and should help you understand why a search engine returns certain
results over others.
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CUST ID First Name Last Name Address City State ZIP Phone
Last Order
Date
233620 Christopher Lee 12421 W Olympic Blvd Los Angeles CA 75080-1100 (972)680-7848 4/18/2002
233621 Bruce Brandwen 268 W 44th St New York PA 10036-3906 (212)471-6077 5/3/2002
233622 Glr Johnson 4100 E Dry Creek Rd Littleton CO 80122-3729 (303)712-5461 5/6/2002
233623 Dave Owens 466 Commerce Rd Staunton VA 24401-4432 (540)851-0362 3/19/2002
233624 John Coulbourn 124 Action St Maynard MA 1754 (978)987-0100 4/24/2002
233629 Dan Gagliardo 2875 Union Rd Cheektowaga NY 14227-1461 (716)558-8191 5/4/2002
23362 Damanceee Allen 1633 Broadway New York NY 10019-6708 (212)708-1576  
233630 Michael Peretz 235 E 45th St New York NY 10017-3305 (212)210-1340 4/30/2002
              (608)238-9690  
233631 Jody Veeder 440 Science Dr Madison WI 53711-1064 X227 3/27/2002
233632 Michael Kehrer 3015 SSE Loop 323 Tyler TX 75701 (903)579-3229 4/28/
233633 Erin Yoon 3500 Carillon Pt Kirkland WA 98033-7354 (425)897-7221 3/25/2002
233634 Madeline Shefferly 4100 E Dry Creek Rd Littleton CO 80122-3729 (303)486-3949 3/33/2002
233635 Steven Conduit 1332 Enterprise Dr West Chester PA 19380-5970 (610)692-5900 4/27/2002
233636 Joseph Kovach 1332 Enterprise Dr West Chester PA 19380-5970 (610)692-5900 4/28/2002
233637 Richard Jordan 1700 N Philadelphia PA 19131-4728 (215)581-6770 3/19/2002
233638 Scott Mikolajczyk 1655 Crofton Blvd Crofton MD 21114-1387 (410)729-8155 4/28/2002
233639 Susan Shragg 1875 Century Park E Los Angeles CA 90067-2501 (310)785-0511 4/29/2002
233640 Rob Ponto 29777 Telegraph Rd Southfield MI 48034-1303 (810)204-4724 5/5/2002
      1211 Avenue Of The          
233642 Lauren Butler Americas New York NY 10036-8701 (212)852-7494 4/22/2002
233643 Christopher Lee 12421 W Olympic Blvd Los Angeles CA 90064-1022 (310)689-2577 3/25/2002
233644 Michelle Decker 6922 Hollywood Blvd Hollywood CA 90028-6117 (323)817-4655 5/8/2002
      1211 Avenue Of The          
233647 Natalia Galeano Americas New York NY 10036-8701 (646)728-6911 4/23/2002
233648 Bobbie Orchard 4201 Congress St Charlotte NC 28209-4617 (704)557-2444 5/11/2002
233650 Ben Konfino 1111 Stewart Ave Bethpage NY 11714-3533 (516)803-1406 3/19/2002
233651 Lenee Santana 1050 Techwood Dr NW Atlanta GA 30318-KKRR (404)885-2000 3/22/2002
233652 Lauren Monks 7700 Wisconsin Ave Bethesda MD 20814-3578 (301)771-4772 3/19/2005
      10950 Washington          
233653 Mark Woolley Blvd Culver City CA 90232-4026 (310)202-2900 4/20/2002
233654 Stan Matthews 1235 W St NE Washington DC 20018-1107 (202)608-2000 3/25/2002
FIGURE AYK.1
Data Cleansing.
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5. Predicting Movie
The Netflix Prize is a $1,000,000 prize for any person that can help Netflix improve the data
in its recommendation engine. The Netflix Prize sought to substantially improve the accuracy
of predictions about how much someone is going to enjoy a movie based on their movie
preferences. On September 21, 2009 Netflix awarded the $1M Grand Prize to team BellKor’s
Pragmatic Chaos.
Project Focus
The ability to search, analyze, and comprehend information is vital for any organization’s success.
It certainly was for Netflix, as it was happy to pay anyone $1 million to improve the quality of its
information. In a group explain how Netflix might use databases, data warehouses, and data marts
to predict customer movie recommendations. Here are a few characteristics you might want to
analyze to get you started:
■ Customer demographics.
■ Movie genre, rating, year, producer, type.
■ Actor information.
■ Internet access.
■ Location for mail pickup.
Dimension Value (1–5) Dimension Value (1–5)
Product number   Season  
Store location   Promotion  
Customer net worth   Payment method  
Number of sales personnel   Commission policy  
Customer eating habits   Manufacturer  
Store hours   Traffic report  
Salesperson ID   Customer language  
Product style   Weather  
Order date   Customer gender  
Product quantity   Local tax information  
Ship date   Local cultural demographics  
Current interest rate   Stock market closing  
Product cost   Customer religious affiliation  
Customer’s political affiliation   Reason for purchase  
Local market analysis   Employee dress code policy  
Order time   Customer age  
Customer spending habits   Employee vacation policy  
Product price   Employee benefits  
Exchange rates   Current tariff information  
Product gross margin      
FIGURE AYK.2
Data Warehouse Data.
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6. The Crunch Factory
The Crunch Factory is one of the fourth-largest gyms operating in Australia, and each gym oper-
ates its own system with its own database. Unfortunately, the company failed to develop any
data-capturing standards and now faces the challenges associated with low-quality enterprisewide
information. For example, one system has a field to capture email addresses, while another system
does not. Duplicate customer information among the different systems is another major issue, and
the company continually finds itself sending conflicting or competing messages to customers from
different gyms. A customer could also have multiple accounts within the company, one representing
a membership, another representing additional classes, and yet another for a personal trainer.
The Crunch Factory has no way to identify that the different customer accounts are actually for
the same customer.
Project Focus
To remain competitive and be able to generate business intelligence The Crunch Factory has
to resolve these challenges. The Crunch Factory has just hired you as its data quality expert.
Your first task is to determine how the company can turn its low-quality information into high-
quality business intelligence. Create a plan that The Crunch Factory can implement that details
the following:
■ Challenges associated with low-quality information.
■ Benefits associated with high-quality information.
■ Recommendations on how the company can clean up its data.
7. Too Much of a Good Thing
The Castle, a premium retailer of clothes and accessories, created an enterprisewide data
warehouse so all its employees could access information for decision making. The Castle soon
discovered that it is possible to have too much of a good thing. The Castle employees found
themselves inundated with data and unable to make any decisions, a common occurrence
called analysis paralysis. When sales representatives queried the data warehouse to determine
if a certain product in the size, color, and category was available, they would get hundreds of
results showing everything from production orders to supplier contracts. It became easier for the
sales  representatives to look in the warehouse themselves than to check the system. Employees
found the data warehouse was simply too big and too complicated, and it contained too much
irrelevant information.
Project Focus
The Castle is committed to making its data warehouse system a success and has come to you for
help. Create a plan that details the value of the data warehouse to the business, how it can be easier
for all employees to use, along with the potential business benefits the company can derive from
its data warehouse.
8. Twitter Buzz
Technology tools that can predict sales for the coming week, decide when to increase inven-
tory, and determine when additional staff is required are extremely valuable. Twitter is not just
for tweeting your whereabouts anymore. Twitter and other social-media sites have become great
tools for gathering business intelligence on customers, including what they like, dislike, need,
and want. Twitter is easy to use, and businesses can track every single time a customer makes a
statement about a particular product or service. Good businesses turn this valuable information
into  intelligence spotting trends and patterns in customer opinion.
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If you are looking for Access projects to incorporate into your class, try any of the following to test
your knowledge.
A Y K A P P L I C A T I O N P R O J E C T S
Project Focus
Do you agree that a business can use Twitter to gain business intelligence? How many companies
do you think are aware of Twitter and exactly how they can use it to gain BI? How do you think
Twitter uses a data warehouse? How do you think companies store Twitter information? How would
a company use Twitter in a data mart? How would a company use cubes to analyze Twitter data?
Project
Number Project Name
Project
Type Plug-In Focus Area Project Level Skill Set
Page
Number
28 Daily Invoice Access T5, T6, T7, T8 Business
Analysis
Introductory Entities, Relationships,
and Databases
AYK.17
29 Billing Data Access T5, T6, T7, T8 Business
Intelligence
Introductory Entities, Relationships,
and Databases
AYK.19
30 Inventory Data Access T5, T6, T7, T8 SCM Intermediate Entities, Relationships,
and Databases
AYK.20
31 Call Center Access T5, T6, T7, T8 CRM Intermediate Entities, Relationships,
and Databases
AYK.21
32 Sales Pipeline Access T5, T6, T7, T8 Business
Intelligence
Advanced Entities, Relationships,
and Databases
AYK.23
33 Online
Classified Ads
Access T5, T6, T7, T8 Ecommerce Advanced Entities, Relationships,
and Databases
AYK.23
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Information is a powerful asset. It is a key organizational asset that enables companies to carry out business
initiatives and strategic plans. Companies that manage information are primed for competitive advantage and
success. Information systems provide the key tools allowing access to and flow of information across enter-
prises. This unit emphasizes the important role strategic decision-making information systems play in increasing
efficiency and effectiveness across global enterprises and providing the infrastructure required for supply chain
management, customer relationship management, and enterprise resource planning. These systems facilitate
interactions among customers, suppliers, partners, and employees providing new communication channels
beyond those traditionally used by organizations such as face-to-face or paper-based methods.
A supply chain consists of all direct and indirect parties involved in the procurement of products and raw
material. These parties can be internal groups or departments within an organization or external partner compa-
nies and end customers. You, as a business student, need to know the significance of a supply chain to organiza-
tional success and the critical role information technology plays in ensuring smooth operations of a supply chain.
You, as a business student, must understand the critical relationship your business will have with its cus-
tomers. You must understand how to analyze your organizational data to ensure you are not just meeting, but
exceeding, your customers’ expectations. Business intelligence is the best way to understand your customers’
current and—more importantly—future needs. Like never before, enterprises are technologically empowered
to reach their goals of integrating, analyzing, and making intelligent business decisions based on their data.
You, as a business student, must understand how to give employees, customers, and business partners
access to information by means of newer technologies such as enterprise resource planning systems and enter-
prise portals. Creating access to information with the help of information systems facilitates completion of
current tasks while encouraging the sharing and generation of new ideas that lead to the development of inno-
vations, improved work habits, and best practices.
W h a t ’ s i n I T f o r M e ?
Streamlining Business
Operations3UNIT
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U N I T T H R E E O P E N I N G C A S E
The Connected Car Revolution
We are currently in the middle of the connected car revolution, a vehicle equipped with smart
sensors, Internet access, and a number of information systems that make driving easy, intel-
ligent, and safe. Connected cars share information with individuals inside and outside the car via
smart networks in a seamless and safe manner. Connected cars have the power of 20 modern
PCs and contain more than 100 million lines of code that can process up to 25 gigabytes of data
in an hour. From automobile manufacturers to software vendors to telecommunication compa-
nies, everyone is excited about the connected car phenomenon. Connected cars are not some
futuristic auto technology; in fact, the connected car is already on the market and generating
significant revenue for car makers and technology companies. A few benefits of the connected
car include:
■ Driver and passenger safety are the key benefits of a Connected Car, which warn the driver
of external hazards and internal responses of the vehicle to hazards. The central monitoring
system tracks multiple sensors for warning signs and indications related to the health of the
car. It can even check external weather conditions and hazardous road conditions to alert the
drivers in time.
■ Car crashes are the leading cause of death for U.S. teens, and speeding is a contributing fac-
tor in about a third of those crashes. Mom and Dad cannot always be there to influence their
teen driver’s judgment, but a new application developed for Hyundai’s in-car infotainment
system allows parents to monitor and set restrictions on the car’s speed, hours of operation
and where it travels. If the driver exceeds a preset speed limit, for example, the parent will
receive an alert via text, email and soon, a mobile app. The teenage driver also will see a
notification on the vehicle’s multimedia screen.
■ Connected Cars take the infotainment to the next level by delivering popular content to the
passengers. Today, car entertainment is mostly confined to FM radio and Bluetooth connectiv-
ity. With the availability of high-speed networks, popular streaming services such as Pandora,
Spotify, and Hulu become available. Consumers will have a huge choice of digital content.
© JGI/Blend Images/Getty Images RF © Steve Cole/Getty Images RF © Steve Cole/Getty Images RF
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162
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■ Apple and Google are competing to becoming the brain behind in-car infotainment.
Apple’s Car Play embeds familiar iOS experience in the dashboard which gives access
to a variety of third-party apps available in the App Store. Android Auto can stream music
from Google Play Music straight into your car. It also makes it easy to access your favorite
apps and content in the car. Passengers can purchase or rent media on the go. Consum-
ers can use familiar voice-activated technologies such as Siri and Google Now to interact
with the infotainment system. Amazon is partnering with Ford to bring its popular Alexa
engine to the car.
■ Connected Cars allow the driver to reach a destination quickly, safely, and in a cost-
efficient manner. By communicating with the traffic signals and the road infrastructure, a
smart car can slow down before reaching a signal. It can even automatically stop and start
the car just before the lights turn green. This feature translates to a greater fuel efficiency.
■ By tracking the driving patterns, Connected Cars can assess the wear and tear of a vehi-
cle. This information can be leveraged by insurance agencies in calculating the premium
that’s based on usage and the maintenance of the car.
■ Service stations can periodically gather the diagnostic information over the air to perform
predictive analysis. They can proactively reach out to the vehicle owners to schedule a
service appointment.
Over the next five to 10 years, the connected car market is expected to explode creating
a new platform for consumers to access content and revolutionize the auto industry. Industry
experts equate the connected car market is similar to where the smartphone was in 2010—
it’s just taken off and is ready to explode with an estimate of over 380 million connected cars
will be on the road by 2021. Technology companies will play a major role in the future of the
automotive market. The big question now is whether technology companies will eventually
manufacture cars?
Next up, a world where cars drive themselves? Although fully autonomous vehicles are
not yet mainstream, they are only a few years away. Technological, regulatory, and consumer
adoption hurdles still remain, but there have been many strides towards a car that can drive
itself from point A to point B with little to no human interaction. In the UK, KPMG estimates
autonomous vehicles will lead to 2,500 fewer deaths between 2014 and 2030.1
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Introduction
Decision making and problem solving in today’s electronic world encompass large-scale,
opportunity-oriented, strategically focused solutions. The traditional “cookbook” approach to
decisions simply will not work in the ebusiness world. Decision-making and problem-solving
abilities are now the most sought-after traits in up-and-coming executives. To put it mildly,
decision makers and problem solvers have limitless career potential.
Ebusiness is the conducting of business on the Internet, not only buying and selling, but
also serving customers and collaborating with business partners. (Unit Four discusses ebusi-
ness in detail.) With the fast growth of information technology and the accelerated use of the
Internet, ebusiness is quickly becoming standard. This unit focuses on technology to help
make decisions, solve problems, and find new innovative opportunities. The unit highlights
how to bring people together with the best IT processes and tools in complete, flexible solu-
tions that can seize business opportunities (see Figure Unit 3.1). The chapters in Unit 3 are:
■ Chapter Nine—Enabling the Organization—Decision Making.
■ Chapter Ten—Extending the Organization—Supply Chain Management.
■ Chapter Eleven—Building a Customer-centric Organization—Customer Relationship
Management.
■ Chapter Twelve—Integrating the Organization from End to End—Enterprise Resource
Planning.
Customers
PartnersSuppliers
Employees
Supply Chain
Management (SCM)
Customer Relationship
Management (CRM)
Decision Support
Systems (DSS)
Executive Information
Systems (EIS)
Artificial Intelligence (AI)
Enterprise Resource
Planning (ERP)
Data Mining
FIGURE UNIT 3.1
Decision-Enabling, Problem-
Solving, and Opportunity-
Seizing Systems.
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Making Business Decisions
Porter’s strategies suggest entering markets with a competitive advantage in either overall
cost leadership, differentiation, or focus. To achieve these results, managers must be able
to make decisions and forecast future business needs and requirements. The most important
and most challenging question confronting managers today is how to lay the foundation for
tomorrow’s success while competing to win in today’s business environment. A company will
not have a future if it is not cultivating strategies for tomorrow. The goal of this section is to
expand on Porter’s Five Forces Model, three generic strategies, and value chain analysis to
demonstrate how managers can learn the concepts and practices of business decision making
to add value. It will also highlight how companies heading into the 21st century are taking
advantage of advanced MIS capable of generating significant competitive advantages across
the value chain.
As we discussed in Unit 1, decision making is one of the most important and chal-
lenging aspects of management. Decisions range from routine choices, such as how many
items to order or how many people to hire, to unexpected ones such as what to do if a key
employee suddenly quits or needed materials do not arrive. Today, with massive volumes of
information available, managers are challenged to make highly complex decisions—some
involving far more information than the human brain can comprehend—in increasingly
shorter time frames. Figure 9.1 displays the three primary challenges managers face when
making decisions.
THE DECISION-MAKING ESSENTIALS
The process of making decisions plays a crucial role in communication and leadership for
operational, managerial, and strategic projects. There are numerous academic decision-
making models; Figure 9.2 presents just one example.2
A few key concepts about organizational structure will help our discussion of MIS deci-
sion-making tools. The structure of a typical organization is similar to a pyramid, and the
different levels require different types of information to assist in decision making, problem
solving, and opportunity capturing (see Figure 9.3).
LO 9.1 Explain the importance
of decision making for managers
at each of the three primary
organization levels along
with the associated decision
characteristics.
systems, and explain how managers can use these
systems to make decisions and gain competitive
advantages.
9.3. Describe artificial intelligence, and identify its five
main types.
L E A R N I N G O U T C O M E S
9.1. Explain the importance of decision making for
managers at each of the three primary organization
levels along with the associated decision
characteristics.
9.2. Classify the different operational support systems,
managerial support systems, and strategic support
Enabling the
Organization—Decision
Making
C H A P T E R 9
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Operational
At the operational level, employees develop, control, and maintain core business activities
required to run the day-to-day operations. Operational decisions are considered structured
decisions, which arise in situations where established processes offer potential solutions.
Structured decisions are made frequently and are almost repetitive in nature; they affect short-
term business strategies. Reordering inventory and creating the employee staffing and weekly
production schedules are examples of routine structured decisions. Figure 9.4 highlights the
essential elements required for operational decision making.
FIGURE 9.1
Managerial Decision-Making
Challenges.
1. Managers need to analyze large amounts of information:
Innovations in communication and globalization have resulted in a
dramatic increase in the variables and dimensions people need to consider
when making a decision, solving a problem, or appraising an opportunity.
2. Managers must make decisions quickly:
Time is of the essence and people simply do not have time to sift through
all the information manually.
3. Managers must apply sophisticated analysis techniques, such as
Porter’s strategies or forecasting, to make strategic decisions:
Due to the intensely competitive global business environment, companies
must o�er far more than just a great product to succeed.
MANAGERIAL
DECISION-MAKING
CHALLENGES
FIGURE 9.2
The Six-Step Decision-
Making Process.
DECISION-MAKING
PROCESS
Problem Identification: Define the problem as clearly and precisely
as possible.
Data Collection: Gather problem-related data, including who, what,
where, when, why, and how. Be sure to gather facts, not rumors or
opinions about the problem.
Solution Generation: Detail every solution possible, including ideas
that seem farfetched.
Solution Test: Evaluate solutions in terms of feasibility (can it be
completed?), suitability (is it a permanent or a temporary fix?), and
acceptability (can all participants form a consensus?).
Solution Selection: Select the solution that best solves the problem
and meets the needs of the business.
Solution Implementation: If the solution solves the problem, then
the decisions made were correct. If not, then the decisions were
incorrect and the process begins again.
1
2
3
4
5
6
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FIGURE 9.3
Common Company
Structure.
STRATEGIC
MANAGERIAL
OPERATIONAL
STRATEGIC LEVEL
(Unstructured Decisions)
Managers develop overall business strategies, goals, and
objectives as part of the company’s strategic plan
MANAGERIAL LEVEL
(Semistructured Decisions)
Employees are continuously evaluating company
operations to hone the firm’s abilities to identify, adapt
to, and leverage change
OPERATIONAL LEVEL
(Structured Decisions)
Employees develop, control, and maintain core
business activities required to run the day-to-day
operations
FIGURE 9.4
Overview of Decision
Making.
Employee
TypesTypes
Senior management,
presidents, leaders,
executives
Middle management,
managers, directors
Lower management,
department managers,
analysts, sta�
Focus External, industry, cross
company
Internal, crossfunctional
(sometimes external)
Internal, functional
Time Frame Long term—yearly,
multiyear
Short term, daily,
monthly, yearly
Short term, day-to-day
operations
Decision
Types
Unstructured,
nonrecurring, one time
Semistructured, ad hoc
(unplanned) reporting
Structured, recurring,
repetitive
MIS Types Knowledge Business intelligence Information
Metrics Critical success fac-
tors focusing on
e�ectiveness
Key performance
indicators focusing on
e�ciency, and critical
success factors focusing
on e�ectiveness
Key performance
indicators focusing on
e�ciency
Examples How will changes in
employment levels over
the next 3 years a�ect
the company?
What industry trends are
worth analyzing?
What new products and
new markets does the
company need to create
competitive advantages?
How will a recession
over the next year a�ect
business?
What measures will the
company need to pre-
pare for due to new tax
laws?
Who are our best
customers by region, by
sales representative, by
product?
What are the sales
forecasts for next month?
How do they compare to
actual sales for last year?
What was the di�erence
between expected sales
and actual sales for
each month?
What was the impact of
last month’s marketing
campaign on sales?
What types of ad hoc or
unplanned reports might
the company require
next month?
How many employees
are out sick?
What are next
week’s production
requirements?
How much inventory is
in the warehouse?
How many problems
occurred when running
payroll?
Which employees are on
vacation next week?
How many products
need to be made today?
STRATEGIC LEVEL MANAGERIAL LEVEL OPERATIONAL LEVEL
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Managerial
At the managerial level, employees are continuously evaluating company operations to hone
the firm’s abilities to identify, adapt to, and leverage change. A company that has a competitive
advantage needs to constantly adjust and revise its strategy to remain ahead of fast-following
competitors. Managerial decisions cover short- and medium-range plans, schedules, and bud-
gets along with policies, procedures, and business objectives for the firm. They also allocate
resources and monitor the performance of organizational subunits, including departments,
divisions, process teams, project teams, and other work groups. These types of decisions are
considered semistructured decisions they occur in situations in which a few established pro-
cesses help to evaluate potential solutions, but not enough to lead to a definite recommended
decision. For example, decisions about producing new products or changing employee ben-
efits range from unstructured to semistructured. Figure 9.4 highlights the essential elements
required for managerial decision making.
Strategic
At the strategic level, managers develop overall business strategies, goals, and objectives as
part of the company’s strategic plan. They also monitor the strategic performance of the orga-
nization and its overall direction in the political, economic, and competitive business environ-
ment. Strategic decisions are highly unstructured decisions, occurring in situations in which
no procedures or rules exist to guide decision makers toward the correct choice. They are
infrequent, extremely important, and typically related to long-term business strategy. Exam-
ples include the decision to enter a new market or even a new industry over, say, the next three
years. In these types of decisions, managers rely on many sources of information, along with
personal knowledge, to find solutions. Figure 9.4 highlights the essential elements required
for strategic decision making.
Support: Enhancing Decision Making with MIS
Now that we’ve reviewed the essentials of decision making, we are ready to understand the
powerful benefits associated with using MIS to support managers making decisions.
A model is a simplified representation or abstraction of reality. Models help managers
calculate risks, understand uncertainty, change variables, and manipulate time to make deci-
sions. MIS support systems rely on models for computational and analytical routines that
mathematically express relationships among variables. For example, a spreadsheet program,
such as Microsoft Office Excel, might contain models that calculate market share or ROI.
MIS have the capability and functionality to express far more complex modeling relation-
ships that provide information, business intelligence, and knowledge. Figure 9.5 highlights
the three primary types of management information systems available to support decision
making across the company levels.
OPERATIONAL SUPPORT SYSTEMS
Transactional information encompasses all the information contained within a single busi-
ness process or unit of work, and its primary purpose is to support the performance of daily
operational or structured decisions. Transactional information is created, for example, when
customers are purchasing stocks, making an airline reservation, or withdrawing cash from
an ATM. Managers use transactional information when making structured decisions at the
operational level, such as when analyzing daily sales reports to determine how much inven-
tory to carry.
Online transaction processing (OLTP) is the capture of transaction and event infor-
mation using technology to (1) process the information according to defined business
rules, (2) store the information, and (3) update existing information to reflect the new
information. During OLTP, the organization must capture every detail of transactions and
events. A transaction processing system (TPS) is the basic business system that serves the
operational level (analysts) and assists in making structured decisions. The most common
LO 9.2 Classify the different
operational support systems,
managerial support systems,
and strategic support systems,
and explain how managers
can use these systems to make
decisions and gain competitive
advantages.
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example of a TPS is an operational accounting system such as a payroll system or an order-
entry system.
Using systems thinking, we can see that the inputs for a TPS are source documents,
which describes the original transaction record along with details such as its date, purpose,
and amount spent and includes cash receipts, canceled checks, invoices, customer refunds,
employee time sheet, etc.. Source documents for a payroll system can include time sheets,
wage rates, and employee benefit reports. Transformation includes common procedures such
as creating, reading, updating, and deleting (commonly referred to as CRUD) employee
records, along with calculating the payroll and summarizing benefits. The output includes
cutting the paychecks and generating payroll reports. Figure 9.6 demonstrates the systems
thinking view of a TPS.3
FIGURE 9.5
Primary Types of MIS
Systems for Decision
Making.
Operational Managerial Strategic
Unstructured
Semistructured
Structured
Transaction
Processing
System
Decision
Support
Systems
Executive
Information
Systems
FIGURE 9.6
Systems Thinking Example
of a TPS.
Input Process Output
CRUD
Calculate
Summarize
Reports Source Documents
Feedback
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MANAGERIAL SUPPORT SYSTEMS
Analytical information encompasses all organizational information, and its primary purpose
is to support the performance of managerial analysis or semistructured decisions. Analyti-
cal information includes transactional information along with other information such as mar-
ket and industry information. Examples of analytical information are trends, sales, product
statistics, and future growth projections. Managers use analytical information when making
important semistructured decisions, such as whether the organization should build a new
manufacturing plant or hire additional sales reps.
Online analytical processing (OLAP) is the manipulation of information to create busi-
ness intelligence in support of strategic decision making. Decision support systems (DSSs)
model information using OLAP, which provides assistance in evaluating and choosing among
different courses of action. DSSs enable high-level managers to examine and manipulate large
amounts of detailed data from different internal and external sources. Analyzing complex
relationships among thousands or even millions of data items to discover patterns, trends,
and exception conditions is one of the key uses associated with a DSS. For example, doctors
may enter symptoms into a decision support system so it can help diagnose and treat patients.
Insurance companies also use a DSS to gauge the risk of providing insurance to drivers who
have imperfect driving records. One company found that married women who are homeown-
ers with one speeding ticket are rarely cited for speeding again. Armed with this business
intelligence, the company achieved a cost advantage by lowering insurance rates to this spe-
cific group of customers. The following are common DSS analysis techniques.
What-If Analysis
What-if analysis checks the impact of a change in a variable or assumption on the model.
For example, “What will happen to the supply chain if a hurricane in South Carolina reduces
holding inventory from 30 percent to 10 percent?” A user would be able to observe and evalu-
ate any changes that occurred to the values in the model, especially to a variable such as
profits. Users repeat this analysis with different variables until they understand all the effects
of various situations.
Sensitivity Analysis
Sensitivity analysis, a special case of what-if analysis, is the study of the impact on other vari-
ables when one variable is changed repeatedly. Sensitivity analysis is useful when users are
uncertain about the assumptions made in estimating the value of certain key variables. For exam-
ple, repeatedly changing revenue in small increments to determine its effects on other variables
would help a manager understand the impact of various revenue levels on other decision factors.
Goal-Seeking Analysis
Goal-seeking analysis finds the inputs necessary to achieve a goal such as a desired level of
output. It is the reverse of what-if and sensitivity analysis. Instead of observing how changes
in a variable affect other variables, goal-seeking analysis sets a target value (a goal) for a
variable and then repeatedly changes other variables until the target value is achieved. For
example, goal-seeking analysis could determine how many customers must purchase a new
product to increase gross profits to $5 million.
Optimization Analysis
Optimization analysis, an extension of goal-seeking analysis, finds the optimum value for
a target variable by repeatedly changing other variables, subject to specified constraints. By
changing revenue and cost variables in an optimization analysis, managers can calculate the
highest potential profits. Constraints on revenue and cost variables can be taken into consider-
ation, such as limits on the amount of raw materials the company can afford to purchase and
limits on employees available to meet production needs.
Figure 9.7 shows the common systems view of a DSS. Figure 9.8 shows how TPSs supply
transactional data to a DSS. The DSS then summarizes and aggregates the information from
the different TPSs, which assist managers in making semistructured decisions.
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STRATEGIC SUPPORT SYSTEMS
Decision making at the strategic level requires both business intelligence and knowledge to
support the uncertainty and complexity associated with business strategies. An executive
information system (EIS) is a specialized DSS that supports senior-level executives and
unstructured, long-term, nonroutine decisions requiring judgment, evaluation, and insight.
These decisions do not have a right or wrong answer, only efficient and effective answers.
Moving up through the organizational pyramid, managers deal less with the details (“finer”
information) and more with meaningful aggregations of information (“coarser” information).
Granularity refers to the level of detail in the model or the decision-making process. The
greater the granularity, the deeper the level of detail or fineness of data (see Figure 9.9).
A DSS differs from an EIS in that an EIS requires data from external sources to support
unstructured decisions (see Figure 9.10). This is not to say that DSSs never use data from
external sources, but typically DSS semistructured decisions rely on internal data only.
Visualization produces graphical displays of patterns and complex relationships in large
amounts of data. Executive information systems use visualization to deliver specific key
information to top managers at a glance, with little or no interaction with the system. A com-
mon tool that supports visualization is a digital dashboard, which tracks key performance
FIGURE 9.7
Systems Thinking Example
of a DSS.
Input Process Output
Feedback
What-if
Sensitivity
Goal seeking
Optimization
Forecasts
Simulations
Ad hoc reports
TPS
FIGURE 9.8
Interaction Between
TPS and DSS to Support
Semistructured Decisions.
Transaction Processing
Systems
Decision Support Systems
Order
Entry
Order Processing System
Inventory Tracking System
Distribution System
Decision Support System
Inventory
Data
Shipping
Data
Sales
Data
Manufacturing
Data
Transportation
Data
Managerial
Reports
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FIGURE 9.9
Information Levels
throughout an Organization.
STRATEGIC
MANAGERIAL
OPERATIONAL
Fine
Coarse
G
ra
nu
la
ri
ty
OLTP
OLAP
P
ro
ce
ss
in
g
Transactional
Analytical
P
ro
ce
ss
es
FIGURE 9.10
Interaction between
a TPS and EIS.Transaction Processing
Systems
Executive
Reports
EIS
Order
Entry
Order Processing
System
Inventory Data
Inventory Tracking
System
Shipping Data
Distribution System
Sales
Data
Manufacturing
Data
Transportation
Data
Industry
Outlook
Market
Outlook
Executive Information
Systems
Industry
Information
Stock Market
Information
External Sources of
Information
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FIGURE 9.11
Digital Dashboard Analytical
Capabilities.
CONSOLIDATION
Consolidation is the aggregation of data from simple
roll-ups to complex groupings of interrelated
information. For example, data for di�erent sales
representatives can then be rolled up to an o�ce level,
then a state level, then a regional sales level.
DRILL-DOWN
Drill-down enables users to view details, and details of
details, of information. This is the reverse of
consolidation; a user can view regional sales data and
then drill down all the way to each sales
representative’s data at each o�ce. Drill-down
capability lets managers view monthly, weekly, daily, or
even hourly information.
Slice-and-Dice
Slice-and-dice is the ability to look at information
from di�erent perspectives. One slice of information
could display all product sales during a given
promotion. Another slice could display a single
product’s sales for all promotions. Slicing and dicing is
often performed along a time axis to analyze trends
and find time-based patterns in the information.
Pivot
Pivot (also known as rotation) rotates data to display
alternative presentations of the data. For example, a
Pivot can swap the rows and columns of a report to
show the data in a di�erent format.
indicators (KPIs) and critical success factors (CSFs) by compiling information from multiple
sources and tailoring it to meet user needs. Following is a list of potential features included in
a dashboard designed for a manufacturing team:
■ A hot list of key performance indicators, refreshed every 15 minutes.
■ A running line graph of planned versus actual production for the past 24 hours.
■ A table showing actual versus forecasted product prices and inventories.
■ A list of outstanding alerts and their resolution status.
■ A graph of stock market prices.
Digital dashboards, whether basic or comprehensive, deliver results quickly. As they
become easier to use, more employees can perform their own analyses without inundating
MIS staff with questions and requests for reports. Digital dashboards enable employees to
move beyond reporting to using information to directly increase business performance. With
them, employees can react to information as soon as it becomes available and make decisions,
solve problems, and change strategies daily instead of monthly. Digital dashboards offer the
capabilities detailed in Figure 9.11.
One thing to remember when making decisions is the old saying “Garbage in, garbage
out.” If the transactional data used in the support system are wrong, then the managerial
analysis will be wrong and the DSS will simply assist in making a wrong decision faster.
Managers should also ask, “What is the DSS not telling me before I make my final decision?”
The Future: Artificial Intelligence
Executive information systems are starting to take advantage of artificial intelligence to facili-
tate unstructured strategic decision making. Artificial intelligence (AI) simulates human
thinking and behavior, such as the ability to reason and learn. Its ultimate goal is to build a
system that can mimic human intelligence.
Intelligent systems are various commercial applications of artificial intelligence. They
include sensors, software, and devices that emulate and enhance human capabilities, learn
or understand from experience, make sense of ambiguous or contradictory information, and
LO 9.3 Describe artificial
intelligence, and identify its
five main types.
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even use reasoning to solve problems and make decisions effectively. Intelligent systems per-
form such tasks as boosting productivity in factories by monitoring equipment and signaling
when preventive maintenance is required. They are beginning to show up everywhere:
■ At Manchester Airport in England, the Hefner AI Robot Cleaner alerts passengers to secu-
rity and nonsmoking rules while it scrubs up to 65,600 square feet of floor per day. Laser
scanners and ultrasonic detectors keep it from colliding with passengers.
■ Shell Oil’s SmartPump keeps drivers in their cars on cold, wet winter days. It can service
any automobile built after 1987 that has been fitted with a special gas cap and a wind-
shield-mounted transponder that tells the robot where to insert the pump.
■ Matsushita’s courier robot navigates hospital hallways, delivering patient files, X-ray
films, and medical supplies.
■ The FireFighter AI Robot can extinguish flames at chemical plants and nuclear reactors
with water, foam, powder, or inert gas. The robot puts distance between human operators
and the fire.4
AI systems increase the speed and consistency of decision making, solve problems with
incomplete information, and resolve complicated issues that cannot be solved by conventional
computing. There are many categories of AI systems; five of the most familiar are (1) expert
systems, (2) neural networks, (3) genetic algorithms, (4) intelligent agents, and (5) virtual
reality (see Figure 9.12).
EXPERT SYSTEMS
Expert systems are computerized advisory programs that imitate the reasoning processes of
experts in solving difficult problems. Typically, they include a knowledge base containing
various accumulated experience and a set of rules for applying the knowledge base to each
particular situation. Expert systems are the most common form of AI in the business arena
because they fill the gap when human experts are difficult to find or retain or are too expen-
sive. The best-known systems play chess and assist in medical diagnosis.
NEURAL NETWORKS
A neural network, also called an artificial neural network, is a category of AI that attempts
to emulate the way the human brain works. Neural networks analyze large quantities of infor-
mation to establish patterns and characteristics in situations where the logic or rules are
unknown. Neural networks’ many features include:
■ Learning and adjusting to new circumstances on their own.
■ Lending themselves to massive parallel processing.
FIGURE 9.12
Examples of Artificial
Intelligence.
Artificial Intelligence
Expert Systems
Example:
Playing chess.
Neural Networks
Example: Credit
card companies
checking for
fraud.
Genetic Algorithms
Example:
Investment
companies in
trading decisions.
Intelligent Agents
Example:
Environmental
scanning and
competitive
intelligence.
Virtual Reality
Example:
Working virtually
around the globe.
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■ Functioning without complete or well-structured information.
■ Coping with huge volumes of information with many dependent variables.
■ Analyzing nonlinear relationships in information (they have been called fancy regression
analysis systems).
The finance industry is a veteran in the use of neural network technology and has been
relying on various forms for over two decades. It uses neural networks to review loan applica-
tions and create patterns or profiles of applications that fall into two categories—approved or
denied. Here are some examples of neural networks in finance:
■ Citibank uses neural networks to find opportunities in financial markets. By carefully
examining historical stock market data with neural network software, Citibank financial
managers learn of interesting coincidences or small anomalies (called market inefficien-
cies). For example, it could be that whenever IBM stock goes up, so does Unisys stock, or
that a U.S. Treasury note is selling for 1 cent less in Japan than in the United States. These
snippets of information can make a big difference to Citibank’s bottom line in a very com-
petitive financial market.
■ Visa, MasterCard, and many other credit card companies use a neural network to spot
peculiarities in individual accounts and follow up by checking for fraud. MasterCard esti-
mates neural networks save it $50 million annually.
■ Insurance companies along with state compensation funds and other carriers use neural
network software to identify fraud. The system searches for patterns in billing charges,
laboratory tests, and frequency of office visits. A claim for which the diagnosis was a
sprained ankle but treatment included an electrocardiogram would be flagged for the
account manager.5
Fuzzy logic is a mathematical method of handling imprecise or subjective information.
The basic approach is to assign values between 0 and 1 to vague or ambiguous information.
Zero represents information not included, while 1 represents inclusion or membership. For
example, fuzzy logic is used in washing machines that determine by themselves how much
water to use or how long to wash (they continue washing until the water is clean). In account-
ing and finance, fuzzy logic allows people to analyze information with subjective financial
values (intangibles such as goodwill) that are very important considerations in economic anal-
ysis. Fuzzy logic and neural networks are often combined to express complicated and subjec-
tive concepts in a form that makes it possible to simplify the problem and apply rules that are
executed with a level of certainty.
GENETIC ALGORITHMS
A genetic algorithm is an artificial intelligence system that mimics the evolutionary, survival-
of-the-fittest process to generate increasingly better solutions to a problem. A genetic algo-
rithm is essentially an optimizing system: It finds the combination of inputs that gives the best
outputs. Mutation is the process within a genetic algorithm of randomly trying combinations
and evaluating the success (or failure) of the outcome.
Genetic algorithms are best suited to decision-making environments in which thousands,
or perhaps millions, of solutions are possible. Genetic algorithms can find and evaluate solu-
tions with many more possibilities, faster and more thoroughly than a human. Organizations
face decision-making environments for all types of problems that require optimization tech-
niques, such as the following:
■ Business executives use genetic algorithms to help them decide which combination of
projects a firm should invest in, taking complicated tax considerations into account.
■ Investment companies use genetic algorithms to help in trading decisions.
■ Telecommunication companies use genetic algorithms to determine the optimal configu-
ration of fiber-optic cable in a network that may include as many as 100,000 connection
points. The genetic algorithm evaluates millions of cable configurations and selects the
one that uses the least amount of cable.
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INTELLIGENT AGENTS
An intelligent agent is a special-purpose knowledge-based information system that accom-
plishes specific tasks on behalf of its users. Intelligent agents usually have a graphical repre-
sentation, such as “Sherlock Holmes” for an information search agent.
One of the simplest examples of an intelligent agent is a shopping bot. A shopping bot is
software that will search several retailer websites and provide a comparison of each retailer’s
offerings including price and availability. Increasingly, intelligent agents handle the majority
of a company’s Internet buying and selling and complete such processes as finding products,
bargaining over prices, and executing transactions. Intelligent agents also have the capability
to handle all supply chain buying and selling.
Another application for intelligent agents is in environmental scanning and competitive intel-
ligence. For instance, an intelligent agent can learn the types of competitor information users
want to track, continuously scan the web for it, and alert users when a significant event occurs.
Multiagent Systems and Agent-Based Modeling
What do cargo transport systems, book distribution centers, the video game market, and a
flu epidemic have in common with an ant colony? They are all complex adaptive systems.
By observing parts of Earth’s ecosystem, like ant colonies, artificial intelligence scientists
can use hardware and software models that incorporate insect characteristics and behavior to
(1) learn how people-based systems behave, (2) predict how they will behave under a given
set of circumstances, and (3) improve human systems to make them more efficient and effec-
tive. This process of learning from ecosystems and adapting their characteristics to human
and organizational situations is called biomimicry.
In the past few years, AI research has made much progress in modeling complex orga-
nizations as a whole with the help of multiagent systems. In a multiagent system, groups
of intelligent agents have the ability to work independently and to interact with each other.
Agent-based modeling is a way of simulating human organizations using multiple intelligent
agents, each of which follows a set of simple rules and can adapt to changing conditions.
Agent-based modeling systems are being used to model stock market fluctuations, predict
the escape routes people seek in a burning building, estimate the effects of interest rates on
consumers with different types of debt, and anticipate how changes in conditions will affect
the supply chain, to name just a few.
VIRTUAL REALITY
Virtual reality is a computer-simulated environment that can be a simulation of the real world
or an imaginary world. Virtual reality is a fast-growing area of artificial intelligence that had
its origins in efforts to build more natural, realistic, multisensory human-computer interfaces.
Virtual reality enables telepresence where users can be anywhere in the world and use virtual
reality systems to work alone or together at a remote site. Typically, this involves using a
virtual reality system to enhance the sight and touch of a human who is remotely manipulat-
ing equipment to accomplish a task. Examples range from virtual surgery, where surgeon and
patient may be on opposite sides of the globe, to the remote use of equipment in hazardous
environments such as chemical plants and nuclear reactors. Augmented reality is the viewing
of the physical world with computer-generated layers of information added to it.
Virtual Workforce
At Microsoft’s headquarters in Redmond, Washington, traffic congestion occurs daily for the
35,000 commuters. To alleviate the congestion Microsoft is offering its employees the ability
to work virtually from home. Over 42 percent of IBM’s 330,000 employees work virtually,
saving over $100 million per year in real estate–elated expenses. Working virtually offers sev-
eral advantages such as fewer cars on the road, increases in worker productive, and decreased
real estate expenses. Drawbacks include the fear among workers that they will jeopardize
their careers by working from home, and some workers need a busy environment to stay
productive. Virtual workers also tend to feel alone, secluded, and deprived of vital training
and mentoring.
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1. Explain the three different types of MIS systems for decision making and identify one form of each
for a connected car.
2. Describe the difference between transactional and analytical information, and determine which
types are used to create a connected car’s intelligent dashboard.
3. Identify how a connected car consolidates, drills-down, and slices-and-dices data to help drivers
make better decisions.
4. Identify the five different types of artificial intelligence systems, and create an example of each for
a connected car.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
The goal of the DARPA Grand Challenge is to save lives by making one-third of ground military forces
autonomous or driverless vehicles. Created in response to a congressional and U.S. Department of
Defense (DoD) mandate, the DARPA Grand Challenge brings together individuals and organizations
from industry, the research and development (R&D) community, government, the armed services, and
academia and includes students, backyard inventors, and automotive enthusiasts.
The DARPA Grand Challenge 2004
The DARPA Grand Challenge 2004 field test of autonomous ground vehicles ran from Barstow,
California, to Primm, Nevada, and offered a $1 million prize. From the qualifying round at the California
Speedway, 15 finalists emerged to attempt the Grand Challenge. However, the prize went unclaimed
when no vehicles were able to complete the difficult desert route.
The DARPA Grand Challenge 2005
The DARPA Grand Challenge 2005 was held in the Mojave Desert and offered a $2 million prize to the
team that completed the 132-mile course in the shortest time under 10 hours. The race, over desert
terrain, included narrow tunnels, sharp turns, and a winding mountain pass with a sheer drop-off on
one side and a rock face on the other. Five teams completed the course, and “Stanley,” the Stanford
Racing Team’s car, won the $2 million prize with a time of 6 hours, 53 minutes.
DARPA Robotic Challenge 2015
Machines with human-like abilities have been portrayed in movies and books for a long time. Now they
are coming to life at the DARPA Robotics Challenge, a program created to accelerate progress in AI
development that would allow them to move in to areas too dangerous for humans along with mitigat-
ing natural or man-made disasters. The $2 million first prize was awarded to the Korean team that built
robot DRC-Hubo. The $1 million second prize was awarded to the Florida team that built Running Man.
The Challenge was a huge success and advances in robotics are being seen in areas around the globe.6
Questions
1. How is the DoD using AI to improve its operations and save lives?
2. Why would the DoD use an event like the DARPA Grand Challenge or DARPA Robotic Challenge to
further technological innovation?
3. Describe how autonomous vehicles and robots could be used by organizations around the world
to improve business efficiency and effectiveness.
Chapter Nine Case: Defense Advanced Research Projects Agency
(DARPA) Grand Challenge
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9.1. Explain the importance of decision making for managers at each of the three primary
organization levels along with the associated decision characteristics.
Decision-making skills are essential for all business professionals, at every company level, who
make decisions that run the business. At the operational level, employees develop, control, and
maintain core business activities required to run the day-to-day operations. Operational decisions
are considered structured decisions, which arise in situations in which established processes offer
potential solutions. Structured decisions are made frequently and are almost repetitive in nature;
they affect short-term business strategies.
At the managerial level, employees are continuously evaluating company operations to hone
the firm’s abilities to identify, adapt to, and leverage change. Managerial decisions cover short- and
medium-range plans, schedules, and budgets along with policies, procedures, and business objec-
tives for the firm. These types of decisions are considered semistructured decisions; they occur in
situations in which a few established processes help to evaluate potential solutions, but not enough
to lead to a definite recommended decision.
At the strategic level, managers develop overall business strategies, goals, and objectives as part
of the company’s strategic plan. They also monitor the strategic performance of the organization and
its overall direction in the political, economic, and competitive business environment. Strategic deci-
sions are highly unstructured decisions, occurring in situations in which no procedures or rules exist
to guide decision makers toward the correct choice. They are infrequent, extremely important, and
typically related to long-term business strategy.
9.2. Classify the different operational support systems, managerial support systems, and
strategic support systems and explain how managers can use these systems to make
decisions and gain competitive advantages.
Being able to sort, calculate, analyze, and slice-and-dice information is critical to an organization’s
success. Without knowing what is occurring throughout the organization, there is no way that man-
agers and executives can make solid decisions to support the business. The different operational,
managerial, and strategic support systems include:
■ Operational: A transaction processing system (TPS) is the basic business system that serves
the operational level (analysts) in an organization. The most common example of a TPS is an
operational accounting system such as a payroll system or an order-entry system.
■ Managerial: A decision support system (DSS) models information to support managers and
business professionals during the decision-making process.
■ Strategic: An executive information system (EIS) is a specialized DSS that supports senior-level
executives within the organization.
9.3. Describe artificial intelligence, and identify its five main types.
Artificial intelligence (AI) simulates human thinking and behavior, such as the ability to reason and
learn. The five most common categories of AI are:
1. Expert systems—computerized advisory programs that imitate the reasoning processes of
experts in solving difficult problems.
2. Neural networks—attempts to emulate the way the human brain works.
3. Genetic algorithm—a system that mimics the evolutionary, survival-of-the-fittest process to gener-
ate increasingly better solutions to a problem.
4. Intelligent agents—a special-purpose knowledge-based information system that accomplishes
specific tasks on behalf of its users.
5. Virtual reality—a computer-simulated environment that can be a simulation of the real world or an
imaginary world.
L E A R N I N G O U T C O M E R E V I E W
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1. What are the three levels of management found in a company? What types of decisions are made
at each level?
2. Define transaction processing systems and describe the role they play in a business.
3. Define decision support systems and describe the role they play in a business.
4. Define expert systems and describe the role they play in a business.
5. What are the capabilities associated with digital dashboards?
6. What are the common DSS analysis techniques?
7. How does an electronic spreadsheet program, such as Excel, provide decision support
capabilities?
8. What is artificial intelligence?
9. What are the five types of AI systems?
R E V I E W Q U E S T I O N S
M A K I N G B U S I N E S S D E C I S I O N S
1. Long-Distance Hugs
Haptic technology digitizes touch. CuteCircuit created the Hug shirt that you can hug and send the
exact hug, including strength, pressure, distribution, and even heartbeat, to a long-distance friend
who is wearing the partner to your Hug shirt. Ben Hui at Cambridge University is creating hand-
squeezes that can be sent by mobile phones. You simply squeeze the phone and your friend feels it,
in some form, at the other end. The value of these haptic devices is based on the idea that physical
touch is an important element to all human interactions, and if you can transfer the physical touch,
you can replicate the emotion. In a group, create a new business product that uses a haptic inter-
face. Share your product idea with your peers.
2. IBM Watson
In 2011, the IBM Watson computer defeated the two best contestants in the game show Jeopardy. What
made the achievement so remarkable was that the computer had to read the question, understand
what was being asked, search through 200 million pages of text, figure out what the best answer
would be, and then hit a buzzer before the other contestants. It accomplished all these steps in about
3 seconds. IBM predicts that Watson could be the ultimate researcher, helping professionals in various
industries find the information they are looking for in a matter of seconds. What do you think about
Watson’s powerful services? Do you think you could one day have access to htis powerful technology
on your favorite serach engine. How would having an IBM Watson help you in your college career?
3. DSS and EIS
Dr. Rosen runs a large dental conglomerate—Teeth Doctors—that staffs more than 700 dentists in six
states. Dr. Rosen is interested in purchasing a competitor called Dentix that has 150 dentists in three
additional states. Before deciding whether to purchase Dentix, Dr. Rosen must consider several issues:
■ The cost of purchasing Dentix.
■ The locations of the Dentix offices.
■ The current number of customers per dentist, per office, and per state.
■ The merger between the two companies.
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■ The professional reputation of Dentix.
■ Other competitors.
Explain how Dr. Rosen and Teeth Doctors can benefit from the use of information systems to make
an accurate business decision in regard to the potential purchase of Dentix.
4. Finding Information on Decision Support Systems
You are working on the sales team for a small catering company that maintains 75 employees and
generates $1 million in revenues per year. The owner, Pam Hetz, wants to understand how she can
use decision support systems to help grow her business. Pam has an initial understanding of DSS
systems and is interested in learning more about what types are available, how they can be used in
a small business, and the cost associated with different DSS systems. In a group, create a presenta-
tion that discusses DSS systems in detail. Be sure to answer all Pam’s questions on DSS systems in
the presentation.
5. Searching Telephone Calls
Imagine being able to search a database of customer phone calls to find specific requests or to be
able to sort through digital customer complaints to detect the exact moment when the interaction
between the customer service representative and the customer went wrong. A new tool called Find
It allows the sorting of digital voice records as easily as using Google to sift through documents. Find
It is opening limitless business opportunities as organizations begin to understand how they can use
this technology to help employees search voice mails or recorded calls for keywords and phrases.
You have recently started your own marketing firm and you want to use the power of Find It to
help your customers query all of their unique data records, including digital voice recordings. Now
all you need is to prepare your marketing materials to send to potential customers. Create a market-
ing pitch that you will deliver to customers detailing the business opportunities they could uncover if
they purchased Find It. Your marketing pitch can be a one-page document, a catchy tune, a video, or
a PowerPoint presentation.
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C H A P T E R 10
L E A R N I N G O U T C O M E S
10.1. Describe supply chain management along with its
impact on business.
10.2. Identify the three components of supply chain
management along with the technologies reinventing
the supply chain.
Information Technology’s Role
in the Supply Chain
Supply chain management systems can increase profitability across an organization. For
example, a manufacturing plant manager might focus on keeping the inventory of Product
A as low as possible, which will directly reduce the manufacturing costs and make the plant
manager look great. However, the plant manager and the business might not realize that these
savings are causing increased costs in other areas, such as having to pay more to procure
raw materials for immediate production needs or increasing costs due to expedited shipping
services. Only an end-to-end view or an integrated supply chain would uncover these issues,
allowing a firm to adjust business strategies to increase profitability across the enterprise.
Supply chain management performs three main business processes (see Figure 10.1):
1. Materials flow from suppliers and their upstream suppliers at all levels.
2. Materials are transformed into semifinished and finished products—the organization’s
own production processes.
3. Products are distributed to customers and their downstream customers at all levels.
Extending the Organization—
Supply Chain Management
LO 10.1 Describe supply chain
management along with its
impact on business.
FIGURE 10.1
Typical Supply Chain.
Suppliers’
Supplier
Supplier
Upstream
Manufacturer Distributor Retailer Customer
Customers’
Customer
Suppliers’
Supplier
Customers’
Customer
Suppliers’
Supplier
Customers’
Customer
Downstream
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The supply chain is only as strong as its weakest link. Companies use supply chain man-
agement metrics to measure the performance of supply chains to identify weak links quickly.
A few of the common supply chain management metrics include:
■ Back order: An unfilled customer order for a product that is out of stock.
■ Inventory cycle time: The time it takes to manufacture a product and deliver it to the
retailer.
■ Customer order cycle time: The agreed-upon time between the purchase of a product and
the delivery of the product.
■ Inventory turnover: The frequency of inventory replacement.
As companies evolve into extended organizations, the roles of supply chain participants are
changing. It is now common for suppliers to be involved in product development and for distribu-
tors to act as consultants in brand marketing. The notion of virtually seamless information
links within and between organizations is an essential element of integrated supply chains.
Information technology’s primary role in SCM is creating the integrations or tight process
and information linkages between functions within a firm—such as marketing, sales, finance,
manufacturing, and distribution—and between firms, which allow the smooth, synchronized
flow of both information and product between customers, suppliers, and transportation provid-
ers across the supply chain. Information technology integrates planning, decision-making
processes, business operating processes, and information sharing for business performance
management (see Figure 10.2).
Supply chain design determines how to structure a supply chain including the product,
selection of partners, the location and capacity of warehouses, transportation methods, and
supporting management information systems. Considerable evidence shows that this type of
supply chain design results in superior supply chain capabilities and profits.
Supply chain visibility is the ability to view all areas up and down the supply chain in
real time. To react to demand, an organization needs to know all customer events triggered
upstream and downstream and so must their suppliers and their suppliers’ suppliers. Without
this information, supply chain participants are blind to the supply and demand needs occurring
in the marketplace, a factor required to implement successful business strategies. To improve
FIGURE 10.2
The Integrated Supply
Chain .
SourcePlan Make Deliver Return
Strategic
Impact
Operational
Impact
Planning and Control Supply Chain Integration
Examples: supply chain planning,
collaborative product development,
integrated demand and supply management
Information Integration
Examples: inventory visibility, performance metrics,
event monitoring, business intelligence,
scorecards, dashboards
Business Process Integration
Examples: collaborative logistics, commerce websites,
vendor-managed inventory, private exchanges
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visibility across the supply chain, firms can use supply chain planning systems and supply
chain execution systems.
Supply chain planning systems use advanced mathematical algorithms to improve the
flow and efficiency of the supply chain while reducing inventory. To yield accurate results,
however, supply chain planning systems require information inputs that are correct and up to
date regarding customers, orders, sales, manufacturing, and distribution capabilities.
Ideally, the supply chain consists of multiple firms that function as efficiently and effec-
tively as a single firm, with full information visibility. Supply chain execution systems
ensure supply chain cohesion by automating the different activities of the supply chain. For
example, a supply chain execution system might electronically route orders from a manufac-
turer to a supplier using electronic data interchange (EDI), a standard format for the elec-
tronic exchange of information between supply chain participants.  Figure 10.3  details how
SCP and SCE software correlate to the supply chain.
A good example of inventory issues that occur when a company does not have a clear
vision of its entire supply chain is the bullwhip effect. The bullwhip effect occurs when dis-
torted product-demand information ripples from one partner to the next throughout the supply
chain. The misinformation regarding a slight rise in demand for a product could cause dif-
ferent members in the supply chain to stockpile inventory. These changes ripple throughout
the supply chain, magnifying the issue and creating excess inventory and costs for all. For
example, if a car dealership is having a hard time moving a particular brand of car, it might
offer significant discounts to try to move the inventory. Without this critical information,
the car manufacturer might see a rise in demand for this particular brand of car and increase
production orders, not realizing that the dealerships are actually challenged with selling the
inventory. Today, integrated supply chains provide managers with the visibility to see their
suppliers’ and customers’ supply chains, ensuring that supply always meets demand.
Technologies Reinventing the Supply Chain
Optimizing the supply chain is a critical business process for any successful organization.
Just think of the complexity of Walmart’s supply chain and the billions of products being sent
around the world guaranteeing every shelf is fully stocked. The three components of supply
chain management on which companies focus to find efficiencies include procurement, logis-
tics, and materials management (see Figure 10.4).
Procurement is the purchasing of goods and services to meet the needs of the supply chain.
The procurement process is a key supply chain strategy because the capability to purchase
input materials at the right price is directly correlated to the company’s ability to operate.
Without the right inputs, the company simply can’t create cost-effective outputs. For example,
LO 10.2 Identify the three com-
ponents of supply chain manage-
ment along with the technologies
reinventing the supply chain.
FIGURE 10.3
Supply Chain Planning and
Supply Chain Execution:
Software’s Correlation to the
Supply Chain.
Supply Chain Planning
Information Flows
Payment Flows
Supply Chain Execution
Supplier Manufacturer Distributor Retailer Customer
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if McDonald’s could not procure potatoes or had to purchase potatoes at an outrageous price,
it would be unable to create and sell its famous french fries. In fact, procuring the right size
potatoes that can produce the famous long french fries is challenging in some countries where
locally grown potatoes are too small. Procurement can help a company answer the following
questions:
■ What quantity of raw materials should we purchase to minimize spoilage?
■ How can we guarantee that our raw materials meet production needs?
■ At what price can we purchase materials to guarantee profitability?
■ Can purchasing all products from a single vendor provide additional discounts?
Logistics includes the processes that control the distribution, maintenance, and replacement
of materials and personnel to support the supply chain. Recall from the value chain analysis in
Chapter 1 that the primary value activities for an organization include inbound and outbound
logistics. Inbound logistics acquires raw materials and resources and distributes them to manu-
facturing as required. Outbound logistics distributes goods and services to customers. Logistics
controls processes inside a company (warehouse logistics) and outside a company (transport
logistics) and focuses on the physical execution part of the supply chain. Logistics includes
the increasingly complex management of processes, information, and communication to take a
product from cradle to grave. Cradle-to-grave provides logistics support throughout the entire
system or life of the product. Logistics can help a company answer the following questions:
■ What is the quickest way to deliver products to our customers?
■ What is the optimal way to place items in the warehouse for picking and packing?
■ What is the optimal path to an item in the warehouse?
■ What path should the vehicles follow when delivering the goods? What areas or regions
are the trucks covering?
Materials management includes activities that govern the flow of tangible, physical materi-
als through the supply chain such as shipping, transport, distribution, and warehousing. In mate-
rials management, you focus on quality and quantity of materials as well as on how you will plan,
acquire, use, and dispose of such materials. It can include the handling of liquids, fuel, produce,
FIGURE 10.4
The Three Components of
Supply Chain Management.
LOGISTICS
Processes that control the
distribution, maintenance, and
replacement of materials and
personnel to support the supply
chain.
PROCUREMENT
Purchasing of goods and
services to meet the needs of
the supply chain.
MATERIALS
MANAGEMENT
Activities that govern the flow of
tangible, physical materials
through the supply chain such as
shipping, transport, distribution
and warehousing.
SUPPLY CHAIN
MANAGEMENT
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and plants and a number of other potentially hazardous items. Materials management focuses on
handling all materials safely, efficiently, and in compliance with regulatory requirements and dis-
posal requirements. Materials management can help a company answer the following concerns:
■ What are our current inventory levels?
■ What items are running low in the warehouse?
■ What items are at risk of spoiling in the warehouse?
■ How do we dispose of spoiled items?
■ What laws need to be followed for storing hazardous materials?
■ Which items must be refrigerated when being stored and transported?
■ What are the requirements to store or transport fragile items?
As with all other areas of business, disruptive technologies are continuously being deployed
to help businesses find competitive advantages in each component of the supply chain, as out-
lined in Figure 10.5.
3D PRINTING SUPPORTS PROCUREMENT
The process of 3D printing (additive manufacturing) builds—layer by layer in an additive process—
a three-dimensional solid object from a digital model. The additive manufacturing process of 3D
printing is profoundly different from traditional manufacturing processes. The Financial Times
and other sources are stating that 3D printing has the potential to be vastly more disruptive to
business than the Internet. That is a bold statement! The reason people are betting on 3D print-
ing to disrupt business is that it brings production closer to users, thus eliminating steps in the
supply chain similar to disintermediation by the Internet. Three-dimensional printing also pro-
motes mass customization, small production batches, and reduction in inventory. Traditionally,
the costs associated with 3D printing made it accessible only to large corporations. Now with
FIGURE 10.5
Disruptive Business
Technologies. 3D
Printing
RFID
Drones
Robotics
A process that builds—
layer by layer in an additive
process- a three-
dimensional solid object
from a digital model
Supports procurement
Uses electronic tages and
labels to identify objects
wirelessly over short
distances
Supports logistics
An unmanned aircraft that
can fly autonomously, or
without a human
Supports logistics
Focus on creating artficial intelligence
devices that can move and react to sensory
input
Supports materials management
© Shannon Faulk/DreamPictures/Getty Images
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inexpensive printers, scanners, and applications, the technology is accessible to small and mid-
sized businesses and home users. With the advances in 3D printing, the need to procure materials
will become far easier because businesses can simply print the parts and components required
for the production process. There is no doubt about it—3D printing will affect production pro-
cess and supply chains and cause business disruption. These printers are creating auto parts, cell
phone covers, jewelry, toys, bicycles, and manufacturing prototypes for testing purposes.
To print a 3D product, users create a digital model that is sliced into thin cross-sections
called layers. During the printing process, the 3D printer starts at the bottom of the design and
adds successive layers of material to complete the project. Computer-aided design/computer-
aided manufacturing (CAD/CAM) systems are used to create the digital designs and then
manufacture the products. For example, a user creates a design with a CAD application and
then manufactures the product by using CAM systems. Before 3D printers existed, creat-
ing a prototype was time-consuming and expensive, requiring skilled craftsmen and specific
machinery. Instead of sending modeling instructions to a production company, advances in
3D printing allow users to create prototypes and products on demand from their desks. Ship-
ping required parts from around the world could become obsolete because the spare parts can
now be 3D printed on demand. This could have a major impact on how businesses large and
small operate and interact on a global scale in the future.
The maker movement is a cultural trend that places value on an individual’s ability to be
a creator of things as well as a consumer of things. In this culture, individuals who create
things are called “makers.” The movement is growing rapidly and is expected to be economi-
cally disruptive; as ordinary people become more self-sufficient, they will be able to make
their own products instead of procuring brand-name products from retail stores. Makers come
from all walks of life, with diverse skill sets and interests. The thing they have in common is
creativity, an interest in design, and access to tools and raw materials that make production
possible. The growth of the maker movement is often attributed to the rise of community
makerspaces, a community center that provides technology, manufacturing equipment, and
educational opportunities to the public that would otherwise be inaccessible or unaffordable.
Although the majority of makers are hobbyists, entrepreneurs and small manufacturers are
also taking advantage of the classes and tools available in makerspaces.
RFID SUPPORTS LOGISTICS
A television commercial shows a man in a uniform quietly moving through a family home.
The man replaces the empty cereal box with a full one just before a hungry child opens the
cabinet; he then opens a new sack of dog food as the hungry bulldog eyes him warily; and,
finally, he hands a full bottle of shampoo to the man in the shower whose bottle had just run
out. The next wave in supply chain management will be home-based supply chain fulfillment.
Walgreens is differentiating itself from other national chains by marketing itself as the fam-
ily’s just-in-time supplier. Consumers today are becoming incredibly comfortable with the
idea of going online to purchase products when they want, how they want, and at the price
they want. Walgreens is developing custom websites for each household, which allow families
to order electronically and then at their convenience go to the store to pick up their goods at a
special self-service counter or the drive-through window. Walgreens is making a promise that
goes beyond low prices and customer service and extends right into the home.
Radio-frequency identification (RFID) uses electronic tags and labels to identify objects
wirelessly over short distances. It holds the promise of replacing existing identification technologies
such as the bar code. RFID tags are evolving, too, and the advances will provide more granular
information to enterprise software. Today’s tags can store an electronic product code. In time, tags
could hold more information, making them portable mini-databases. RFID’s electronic product
code (RFID EPC) promotes serialization or the ability to track individual items by using the
unique serial number associated with each RFID tag. Although a bar code might identify a prod-
uct such as a bottle of salad dressing, an RFID EPC tag can identify each specific bottle and allow
item-level tracking to determine whether the product has passed its expiration date. Businesses
can tell automatically where all its items are in the supply chain just by gathering the data from the
RFID chips. The possibilities of RFID are endless, and one area it is affecting is logistics. RFID
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tags for applications such as highway toll collection and container tracking remain in continuous
use for several years. Like regular electronic components, the tags are adhered to rigid substrates
and packaged in plastic enclosures. In contrast, tags on shipping cartons are used for a much
shorter time and are then destroyed. Disposable tags are adhered to printed, flexible labels pasted
onto the carton, and these smart labels contain an RFID chip and antenna on the back. A thermal
printer/encoder prints alphanumeric and bar code data on the labels while encoding the chip at the
same time. Figures 10.6. and 10.7 display how an RFID system works in the supply chain.
FIGURE 10.6
Three RFID Components.
The Three Components to an RFID System
Tag – A microchip holds data, in this case an EPC (electronic
product code), a set of numbers unique to an item. The rest of
the tag is an antenna that transmits data to a reader.
EPC example: 01-0000A77-000136BR5
Reader – A reader uses radio waves to read the tag and
sends the EPC to computers in the supply chain.
Computer Network – Each computer in the supply chain
recognizes the EPC and pulls up information related to the item,
such as dates made and shipped, price, and directions for use,
from a server maintained by the manufacturer. The computers
track the item’s location throughout the supply chain.
FIGURE 10.7
RFID in the Supply Chain.
RFID in the Retail Supply Chain
RFID tags are added to every product and shipping box. At every step of an item’s journey, a
reader scans one of the tags and updates the information on the server.
The Home
The consumer can have the tag disabled at the store for privacy
or place readers in closets to keep track of clothes. With
customers’ approval, stores can follow purchasing patterns and
notify them of sales.
The Store
Tags are scanned upon arrival to update inventory. At the racks,
readers scan tags as shirts are stocked. At the checkout counter, a
cashier can scan individual items with a handheld reader. As items
leave the store, inventory is updated. Manufacturers and retailers
can observe sales patterns in real time and make swift decisions
about production, ordering, and pricing.
The Distribution Center
Readers in the unloading area scan the
tags on arriving boxes and update
inventory, avoiding the need to open packages.
The Manufacturer
A reader scans the tags
as items leave the factory.
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DRONES SUPPORT LOGISTICS
A drone is an unmanned aircraft that can fly autonomously, or without a human. Amazon.com
is piloting drone aircraft that could someday deliver customers’ packages in half an hour or less
(see Figure 10.8). UPS and FedEx have also been experimenting with their own versions of
flying parcel carriers. Drones are already here and use GPS to help coordinate the logistics of
package delivery. The problems with drones include FAA approval and the advanced ability to
detect and avoid objects. GPS coordinates can easily enable the drone to find the appropriate
package delivery location, but objects not included in the GPS, such as cars, dogs, and children,
will need to be detected and avoided.
FedEx founder Fred Smith stated that his drones are up and running in the lab; all he requires
to move his fleet of drones from the lab to production is approval from regulators. “We have
all this stuff working in the lab right now, we don’t need to reinvent the wheel,” remarks Smith.
“We need a set of rules from the FAA. It’s just a matter of getting the laws in place so companies
can begin building to those specifications and doing some real field testing.”
ROBOTICS SUPPORTS MATERIALS MANAGEMENT
Robotics focuses on creating artificial intelligence devices that can move and react to sensory
input. The term robot was coined by Czech playwright Karl Capek in his play R.U.R. (Ros-
sum’s Universal Robots), which opened in Prague in 1921. Robota is the Czech word for “forced
labor.” The term robotics was introduced by writer Isaac Asimov; in his science fiction book I,
Robot, published in 1950, he presented three laws of robotics:
1. A robot may not injure a human being, or, through inaction, allow a human being to come
to harm.
2. A robot must obey the orders given it by human beings except where such orders would
conflict with the First Law.
3. A robot must protect its own existence as long as such protection does not conflict with the
First or Second Law.
FIGURE 10.8
Amazon Drones Delivering
Packages.
© Mopic/Shutterstock
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You can find robots in factories performing high-precision tasks, in homes vacuuming
the floor and the pool, and in dangerous situations such as cleaning toxic wastes or defusing
bombs. Amazon alone has more than 10,000 robots in its warehouses, picking, packing, and
managing materials to fulfill customer orders (see Figure 10.9). The robots are made by Kiva
Systems, a company Amazon bought for $775 million in 2012. Kiva pitches its robots—which
can cost between a few million dollars and as much as roughly $20 million—as simplifying
and reducing costs via materials management. The robots are tied into a complex grid that
optimizes item placement in the warehouse and allows the robots to pick the inventory items
and bring them to the workers for packing. Watching an order fulfillment center equipped
with Kiva robots is amazing; the operators stand still while the products come to them. Inven-
tory pods store the products that are carried and transferred by a small army of little orange
robots, eliminating the need for traditional systems such as conveyors and sorters. Though
assessing the costs and benefits of robots versus human labor can be difficult, Kiva boasts
that a packer working with its robots can fulfill three to four times as many orders per hour.
Zappos, Staples, and Amazon are just a few of the companies taking advantage of the latest
innovation in warehouse management by replacing traditional order fulfillment technologies
such as conveyor belts with Kiva’s little orange robots.
THE EXTENDED SUPPLY CHAIN
As the supply chain management market matures, it is becoming even more sophisticated and
incorporating additional functionality such as marketing, customer service, and even product
development to its extended supply chain. Advanced communications tools, easy-to-use deci-
sion support systems, and building trust among participants when sharing information are all
making the home-based supply chain possible. A few of the fastest-growing extensions for sup-
ply chain management are included in Figure 10.11.
FIGURE 10.9
Kiva Robots.
© Beth Hall/Bloomberg via Getty Images
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FIGURE 10.11
Extending the Supply Chain.
Supply chain event management (SCEM)
Enables an organization to react more quickly to resolve supply chain issues.
SCEM software increases real-time information sharing among supply chain
partners and decreases their response time to unplanned events. SCEM
demand will skyrocket as more and more organizations begin to discover the
benefits of real-time supply chain monitoring.
Selling chain management
Applies technology to the activities in the order life cycle from inquiry
to sale.
Collaborative engineering
Allows an organization to reduce the cost and time required during the
design process of a product.
Collaborative demand planning
Helps organizations reduce their investment in inventory, while improving
customer satisfaction through product availability.
ORD
ER
MANUFACTURING
What does orthopedic surgery and governing a country have in common with knitting socks, scarves,
and headbands? Nothing except the salary. Hobbyist Alicia Shaffer is earning $80,000 a month sell-
ing her handmade goods on Etsy, which adds up to an annual revenue of $960,000. That is the same
amount as an orthopedic surgeon makes, and more than twice as much as the United States presi-
dent makes.
Etsy is an online craft makerspace for handmade goods. ETSY is building a human, authentic, and
community-centric makerspace that uses the power of business to create a better world. In an Etsy
Chapter Ten Case: ETSY
1. Identify how connected cars can impact the supply chain.
2. Explain how connected cars can use RFID to improve the efficiency and effectiveness of drivers in
the supply chain.
3. Explain how connected cars can use robotics to improve the supply chain?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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Economy, creative entrepreneurs can find meaningful work selling their goods in both global and
local markets, where thoughtful consumers can discover those goods and build relationships with the
people who make and sell them. It’s an ecosystem that connects buyers around the world to the com-
munities where Etsy shop owners live, work, and create. As Etsy grows it is committed to its mission
ensuring its core values are woven into all decisions it makes for the long-term health of its business,
from the sourcing of office supplies to employee benefits to the items sold in its marketspace.
Shaffer’s company ThreeBirdNest is named after her bird tattoo that honors her three children.
Shaffer attributes her success to deep-seated motivation and access to a global supply chain through
Etsy. ThreeBirdNest launched in 2011, when she made a few headbands for the small women’s cloth-
ing boutique she ran in Livermore, California. Her headbands were so popular she decided to start
selling them online. “I opened an Etsy shop, figuring I‘d help pay for my kids’ soccer and dance
lessons to supplement the boutique’s sales,” states Shaffer. “I was recovering from the failure of a
business I’d run selling baby products—handmade slings, carriers, and blankets. After that business
tanked in the recession, I’d lost a little bit of confidence in my ability to be an entrepreneur.”
In the first few weeks after its launch, ThreeBirdNest made 90 sales. Shaffer credits much of the
traffic to Pinterest—she pinned her items. Still, “It was absolutely mindboggling. I thought it was a
complete fluke.” But a few months later Shaffer found herself hiring a friend to help with shipping
as orders began flowing like water. Through its independent website and Etsy shop, ThreeBirdNest
receives an average of 150 orders per day, with most orders consisting of three items. Around the
holidays, that number goes up to 700 to 1,200 orders per day. Last January, the business raked in a
total of $128,000 in sales. Since its launch, it has made 100,000 sales on Etsy alone. ThreeBirdNest is
unusually successful on Etsy, as most Etsy shop owners feel lucky to sell 10 pieces a month, and 65%
of Etsy sellers make less than $100 from their shops in a year. Etsy makerspace crafters usually need
day jobs to support their hobbies. 1
Questions
1. Without makerspace’s like Etsy how would crafters market and sell their products?
2. Explain how the bullwhip effect could impact a crafter on Etsy.
3. Explain procurement, logistics, and materials management for ThreeBirdNest.
4. What are some advantages and disadvantages of using Etsy to sell good and access its global
supply chain?
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10.1. Describe supply chain management along with its impact on business.
A supply chain consists of all parties involved, directly or indirectly, in obtaining raw materials or a
product. To automate and enable sophisticated decision making in these critical areas, companies are
turning to systems that provide demand forecasting, inventory control, and information flows between
suppliers and customers. Supply chain management (SCM) is the management of information flows
between and among activities in a supply chain to maximize total supply chain effectiveness and cor-
porate profitability. In the past, manufacturing efforts focused primarily on quality improvement efforts
within the company; today these efforts reach across the entire supply chain, including customers,
customers’ customers, suppliers, and suppliers’ suppliers. Today’s supply chain is an intricate network
of business partners linked through communication channels and relationships.
Improved visibility across the supply chain and increased profitability for the firm are the primary
business benefits received when implementing supply chain management systems. Supply chain
visibility is the ability to view all areas up and down the supply chain in real time. The primary chal-
lenges associated with supply chain management include costs and complexity. The next wave in
supply chain management will be home-based supply chain fulfillment. No more running to the store
to replace your products because your store will come to you as soon as you need a new product.
10.2. Identify the three components of supply chain management along with the
technologies reinventing the supply chain.
The three components of supply chain management on which companies focus to find efficiencies
include procurement, logistics, and materials management. Procurement is the purchasing of goods
and services to meet the needs of the supply chain. Materials management includes activities that
govern the flow of tangible, physical materials through the supply chain such as shipping, transport,
distribution, and warehousing. The technologies reinventing the supply chain include 3D printing,
RFID, drones, and robotics.
L E A R N I N G O U T C O M E R E V I E W
1. What are the five primary activities in a supply chain?
2. What is the bullwhip effect and how can it affect a supply chain and a firm’s profitability?
3. Where are the customer’s customers in a typical supply chain?
4. Where are the supplier’s suppliers in a typical supply chain?
5. What is procurement and how does it impact the supply chain?
6. What is logistics and how does it impact the supply chain?
7. What is materials management and how does it impact the supply chain?
8. What is RFID’s primary purpose in the supply chain?
R E V I E W Q U E S T I O N S
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1. 3D Printing for Poverty
Thirty-three-year-old Kodjo Afate Grikou wanted to help his community in West Africa to print
necessities that they can’t source locally, such as kitchen utensils for cooking. The structure of the
3D printer he had in mind uses very little in terms of new parts because it is mostly made up of
ewaste and scrap metal. Before building this printer, he set up his project on the European social
funding website, ulule. The project received more than $10,000, despite the printer costing only
$1,000, mostly through purchasing new parts that he couldn’t find locally. Grikou hopes that his
innovation will inspire teenagers and young people in his community to attend school and gain an
education so they can make further life-changing developments that will benefit not only their lives
but also others around them. In a group, brainstorm ways 3D printing can help rural communities
fight poverty.
■ What is the quickest way to deliver products to our customers?
■ What is the optimal way to place items in the warehouse for picking and packing?
■ What is the optimal path to an item in the warehouse?
■ What path should the vehicles follow when delivering the goods?
■ What areas or regions are the trucks covering?
2. 3D Printing Weapons
In 1976, the big movie studios sued Sony for releasing the first VCR because it advertised it as “a
way of recording feature-length movies from TV to VHS tape for watching and taking over to friends’
houses.” Over the next eight years Universal Studios, along with other powerful media groups,
fought Sony over creating the device because it could allow users to violate copyright laws. The
courts went back and forth for years attempting to determine whether Sony would be held liable for
creating a device that enabled users to break copyright laws. In 1984, the U.S. Supreme Court ruled
in favor of Sony: “If a device is capable of sustaining a substantial noninfringing use, then it is lawful
to make and sell that device. That is, if the device is merely capable of doing something legit, it is
legal to make no matter how it is used in practice.”
Just think of cars, knives, guns, and computers as they are all used to break the law, and nobody
would be allowed to produce them if they were held responsible for how people used them. Do you
agree that if you make a tool and sell it to someone who goes on to break the law, you should be
held responsible? Do you agree that 3D printers will be used to infringe copyright, trademark, and
patent protections? If so, should 3D printers be illegal?
3. Analyzing Dell’s Supply Chain Management System
Dell’s supply chain strategy is legendary. Essentially, if you want to build a successful SCM system
your best bet is to model your SCM system after Dell’s. In a team, research Dell’s supply chain man-
agement strategy on the web and create a report discussing any new SCM updates and strategies
the company is using that were not discussed in this text. Be sure to include a graphical presentation
of Dell’s current supply chain model.
4. Robots Took My Job
Kiva’s little orange robots are becoming the latest craze and a truly fascinating innovation in ware-
house management. Kiva’s robots are replacing conveyor belts and carousels at the order fulfillment
warehouses of retailers such as Zappos, Staples, and Amazon. Kiva Mobile Fulfillment System uses a
M A K I N G B U S I N E S S D E C I S I O N S
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breakthrough parallel processing approach to order fulfillment with a unique material handling sys-
tem that simultaneously improves productivity, speed, accuracy, and flexibility.
■ How can Kiva robots help distribution centers attain flexible, efficient order fulfillment?
■ What other types of businesses could use Kiva robots to improve distribution productivity?
■ How would warehouse employees react if they were told the company was implementing Kiva
robots?
5. Fixing the Post Office
Is there anything more frustrating than waiting in line at the Post Office? Well, not only are those
lines frustrating, they are also becoming unprofitable. The United States Postal Service is looking
at a $13 billion loss in 2011, one of the greatest catastrophes in its history. What is killing the Post
Office? Perhaps it is Stamps.com, a website that allows you to customize and print your own stamps
24 hours a day. Getting married? You can place a photo of the happy couple right on the stamp for
the invitations. Starting a business? You can place your business logo on your stamps. Stamps.com
even keeps track of all of a customer’s postal spending using client codes, and it can recommend
optimal delivery methods. Plus, Stamps.com gives you postage discounts you can’t even get at the
Post Office or with a postage meter.
■ What new products are stealing business from the Post Office?
■ How could the Post Office create new products and services to help grow its business?
■ How could the Post Office use cost, quality, delivery, flexibility, and service to revamp its oper-
ations management processes?
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C H A P T E R 11
L E A R N I N G O U T C O M E S
11.1. Describe customer relationship management along
with its importance to a business.
11.2. Differentiate between operational and analytical
customer relationship management.
11.3. Identify the three current trends extending customer
relationship management.
Customer Relationship Management
Today, most competitors are simply a mouse-click away, and this intense competition is forc-
ing firms to switch from sales-focused business strategies to customer-focused business strat-
egies. Customers are one of a firm’s most valuable assets, and building strong, loyal customer
relationships is a key competitive advantage. Harley-Davidson offers an excellent example of
a company that knows the value of customer loyalty, and it finds itself in the coveted position
of demand outweighing its supply. No other motorcycle in the world has the look, feel, and
sound of a Harley-Davidson. Demand for Harley-Davidson motorcycles outweighs supply
and some models have up to a two-year waiting list. Knowing the value of its customers,
Harley-Davidson started the Harley’s Owners Group (HOG), which is the largest motorcycle
club in the world with more than 600,000 members. HOG offers a wide array of events, rides,
and benefits to its members and is a key competitive advantage as it helps to build a strong
sense of community among Harley-Davidson owners. Harley-Davidson has built a customer
following that is extremely loyal, a difficult task to accomplish in any industry.
Customer relationship management (CRM) is a means of managing all aspects of a cus-
tomer’s relationship with an organization to increase customer loyalty and retention and an orga-
nization’s profitability. CRM allows an organization to gain insights into customers’ shopping
and buying behaviors. Every time a customer communicates with a company, the firm has the
chance to build a trusting relationship with that particular customer. Harley-Davidson realizes
that it takes more than just building and selling motorcycles to fulfill the dreams of its loyal
customers. For this reason, the company strives to deliver unforgettable experiences along with
its top-quality products. When the company began selling products online it found itself facing a
dilemma—its online strategy for selling accessories directly to consumers would bypass Harley-
Davidson’s dealers, who depend on the high-margin accessories for store revenues. The solution
was to deploy Harley-Davidson.com, which prompts customers to select a participating Harley-
Davidson dealership before placing any online orders. The selected dealership is then responsi-
ble for fulfilling the order. This strategy ensured that the dealers remained the focus point of each
customer’s buying experiences. To guarantee that every customer has a highly satisfying online
buying experience, the company asks the dealers to agree to a number of standards including:
■ Checking online orders twice daily.
■ Shipping online orders within 24 hours.
■ Responding to customer inquiries within 24 hours.
LO 11.1 Describe customer
relationship management along
with its importance to a business.
Building a Customer-centric
Organization—Customer
Relationship Management
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Harley-Davidson still monitors online customer metrics such as time taken to process
orders, number of returned orders, and number of incorrect orders, guaranteeing that the com-
pany delivers on its critical success factor of providing prompt, excellent customer service
consistently to all its loyal customers.
A primary component of managing a customer relationship is knowing when and why the
customer is communicating with the company. Imagine an irate customer who has just spent
an hour on the phone with your call center complaining about a defective product. While the
customer is on the phone, your sales representative decides to drop by the customer’s office
in an attempt to sell additional products. Obviously, this is not the ideal time to try to up-sell
or cross-sell products to this particular customer. A customer relationship management sys-
tem would inform the sales representative that the customer was on the phone with customer
service and even provide details of the call. Then your sales representative could stop by and
offer assistance in resolving the product issue, which might help restore the relationship with
the customer and provide opportunities for future sales.
THE POWER OF THE CUSTOMER
A standard rule of business states that the customer is always right. Although most busi-
nesses use this as their motto, they do not actually mean it. Ebusiness firms, however, must
adhere to this rule as the power of the customer grows exponentially in the information age.
Various websites and videos on YouTube reveal the power of the individual consumer (see
Figure  11.1). A decade ago if you had a complaint against a company, you could make a
phone call or write a letter. Now you can contact hundreds or thousands of people around the
globe and voice your complaint or anger with a company or product. You—the customer—
can now take your power directly to millions of people, and companies have to listen.
Using CRM metrics to track and monitor performance is a best practice for many compa-
nies. Figure 11.2 displays a few common CRM metrics a manager can use to track the success
of the system. Just remember that you only want to track between five and seven of the hun-
dreds of CRM metrics available.
Operational and Analytical CRM
The two primary components of a CRM strategy are operational CRM and analytical CRM.
Operational CRM supports traditional transactional processing for day-to-day front-office oper-
ations or systems that deal directly with the customers. Analytical CRM supports back-office
operations and strategic analysis and includes all systems that do not deal directly with the cus-
tomers. Figure 11.3 provides an overview of the two. Figure 11.4 shows the different technolo-
gies marketing, sales, and customer service departments can use to perform operational CRM.
MARKETING AND OPERATIONAL CRM
Companies are no longer trying to sell one product to as many customers as possible; instead,
they are trying to sell one customer as many products as possible. Marketing departments
switch to this new way of doing business by using CRM technologies that allow them to
gather and analyze customer information to tailor successful marketing campaigns. In fact, a
marketing campaign’s success is directly proportional to the organization’s ability to gather
and analyze the right customer information. The three primary operational CRM technologies
a marketing department can implement to increase customer satisfaction are:
1. List generator
2. Campaign management
3. Cross-selling and up-selling
List Generator
List generators compile customer information from a variety of sources and segment it for
different marketing campaigns. These sources include website visits, questionnaires, surveys,
LO 11.2 Differentiate between
operational and analytical cus-
tomer relationship management.
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FIGURE 11.1
The Power of You–Websites
Demonstrating the Power of
the People.
www.
dontbuydodgechryslervehicles.
com
www.jetbluehostage.com
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FIGURE 11.3
Operational CRM and
Analytical CRM.
Sales
Systems
Marketing
Systems
Customer
Service
Systems
Front O�ce–Operational CRM
Collaborative
CRM
System
Data
Warehouse
Data
Mining
Back O�ce–Analytical CRM
FIGURE 11.2
Common CRM Metrics.
Sales Metrics Customer Service Metrics Marketing Metrics
Number of prospective customers Cases closed same day Number of marketing campaigns
Number of new customers Number of cases handled by agent New customer retention rates
Number of retained customers Number of service calls Number of responses by marketing campaign
Number of open leads Average number of service requests by type Number of purchases by marketing campaign
Number of sales calls Average time to resolution Revenue generated by marketing campaign
Number of sales calls per lead Average number of service calls per day Cost per interaction by marketing campaign
Amount of new revenue Percentage compliance with service-level
agreement
Number of new customers acquired by
marketing campaign
Amount of recurring revenue Percentage of service renewals Customer retention rate
Number of proposals given Customer satisfaction level Number of new leads by product
marketing mailers, and so on. After compiling the customer list, it can be filtered based on
criteria such as household income, gender, education level, political facilitation, age, or other
factors. List generators provide the marketing department with valuable information on the
type of customer it must target to find success for a marketing campaign.
Campaign Management
Campaign management systems guide users through marketing campaigns by performing
such tasks as campaign definition, planning, scheduling, segmentation, and success analysis.
These advanced systems can even calculate the profitability and track the results for each
marketing campaign.
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Cross-Selling and Up-Selling
Two key sales strategies a marketing campaign can deploy are cross-selling and up-selling.
Cross-selling is selling additional products or services to an existing customer. For example,
if you were to purchase Tim Burton’s movie Alice in Wonderland on Amazon, you would also
be asked whether you want to purchase the movie’s soundtrack or the original book. Amazon
is taking advantage of cross-selling by offering customers goods across its book, movie, and
music product lines. Up-selling is increasing the value of the sale. McDonald’s performs
up-selling by asking customers whether they would like to super-size their meals for an extra
cost. CRM systems offer marketing departments all kinds of information about customers
and products, which can help identify up-selling and cross-selling opportunities to increase
revenues.
SALES AND OPERATIONAL CRM
Sales departments were the first to begin developing CRM systems. They had two primary moti-
vations to track customer sales information electronically. First, sales representatives were strug-
gling with the overwhelming amount of customer account information they were required to
maintain and track. Second, managers found themselves hindered because much of their vital
customer and sales information remained in the heads of their sales representatives, even if the
sales representative left the company. Finding a way to track customer information became a
critical success factor for many sales departments. Customer service and support (CSS) is a part
of operational CRM that automates service requests, complaints, product returns, and informa-
tion requests.
Figure 11.5 depicts the typical sales process, which begins with an opportunity and ends
with billing the customer for the sale. Leads and potential customers are the lifeblood of all
sales organizations, whether they sell computers, clothing, consulting, or cars. How leads are
handled can make the difference between revenue growth and decline.
FIGURE 11.4
Operational CRM
Technologies.
Marketing
Operational CRM Technology
Sales
Operational CRM Technology
Customer Service
Operational CRM Technology
List Generator
Campaign Management
Cross-Selling and Up-Selling
Sales Management
Contact Management
Opportunity Management
Contact Center
Web-Based Self-Service
Call Scripting
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Sales force automation (SFA) automatically tracks all the steps in the sales process. SFA
products focus on increasing customer satisfaction, building customer relationships, and
improving product sales. The three primary operational CRM technologies a sales department
can adopt are:
1. Sales management CRM systems.
2. Contact management CRM systems.
3. Opportunity management CRM systems.
Sales Management CRM Systems
Sales management CRM systems automate each phase of the sales process, helping indi-
vidual sales representatives coordinate and organize all their accounts. Features include cal-
endars, reminders for important tasks, multimedia presentations, and document generation.
These systems can even provide an analysis of the sales cycle and calculate how each sales
representative is performing during the sales process.
Contact Management CRM Systems
A contact management CRM system maintains customer contact information and identifies
prospective customers for future sales, using tools such as organizational charts, detailed cus-
tomer notes, and supplemental sales information. For example, a contact management system
can take an incoming telephone number and automatically display the person’s name along
with a comprehensive history, including all communications with the company. This allows
the sales representative to personalize the phone conversation and ask such things as, “How
is your new laptop working, Sue?” or “How was your family vacation to Colorado?” The
customer feels valued, since the sales associate knows her name and even remembers details
of their last conversation.
Opportunity Management CRM Systems
Opportunity management CRM systems target sales opportunities by finding new customers
or companies for future sales. They determine potential customers and competitors and define
selling efforts, including budgets and schedules. Advanced systems can even calculate the
probability of a sale, which can save sales representatives significant time and money when
FIGURE 11.5
A Typical Sales Process.
Lead sent
to salesperson
Potential
customer
contacted
Sales Process
Potential
customer
meeting
Problems and
solutions
identified
Order
fulfilled
Customer
billed
Sales order
placed
Customer
sales quote
generated
Opportunity
generated
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qualifying new customers. The primary difference between contact management and oppor-
tunity management is that contact management deals with existing customers and opportunity
management with new or potential customers.
CUSTOMER SERVICE AND OPERATIONAL CRM
Most companies recognize the importance of building strong customer relationships during
the marketing and sales efforts, but they must continue this effort by building strong post-
sale relationships also. A primary reason firms lose customers is due to negative customer
service experiences. Providing outstanding customer service is challenging, and many
CRM technologies can assist organizations with this important activity. The three primary
ones are:
1. Contact center.
2. Web-based self-service.
3. Call scripting.
Contact Center
A contact center (or call center) is where customer service representatives answer customer
inquiries and solve problems, usually by email, chat, or phone. It is one of the best assets a
customer-driven organization can have because maintaining a high level of customer support
is critical to obtaining and retaining customers. Figure 11.6 highlights a few of the services
contact center systems offer.
Contact centers also track customer communication histories along with problem
resolutions—information critical for providing a comprehensive customer view to the service
representative. Representatives who can quickly comprehend the customer’s concerns provide
tremendous value to the customer and to the company. Nothing makes frustrated customers hap-
pier than not having to explain their problems all over again to yet another customer service
representative.
Web-Based Self-Service
Web-based self-service systems allow customers to use the web to find answers to their ques-
tions or solutions to their problems. FedEx uses web-based self-service systems to let custom-
ers electronically track packages without having to talk to a customer service representative.
Another feature of web-based self-service is click-to-talk functions, which allow customers
to click a button and talk with a representative via the Internet. Powerful customer-driven
features such as these add value to any organization by providing customers with real-time
information that helps resolve their concerns.
Call Scripting
Companies that market and sell highly technical products have a difficult time finding compe-
tent customer service representatives. Call scripting systems gather product details and issue
resolution information that can be automatically generated into a script for the representative to
FIGURE 11.6
Contact Center Services.
Routes inbound
calls to available
agents
Automatic
Call
Distribution
Directs
customers to use
touch-tone phones
or keywords to
navigate or provide
information
Interactive
Voice
Response
(IVR):
Automatically
dials outbound
calls and forwards
answered calls to
an available
agent
Predictive
Dialing
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read to the customer. These systems even provide questions the representative can ask the cus-
tomer to troubleshoot the problem and find a resolution. This feature not only helps reps answer
difficult questions quickly but also presents a uniform response so customers don’t receive dif-
ferent answers.
ANALYTICAL CRM
Analytical CRM provides information about customers and products that was once impos-
sible to locate, such as which type of marketing and sales campaign to launch and which cus-
tomers to target and when. Unlike operational CRM, which automates call centers and sales
forces with the aim of enhancing customer service, analytical CRM works by using business
intelligence to identify patterns in product sales and customer behaviors. Uplift modeling is a
form of predictive analytics for marketing campaigns that attempts to identify target markets
or people who could be convinced to buy products. The “uplift” refers to the increased sales
that can follow after this form of analytical CRM analysis. Analytical CRM provides priceless
customer information, supports important business decisions, and plays a vital role in your
organization’s success.
Analytical CRM tools can slice and dice vast amounts of information to create custom views
of customers, products, and market segments, highlighting opportunities for cross-selling and
up-selling. Analytical CRM provides customer segmentation, which divides a market into
categories that share similar attributes such as age, location, gender, habits, and so on. By
segmenting customers into groups, it becomes easier to create targeted marketing and sales
campaigns, ensuring that you are not wasting resources marketing products to the wrong cus-
tomers. Website personalization occurs when a website has stored enough data about a per-
son’s likes and dislikes to fashion offers more likely to appeal to that person. Many marketers
use CRM to personalize customer communications and decide which customers are worth
pursuing. Here are a few examples of the information insights analytical CRM can help an
organization gain.
■ Find new profitable customers: Analytical CRM could highlight that the most profitable
market segment consists of women between 35 and 45 years old who drive SUVs and live
within 30 miles of the city limits. The firm could then find a way to locate these customers
for mailings and other opportunities.
■ Exceed customer expectations: Analytical CRM helps a firm move past the typical “Dear
Mr. Smith” greeting by personalizing communications. For example, if the firm knows the
customer’s favorite brand and size of shoe, it can notify the customer that a pair of size 12
Nike cross trainers is available for him to try on the next time he visits the store.
■ Discover the activities the firm performs the best: Analytical CRM can determine what an
organization does better than its competitors. If a restaurant caters more lunches to mid-
sized companies than its competition does, it can purchase a specialized mailing targeting
these customers for future mailings.
■ Eliminate competition: Analytical CRM can determine sales trends, enabling the company
to provide customers with special deals and outsmarting its competition. A sports store
might identify its best customers for outdoor apparel and invite them to a private sale right
before the competition runs its sale.
■ Care about customers: Analytical CRM can determine what customers want and need, so a
firm can contact them with an invitation to a private sale, remind them that a product needs
a tune-up, or send them a personalized letter along with a discount coupon to help spark a
renewed relationship.
Extending Customer Relationship Management
Organizations are discovering a wave of other key business areas where it is beneficial to take
advantage of building strong relationships. These emerging areas include supplier relation-
ship management (SRM), partner relationship management (PRM), and employee relation-
ship management (ERM) as outlined in Figure 11.7.
LO 11.3 Identify the three current
trends extending customer rela-
tionship management.
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SUPPLIER RELATIONSHIP MANAGEMENT
Supplier relationship management (SRM) focuses on keeping suppliers satisfied by evaluat-
ing and categorizing suppliers for different projects, which optimizes supplier selection. SRM
applications help companies analyze vendors based on a number of key variables including
strategy, business goals, prices, and markets. The company can then determine the best sup-
plier to collaborate with and can work on developing strong relationships with that supplier.
The partners can then work together to streamline processes, outsource services, and provide
products that they could not provide individually.
With the merger of the Bank of Halifax and Bank of Scotland, the new company, HBOS,
implemented an SRM system to supply consistent information to its suppliers. The system
integrates procurement information from the separate Bank of Halifax and Bank of Scotland
operational systems, generating a single repository of management information for consistent
reporting and analysis. Other benefits HBOS derived from the SRM solution include:
■ A single consolidated view of all suppliers.
■ Consistent, detailed management information allowing multiple views for every executive.
■ Elimination of duplicate suppliers.
PARTNER RELATIONSHIP MANAGEMENT
Organizations have begun to realize the importance of building relationships with partners,
dealers, and resellers. Partner relationship management (PRM) focuses on keeping vendors
satisfied by managing alliance partner and reseller relationships that provide customers with
the optimal sales channel. PRM’s business strategy is to select and manage partners to opti-
mize their long-term value to an organization. In effect, it means picking the right partners,
working with them to help them be successful in dealing with mutual customers, and ensuring
that partners and the ultimate end customers are satisfied and successful. Many of the features
FIGURE 11.7
Extending Customer
Relationship Management. Supplier relationship management (SRM)
focuses on keeping suppliers satisfied by
evaluating and categorizing suppliers for
di�erent projects
Patner relationship management (PRM)
discovers optimal sales channels by
selecting the right partners and
identifying mutual customers
Employee relationship management (ERM)
provides web-based self-service tools
that streamline and automate the
human resource department
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of a PRM application include real-time product information on availability, marketing materi-
als, contracts, order details, and pricing, inventory, and shipping information.
PRM is one of the smaller segments of CRM that has superb potential. PRM has grown to
more than a $1 billion industry. This is a direct reflection of the growing interdependency of
organizations in the new economy. The primary benefits of PRM include:
■ Expanded market coverage.
■ Offerings of specialized products and services.
■ Broadened range of offerings and a more complete solution.
CRM suites will also incorporate PRM and SRM modules as enterprises seek to take
advantage of these initiatives. Automating interactions with distributors, resellers, and sup-
pliers will enhance the corporation’s ability to deliver a quality experience to its customers.
EMPLOYEE RELATIONSHIP MANAGEMENT
Employee relationship management (ERM) provides employees with a subset of CRM appli-
cations available through a web browser. Many of the ERM applications assist the employee
in dealing with customers by providing detailed information on company products, services,
and customer orders.
At Rackspace, a San Antonio–based web-hosting company, customer focus borders on the
obsessive. Joey Parsons, 24, won the Straightjacket Award, the most coveted employee distinction
at Rackspace. The award recognizes the employee who best lives up to the Rackspace motto of
delivering “fanatical support,” a dedication to customers that is so intense it borders on the loony.
Rackspace motivates its staff by treating each team as a separate business, which is responsible
for its own profits and losses and has its own ERM website. Each month, employees can earn
bonuses of up to 20 percent of their monthly base salaries depending on the performance of their
units by both financial and customer-centric measurements such as customer turnover, customer
expansion, and customer referrals. Daily reports are available through the team’s ERM website.
CRM revenue forecast for 2018 is $21.5 billion. In the future, CRM applications will con-
tinue to change from employee-only tools to tools used by suppliers, partners, and even cus-
tomers. Providing a consistent view of customers and delivering timely and accurate customer
information to all departments across an organization will continue to be the major goal of
CRM initiatives.
As technology advances (intranet, Internet, extranet, wireless), CRM will remain a major
strategic focus for companies, particularly in industries whose product is difficult to differenti-
ate. Some companies approach this problem by moving to a low-cost producer strategy. CRM
will be an alternative way to pursue a differentiation strategy with a nondifferentiable product.
CRM applications will continue to adapt wireless capabilities supporting mobile sales and
mobile customers. Sales professionals will be able to access email, order details, corporate
information, inventory status, and opportunity information all from a PDA in their car or on
a plane. Real-time interaction with human CSRs over the Internet will continue to increase.
1. Why is CRM important to the technology companies, automobile manufactures and telecommunica-
tion companies all competing for the connected car market?  How can they use CRM to improve sales?
2. Identify a few different metrics a connected car will use to monitor driver activity.
3. How will automobile manufactures measure the success of customer satisfaction?
4. Argue for or against the following statement: Technology companies will invade driver privacy by
collecting data from connected cars without the consent of the driver.
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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Tony Hsieh’s first entrepreneurial effort began at the age of 12 when he started his own custom but-
ton business. Realizing the importance of advertising, Hsieh began marketing his business to other
kids through directories, and soon his profits soared to a few hundred dollars a month. Throughout
his adolescence, Hsieh started several businesses, and by the time he was in college he was mak-
ing money selling pizzas out of his Harvard dorm room. Another entrepreneurial student, Alfred Lin,
bought pizzas from Hsieh and resold them by the slice, making a nice profit. Hsieh and Lin quickly
became friends.
After Harvard, Hsieh founded LinkExchange in 1996, a company that helped small businesses
exchange banner ads. A mere two years later, Hsieh sold LinkExchange to Microsoft for $265 million.
Using the profits from the sale, Hsieh and Lin formed a venture capital company that invested in start-
up businesses. One investment that caught their attention was Zappos, an online etailer of shoes.
Both entrepreneurs viewed the $40 billion shoe market as an opportunity they could not miss, and in
2000 Hsieh took over as Zappos’s CEO with Lin as his chief financial officer.
Today, Zappos is leading its market and offering an enormous selection of more than 90,000 styles
of handbags, clothing, and accessories for more than 500 brands. One reason for Zappos’s incredible
success was Hsieh’s decision to use the advertising and marketing budget for customer service, a
tactic that would not have worked before the Internet. Zappos’s passionate customer service strategy
encourages customers to order as many sizes and styles of products as they want, ships them for
free, and offers free return shipping. Zappos encourages customer communication, and its call center
receives more than 5,000 calls a day with the longest call to date lasting more than four hours.
Zappos’s extensive inventory is stored in a warehouse in Kentucky right next to a UPS shipping
center. Only available stock is listed on the website, and orders as late as 11 P.M. are still guaranteed
next-day delivery. To facilitate supplier and partner relationships, Zappos built an extranet that pro-
vides its vendors with all kinds of product information, such as items sold, times sold, price, customer,
and so on. Armed with these kinds of details, suppliers can quickly change manufacturing schedules
to meet demand.
Zappos Culture
Along with valuing its partners and suppliers, Zappos also places a great deal of value on its employee
relationships. Zappos employees have fun, and walking through the offices you will see all kinds of
things not normally seen in business environments—bottle-cap pyramids, cotton-candy machines,
and bouncing balls. Building loyal employee relationships is a critical success factor at Zappos, and
to facilitate this relationship the corporate headquarters are located in the same building as the call
center (where most employees work) in Las Vegas. All employees receive 100 percent company-paid
health insurance along with a daily free lunch.
Of course, the Zappos culture does not work for everyone, and the company pays to find the right
employees through “The Offer,” which extends to new employees the option of quitting and receiving
payment for time worked plus an additional $1,000 bonus. Why the $1,000 bonus for quitting? Zappos
management believes that is a small price to pay to find those employees who do not have the sense
of commitment Zappos requires. Less than 10 percent of new hires take The Offer. Zappos’s unique
culture stresses the following:
■ Delivering WOW through service.
■ Embracing and driving change.
■ Creating fun and a little weirdness.
■ Being adventurous, creative, and open-minded.
■ Pursuing growth and learning.
■ Building open and honest relationships with communication.
Chapter Eleven Case: Zappos Is Passionate for Customers
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■ Building a positive team and family spirit.
■ Doing more with less.
■ Being passionate and determined.
■ Being humble.
Zappos’s Sale to Amazon
Amazon.com purchased Zappos for $880 million. Zappos employees shared $40 million in cash and
stock, and the Zappos management team remained in place. Having access to Amazon’s world-class
warehouses and supply chain is sure to catapult Zappos’s revenues, though many wonder whether
the Zappos culture will remain. It’ll be interesting to watch!1
Questions
1. Why would Zappos benefit from the implementation of a CRM system?
2. Why are customers at the heart of Zappos’s business strategy?
3. Analyze the merger between Zappos and Amazon and assess potential issues for Zappos
customers.
4. Propose a plan for how Zappos can use Amazon’s supply chain to increase sales and customer
satisfaction.
5. Argue for or against the following statement: “In the electronic age, customer relationships are
more important than ever, and Zappos provides the new benchmark that all corporations should
follow.”
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11.1. Describe customer relationship management along with its importance to a business.
Customer relationship management (CRM) is a means of managing all aspects of a customer’s rela-
tionship with an organization to increase customer loyalty and retention and an organization’s profit-
ability. CRM allows an organization to gain insights into customers’ shopping and buying behaviors.
Every time a customer communicates with a company, the firm has the chance to build a trusting
relationship with that particular customer.
11.2.  Differentiate operational and analytical customer relationship management.
The two primary components of a CRM strategy are operational CRM and analytical CRM. Opera-
tional CRM supports traditional transactional processing for day-to-day front-office operations or
systems that deal directly with the customers. Analytical CRM supports back-office operations and
strategic analysis and includes all systems that do not deal directly with the customers.
11.3.  Identify the three current trends extending customer relationship management. 
Supplier relationship management (SRM) focuses on keeping suppliers satisfied by evaluating and
categorizing suppliers for different projects, which optimizes supplier selection. Partner relationship
management (PRM) focuses on keeping vendors satisfied by managing alliance partner and reseller
relationships that provide customers with the optimal sales channel. Employee relationship manage-
ment (ERM) provides employees with a subset of CRM applications available through a web browser.
Many of the ERM applications assist the employee in dealing with customers by providing detailed
information on company products, services, and customer orders.
L E A R N I N G O U T C O M E R E V I E W
1. Why are customer relationships important to an organization?
2. Do you agree that every business needs to focus on customers to survive?
3. What is the difference between operational and analytical CRM?
4. How can a sales department use CRM to improve operations?
5. How can a marketing department use CRM to improve operations?
6. How can a company use partner relationship management to create a successful business?
7. Why would a company want to implement an employee relationship management system?
R E V I E W Q U E S T I O N S
1. Straightjacket Customer Service
You might not want to put the fact that you won the Straightjacket Award on your résumé unless
you worked for Rackspace, a Texas company that specializes in hosting websites. At Rackspace,
the coveted Straightjacket Award is won by the employee who best delivers “fanatical customer
support,” one of the firm’s critical success factors. The company motivates its customer service
M A K I N G B U S I N E S S D E C I S I O N S
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representatives by dividing them into teams, each responsible for its own profitability. The company
then measures such things as customer turnover, up-selling, cross-selling, and referrals. The team
with the highest scores wins the Straightjacket Award and each member receives a 20 percent
bonus.
Assume your professor has hired you as the employee relationship manager for your class. What
type of award would you create to help increase class participation? What type of award would you
create to help increase the overall average on exams? What type of award would you create to help
increase student collaboration? Be sure to name your awards and describe their details. Also, what
type of metrics would you create to measure your awards? How could a CRM system help you imple-
ment your awards?
2. Nice Emotions
New emotion-detection software called Perform, created by Nice Systems, helps firms improve
customer service by identifying callers who are displeased or upset. Perform determines a baseline
of emotion and can detect emotional issues during the first few seconds of a call; any variation from
the baseline activates an alert. When an elderly person who was highly distressed over medical
costs hung up during a phone call to the insurance company, Perform identified the customer’s frus-
tration and automatically emailed a supervisor. The supervisor was able to review a recording of the
conversation and immediately called the customer back suggesting ways to lower the costs.
How do you think emotion-detection software will affect customer relationships? What other
departments or business processes could benefit from its use? Create a new product that uses
emotion-detection software. What business problem would your product solve and who would be
your primary customers?
3. Ruby Receptionists
Great businesses are driven by exceptional customer experiences and interactions. Ruby is a com-
pany operating from Portland, Oregon, that has a team of smart and cheerful virtual receptionists
that you can hire to carry out all your customer interactions—remotely. Ruby aims to deliver the per-
fect mix of friendliness, charm, can-do attitude, and professionalism to all its clients’ customer calls.
Best of all, customers believe the Ruby receptionists are working right in your office, not in Portland,
Oregon. Ruby promises to bring back the lost art of human interaction by delighting each and every
customer who calls.
Explain the importance of customer service for customer relationship management. Do you agree
that a company can improve customer service by hiring Ruby receptionists? If you owned a small
business, would you be comfortable hiring Ruby receptionists?
4. I’m Stuck in London and I’ve Been Robbed—Help Me!
There are so many people using Facebook that people can quickly become overwhelmed with
friend requests. Without knowing who your friends are, it is easy to find yourself a victim of a scam.
Internet impostors are perfecting the technique of impersonating friends on social networking sites
like Facebook with lucrative results and suckering individuals out of thousands of dollars. Emotional
email pleas sent by imposters, such as “I’m stuck in London and I’ve been robbed, help me,” have
become so effective that the FBI has issued warnings to consumers about social networking sites.
“Fraudsters continue to hijack accounts on social networking sites and spread malicious software by
using various techniques,” the FBI stated after logging 3,200 complaints about such incidents within
a week.
When Barry Schwartz logged on to Twitter, he had 20 messages waiting for him, all with the
unwelcome news: someone was impersonating his company on Twitter. Schwartz runs RustyBrick,
a 15-employee, $2 million website development company. The impostor had set up a profile using
a slight variation of the company’s name and started following Schwartz’s 4,000 customer contacts
with a message similar to spam: “Hey guys, you have to get this new Twitter Success Guide—it’s
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priceless.” A devastated Schwartz stated, “The last thing I want is to have people thinking that I’m
following them and I’m selling a Twitter Success Guide.”
Internet impostors impersonate organizations as well as individuals. What could happen to an
organization whose customers are contacted by an impostor asking for money or selling a product?
What happens when the relationship with a customer turns sour? What type of power does a dis-
gruntled customer or employee have against a company? Why is it more important than ever to build
strong relationships with your customers, employees, partners, and suppliers?
5. Customer Relationship Management Strategies
On average, it costs an organization six times more to sell to a new customer than to sell to an
existing customer. As the co-owner of a medium-sized luggage distributor, you have recently been
notified by your EIS systems that sales for the past three months have decreased by an average of
17 percent. The reasons for the decline in sales are numerous, including a poor economy, people’s
aversion to travel because of the terrorist attacks, and some negative publicity your company
received regarding a defective product line. In a group, explain how implementing a CRM system
can help you understand and combat the decline in sales. Be sure to justify why a CRM system is
important to your business and its future growth.
6. My Customers Hate Me
The web contains numerous examples of customer power. Customers are using YouTube, Myspace,
blogs, and a number of other web tools to slam or praise companies. Do you believe that the most
influential person in your business is the customer? How could customers hurt or help your busi-
ness? Will your employees agree that customers are the most important part of the business?
7. Times They Are A Changing!
Change.org, a social activist website, is a resource for researching and organizing groups around
social and political causes, called “Changes.” Changes allow members with similar beliefs to post
images, videos, blogs, and even donations to their nonprofit cause. Politicians need to find donors
to help them raise campaign funds so they can compete in elections. In fact, politicians in the last
election raised upwards of $3 billion, with about $50 million spent on finding the donors. Change.
org wants to lower those fund-raising costs, neutralize large donors’ “special interest” money,
and provide a place where the “average Joe” who can’t afford a $2,500 fund-raising dinner can
be heard. Change.org’s strategy is to create a database of politician profiles that align with each
Change group. The Change groups are now empowered to pool together a pot of money to donate
to relevant charities or political candidates, as well as the power to lobby representatives.
Describe the differences between operational CRM and analytical CRM. What types of
operational CRM would Change.org need to function? What types of analytical CRM would Change.
org need to function? How could Change.org use marketing, sales, and customer service CRM
technologies to help raise awareness and donations for nonprofit causes? Why is creating a social
activist website a risky decision? Would you want to have your personal information stored on this
website?
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C H A P T E R 12
L E A R N I N G O U T C O M E S
12.1. Describe the role information plays in enterprise
resource planning systems.
12.2. Identify the core and extended areas of enterprise
resource planning.
12.3. Discuss the current technologies organizations are
integrating in enterprise resource planning systems.
Enterprise Resource Planning (ERP)
Enterprise resource planning systems serve as the organization’s backbone in providing fun-
damental decision-making support. In the past, departments made decisions independent
of each other. ERP systems provide a foundation for collaboration between departments,
enabling people in different business areas to communicate. ERP systems have been widely
adopted in large organizations to store critical knowledge used to make the decisions that
drive performance.
To be competitive, organizations must always strive for excellence in every business pro-
cess enterprisewide, a daunting challenge if the organization has multisite operations world-
wide. To obtain operational efficiencies, lower costs, improve supplier and customer relations,
and increase revenues and market share, all units of the organization must work together har-
moniously toward congruent goals. An ERP system will help an organization achieve this.
The heart of an ERP system is a central database that collects information from and feeds
information into all the ERP system’s individual application components (called modules),
supporting diverse business functions such as accounting, manufacturing, marketing, and
human resources. When a user enters or updates information in one module, it is immediately
and automatically updated throughout the entire system, as illustrated in Figure 12.1.
ERP automates business processes such as order fulfillment—taking an order from a cus-
tomer, shipping the purchase, and then billing for it. With an ERP system, when a customer
service representative takes an order from a customer, he or she has all the information nec-
essary to complete the order (the customer’s credit rating and order history, the company’s
inventory levels, and the delivery schedule). Everyone else in the company sees the same
information and has access to the database that holds the customer’s new order. When one
department finishes with the order, it is automatically routed via the ERP system to the next
department. To find out where the order is at any point, a user need only log in to the ERP
system and track it down, as illustrated in Figure 12.2. The order process moves like a bolt of
lightning through the organization, and customers get their orders faster and with fewer errors
than ever before. ERP can apply that same magic to the other major business processes, such
as employee benefits or financial reporting.
LO 12.1 Describe the role informa-
tion plays in enterprise resource
planning systems.
Integrating the Organization
from End to End—Enterprise
Resource Planning
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BRINGING THE ORGANIZATION TOGETHER
In most organizations, information has traditionally been isolated within specific departments,
whether on an individual database, in a file cabinet, or on an employee’s PC. ERP enables
employees across the organization to share information across a single, centralized database.
With extended portal capabilities, an organization can also involve its suppliers and customers
to participate in the workflow process, allowing ERP to penetrate the entire value chain, and
help the organization achieve greater operational efficiency (see Figures 12.3 and 12.4).
FIGURE 12.1
ERP Integration Data Flow.
Information
Purchasing
Inventory
Accounting
and Finance
Human
Resources
Marketing
and Sales
Manufacturing
FIGURE 12.2
ERP Process Flow. SALES
Information
Sales
quote
Sales
order
WAREHOUSE
Pack and
ship
RECEIVING
Returns
ACCOUNTING
1
2
3
Payment
Billing
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THE EVOLUTION OF ERP
Originally, ERP solutions were developed to deliver automation across multiple units of an
organization, to help facilitate the manufacturing process and address issues such as raw mate-
rials, inventory, order entry, and distribution. However, ERP was unable to extend to other
functional areas of the company such as sales, marketing, and shipping. It could not tie in any
CRM capabilities that would allow organizations to capture customer-specific information,
nor did it work with websites or portals used for customer service or order fulfillment. Call
center or quality assurance staff could not tap into the ERP solution, nor could ERP handle
document management, such as cataloging contracts and purchase orders.
FIGURE 12.3
The Organization before ERP.
Document Management
Workflow
ERP Logistics
Sales
Financials
HR
Portal and
Website
Project Management
FIGURE 12.4
ERP—Bringing the
Organization Together.ERPFinancials
Project Management
Portal and Website
Workflow
Document Management
Sales
HR
Logistics
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ERP has grown over the years to become part of the extended enterprise. From its begin-
ning as a tool for materials planning, it has extended to warehousing, distribution, and order
entry. With its next evolution, ERP expands to the front office including CRM. Now admin-
istrative, sales, marketing, and human resources staff can share a tool that is truly enter-
prisewide. To compete on a functional level today, companies must adopt an enterprisewide
approach to ERP that utilizes the Internet and connects to every facet of the value chain. Fig-
ure 12.5 shows how ERP has grown since the 1990s to accommodate the needs of the entire
organization.
Applications such as SCM, CRM, and ERP are the backbone of ebusiness. Integration of
these applications is the key to success for many companies. Integration allows the unlocking
of information to make it available to any user, anywhere, anytime.
Most organizations today have no choice but to piece their SCM, CRM, and ERP applica-
tions together since no one vendor can respond to every organizational need; hence, custom-
ers purchase applications from multiple vendors. As a result, organizations face the challenge
of integrating their systems. For example, a single organization might choose its CRM com-
ponents from Siebel, SCM components from i2, and financial components and HR manage-
ment components from Oracle. Figure 12.6 displays the general audience and purpose for
each of these applications that have to be integrated.
INTEGRATION TOOLS
Effectively managing the transformation to an integrated enterprise will be critical to the suc-
cess of the 21st-century organization. The key is the integration of the disparate IT applica-
tions. An integrated enterprise infuses support areas, such as finance and human resources,
with a strong customer orientation. Integrations are achieved using middleware—several dif-
ferent types of software that sit in the middle of and provide connectivity between two or
more software applications. Middleware translates information between disparate systems.
Enterprise application integration (EAI) middleware represents a new approach to middle-
ware by packaging together commonly used functionality, such as providing prebuilt links
to popular enterprise applications, which reduces the time necessary to develop solutions
that integrate applications from multiple vendors. A few leading vendors of EAI middleware
FIGURE 12.5
The Evolution of ERP. • Materials Planning
• Order Entry
• Distribution
• General Ledger
• Accounting
• Shop Floor Control
• Project Management
• Knowledge Management
• Workflow Management
• Customer Relationship Management
• Human Resource Management
• Portal Capability
• Integrated Financials
ERP
• Scheduling
• Forecasting
• Capacity Planning
• Ecommerce
• Warehousing
• Logistics
Extended ERP ERP-II
1990 2000 Present
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include Active Software, Vitria Technology, and Extricity. Figure 12.7 displays the data
points where these applications integrate and illustrates the underlying premise of architecture
infrastructure design.
Companies run on interdependent applications, such as SCM, CRM, and ERP. If one appli-
cation performs poorly, the entire customer value delivery system is affected. For example, no
matter how great a company is at CRM, if its SCM system does not work and the customer
never receives the finished product, the company will lose that customer. The world-class
enterprises of tomorrow must be built on the foundation of world-class applications imple-
mented today.
FIGURE 12.6
Primary Users and Business
Benefits of Strategic
Initiatives.
Sales, Marketing,
Customer Service
Sales forecasts,
Sales strategies,
Marketing campaigns
CRM
Customers, Resellers,
Partners, Suppliers,
Distributors
Market demand,
Resource and
capacity constraints,
Real-time scheduling
SCM
Accounting, Finance,
Logistics, Production
Forecasting, Planning,
Purchasing,
Material management,
Warehousing,
Inventory, Distribution
ERP
Primary Users Primary Business BenefitEnterprise Application
FIGURE 12.7
Integrations between SCM,
CRM, and ERP Applications.
Accounting, Finance, Human Resources,
Purchasing, Management, Auditing
Employees
Customers
SCM
Business
Partners,
Suppliers,
Distributors,
Resellers
ERP
Logistics,
Production,
Distribution
CRM
Marketing,
Sales,
Customer
Service
SCM
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Core and Extended ERP Components
Turner Industries grew from $300 million in sales to $800 million in sales in less than 10 years
thanks to the implementation of an ERP system. Ranked number 369 on the Forbes 500 list of
privately held companies, Turner Industries is a leading industrial services firm. Turner Indus-
tries develops and deploys advanced software applications designed to maximize the produc-
tivity of its 25,000 employees and construction equipment valued at more than $100 million.
The company considers the biggest challenges in the industrial services industry to be
completing projects on time, within budget, while fulfilling customers’ expectations. To meet
these challenges the company invested in an ERP system and named the project Interplan.
Interplan won Constructech’s Vision award for software innovation in the heavy construc-
tion industry. Interplan runs all of Turner’s construction, turnaround, shutdown, and mainte-
nance projects and is so adept at estimating and planning jobs that Turner Industries typically
achieves higher profit margins on projects that use Interplan. As the ERP solution makes the
company more profitable, the company can pass on the cost savings to its customers, giving
the company an incredible competitive advantage.
Figure 12.8 provides an example of an ERP system with its core and extended components.
Core ERP components are the traditional components included in most ERP systems and
they primarily focus on internal operations. Extended ERP components are the extra compo-
nents that meet the organizational needs not covered by the core components and primarily
focus on external operations.
CORE ERP COMPONENTS
The three most common core ERP components focusing on internal operations are:
1. Accounting and finance.
2. Production and materials management.
3. Human resources.
LO 12.2 Identify the core and
extended areas of enterprise
resource planning.
FIGURE 12.8
Core ERP Components and
Extended ERP Components.
Accounting
and
finance
Production
and materials
management
Human
resource
Core ERP components
Customer
relationship
management
Supply chain
management
Business
intelligence
Ebusiness
Extended ERP components
Enterprise
resource planning
software
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Accounting and Finance ERP Components
Deeley Harley-Davidson Canada (DHDC), the exclusive Canadian distributor of Harley-
Davidson motorcycles, has improved inventory, turnaround time, margins, and customer
satisfaction—all with the implementation of a financial ERP system. The system has opened
up the power of information to the company and is helping it make strategic decisions when it
still has the time to change things. The ERP system provides the company with ways to man-
age inventory, turnaround time, and warehouse space more effectively.
Accounting and finance ERP components manage accounting data and financial pro-
cesses within the enterprise with functions such as general ledger, accounts payable, accounts
receivable, budgeting, and asset management. One of the most useful features included in
an ERP accounting/finance component is its credit-management feature. Most organizations
manage their relationships with customers by setting credit limits, or a limit on how much
a customer can owe at any one time. The company then monitors the credit limit whenever
the customer places a new order or sends in a payment. ERP financial systems help to corre-
late customer orders with customer account balances determining credit availability. Another
great feature is the ability to perform product profitability analysis. ERP financial compo-
nents are the backbone behind product profitability analysis and allow companies to perform
all types of advanced profitability modeling techniques.
Production and Materials Management ERP Components
One of the main functions of an ERP system is streamlining the production planning
process. Production and materials management ERP components handle the various
aspects of production planning and execution such as demand forecasting, production
scheduling, job cost accounting, and quality control. Companies typically produce mul-
tiple products, each of which has many different parts. Production lines, consisting of
machines and employees, build the different types of products. The company must then
define sales forecasting for each product to determine production schedules and materi-
als purchasing. Figure 12.9 displays the typical ERP production planning process. The
process begins with forecasting sales in order to plan operations. A detailed production
schedule is developed if the product is produced and a materials requirement plan is com-
pleted if the product is purchased.
Grupo Farmanova Intermed, located in Costa Rica, is a pharmaceutical marketing and
distribution company that markets nearly 2,500 products to approximately 500 customers in
Central and South America. The company identified a need for software that could unify
product logistics management in a single country. It decided to deploy PeopleSoft financial
and distribution ERP components allowing the company to improve customer data manage-
ment, increase confidence among internal and external users,
and coordinate the logistics of inventory. With the software the
company enhanced its capabilities for handling, distributing,
and marketing its pharmaceuticals.
Human Resources ERP Components
Human resources ERP components track employee informa-
tion including payroll, benefits, compensation, and performance
assessment, and assure compliance with the legal requirements
of multiple jurisdictions and tax authorities. Human resources
components even offer features that allow the organization to
perform detailed analysis on its employees to determine such
things as the identification of individuals who are likely to leave
the company unless additional compensation or benefits are
provided. These components can also identify which employ-
ees are using which resources, such as online training and long-
distance telephone services. They can also help determine
whether the most talented people are working for those business
units with the highest priority—or where they would have the
greatest impact on profit.
FIGURE 12.9
The Production Planning
Process.
Sales forecasting
Operations
planning
Materials requirement
planning
Purchasing
Detailed
scheduling
Production
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EXTENDED ERP COMPONENTS
Extended ERP components are the extra components that meet the organizational needs not
covered by the core components and primarily focus on external operations. Many of the
numerous extended ERP components are Internet enabled and require interaction with cus-
tomers, suppliers, and business partners outside the organization. The four most common
extended ERP components are:
1. Business intelligence
2. Customer relationship management
3. Supply chain management
4. Ebusiness
Business Intelligence Components
ERP systems offer powerful tools that measure and control organizational operations. Many
organizations have found that these valuable tools can be enhanced to provide even greater
value through the addition of powerful business intelligence systems. The business intelligence
components of ERP systems typically collect information used throughout the organization
(including data used in many other ERP components), organize it, and apply analytical tools
to assist managers with decisions. Data warehouses are one of the most popular extensions to
ERP systems, with over two-thirds of U.S. manufacturers adopting or planning such systems.
Customer Relationship Management Components
ERP vendors are expanding their functionality to provide services formerly supplied by cus-
tomer relationship management (CRM) vendors such as Siebel. CRM components provide
an integrated view of customer data and interactions allowing organizations to work more
effectively with customers and be more responsive to their needs. CRM components typically
include contact centers, sales force automation, and marketing functions. These improve the
customer experience while identifying a company’s most (and least) valuable customers for
better allocation of resources.
Supply Chain Management Components
ERP vendors are expanding their systems to include SCM functions that manage the informa-
tion flows between and among supply chain stages, maximizing total supply chain effectiveness
and profitability. SCM components allow a firm to monitor and control all stages in the supply
chain from the acquisition of raw materials to the receipt of finished goods by customers.
Ebusiness Components
The original focus of ERP systems was the internal organization. In other words, ERP systems
are not fundamentally ready for the external world of ebusiness. The newest and most excit-
ing extended ERP components are the ebusiness components. Two of the primary features of
ebusiness components are elogistics and eprocurement. Elogistics manages the transportation
and storage of goods. Eprocurement is the business-to-business (B2B) purchase and sale of
supplies and services over the Internet.
Ebusiness and ERP complement each other by allowing companies to establish a web pres-
ence and fulfill orders expeditiously. A common mistake made by many businesses is deploying
a web presence before the integration of back-office systems or an ERP system. For example,
one large toy manufacturer announced less than a week before Christmas that it would be unable
to fulfill any of its web orders. The company had all the toys in the warehouse, but it could not
organize the basic order processing function to get the toys delivered to the consumers on time.
Customers and suppliers are now demanding access to ERP information including order
status, inventory levels, and invoice reconciliation. Plus, the customers and partners want all
this information in a simplified format available through a website. This is a difficult task to
accomplish because most ERP systems are full of technical jargon, which is why employee
training is one of the hidden costs associated with ERP implementations. Removing the jar-
gon to accommodate untrained customers and partners is one of the more difficult tasks when
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web-enabling an ERP system. To accommodate the growing needs of the ebusiness world,
ERP vendors need to build two new channels of access into the ERP system information—one
channel for customers (B2C) and one channel for businesses, suppliers, and partners (B2B).
MEASURING ERP SUCCESS
There is no guarantee of success for an ERP system. It is difficult to measure the success of
an ERP system because one system can span an entire organization, including thousands of
employees across the globe. ERPs focus on how a corporation operates internally, and opti-
mizing these operations takes significant time and energy.
Two of the primary forces driving ERP failure include software customization and ERP costs.
Software customization modifies existing software according to the business’s or user’s require-
ments. Since ERP systems must fit business processes, many enterprises choose to customize
their ERP systems to ensure that they meet business and user needs. Figure 12.10 displays the
different forms of software customization a business will undertake to ensure the success of an
ERP implementation. Heavy customization leads to complex code that must be continuously
maintained and upgraded. It should be noted that customizing an ERP system is costly and com-
plex and should only be done when there is a specific business advantage. According to Meta
Group, it takes the average company 8 to 18 months to see any benefits from an ERP system. The
primary risk for an ERP implementation includes the associated costs displayed in Figure 12.11.
FIGURE 12.10
Software Customization
Examples.
SOFTWARE CUSTOMIZATION
Business Processes or
Workflows
Software can be customized to support the needs of business process work-
flows unique to each business or department.
Code Modifications The most expensive customization occurs when application code is changed
and should only be done if the code changes provide specific competitive
advantages.
Integrations Data integration is key for business process support that spans functional
areas and legacy systems.
Reports, Documents,
Forms
Customization to reports, documents, and forms can consist of simple layout
or design changes or complex logic programming rules for specific business
requirements.
User-Interface Changes An ERP system can be customized to ensure that each user has the most effi-
cient and e�ective view of the application.
FIGURE 12.11
ERP Costs.Software Costs
Consulting Fees
Process rework
Customization
Integration
Testing
Training
Data warehouse
integration and data
conversions
ERP COSTS
Purchasing the software can cost millions of dollars for a large enterprise.
Hiring external experts to help implement the system correctly can cost millions
of dollars.
Redefine processes to ensure that the company is using the most efficient and
e�ective processes.
If the software package does not meet all of the company’s needs, customizing
the software may be required.
Ensuring that all software products, including disparate systems not part of the
ERP system, are working together or are integrated.
Testing that all functionality works correctly along with testing all integrations.
Training all new users and creating the training user manuals.
Moving data from an old system into the new ERP system.
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The Future of ERP
The goal of ERP is to integrate all of the organizational systems into one fully functioning,
high-performance system that is capable of meeting all business needs and user requirements.
Traditional ERP systems were typically accessed from a computer on the customers’ premises
or office. Tomorrow’s ERP systems will enhance the ability of organizations to apply context
to decision making and adapt more easily to changing events. ERP systems in the future will
focus on usability, ubiquity, accessibility, and mobility drawing many advantages including:
■ Drive cost efficiencies.
■ Faster time to market.
■ Better enable mobile workforce.
■ Better leverage data to provide insights.
■ New product development.
Of course, ERP of the future will have many challenges including data management, source
record management, and coordinating integrations and support activities. Figure 12.12 displays
the three primary ERP implementation choices driving the next generation of business operations.
ON-PREMISE ERP
Until a decade ago, virtually all ERP systems were installed on-premise. On-premise systems
include a server at a physical location using an internal network for internal access and fire-
walls for remote users’ access. Remote users had to access the ERP system through a firewall,
which protected the system against unauthorized access. These systems are known as on-
premise systems, and they are still in wide use today. The ERP, SCM, and CRM systems that
run on-premise are referred to as legacy systems. Legacy system is an old system that is fast
approaching or beyond the end of its useful life with in an organization.
CLOUD ERP
The cloud has changed the legacy model of ERP implementation. According to the National
Institute of Standards and Technology (NIST) cloud computing is a model for enabling
LO 12.3 Discuss the current
technologies organizations are
integrating in enterprise resource
planning systems.
FIGURE 12.12
ERP Implementation
Choices.
ON-PREMISE ERP
-Own all Hardware and Software
-Significant Capital Investment
-Complete Ownership
CLOUD ERP
-All Hardware and Software Owned and Remotely Hosted by
Cloud Vendor
Hybrid ERP
-Own Components of Hardware and Software
-Host Components of Hardware and Software with Cloud
Vendor
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ubiquitous, convenient, on-demand network access to a shared pool of configurable computing
resources (e.g., networks, servers, storage, applications, and services) that can be rapidly pro-
visioned and released with minimal management effort or service provider interaction. cloud
computing stores, manages, and processes data and applications over the Internet rather than
on a personal computer or server. Cloud computing offers new ways to store, access, process,
and analyze information and connect people and resources from any location in the world an
Internet connection is available. As shown in Figure 12.13, users connect to the cloud from
their personal computers or portable devices by using a client, such as a web browser. To these
individual users, the cloud appears as their personal application, device, or document. It is like
storing all of your software and documents in the cloud, and all you need is a device to access
the cloud. No more hard drives, software, or processing power—that is all located in the cloud,
transparent to the users. Users are not physically bound to a single computer or network; they
can access their programs and documents from wherever they are, whenever they need to. Just
think of having your hard drive located in the sky and you can access your information and
programs using any device from wherever you are. The best part is that even if your machine
crashes, is lost, or is stolen, the information hosted in the cloud is safe and always available.
Software as a Service (SaaS) delivers applications over the cloud using a pay-per-use
revenue model. Before its introduction, companies often spent huge amounts of money imple-
menting and customizing specialized applications to satisfy their business requirements.
Many of these applications were difficult to implement, expensive to maintain, and challeng-
ing to use. Usability was one of the biggest drivers for creating interest in and success for
cloud computing service providers. SaaS ERP uses the cloud platform to enable organizations
not only to unite around business processes, but also to gather cloud data across supplier
networks and supply chains to drive greater efficiency in manufacturing projects. The move
to SaaS ERP is attracting many small and midsized businesses that simply cannot afford the
costs associated with a traditional large ERP implementation.
SaaS offers a number of advantages; the most obvious is tremendous cost savings. The software
is priced on a per-use basis with no up-front costs, so companies get the immediate benefit of reduc-
ing capital expenditures. They also get the added benefits of scalability and flexibility to test new
software on a rental basis. Figure 12.14 displays the many advantages of SaaS implementations.
Cloud ERP has been slow to take off across business because many people were initially
uncomfortable with placing sensitive data in the cloud. As the tremendous cost-saving advan-
tages associated with cloud applications and SaaS become more apparent, the reservations
against cloud ERP are dissipating.
Large organizations tend to have difficulty adjusting to cloud solutions simply because they want
greater levels of control over their enterprise applications. Smaller, less complex organizations that
FIGURE 12.13
Cloud Computing Example.
Amazon EC2 Windows Live
MozyFacebook
Gmail
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lack sophisticated MIS departments are more likely to gravitate toward the cloud because it is easy
for them to change business processes to fit the software. SaaS ERP can provide a company with
the flexibility of on-premise software and the added benefits of a vendor maintaining and housing
the applications off the premises. The biggest concerns for organizations interested in cloud ERP
solutions is data security and potential vendor outages causing business downtime. Without an on-
premises MIS department, the organization is truly at the mercy of the vendor during any system
outage, and for critical organizational systems like ERP, this could be an unacceptable risk.
HYBRID ERP
It is conventional wisdom that a diversified stock portfolio is a very effective hedge against invest-
ment risk. For the same reason, companies that are not comfortable with the risk and/or loss of
control associated with moving wholesale into ERP cloud computing, but still want to explore this
evolving infrastructure, might find a hybrid ERP approach to be the perfect answer. By “hybrid
ERP approach,” we mean mostly on site, but with some carefully selected hosted applications.
Building an all-encompassing ERP system traditionally ended in expensive failures. Nike,
K-Mart, and Hershey all lost over $100 million in failed ERP implementations. Based on the
need to avoid expensive failures along with the emergence of cloud computing, enterprises can
now adopt hybrid ERP architectures. The idea behind hybrid ERP is to split the ERP functions
between an on-premises ERP system and one or more functions handled as Software as a Ser-
vice (SaaS) in the cloud. Typically the on-premise legacy application operates at the corporate
headquarters, whereas cloud-based specific applications support business needs such as mobil-
ity and web-based functionality. It is also becoming increasingly popular. In fact many analysts
are predicting that hybrid ERP will become a mainstay in the ERP market in the next few years.
Often a hybrid ERP system is implemented when the legacy system becomes very large
and costly to customize, maintain, and upgrade or when mergers and acquisitions leave an
organization with multiple ERP solutions that it is unable to consolidate to a single ERP sys-
tem. Hybrid ERP architectures also support organizations with multiple operations based in
multiple geographic locations. The following scenarios are common in organizations that use
hybrid architectures of ERP:
■ A business with a very specific local focus—single-site or multisite within a single country
or region.
■ A business with operations geared strongly toward a specific industry that doesn’t feature
strongly at corporate headquarters.
FIGURE 12.14
Cloud Computing
Advantages.
Cost Saving Flexibility
Reliability
Portability
Capacity on
Demand
Backup/Recovery
Scalability
Availability
Accessibility
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■ A newly acquired operation with a mismatch of multiple outdated, unsupported ERPs.
■ A small subsidiary with no formal ERP in place.
Managing the data across the enterprise is one of the biggest concerns for organizations
deploying hybrid ERP architectures. It is critical for the business to have absolutely no dupli-
cation of effort between the two ERP systems. Consistency is required for any hybrid applica-
tion to ensure that there is always a single source of information for accounting, financials,
customer service, production, and other business areas. Hundreds of ERP vendors offer best-
of-breed ERP applications or vertical market solutions to meet the unique requirements of
specific industries such as manufacturing, distribution, retail, and others. Figure 12.15 dis-
plays an overview of ERP vendors by business size. Figure 12.16 displays the important fac-
tors driving the future of ERP.
FIGURE 12.15
ERP Vendors by Tier.
ERP VENDORS BY TIER
Enterprise Size ERP Vendor
Tier I Large Enterprise SAP
Oracle
Microsoft
Tier II Midsize Business Infor
Lawson
Epicor
Sage
Tier III Small Business Exact Globe
Syspro
etiuSteN
Consona
Ebusiness
Supply chain
management
Materials
requirement
planning
Human
resource
management
Finance
accounting
resource
management
Business
intelligence
Customer
relationship
management
ENTERPRISE
RESOURCE
PLANNING
CLOUD ERP
MOBILITY
SaaS ERP
TIERED
ARCHITECTURE
FIGURE 12.16
Organizational Integration
of ERP.
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The world of ERP may seem boring to those caught up in the hysteria over Twitter and iPhone appli-
cations, but there’s plenty of drama to be found: Troubled multimillion-dollar software deals that
produce spectacular failures and huge spending nightmares; vendor marketing bravado that breeds
cut-throat competition and contempt; and embarrassing and costly lawsuits over botched implemen-
tations and intellectual property breaches. Consider CIO.com’s brief and semi-chronological history of
five ERP scandals as a warning if you’re contemplating an upgrade or implementation.
1. Definitely Not a Sweet Experience for Hershey- Could a failed technology implementation take
down a Fortune 500 company (in this case Hershey Foods)? Well, it certainly didn’t help Her-
shey’s operations during the Halloween season in 1999 or make Wall Street investors thrilled. In
the end, Hershey’s ghastly problems with its SAP ERP, Siebel CRM and Manugistics supply chain
applications prevented it from delivering $100 million worth of Kisses for Halloween that year and
caused the stock to dip 8 percent. So I guess a failed technology project can’t actually take down
a Fortune 500 company for good, but it can certainly knock it around a bit.
2. Just Do It: Fix Our Supply Chain System- What did a $400 million upgrade to Nike’s supply chain and
ERP systems get the world-renowned shoe- and athletic gear-maker? Well, for starters, $100 million
in lost sales, a 20 percent stock dip and a collection of class-action lawsuits. This was all back in
2000, and the horrendous results were due to a bold ERP, supply chain and CRM project that aimed
to upgrade the systems into one superstar system. Nike’s tale is both of woe and warning.
3. HP’s “Perfect Storm” of ERP Problems- The epic tale of HP’s centralization of its disparate North
American ERP systems onto one SAP system proves that one can never be too pessimistic when
it comes to ERP project management. You see, in 2004, HP’s project managers knew all of the
things that could go wrong with their ERP rollout. But they just didn’t plan for so many of them to
happen at once. The project eventually cost HP $160 million in order backlogs and lost revenue—
more than five times the project’s estimated cost. Said Gilles Bouchard, then-CIO of HP’s global
operations: “We had a series of small problems, none of which individually would have been too
much to handle. But together they created the perfect storm.”
4. A New Type of Freshman Hazing- Pity the college freshman at the University of Massachusetts
in fall 2004: The last thing they needed was some computer program to haunt their lives and
make their new collegiate experience even more uncertain. But more than 27,000 students at the
University of Massachusetts as well as Stanford and Indiana University were forced to do battle
with buggy portals and ERP applications that left them at best unable to find their classes and at
worst unable to collect their financial aid checks. Said one UMass senior at the time: “The fresh-
men were going crazy because they didn’t know where to go.” After a couple of tense days and
weeks, however, everyone eventually got their checks and class schedules.
Chapter Twelve Case: Five Famous ERP Failures
1. Measuring the success of an ERP system is difficult. How is measuring the success of a connected
car similar to measuring the success of an ERP system?
2. How are connected cars using software as a service?
3. How are connected cars using cloud computing?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
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5. Waste Management Trashes Its “Fake” ERP Software- Garbage-disposal giant Waste Manage-
ment is still embroiled in an acrimonious $100 million legal battle with SAP over an 18-month
installation of its ERP software. The initial deal began in 2005, but the legal saga commenced
in March 2008, when Waste Management filed suit and claimed SAP executives participated in
a fraudulent sales scheme that resulted in the massive failure. Several months later, SAP fired
back, claiming that Waste Management allegedly violated its contractual agreement with SAP in
several ways, including by “failing to timely and accurately define its business requirements,” and
not providing “sufficient, knowledgeable, decision-empowered users and managers” to work on
the project. In the fall 2008, accusations were still flying about documentation, depositions and
delays in bringing the case before a judge. And that proposed 18-month implementation now
sounds like a dream scenario.1
Questions
1. Why do you think it is so difficult to find successful ERP implementation?
2. How do you think cloud computing will help ERP implementations find success?
3. What advice would you give a company deciding to implement an ERP system?
4. How can integrating SCM, CRM, and ERP help improve business operations at your school?
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12.1. Describe the role information plays in enterprise resource planning systems.
Enterprise resource planning systems serve as the organization’s backbone in providing fundamen-
tal decision-making support. In the past, departments made decisions independent of each other.
ERP systems provide a foundation for collaboration between departments, enabling people in differ-
ent business areas to communicate. ERP systems have been widely adopted in large organizations
to store critical knowledge used to make the decisions that drive performance.
12.2. Identify the core and extended areas of enterprise resource planning.
Enterprise resource planning (ERP) integrates all departments and functions throughout an organiza-
tion into a single IT system (or integrated set of IT systems) so employees can make decisions by
viewing enterprisewide information about all business operations. The current generation of ERP,
ERP-II, is composed of two primary components—core and extended. Core ERP components are the
traditional components included in most ERP systems and primarily focus on internal operations.
Extended ERP components are the extra components that meet organizational needs not covered by
the core components and primarily focus on external operations.
12.3. Discuss the current technologies organizations are integrating in enterprise
resource planning systems.
The goal of ERP is to integrate all of the organizational systems into one fully functioning, high-
performance system that is capable of meeting all business needs and user requirements. Of course,
this goal is incredibly difficult to achieve because businesses and technologies experience rapid
change, and ERP must support mobility, cloud, SaaS, and tiered architectures.
L E A R N I N G O U T C O M E R E V I E W
1. What is an enterprise resource planning system?
2. What is the difference between core and extended ERP?
3. What are the components in a core ERP system?
4. What are the components in an extended ERP system?
5. What is at the heart of an ERP system?
6. How does a company measure the success of an ERP system?
7. What are the three different ERP implementation choices?
R E V I E W Q U E S T I O N S
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1. Implementing an ERP System
Blue Dog Inc. is a leading manufacturer in the high-end sunglasses industry. Blue Dog Inc. reached
record revenue levels of over $250 million last year. The company is currently deciding on the pos-
sibility of implementing an ERP system to help decrease production costs and increase inventory
control. Many of the executives are nervous about making such a large investment in an ERP system
due to its low success rates. As a senior manager at Blue Dog Inc. you have been asked to compile
a list of the potential benefits and risks associated with implementing an ERP system along with your
recommendations for the steps the company can take to ensure a successful implementation.
2. SCM, CRM, and ERP
Jamie Ash is interested in applying for a job at a large software vendor. One of the criteria for the
job is a detailed understanding of strategic initiatives such as SCM, CRM, and ERP. Jamie has no
knowledge of any of these initiatives and cannot even explain what the acronyms mean. Jamie has
come to you for help. She would like you to compile a summary of the three initiatives including an
analysis of how the three are similar and how they are different. Jamie would also like to perform
some self-training via the web so be sure to provide her with several additional links to key websites
that offer detailed overviews on SCM, CRM, and ERP.
3. Software as a Service
It is not uncommon to open a magazine and find a number of X as a Service acronyms. Platform as
a Service, Data as a Service, and Infrastructure as a Service to name a few. Research the Internet to
find examples of businesses using different application and data service to help grown and trans-
form their operations. What is SaaS and why are businesses excited about SaaS ERP systems? Why
is SaaS such a hot trend in the business world? What other kinds of services did you find and how
would a business benefit from using them?
4. Gaining Business Intelligence from Strategic Initiatives
You are a new employee in the customer service department at Premier One, a large office supply
distributor. The company has been in business for three years and focuses on providing top of the line
office supplies at a low cost. The company currently has 90 employees and operates in seven states.
Sales over the past three years have tripled, and the manual systems currently in place are no
longer sufficient to run the business. Your first task is to meet with your new team and create a
presentation for the president and chief executive officer describing supply chain management,
customer relationship management, and enterprise resource planning. The presentation should
highlight the main benefits Premier One can receive from these enterprise systems along with any
additional added business value that can be gained from the systems.
5. Sharptooth Incorporated
Stephen Kern is the founder and CEO of Sharptooth, a small business that buys and sells comic
strips to magazines and newspapers around the country. Some of Sharptooth’s artists have made it
big and are syndicated in hundreds of magazines and newspapers, whereas others are new to the
industry. Kern started in the business as an artist and began contracting other artists when he real-
ized he had a knack for promoting and marketing comic materials. His artistic background is great
for spotting talented young artists but not so great for running the business.
Kern recently began selling comics to new forms of media such as blogs, websites, and other
online tools. He has hired you to build him a new system to track all online comic sales. You quickly
notice that Kern has a separate system for each of his lines of business, including newspaper
M A K I N G B U S I N E S S D E C I S I O N S
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sources, magazine sources, billboard sources, and now online sources. You notice that each system
works independently to perform its job of creating, updating, and maintaining sales information,
but you are wondering how he operates his business as a whole. Create a list of issues Kern will
encounter if he continues to run his business with four systems performing the same operations.
What could happen to the business if he cannot correlate the details of each? Be sure to highlight at
least 10 issues by which separate systems could cause problems.
U N I T S U M M A R Y
Today, organizations of various sizes are proving that systems that support decision making and opportunity seizing are essential to thriving in the highly competitive electronic world. We are living in an era when information technology is a primary tool, knowledge is a strategic
asset, and decision making and problem solving are paramount skills. The tougher, larger, and more
demanding a problem or opportunity is, and the faster and more competitive the environment is, the
more important decision-making and problem-solving skills become. This unit discussed numerous
tools and strategic initiatives that an organization can take advantage of to assist in decision making:
■ Supply chain management (SCM)—managing information flows within the supply chain to maxi-
mize total supply chain effectiveness and profitability.
■ Customer relationship management (CRM)—managing all aspects of customers’ relationships
with an organization to increase customer loyalty and retention and an organization’s profitability.
■ Enterprise resource planning (ERP)—integrating all departments and functions throughout an
organization into a single IT system (or integrated set of IT systems) so that managers and lead-
ers can make enterprisewide decisions by viewing enterprisewide information on all business
operations.
K E Y T E R M S
3D printing, 184
Accounting and finance ERP
component, 215
Analytical CRM, 195
Artificial intelligence (AI), 172
Augmented reality, 175
Bullwhip effect, 182
Call scripting system, 200
Campaign management system,
197
Click-to-talk, 200
Cloud computing, 218
Computer-aided design/
computer-aided
manufacturing (CAD/CAM,
185
Consolidation, 172
Contact center, 200
Contact management CRM
system, 199
Core ERP component, 214
Cradle to grave, 183
Cross-selling, 198
Customer relationship
management (CRM), 194
Customer segmentation, 201
Customer service and support
(CSS), 198
Decision support system (DSS),
177
Digital dashboard, 170
Drill-down, 172
Drone, 187
Ebusiness, 163
Electronic data interchange
(EDI), 182
Elogistics, 216
Employee relationship
management (ERM), 203
Enterprise application
integration (EAI)
middleware, 212
Eprocurement, 216
Extended ERP component, 214
Executive information system
(EIS), 170
Expert system, 173
Extended ERP component, 214
Fuzzy logic, 174
Genetic algorithm, 174
Goal-seeking analysis, 169
Granularity, 170
Human resources ERP
component, 215
Hybrid ERP, 220
Intelligent agent, 175
Intelligent system, 172
Legacy system, 218
List generator, 195
Logistics, 183
Maker movement, 185
Makerspace, 185
Managerial level, 167
Materials management, 183
Middleware, 212
Model, 167
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U N I T C L O S I N G C A S E O N E
Mutation, 174
Neural network or artificial neural
network, 173
Online analytical processing
(OLAP), 169
Online transaction processing
(OLTP), 167
On-premise system, 218
Operational CRM, 195
Operational level, 165
Opportunity management CRM
systems, 199
Optimization analysis, 169
Partner relationship
management (PRM), 202
Procurement, 184
Production and materials
management ERP
component, 215
Radio frequency identification
(RFID), 185
RFID’s Electronic Product Code
(RFID EPC), 185
Robotics, 187
Sales force automation (SFA, 199
Sales management CRM
systems, 199
Selling chain management, 189
Semistructured decisions, 167
Sensitivity analysis, 169
Shopping bot, 175
Slice-and-dice, 172
Software as a Service
(SaaS), 219
Software customization, 217
Source document, 168
Strategic level, 167
Structured decisions, 165
Supply chain design, 181
Supply chain execution
system, 182
Supply chain planning
system, 182
Supply chain visibility, 181
Supplier relationship
management (SRM), 202
Transaction processing
system (TPS), 167
Unstructured decisions, 167
Uplift modeling, 201
Up-selling, 198
Virtual reality, 175
Web-based self-service
system, 200
Website personalization, 201
What-if analysis, 169
Action Finally
Data are all over the Internet! Tons and tons and tons of data! For example, over 152 million blogs are
created each year, along with 100 million Twitter accounts resulting in 25 billion Tweets, 107 trillion
emails are sent, and 730 billion hours of YouTube videos are watched. Known as the social media sec-
tor, this arena is by far one of the fastest growing and most influential sectors in business. Companies
are struggling to understand how the social media sector impacts it both financially and strategically.
Data are valuable to any company and the data on the Internet are unique because the informa-
tion comes directly from customers, suppliers, competitors, and even employees. As the social media
sector takes off, companies are finding themselves at a disadvantage when attempting to keep up
with all of the “online chatter” about their goods and services on the many different social media
websites, including Facebook, Twitter, LinkedIn, Yelp, Google, blogs, etc.
Anytime there is a problem there is a potential business solution, and Actionly.com chooses to
capitalize on the data glut problem. Actionly monitors multiple social media channels through one
tracking service looking for specific keywords for industries, brands, companies, and trends. Actionly
customers choose a keyword to monitor—such as a brand, product names, industry terms, or com-
petitors—and then Actionly constantly collects the data from these social channels and pulls that
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data into a cohesive digital dashboard. The digital dashboard tracks the desired information, such
as marketplace trends, specific companies, competitive brands, entire industries (for example, clean
technology), by simultaneously searching Twitter, Facebook, Google, YouTube, Flickr, and blogs.
After completing a search, Actionly.com uses Google Analytics to create graphs and charts indicating
how frequently each keyword was found throughout the various channels. Additionally, it links each
respective channel to the dashboard and filters them with “positive” and “negative” connections,
allowing users to respond to any comments.
Actionly.com’s business model sets it up for success in this emerging industry. Actionly has a first-
mover advantage because it was the first online brand management company offering this service to
customers. And the company benefits by using its own services to ensure its brand stays number one
on all social media websites. Actionly uses Google Analytics to help transform the data it collects from
the various social media websites into valuable business intelligence. Its digital dashboard monitors
several key metrics, including:
■ Reputation Management: Actionly’s easy to use digital dashboard allows customers to observe
and analyze trends and track mentions about brands based on historical data as well as continu-
ously updated data. For example, a customer can view graphs that highlight key trends across 30
days for specific brands, products, or companies.
■ Social ROI: By connecting to Google Analytics from Actionly, a customer can analyze its campaign
performance for individual tweets or Facebook posts to determine which are successful and
which are failing. Actionly analyzes every post and click to track page views, visitor information,
goal completions, and so on, through its digital dashboard, allowing users to customize reports
tracking the performance of daily posts.
■ Twitter Analytics: After adding Twitter accounts to the dashboard, a user can drill down into the
data to view graphs of followers, mentions, and retweets. This eliminates the need to manually
track a number of Twitter accounts, and a user can view the data in graphs or export the data in
Excel for further analysis.
■ Marketing Campaign Tracking: If a company is launching a big promotion or contest, it can post
messages across multiple Facebook or Twitter accounts; all the user has to do is select which
Twitter or Facebook accounts it wants to use and when. Actionly’s Campaign Tracking helps a
user view which posts are resonating well with customers and measure metrics such as page
views, signups, conversions, and revenue by post. Actionly even segments the data by post,
account, campaign, or channel, allowing users to measure performance over time.
■ Click Performance: Actionly tracks performance by hour and day of week, allowing customers
to view which clicks are getting the most attention. Actionly’s algorithm automatically assigns a
sentiment to tweets, allowing the customer to immediately filter positive or negative or neutral
posts to react to information quickly.
■ Sentiment Analysis: Reviewing positive and negative feedback helps gauge how a brand is doing
over time, allowing the client to try to increase the positive sentiment. However, no sentiment
scoring is 100 percent accurate due to the complexities of interpretation, culture, sarcasm, and
other language nuances. For example, if Actionly is incorrectly tracking a metric, it can change it,
allowing users to assign their unique sentiments directly to their tweets. A user can also select to
have positive or negative alerts for keywords emailed as soon as the keyword is posted to help
manage online brand and company reputations.
■ Competitive Analysis: Actionly tracks competitor intelligence by watching new-product releases,
acquisitions, or customer feedback, allowing a company to stay on top of market entrants, mar-
ket-related blogs, news, or industry-related seminars/webinars.
■ Find Influencers: Actionly’s digital dashboard allows a user to engage directly with key influenc-
ers or people who are driving the online chatter about goods and services. Actionly identifies
influencers and determines their relevance to the company, brand, or product. It then compiles a
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list of influencers based on users with the most followers and who have been most active for the
specific searches in the past 30 days.2
Questions
1. Describe the difference between transnational and analytical information, and determine which
types Actionly uses to create a customer’s digital dashboard.
2. Explain why virtual companies such as Actionaly would need to worry about supply chain
management.
3. If you ran an apparel company, such as Nike or REI, how could you use RFID to improve the supply
chain?
4. Identify the different metrics Actionly uses to measure the success of a customer marketing
campaign.
5. Argue for or against the following statement: Actionly invades consumer privacy by taking data
from different websites such as Twitter and Flickr without the consent of the customer who posted
the information.
Dream It, Design It, 3D Print It
Have you ever lost a beloved pet? No worries, just draw a picture of your pet and print a plastic replica
from your 3D desktop printer so your cat or dog can sit on your desk forever. Can you imagine printing
your drawing in 3D? Well, there is no need to imagine this because you can do it today for as little as
$300. Just think of all the problems you can solve by having your own 3D printer. Did you recently lose
the key to your car’s roof rack? No worries, just download the specifications and print one. Did you
forget your girlfriend’s birthday? No worries, just download and customize a silver bracelet with her
initials and in less than 30 minutes, you’ll have the beautiful custom piece of jewelry on her wrist—
without ever leaving your apartment.
Welcome to the wonderful world of 3D printing. For almost 30 years, 3D printing has been used by
large manufacturing companies to create everything from custom parts to working prototypes. The
medical industry uses 3D printing to create custom hearing aids, artificial limbs, and braces, and art
designers and architects use 3D printers to create models and prototypes of statues and buildings.
Traditionally, 3D printing was only available to large corporations and engineers who could code the
intricate devices. Today, the first generation of consumer 3D printers is hitting the market at afford-
able prices with software easy enough for children to use.
The disruption occurring in the 3D printing world can, of course, be attributed to Moore’s law as the
technology has increased in capacity and processing power while decreasing in size and costs. Now
you can purchase your own 3D printer for as little as $300 to $5,000; simply connect it to your Wi-Fi
U N I T C L O S I N G C A S E T W O
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© scanrail/Getty Images
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network and begin downloading files to create your own 3D objects. Current 3D printers offer a wide
range of colors and materials, including plastics, metal, glass, and even chocolate. That’s right—you
can custom print your own valentine chocolates! The only barrier to 3D printing is that the software
used to control the printer is still rather difficult for the average person to use, but you can expect
that to change because software makers, such as Autodesk, are quickly releasing new, user-friendly
applications. Autodesk just released 123D, a suite of free applications that enables ordinary people
to design and customize objects on their PCs or even their iPads and then send them to a 3D printer.
3D printers work by first creating a digital computer-aided design (CAD) file, produced with a 3D
modeling program or scanned into a 3D modeling program with a 3D scanner. To get from this digital
file to instructions that the 3D printer understands, software then slices the design into hundreds
or thousands of horizontal layers. Typically, the 3D printer uses either a fused deposition modeling
printer, which applies the tiny layers of material, or a laser sintering process by which a laser fuses
the material together. Names like 3DSystems, Afinia, and MakerBot produce 3D printers for just a few
thousand dollars for consumers and small businesses alike. Figure Unit 3.2 represents a few of the
best 3D printed objects according to PC Magazine and Wired. 3
Questions
1. Define 3D printing and its impact on business.
2. Explain CRM and how 3D printing could affect customer relations.
3. Provide an example of how 3D printing might affect the global economy.
4. Analyze how 3D printing is affecting supply chains.
5. Propose a plan for how a company can use 3D printing to increase sales and customer satisfaction.
6. Argue for or against the following statement: “3D printing will be more disruptive to business than
the Internet.”
1. Great Stories
With the advent of the Internet, when customers have an unpleasant customer experience, the com-
pany no longer has to worry about them telling a few friends and family; the company has to worry
about them telling everyone. Internet service providers are giving consumers frustrated with how they
were treated by a company another means of fighting back. Free or low-cost computer space for Inter-
net websites is empowering consumers to tell not only their friends, but also the world about the way
they have been treated. A few examples of disgruntled customer stories from the Internet include:
■ Bad Experience with Blue Marble Biking—Tourist on biking tour is bitten by dog, requires
stitches. Company is barred from hotel because of incident, and in turn it bars the tourist from
any further tours.
■ Best Buy Receipt Check—Shopper declines to show register receipt for purchase to door
guard at Lakewood Best Buy, which is voluntary. Employees attempt to seize cart, stand in
shopper’s path, and park a truck behind shopper’s car to prevent departure.
■ Enterprise Rent-A-Car Is a Failing Enterprise—Enterprise Rent-A-Car did not honor reserva-
tions, did not have cars ready as stated, rented cars with nearly empty tanks, and charged
higher prices to corporate account holders.
The Internet is raising the stakes for customer service. With the ability to create a website dedicated
to a particular issue, a disgruntled customer can have nearly the same reach as a manufacturer.
The pervasive nature of the Internet is increasing customer power and changing business from
product-focused to customer-focused. Explain the difference between product-focused business and
A P P L Y Y O U R K N O W L E D G E
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FIGURE UNIT 3.2
3D-Printed Objects.Acoustic guitar
Why print a guitar? Well, a little-known fact is that the supplies of exotic woods are running considerably
low, so manufacturers of instruments need to start researching for alternative materials. Scott Summit,
cofounder of Bespoke Innovations, says that the good news is that there is no gold standard for guitars
compared to other stringed instruments such as the violin, so they can be made of anything. In addition,
guitarists prefer to have their own unique sound in addition to a customized guitar face, something that will
be available with a truly original, 3D-printed guitar.
Bikinis
The N12 is named after Nylon 12, the material in which the bikini was 3D printed by Continuum Fashion.
Nylon 12 makes an ideal swimsuit material because it is innately waterproof. As well as being the first 3D
printed bikini, it is also the first bikini that actually becomes more comfortable when it gets wet.
Bionic ear
To construct the ear, Princeton University researchers print the polymer gel onto an approximate ear shape
and implant calf cells onto the matrix. The silver nanoparticles fuse to create an antenna, which picks up
radio signals before being transferred to the cochlea, which translates the sound into brain signals. Despite
all of this, researchers have yet to draw up plans to attach the ear to the human head.
Cars
In 2010, Stratasys and Kor Ecologic teamed up to develop Urbee, the first car ever to have its entire body
3D printed by printing layers of material on top of each other until a finished product appeared.
Car parts for Jay Leno
Comedian and car nut Jay Leno had a 1907 White Steamer with a badly damaged feedwater heater, a part
that bolts onto the cylinders. Using a NextEngine 3D scanner and Dimension 3D printer, he was able to whip
up a new one in 33 hours. “It’s an amazingly versatile technology,” Leno said on his website. “My EcoJet
supercar needed air-conditioning ducts. We used plastic parts we designed, right out of the 3D copier. We
didn’t have to make these scoops out of aluminum—plastic is what they use in a real car. And the finished
ones look like factory production pieces.”
Chocolate heads
Some people give roses, some people give 3D-printed jewelry, some people give their undying love. But in
Japan, you can give your lover your chocolate head so they can bite into your brain as the ultimate expres-
sion of love.
Clothes
Dutch designer Iris van Herpen was at Fashion Week in Paris, accompanied by MIT Media Lab’s Neri
Oxman, to showcase a dress that was fabricated using 3D printing technology. It was printed on an Objet
Connex500 multimaterial 3D printer. Most 3D printers require creations to be printed using only one type of
fabric or material, but the Connex500 allows mixing of di�erent types of material.
Google Glasses
Chinese entrepreneur Sunny Gao printed a fully functioning pair of Google Glasses at a hackathon event
in Shanghai. Unfortunately, the 3D printed version of the glasses doesn’t boast Wi-Fi or Bluetooth support,
unlike the real thing—but they are identical in every other way.
Meat (yes, meat)
U.S. start-up Modern Meadow believes it can make artificial raw meat using a 3D bioprinter, the BBC
reported. Peter Thiel, one of Silicon Valley’s most prominent venture capitalists, PayPal cofounder, and early
Facebook investor, has just backed the company with $350,000. The team reportedly has a prototype, but
it’s “not ready for consumption.”
Robotic prosthetic
Easton LaChappelle, a 17-year-old high school student from Colorado, used free online resources for 3D
printers to construct a fully functional prosthetic arm and hand. The high school student found inspiration
from one of his past projects, which involved building a robotic hand made entirely of LEGOs when he was
14. His creation was able to open and close its fingers using two things: fishing line and servomotors. 2
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customer-focused business and why CRM is more important than ever before. In a group, search the
web for the most outrageous story of a disgruntled customer. A few places to start include:
■ Complain Complain—provides professionally written, custom complaint letters to businesses.
■ The Complaint Department—a for-fee consumer complaint resolution and letter writing service.
■ The Complaint Station—provides a central location to complain about issues related to com-
panies’ products, services, employment, and get rich quick scams.
■ Complaints.com Consumer Complaints—database of consumer complaints and consumer
advocacy.
■ Baddealings.com—forum and database on consumer complaints and scams on products and
services.
2. Classic Car Problems
Classic Cars Inc. operates high-end automotive dealerships that offer luxury cars along with luxury
service. The company is proud of its extensive inventory, top-of-the-line mechanics, and especially
its exceptional service, which even includes a cappuccino bar at each dealership.
The company currently has 40 sales representatives at four locations. Each location maintains its
own computer systems, and all sales representatives have their own contact management systems.
This splintered approach to operations causes numerous problems including customer communica-
tion issues, pricing strategy issues, and inventory control issues. A few examples include:
■ A customer shopping at one dealership can go to another dealership and receive a quote for a
different price for the same car.
■ Sales representatives are frequently stealing each other’s customers and commissions.
■ Sales representatives frequently send their customers to other dealerships to see specific cars
and when the customer arrives, the car is not on the lot.
■ Marketing campaigns are not designed to target specific customers; they are typically generic,
such as 10 percent off a new car.
■ If a sales representative quits, all of his or her customer information is lost.
You are working for Customer One, a small consulting company that specializes in CRM strategies.
The owner of Classic Cars Inc., Tom Jones, has hired you to help him formulate a strategy to put his
company back on track. Develop a proposal for Tom detailing how a CRM system can alleviate the
company’s issues and create new opportunities.
3. Building Visibility
Visionary companies are building extended enterprises to best compete in the new Internet
economy. An extended enterprise combines the Internet’s power with new business structures and
processes to eliminate old corporate boundaries and geographic restrictions. Networked supply
chains create seamless paths of communication among partners, suppliers, manufacturers, retailers,
and customers. Because of advances in manufacturing and distribution, the cost of developing new
products and services is dropping, and time to market is speeding up. This has resulted in increasing
customer demands, local and global competition, and increased pressure on the supply chain.
To stay competitive, companies must reinvent themselves so that the supply chain—sourcing and
procurement, production scheduling, order fulfillment, inventory management, and customer care—
is no longer a cost-based back-office exercise, but rather a flexible operation designed to effectively
address today’s challenges.
The Internet is proving an effective tool in transforming supply chains across all industries. Sup-
pliers, distributors, manufacturers, and resellers now work together more closely and effectively
than ever. Today’s technology-driven supply chain enables customers to manage their own buying
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experiences, increases coordination and connectivity among supply partners, and helps reduce
operating costs for every company in the chain.
In the past, assets were a crucial component of success in supply chain management. In today’s
market, however, a customer-centric orientation is key to retaining competitive advantage. Using the
Internet and any other resources available, develop a strategic plan for implementing a networked,
flexible supply chain management system for a start-up company of your choice. Research Netflix
if you are unfamiliar with how start-up companies are changing the supply chain. Be sure that your
supply chain integrates all partners—manufacturers, retailers, suppliers, carriers, and vendors—into
a seamless unit and views customer relationship management as a key competitive advantage.
There are several points to consider when creating your customer-centric supply chain strategy:
■ Taking orders is only one part of serving customer needs.
■ Businesses must fulfill the promise they make to customers by delivering products and infor-
mation upon request—not when it is convenient for the company.
■ Time to market is a key competitive advantage. Companies must ensure uninterrupted supply,
and information about customer demands and activities is essential to this requirement.
■ Cost is an important factor. Companies need to squeeze the costs from internal processes to
make the final products less expensive.
■ Reducing design-cycle times is critical, as this allows companies to get their products out more
quickly to meet customer demand.
4. Finding Shelf Space at Walmart
Walmart’s business strategy of being a low-cost provider by managing its supply chain down to the
minutiae has paid off greatly. Each week, approximately 100 million customers, or one-third of the
U.S. population, visit Walmart’s U.S. stores. Walmart is currently the world’s largest retailer and the
second largest corporation behind ExxonMobil. It was founded by Sam Walton in 1962 and is the
largest private employer in the United States and Mexico. Walmart is also the largest grocery retailer
in the United States, with an estimated 20 percent of the retail grocery and consumables business,
and the largest toy seller in the United States, with an estimated 45 percent of the retail toy busi-
ness, having surpassed Toys “R” Us in the late 1990s.
Walmart’s business model is based on selling a wide variety of general merchandise at “always
low prices.” The reason Walmart can offer such low prices is due to its innovative use of information
technology tools to create its highly sophisticated supply chain. Over the past decade, Walmart has
famously invited its major suppliers to jointly develop powerful supply chain partnerships. These are
designed to increase product flow efficiency and, consequently, Walmart’s profitability.
Many companies have stepped up to the challenge, starting with the well-known Walmart/
Procter & Gamble alliance, which incorporated vendor-managed inventory, category management,
and other intercompany innovations. Walmart’s CFO became a key customer as P&G’s objective
became maximizing Walmart’s internal profitability. Unlike many other retailers, Walmart does not
charge a slotting fee to suppliers for their products to appear in the store. Alternatively, Walmart
focuses on selling more popular products and often pressures store managers to drop unpopular
products in favor of more popular ones, as well as pressuring manufacturers to supply more popu-
lar products.
You are the owner of a high-end collectible toy company. You create everything from authentic
sports figure replicas to famous musicians and movie characters including Babe Ruth, Hulk Hogan,
Mick Jagger, Ozzy Osbourne, Alien, and the Terminator. It would be a huge win for your company if
you could get your collectibles into Walmart. Compile a strategic plan highlighting the steps required
to approach Walmart as your supply chain partner. Be sure to address the pros and cons of partner-
ing with Walmart, including the cost to revamp your current supply chain to meet Walmart’s tough
supply chain requirements.
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5. Shipping Problems
Entrepreneurship is in Alyssa Stuart’s blood. Alyssa has been starting businesses since she was 10
years old, and she finally has the perfect business of custom-made furniture. Customers who visit
Alyssa’s shop can choose from a number of different fabrics and 50 different styles of couch and
chair designs to create their custom-made furniture. Once the customer decides on a fabric pattern
and furniture design, the information is sent to China where the furniture is built and shipped to the
customer via the West Coast. Alyssa is excited about her business; all of her hard work has finally
paid off as she has more than 17,000 customers and 875 orders currently in the pipe.
Alyssa’s business is booming. Her high-quality products and outstanding customer service have
created an excellent reputation for her business. But Alyssa’s business is at risk of losing everything
and she has come to you for help solving her supply chain issues.
Yesterday, a dockworkers’ union strike began and shut down all of the West Coast shipping docks
from San Francisco to Canada. Work will resume only when the union agrees to new labor contracts,
which could take months. Alyssa has asked you to summarize the impact of the dock shutdown
on her business and create a strategy to keep her business running, which is especially difficult
because Alyssa guarantees 30-day delivery on all products or the product is free. What strategies do
you recommend for Alyssa’s business to continue working while her supply chain is disrupted by the
dockworkers’ strike?
6. Political Supply Chains
The U.S. government has crafted a deal with the United Arab Emirates (UAE) that would let a UAE-
based firm, Dubai Ports World (DPW), run six major U.S. ports. If the approval is unchallenged, Dubai
Ports World would run the ports of New York, New Jersey, Baltimore, New Orleans, Miami, and Phila-
delphia. Currently, London-based Peninsular and Oriental Steam Navigation Co. (P&O), the fourth
largest port operator in the world, runs the six ports. But the $6.8 billion sale of P&O to DPW would
effectively turn over North American operations to the government-owned company in Dubai.
Some citizens are worried that the federal government may be outsourcing U.S. port operations
to a company prone to terrorist infiltration by allowing a firm from the United Arab Emirates to run
port operations within the United States. You have been called in on an investigation to determine
the potential effects on U.S. businesses’ supply chains if these ports were shut down due to ter-
rorist activities. The United Arab Emirates has had people involved in terrorism. In fact, some of its
financial institutions laundered the money for the 9/11 terrorists. Create an argument for or against
outsourcing these ports to the UAE. Be sure to detail the effect on U.S. businesses’ supply chains if
these ports are subjected to terrorist acts.
7. JetBlue on YouTube
JetBlue took an unusual and interesting CRM approach by using YouTube to apologize to its cus-
tomers. JetBlue’s founder and CEO, David Neeleman, apologized to customers via YouTube after a
very, very bad week for the airline: 1,100 flights canceled due to snow storms and thousands of irate
passengers. Neeleman’s unpolished, earnest delivery makes this apology worth accepting. But then
again, we were not stuck on a tarmac for eight hours. With all of the new advances in technology
and the many ways to reach customers, do you think using YouTube is a smart approach? What else
could JetBlue do to help gain back its customers’ trust?
You are the founder and CEO of GoodDog, a large pet food manufacturing company. Recently,
at least 16 pet deaths have been tied to tainted pet food, fortunately not manufactured by your
company. A recall of potentially deadly pet food has dog and cat owners studying their animals for
even the slightest hint of illness and swamping veterinarians nationwide with calls about symptoms
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both real and imagined. Create a strategy for using YouTube as a vehicle to communicate with your
customers as they fear for their pets’ lives. Be sure to highlight the pros and cons of using YouTube
as a customer communication vehicle. Are there any other new technologies you could use as a cus-
tomer communication vehicle that would be more effective than YouTube?
8. Lively’s Home Cooking Catering
Having been employed by the same company for more than 20 years, Mary Lou Lively was shocked
when she was suddenly terminated along with about 900 of her co-workers. It took Lively a few
weeks to recover from the shock, and then she finally began focusing her efforts on searching for a
new job. Lively was sure her loyal employment history and strong skill set would land her a new job
in no time; however, after several months of searching, she wasn’t having any luck. With her emer-
gency funds quickly being depleted, Lively knew she had to find a new job soon or she’d need to
start selling her assets or cashing in her retirement.
The one positive aspect of having so much free time was that she could focus on her true pas-
sion, cooking. Mary Lou began making a little money by catering lunches and dinners for local busi-
nesses and neighbors. One day she overheard a neighbor remark that she was hosting a large party
and didn’t have enough time to prepare the meal. Almost jokingly, Lively asked her how much she’d
be willing to pay for a catered event. Soon Lively was catering for numerous neighbors and small
businesses and she knew she had to make a decision about whether she would go into business for
herself or continue searching for other employment.
After a year in the catering business, Lively was earning a good living and building a stellar repu-
tation. She began catering for all types of events, including weddings, and business was so good
that she hired several employees to help grow her business. As Lively begins to plan her expansion,
she has asked for your help in answering the following questions:
1. How important is customer loyalty for Lively’s business? What can she do to ensure that her
customers remain loyal? How could one disgruntled customer hurt business? What can she do
to combat this challenge?
2. Research the business Yelp.com. What service does Yelp.com perform? Would a small business
see Yelp.com as an opportunity or a threat? What are the pros and cons a customer should be
aware of when using Yelp.com?
3. Lively’s responsibilities include forecasting, inventory control, scheduling, and ensuring high-
quality products. What types of forecasts would she require to run her business? What types of
inventory would she want to track? What might happen if her inventory tracking tool was off by
50 percent? What types of schedules does Lively need to generate? What things might occur to
disrupt schedules and cause her to reschedule? How can a supply chain management system
help run the business?
4. Lively wants to create a business based on loyal customers and loyal employees. She offers her
employees bonuses for new ideas, recipes, or business referrals. What risks is Lively encoun-
tering by offering these bonuses? One employee idea that she has implemented is turning out
to be a competitive advantage for her business; however, the employee has quit and is now
working for a competitor. Should Lively still pay the employee the bonus? What should she do
to ensure that she is building strong employee relationships?
5. Lively overheard one of her customers talking about enterprise systems such as CRM, SCM,
and ERP. However, she is sure they are available only to big companies that have lots of capital.
Research the Internet and find examples of enterprise systems for small business. Do you think
she should invest in these types of systems to run her business? Why or why not?
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If you are looking for Excel projects to incorporate into your class, try any of the following to test
your knowledge.
A Y K A P P L I C A T I O N P R O J E C T S
Project
Number Project Name
Project
Type Plug-In Focus Area Project Level Skill Set
Page
Number
9 Security Analysis Excel T3 Filtering Data Intermediate Conditional
Formatting,
Autofilter, Subtotal
AYK.7
10 Gathering Data Excel T3 Data Analysis Intermediate Conditional
Formatting
AYK.8
11 Scanner System Excel T2 Strategic
Analysis
Intermediate Formulas AYK.8
12 Competitive
Pricing
Excel T2 Profit
Maximization
Intermediate Formulas AYK.9
13 Adequate
Acquisitions
Excel T2 Break Even
Analysis
Intermediate Formulas AYK.9
15 Assessing the Value
of Information
Excel T3 Data Analysis Intermediate PivotTable AYK.10
16 Growth, Trends,
and Forecasts
Excel T2, T3 Data
Forecasting
Advanced Average, Trend,
Growth
AYK.11
18 Formatting Grades Excel T3 Data Analysis Advanced If, LookUp AYK.12
22 Turnover Rates Excel T3 Data Mining Advanced PivotTable AYK.15
23 Vital Information Excel T3 Data Mining Advanced PivotTable AYK.15
24 Breaking Even Excel T4 Business
Analysis
Advanced Goal Seek AYK.16
25 Profit Scenario Excel T4 Sales Analysis Advanced Scenario Manager AYK.16
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U
N
I
T
The pace of technological change never ceases to amaze. What only a few years ago would have been con-
sidered Star Trek technology is becoming normal. What used to take hours to download over a dial-up modem
connection can now transfer in a matter of seconds through an invisible, wireless network connection from a
computer thousands of miles away. We are living in an increasingly wireless present and hurtling ever faster
toward a wireless future. The tipping point of ubiquitous, wireless, handheld, mobile computing is not far away.
Managers must understand the importance of ebusiness and how it has revolutionized fundamental busi-
ness processes. Ebusiness offers new opportunities for growth and new ways of performing business activities
that were simply not possible before the Internet. As a business student, you should understand the funda-
mental impact of the Internet and the innovations in mobile technologies on business. As a future manager
and organizational knowledge worker, you need to understand what benefits ebusiness and wireless business
practices can offer an organization and your career. Furthermore, you need to understand the challenges that
come along with the adoption of web technologies, how Web 2.0 is impacting communication and the limita-
tions on the mobile worker. This unit will give you this knowledge and help prepare you for success in today’s
electronic wireless global marketplace.
4 Building Innovation
W h a t ’ s i n I T f o r M e ?
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Slack–Be Less Busy
Slack’s business model is simple: Be Less Busy. It’s hard to imagine any busy professional not
coveting those simple words. Slack’s promise is to make business professionals more productive
by eliminating meetings and emails. Can you imagine a life without meetings? That is Slack’s
promise and it is taking the business world by storm.
Slack, a SaaS application, is one of the fast-growing collaboration companies ever started
used by millions of people every day to collaborate at work. In two short years since its incep-
tion Slack has become a $3 Billion Dollar company. Slack is like Twitter for businesses. Slack is
a centralized group chat platform for the enterprise. With its advanced search and file-sharing
functionalities, it can also be linked to third-party apps, like Google Drive, Dropbox, and Twit-
ter.  Slack has long advertised itself as a “freemium” product, where an unlimited number of
users can use it for free before deciding to upgrade and pay money for more robust package
with better features.
In time — and it won’t be long — Slack will morph into the spinal cord of the office nervous
system, connecting numerous third-party business apps, eventually becoming the gateway to a
workplace artificial intelligence system that will answer routine questions and proactively seek
out information you might otherwise miss.
Slack’s founder Stewart Butterfield, also the founder of Flickr, was actually building a gaming
company when the team created Slack to help developers and employees communicate. When
the gaming company went bankrupt Butterfield used the opportunity to launch the company’s
home-grown collaboration tool Slack and the rest is history. And like a game Slack is fun and
engaging and beating-up its boring traditional enterprise application competition. Slack only
charges customers after Butterfield attributes his company’s success to its focus on education,
feedback, customer happiness, and metric analysis. Butterfield’s vision is for Slack to become
the single source of company information.
U N I T F O U R O P E N I N G C A S E
© John Lund/Marc
Romanelli/Blend Images LLC RF
© Marcel De Grijs/123RF © AFP/Getty Images
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Slack’s AI Vision
The future of Slack is being sketched out by Noah Weiss, Slack’s head of search, learning,
and intelligence. Weiss envisions Slack communicating with its customers using advanced AI
software bots allowing the application to understand your role inside a company, anticipate
your day-to-day needs and act like a well-trained office assistant.
The information employees share with their colleagues within their many Slack channels
creates a valuable trove of a company’s collective memory, one that can be mined for training
an AI system about how things get done inside that company and even who does what.
“Workers spend about 20 percent of their time looking for information, or looking for a
person who has the information they need,” Weiss said. “And we’ve found that a lot of the
questions people have are asked over and over again.”
Those questions can be basic — “What‘s the password to the office Wi-Fi network?” — or
weightier — “Who’s in charge of sales in Berlin?” In time, Slack itself will be smart enough to
answer. Combine this with the more than 430 third-party apps that connect to it and Slack
becomes the place where you get information and then act on it. Approving expenses and
tracking projects are already routine tasks that appear in Slack.
As Slack becomes smarter, it will seek out and present you with information that it thinks
you might want to know. This will become especially useful as Slack scales up to work with
ever-larger companies. Weiss likens the AI layer to your personal chief of staff. “Slack will
know the people you trust and the topics you tend to care about, and over time it will fig-
ure out how to better route information to you,” he said. “It becomes a robot that’s working
behind the scenes on your behalf to find things you should know about but might otherwise
never see.” 1 
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Introduction * 241
Introduction
One of the biggest forces changing business is the Internet. Technology companies like Intel
and Cisco were among the first to seize the Internet to overhaul their operations. Intel deployed
web-based automation to liberate its 200 salesclerks from tedious order-entry positions.
Instead, salesclerks concentrate on customer relationship management functions such as ana-
lyzing sales trends and pampering customers. Cisco handles 75 percent of its sales online, and
45 percent of online orders never touch employees’ hands. This type of Internet-based ordering
has helped Cisco hike productivity by 20 percent over the past few years.
Ebusiness is the conducting of business on the Internet, not only buying and selling, but also
serving customers and collaborating with business partners. Organizations realize that putting
up simple websites for customers, employees, and partners does not create an ebusiness.
Ebusiness websites must create a buzz, much as Amazon has done in the book-selling industry.
Ebusiness websites must be innovative, add value, and provide useful information. In short, the
site must build a sense of community and collaboration, eventually becoming the port of entry
for business. This unit focuses on the opportunities and advantages found with developing
collaborative partnerships in ebusiness and includes:
■ Chapter Thirteen—Creating Innovative Organizations.
■ Chapter Fourteen—Ebusiness.
■ Chapter Fifteen—Creating Collaborative Partnerships.
■ Chapter Sixteen—Integrating Wireless Technology in Business.
© Digital Vision/PunchStock
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C H A P T E R 13
L E A R N I N G O U T C O M E S
13.1. Compare disruptive and sustaining technologies, and
explain how the Internet and WWW caused business
disruption.
13.2. Describe ebusiness and its associated advantages.
Disruptive Technologies and Web 1.0
Polaroid, founded in 1937, produced the first instant camera in the late 1940s. The Pola-
roid camera, whose pictures developed themselves, was one of the most exciting technologi-
cal advances the photography industry had ever seen. The company eventually went public,
becoming one of Wall Street’s most prominent enterprises, with its stock trading above $60 per
share in 1997. In 2002, the stock dropped to 8 cents and the company declared bankruptcy.2
How could a company such as Polaroid, which had innovative technology and a captive
customer base, go bankrupt? Perhaps company executives failed to use Porter’s Five Forces
Model to analyze the threat of substitute products or services. If they had, would they have
noticed the two threats—one-hour film processing and digital cameras—which eventually
stole Polaroid’s market share? Would they have understood that their customers, people who
want instant access to their pictures, would be the first to try these alternatives? Could the
company have found a way to compete with one-hour film processing and the digital camera
to save Polaroid?
Many organizations face the same dilemma as Polaroid—what’s best for the current busi-
ness might not be what’s best for it in the long term. Some observers of our business environ-
ment have an ominous vision of the future—digital Darwinism. Digital Darwinism implies
that organizations that cannot adapt to the new demands placed on them for surviving in the
information age are doomed to extinction.
DISRUPTIVE VERSUS SUSTAINING TECHNOLOGY
A disruptive technology is a new way of doing things that initially does not meet the needs of
existing customers. Disruptive technologies tend to open new markets and destroy old ones.
A sustaining technology, on the other hand, produces an improved product customers are
eager to buy, such as a faster car or larger hard drive. Sustaining technologies tend to provide
us with better, faster, and cheaper products in established markets. Incumbent companies most
often lead sustaining technology to market, but they virtually never lead in markets opened by
disruptive technologies. Figure 13.1 positions companies expecting future growth from new
investments (disruptive technology) and companies expecting future growth from existing
investments (sustaining technology).
Disruptive technologies typically enter the low end of the marketplace and eventually evolve
to displace high-end competitors and their reigning technologies. Sony is a perfect example.
Sony started as a tiny company that built portable, battery-powered transistor radios. The sound
Creating Innovative
Organizations
LO 13.1 Compare disruptive and
sustaining technologies, and
explain how the Internet and
WWW caused business disruption.
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quality was poor, but customers were willing to overlook that for the convenience of portability.
With the experience and revenue stream from the portables, Sony improved its technology to
produce cheap, low-end transistor amplifiers that were suitable for home use and invested those
revenues in improving the technology further, which produced still-better radios.
The Innovator’s Dilemma, a book by Clayton M. Christensen, discusses how established
companies can take advantage of disruptive technologies without hindering existing relation-
ships with customers, partners, and stakeholders. Xerox, IBM, Sears, and DEC all listened to
existing customers, invested aggressively in technology, had their competitive antennae up,
and still lost their market-dominant positions. They may have placed too much emphasis on
satisfying customers’ current needs, while neglecting new disruptive technology to meet cus-
tomers’ future needs and thus losing market share. Figure 13.2 highlights several companies
that launched new businesses by capitalizing on disruptive technologies.3
FIGURE 13.1
Disruptive and Sustaining
Technologies.
Ex
pe
ct
ed
R
et
ur
ns
o
n
N
ew
In
ve
st
m
en
ts
Expected Returns on Existing Investments
100
80
60
40
20
10080604020
Dell
Johnson & Johnson
Procter & Gamble
Walmart
Phillips Petroleum
General Motors
Sears
Home Depot
Cisco
Company Disruptive Technology
Apple iPod, iPhone, iPad
Charles Schwab Online brokerage
Hewlett-Packard Microprocessor-based computers; ink-jet printers
IBM Minicomputers; personal computers
Intel Low-end microprocessors
Intuit QuickBooks software; TurboTax software; Quicken software
Microsoft Internet-based computing; operating system software; SQL and Access database
software
Oracle Database software
Quantum 3.5-inch disks
Sony Transistor-based consumer electronics
FIGURE 13.2
Companies That Capitalized
on Disruptive Technologies.
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THE INTERNET AND WORLD WIDE WEB—THE ULTIMATE BUSINESS DISRUPTORS
The Internet is a massive network that connects computers all over the world and allows them
to communicate with one another. Computers connected via the Internet can send and receive
information including text, graphics, voice, video, and software. Originally the Internet was
essentially an emergency military communications system operated by the U.S. Depart-
ment of Defense Advanced Research Project Agency (DARPA), which called the network
ARPANET. No one foresaw the dramatic impact it would have on both business and per-
sonal communications. In time, all U.S. universities that had defense-related funding installed
ARPANET computers, forming the first official Internet network. As users began to notice
the value of electronic communications, the purpose of the network started shifting from a
military pipeline to a communications tool for scientists.
The Internet and the World Wide Web are not synonymous. The WWW is just one part
of the Internet, and its primary use is to correlate and disseminate information. The Internet
includes the WWW and also other forms of communication systems such as email.   Figure 13.3
lists the key terms associated with the WWW and Figure 13.4 lists the reasons for the massive
growth of the WWW.
WEB 1.0: THE CATALYST FOR EBUSINESS
As people began learning about the WWW and the Internet, they understood that it enabled a
company to communicate with anyone, anywhere, at anytime, creating a new way to participate
FIGURE 13.3
Overview of the WWW.
Term Definition Example
World Wide Web Provides access to Internet information through documents,
including text, graphics, and audio and video files that use
a special formatting language called Hypertext Markup
Language.
Tim Berners-Lee, a British computer scientist, is
considered the inventor of the WWW on March 12, 1989.
Hypertext Markup
Language (HTML)
Publishes hypertext on the WWW, which allows users to
move from one document to another simply by clicking a
hot spot or link.
HTML uses tags such as

and

to structure text
into headings, paragraphs, lists, hypertext links, and so on.
HTML 5 The current version of HTML delivers everything from
animation to graphics and music to movies; it can also
be used to build complicated web applications and works
across platforms, including a PC, tablet, smartphone, or
smart TV.
Includes new tags such as doctype, a simple way to tell
the browser what type of document is being looked at.

Hypertext Transport
Protocol (HTTP)
The Internet protocol web browsers use to request and dis-
play web pages using universal resource locators (URLs).
To retrieve the file at the URL http://www.somehost.com/
path/file.html
World Wide Web
Consortium (W3C)
An international community that develops open standards
to ensure the long-term growth of the Web ( www.w3.org ).
Tim Berners-Lee founded the W3C to act as a steward of
web standards, which the organization has done for more
than 15 years.
Web browser Allows users to access the WWW. Internet Explorer, Mozilla’s Firefox, Google Chrome
Universal resource
locator (URL)
The address of a file or resource on the web. www.apple.com
www.microsoft.com
www.amazon.com
Domain name hosting
(web hosting)
A service that allows the owner of a domain name to main-
tain a simple website and provide email capacity.
GoDaddy.com, 1&1.com, Web.com
Applet A program that runs within another application such as a
website.
The common “Hello World” applet types Hello World across
the screen
Internet Corporation for
Assigned Names and
Numbers (ICANN)
A nonprofit organization that has assumed the responsi-
bility for Internet Protocol (IP) address space allocation,
protocol parameter assignment, domain name system
management, and root server system management
functions previously performed under U.S. government
contract.
https://www.icann.org/
Individuals, industry, noncommercial, and government
representatives discuss, debate, and develop policies
about the technical coordination of the Internet’s Domain
Name System.
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in business. The competitive advantages for first movers would be enormous, thus spurring the
beginning of the Web 1.0 Internet boom. Web 1.0 is a term to refer to the World Wide Web dur-
ing its first few years of operation between 1991 and 2003. Ecommerce is the buying and selling
of goods and services over the Internet. Ecommerce refers only to online transactions. Ebusiness
includes ecommerce along with all activities related to internal and external business operations
such as servicing customer accounts, collaborating with partners, and exchanging real-time
information. During Web 1.0, entrepreneurs began creating the first forms of ebusiness.
Ebusiness opened up a new marketplace for any company willing to move its business
operations online. A paradigm shift occurs when a new radical form of business enters the
market that reshapes the way companies and organizations behave. Ebusiness created a para-
digm shift, transforming entire industries and changing enterprisewide business processes
that fundamentally rewrote traditional business rules. Deciding not to make the shift to ebusi-
ness proved fatal for many companies (see Figure 13.5 for an overview of industries revamped
by the disruption of ebusiness).
The microcomputer revolution made it possible for an average person to own a computer.
Advancements in networking hardware, software, and media made it possible for business computers to
be connected to larger networks at a minimal cost.
Browser software such as Microsoft’s Internet Explorer and Netscape Navigator gave computer users an
easy-to-use graphical interface to find, download, and display web pages.
The speed, convenience, and low cost of email have made it an incredibly popular tool for business and
personal communications.
Basic web pages are easy to create and extremely flexible.
FIGURE 13.4
Reasons for Growth of the
World Wide Web.
Industry Business Changes Due to Technology
Auto AutoTrader.com is the world’s largest used-car marketplace, listing millions of cars from both private
owners and dealers. AutoTrader.com actually helps to increase used-car dealers’ business as it drives
millions of qualified leads (potential used-car buyers) to participating automotive dealers and private
sellers.
Publishing With the Internet, anyone can publish online content. Traditionally, publishers screened many authors and
manuscripts and selected those that had the best chances of succeeding. Lulu.com turned this model
around by providing self-publishing along with print-on-demand capabilities.
Education and Training Continuing medical education is costly, and just keeping up-to-date with advances often requires taking
training courses and traveling to conferences. Now continuing education in many fields is moving
online, and by 2016 more than 50 percent of doctors will be building their skills through online learning.
Companies such as Cisco save millions by moving training to the Internet.
Entertainment The music industry was hit hard by ebusiness, and online music traders such as iTunes average billions of
annual downloads. Unable to compete with online music, the majority of record stores closed. The next
big entertainment industry to feel the effects of ebusiness will be the multibillion-dollar movie business.
Video rental stores are closing their doors as they fail to compete with online streaming and home rental
delivery companies such as Netflix.
Financial Services Nearly every public efinance company makes money, with online mortgage service Lending Tree leading
the pack. Processing online mortgage applications is more than 50 percent cheaper for customers.
Retail Forrester Research predicts ebusiness retail sales will grow at a 10 percent annual growth rate through
2020. It forecasts U.S. online retail sales will be nearly $250 billion, up from $155 billion in 2009. Online
retail sales were recently up 11 percent, compared to 2.5 percent for all retail sales.
Travel Travel site Expedia.com is now the biggest leisure-travel agency, with higher profit margins than even
American Express. The majority of travel agencies closed as a direct result of ebusiness.
FIGURE 13.5
Ebusiness Disruption of
Traditional Industries.
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Advantages of Ebusiness
Both individuals and organizations have embraced ebusiness to enhance productivity, maxi-
mize convenience, and improve communications. Companies today need to deploy a compre-
hensive ebusiness strategy, and business students need to understand its advantages, outlined
in Figure 13.6. Let’s look at each.
EXPANDING GLOBAL REACH
Easy access to real-time information is a primary benefit of ebusiness. Information richness
refers to the depth and breadth of details contained in a piece of textual, graphic, audio, or video
information. Information reach measures the number of people a firm can communicate with
all over the world. Buyers need information richness to make informed purchases, and sellers
need information reach to properly market and differentiate themselves from the competition.
Ebusinesses operate 24 hours a day, 7 days a week. This availability directly reduces trans-
action costs, since consumers no longer have to spend a lot of time researching purchases
or traveling great distances to make them. The faster delivery cycle for online sales helps
strengthen customer relationships, improving customer satisfaction and ultimately sales.
A firm’s website can be the focal point of a cost-effective communications and market-
ing strategy. Promoting products online allows the company to precisely target its customers
whether they are local or around the globe. A physical location is restricted by size and lim-
ited to those customers who can get there, while an online store has a global marketplace with
customers and information seekers already waiting in line.
OPENING NEW MARKETS
Ebusiness is perfect for increasing niche-product sales. Mass customization is the ability of
an organization to tailor its products or services to the customers’ specifications. For example,
customers can order M&M’s in special colors or with customized sayings such as “Marry
Me.” Personalization occurs when a company knows enough about a customer’s likes and
dislikes that it can fashion offers more likely to appeal to that person, say by tailoring its
website to individuals or groups based on profile information, demographics, or prior transac-
tions. Amazon uses personalization to create a unique portal for each of its customers.
REDUCING COSTS
Chris Anderson, editor-in-chief of Wired magazine, describes niche-market ebusiness strat-
egies as capturing the long tail, referring to the tail of a typical sales curve. This strategy
demonstrates how niche products can have viable and profitable business models when sell-
ing via ebusiness. In traditional sales models, a store is limited by shelf space when selecting
products to sell. For this reason, store owners typically purchase products that will be wanted
or needed by masses, and the store is stocked with broad products as there is not room on the
shelf for niche products that only a few customers might purchase. Ebusinesses such as Ama-
zon and eBay eliminated the shelf-space dilemma and were able to offer infinite products.
LO 13.2 Describe ebusiness and
its associated advantages.
FIGURE 13.6
Ebusiness Advantages.
Expanding global reach
Opening new markets
Reducing costs
Improving e�ectiveness
Ebusiness
Advantages
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Netflix offers an excellent example of the long tail. Let’s assume that an average Block-
buster store maintains 3,000 movies in its inventory, whereas Netflix, without physical shelf
limitations, can maintain 100,000 movies in its inventory. Looking at sales data, the majority of
Blockbuster’s revenue comes from new releases that are rented daily, whereas older selections
are rented only a few times a month and don’t repay the cost of keeping them in stock. Thus
Blockbuster’s sales tail ends at title 3,000 (see Figure 13.7) However, Netflix, with no physical
limitations, can extend its tail beyond 100,000 (and with streaming video perhaps 200,000). By
extending its tail, Netflix increases sales, even if a title is rented only a few times.4
Intermediaries are agents, software, or businesses that provide a trading infrastructure to
bring buyers and sellers together. The introduction of ebusiness brought about disintermedia-
tion, which occurs when a business sells directly to the customer online and cuts out the inter-
mediary (see Figure 13.8). This business strategy lets the company shorten the order process
and add value with reduced costs or a more responsive and efficient service. The disinterme-
diation of the travel agent occurred as people began to book their own vacations online, often
at a cheaper rate. At Amazon anyone can publish and sell print-on-demand books, online
music, and custom calendars, making the publisher obsolete.5
In reintermediation, steps are added to the value chain as new players find ways to add
value to the business process. Levi Strauss originally thought it was a good business strategy
to limit all online sales to its own website. A few years later, the company realized it could
FIGURE 13.7
The Long Tail.
Products
Long tail
Head
Po
pu
la
rit
y
FIGURE 13.8
Business Value of
Disintermediation.
The more intermediaries that
are cut from the distribution
chain, the lower the product
price. When Dell decided to
sell its PCs through Walmart
many were surprised, because
Dell’s direct-to-customer sales
model was the competitive
advantage that had kept Dell
the market leader for years.
Manufacturer
IBM
Distributor Retailer Customer
Dell
Direct
Dell
Walmart
$1,200
$1,000
$800
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gain a far larger market share by allowing all retailers to sell its products directly to custom-
ers. As ebusiness matures it has become evident that to serve certain markets in volume, some
reintermediation may be desirable. Cybermediation refers to the creation of new kinds of
intermediaries that simply could not have existed before the advent of ebusiness, including
comparison-shopping sites such as Kelkoo and bank account aggregation services such as
Citibank.
Operational benefits of ebusiness include business processes that require less time and
human effort or can be eliminated. Compare the cost of sending out 100 direct mailings
(paper, postage, labor) to the cost of a bulk email campaign. Think about the cost of renting
a physical location and operating phone lines versus the cost of maintaining an online site.
Switching to an ebusiness model can eliminate many traditional costs associated with com-
municating by substituting systems, such as Live Help, that let customers chat live with sup-
port or sales staff.
Online air travel reservations cost less than those booked over the telephone. Online order-
ing also offers the possibility of merging a sales order system with order fulfillment and
delivery so customers can check the progress of their orders at all times. Ebusinesses can also
inexpensively attract new customers with innovative marketing and retain present customers
with improved service and support.
One of the most exciting benefits of ebusiness is its low start-up costs. Today, anyone can
start an ebusiness with just a website and a great product or service. Even a dog-walking
operation can benefit from being an ebusiness.
IMPROVING EFFECTIVENESS
Just putting up a simple website does not create an ebusiness. Ebusiness websites must create
buzz, be innovative, add value, and provide useful information. In short, they must build a
sense of community and collaboration.
MIS measures of efficiency, such as the amount of traffic on a site, don’t tell the whole story.
They do not necessarily indicate large sales volumes, for instance. Many websites with lots of
traffic have minimal sales. The best way to measure ebusiness success is to use effectiveness 
MIS metrics, such as the revenue generated by web traffic, number of new customers acquired
by web traffic, and reductions in customer service calls resulting from web traffic.
Interactivity measures advertising effectiveness by counting visitor interactions with the
target ad, including time spent viewing the ad, number of pages viewed, and number of repeat
visits to the advertisement. Interactivity measures are a giant step forward for advertisers, since
traditional advertising methods—newspapers, magazines, radio, and television—provide
few ways to track effectiveness. Figure 13.9  displays the ebusiness marketing initiatives
allowing companies to expand their reach while measuring effectiveness.
The ultimate outcome of any advertisement is a purchase. Organizations use metrics to tie
revenue amounts and number of new customers created directly back to the websites or ban-
ner ads. Through clickstream data they can observe the exact pattern of a consumer’s naviga-
tion through a site. Figure 13.10 displays different types of clickstream metrics.  Clickstream
metrics can include the length of stay on a website, number of abandoned registrations, and
number of abandoned shopping carts. When a visitor reaches a website, a hit is generated, and
his or her computer sends a request to the site’s computer server to begin displaying pages.
Each element of a request page is recorded by the website’s server log file as a hit. Stickiness
is the length of time a visitor spends on a website. 
Figure 3.11 provides definitions of common metrics based on clickstream data. Businesses
want their websites to be sticky and keep their customer’s attention. To interpret such data
properly, managers try to benchmark against other companies. For instance, consumers seem
to visit their preferred websites regularly, even checking back multiple times during a given
session. To interpret such data properly, managers try to benchmark against other companies.
For instance, consumers seem to visit their preferred websites regularly, even checking back
multiple times during a given session.
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TERM DEFINITION EXAMPLE
Associate (a�liate)
program
Allows a business to generate commissions or referral
fees when a customer visiting its website clicks a link to
another merchant’s website
If a customer to a company website clicks a banner ad
to another vendor’s website, the company will receive a
referral fee or commission when the customer performs
the desired action, typically making a purchase or com-
pleting a form.
Banner ad A box running across a website that advertises the prod-
ucts and services of another business, usually another
ebusiness.
The banner generally contains a link to the advertiser’s
website. Advertisers can track how often customers click
a banner ad resulting in a click-through to their website.
Often the cost of the banner ad depends on the number
of customers who click the banner ad. Web-based adverti-
sing services can track the number of times users click the
banner, generating statistics that enable advertisers to
judge whether the advertising fees are worth paying.
Click-through A count of the number of people who visit one site and
click an advertisement that takes them to the site of the
advertiser.
T racking e�ectiveness based on click-throughs guarantees
exposure to target ads; however, it does not guarantee that
the visitor liked the ad, spent any substantial time viewing
the ad, or was satisfied with the information contained
in the ad.
Cookie A small file deposited on a hard drive by a website, con-
taining information about customers and their browsing
activities.
Cookies allow websites to record the comings and goings
of customers, usually without their knowledge or consent.
Pop-up ad A small web page containing an advertisement that
appears outside of the current website loaded in the
browser.
A form of a pop-up ad that users do not see until they
close the current web browser screen.
Viral marketing A technique that induces websites or users to pass on a
marketing message to other websites or users, creating
exponential growth in the message’s visibility and e�ect.
One example of successful viral marketing is Hotmail,
which promotes its service and its own advertisers’
messages in every user’s email notes. Viral marketing
encourages users of a product or service supplied by
an ebusiness to encourage friends to join. Viral marketing
is a word-of-mouth type of advertising program.
FIGURE 13.9
Marketing Benefits from
Ebusiness.
FIGURE 13.10
Clickstream Data Metrics.
Types of Clickstream Data Metrics
The number of page views (i.e., the number of times a particular page has been presented to a visitor).
The pattern of websites visited, including most frequent exit page and most frequent prior website.
Length of stay on the website.
Dates and times of visits.
Number of registrations filled out per 100 visitors.
Number of abandoned registrations.
Demographics of registered visitors.
Number of customers with shopping carts.
Number of abandoned shopping carts.
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1. Do you consider Slack a form of disruptive or sustaining technology? Why or why not?
2. What types of security and ethical dilemmas are facing Slack?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
Chapter Thirteen Case: Disruptive Innovation
Every so often a management idea escapes from the pages of the Harvard Business Review and
becomes part of the zeitgeist. In the 1990s it was “re-engineering”. Today it is “disruptive innovation”.
TechCrunch, a technology-news website, holds an annual “festival of disruption”. CNBC, a cable-news
channel, produces an annual “disruptor list” of the most disruptive companies. Mentioning “disrup-
tive innovation” adds a veneer of sophistication to bread-and-butter speeches about education or
health care. But just what is disruptive innovation?
The theory of disruptive innovation was invented by Clayton Christensen, of Harvard Business
School, in his book “The Innovator’s Dilemma”. Mr Christensen used the term to describe innovations
that create new markets by discovering new categories of customers. They do this partly by harness-
ing new technologies but also by developing new business models and exploiting old technologies
FIGURE 13.11
Website Metrics.
METRICS MEASURING WEBSITE SUCCESS
Website Visit Metrics
Stickiness (visit duration time) The length of time a visitor spends on a website.
Raw visit depth (total web pages
exposure per session)
The total number of pages a visitor is exposed to during a single visit to a website.
Visit depth (total unique web pages
exposure per session)
The total number of unique pages a visitor is exposed to during a single visit to a website.
Website Visitor Metrics
Unidentified visitor A visitor is an individual who visits a website. An “unidentified visitor” means that no information
about that visitor is available.
Unique visitor A unique visitor is one who can be recognized and counted only once within a given period of
time.
Identified visitor An ID is available that allows a user to be tracked across multiple visits to a website.
Website Hit Metrics
Hits When visitors reach a website, their computer sends a request to the site’s computer server to
begin displaying pages. Each element of a requested page is recorded by the website’s server log
file as a “hit.”
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in new ways. He contrasted disruptive innovation with sustaining innovation, which simply improves
existing products. Personal computers, for example, were disruptive innovations because they cre-
ated a new mass market for computers; previously, expensive mainframe computers had been sold
only to big companies and research universities.
The “innovator’s dilemma” is the difficult choice an established company faces when it has to
choose between holding onto an existing market by doing the same thing a bit better, or capturing
new markets by embracing new technologies and adopting new business models. IBM dealt with
this dilemma by launching a new business unit to make PCs, while continuing to make mainframe
computers. Netflix took a more radical move, switching away from its old business model (sending out
rental DVDs by post) to a new one (streaming on-demand video to its customers). Disruptive innova-
tions usually find their first customers at the bottom of the market: as unproved, often unpolished,
products, they cannot command a high price. Incumbents are often complacent, slow to recognize
the threat that their inferior competitors pose. But as successive refinements improve them to the
point that they start to steal customers, they may end up reshaping entire industries: classified ads
(Craigslist), long distance calls (Skype), record stores (iTunes), research libraries (Google), local stores
(eBay), taxis (Uber) and newspapers (Twitter).
Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 com-
pany has halved from ten years in 2000 to less than five years today. There is good reason to think
that the pace of change will increase, as computer power increases and more things are attached to
the internet, expanding its disruptive influence into new realms. Google promises to reinvent cars as
autonomous vehicles; Amazon promises to reinvent shopping (again) using drones; 3D printing could
disrupt manufacturing. But perhaps the most surprising disruptive innovations will come from bottom-
of-the-pyramid entrepreneurs who are inventing new ways of delivering education and health-care
for a fraction of the cost of current market leaders. 6
Questions
1. If every new product has a first-mover advantage, then why do products fail?
2. Do you view 3D printing as sustaining or disruptive technology?
3. Do you view drones as sustaining or disruptive technology?
4. Choose one of the products listed and determine what the company could have done to prevent
the product from failing.
5. Can you name another technology product that failed? Why did it fail? What could the company
have done differently for it to succeed?
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13.1. Compare disruptive and sustaining technologies, and explain how the Internet and
WWW caused business disruption.
Disruptive technologies offer a new way of doing things that initially does not meet the needs of
existing customers. Disruptive technologies redefine the competitive playing fields of their respective
markets, open new markets and destroy old ones, and cut into the low end of the marketplace and
eventually evolve to displace high-end competitors and their reigning technologies.
Sustaining technologies produce improved products customers are eager to buy, such as a faster
car or larger hard drive. Sustaining technologies tend to provide us with better, faster, and cheaper
products in established markets and virtually never lead in markets opened by new and disruptive
technologies.
The Internet and WWW caused business disruption by allowing people to communicate and
collaborate in ways that were not possible before the information age. The Internet and WWW
completely disrupted the way businesses operate, employees communicate, and products are
developed and sold.
13.2. Describe ebusiness and its associated advantages.
Web 1.0 is a term that refers to the World Wide Web during its first few years of operation, between
1991 and 2003. Ebusiness includes ecommerce along with all activities related to internal and
external business operations such as servicing customer accounts, collaborating with partners, and
exchanging real-time information. During Web 1.0, entrepreneurs began creating the first forms of
ebusiness. Ebusiness advantages include expanding global reach, opening new markets, reducing
costs, and improving effectiveness.
L E A R N I N G O U T C O M E R E V I E W
1. What is the difference between sustaining and disruptive technology? 
2. What is a paradigm shift and what is its relation to ebusiness?
3. What is the difference between information richness and information reach?
4. Do you consider the Internet and WWW forms of sustaining or disruptive technology? 
5. How have the Internet and WWW created a global platform for business? 
6. How do disintermediation, reintermediation, and cybermediation differ?
7. What are the four ebusiness advantages?
8. How can a business use clickstream data to help improve website efficiency?
9. How can a company use disintermediation to achieve a competitive advantage?
10. What is the difference between ebusiness and ecommerce? 
R E V I E W Q U E S T I O N S
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1. Searching for Disruption
Scheduler.com is a large corporation that develops software that automates scheduling and record
keeping for medical and dental practices. Scheduler.com currently holds 48 percent of its market
share, has more than 8,700 employees, and operates in six countries. You are the vice president of
product development at Scheduler.com. You have just finished reading The Innovator’s Dilemma by
Clayton Christensen and you are interested in determining what types of disruptive technologies you
can take advantage of, or should watch out for, in your industry. Use the Internet to develop a pre-
sentation highlighting the types of disruptive technologies you have found that have the potential to
give the company a competitive advantage or could cause the company to fail.
2. Assessing Internet Capabilities
Hoover’s Rentals is a small, privately owned business that rents sports equipment in Denver, Colo-
rado. The company specializes in winter rentals including ski equipment, snowboarding equipment,
and snowmobile equipment. Hoover’s has been in business for 20 years and, for the first time, it
is experiencing a decline in rentals. Brian Hoover, the company’s owner, is puzzled by the recent
decreases. The snowfall for the last two years has been outstanding, and the ski resorts have
opened earlier and closed later than most previous years. Reports say tourism in the Colorado area
is up, and the invention of loyalty programs has significantly increased the number of local ski-
ers. Overall, business should be booming. The only reason for the decrease in sales might be the
fact that big retailers such as Walmart and Gart Sports are now renting winter sports equipment.
Brian would like your team’s help in determining how he can use the Internet to help his company
increase sales and decrease costs to compete with these big retailers.
3. Finding Innovation
Along with disruptive technologies, there are also disruptive strategies. The following are a few
examples of companies that use disruptive strategies to gain competitive advantages:
■ Best Buy—This company disrupted the consumer electronics departments of full-service and
discount department stores, which has sent it up-market into higher margin goods.
■ Ford—Henry Ford’s Model T was so inexpensive that he enabled a much larger population of
people, who historically could not afford cars, to own one.
■ JetBlue—Whereas Southwest Airlines initially followed a strategy of new-market disruption,
JetBlue’s approach is low-end disruption. Its long-range viability depends on the major air-
lines’ motivation to run away from the attack, as integrated steel mills and full-service depart-
ment stores did.
■ McDonald’s—The fast-food industry has been a hybrid disrupter, making it so inexpensive and
convenient to eat out that it created a massive wave of growth in the “eating out” industry.
McDonald’s earliest victims were mom-and-pop diners.
There are numerous other examples of corporations that have used disruptive strategies to create
competitive advantages. In a team, prepare a presentation highlighting three additional companies
that used disruptive strategies to gain a competitive advantage.
4. Book’em
You are the CIO of Book’em, a company that creates and sells custom book bags. Book’em currently
holds 28 percent of market share with more than 3,000 employees operating in six countries. You
have just finished reading The Long Tail by Chris Anderson and The Innovator’s Dilemma by Clayton
Christensen, and you are interested in determining how you can grow your business while reducing
M A K I N G B U S I N E S S D E C I S I O N S
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costs. Summarize each book, and explain how Book’em could implement the strategies explained in
each book to create competitive advantages and increase sales.
5. Unethical Disruption 
Did you know you can make a living naming things? Eli Altman has been naming things since he was
six years old and has named more than 400 companies and brands while working for A Hundred
Monkeys, a branding consulting company. Altman recently noticed an unfamiliar trend in the indus-
try: nonsensical names such as Flickr, Socializr, Zoomr, Rowdii, Yuuguu, and Oooooc. Why are names
like this becoming popular? 
The reason is “domain squatting” or “cyber squatting,” the practice of buying a domain to profit
from a trademarked name. For example, if you wanted to start a business called Drink, chances are
a domain squatter has already purchased drink.com and is just waiting for you to pay big bucks for
the right to buy it. Domain squatting is illegal and outlawed under the 1999 Anticybersquatting Con-
sumer Protection Act.
Do you agree that domain squatting should be illegal? Why or why not? If you were starting a
business and someone were squatting on your domain, what would you do?
6. 14th Annual Webby Awards Nominees
Who needs the Academy Awards when you can witness the Webby Awards? The Webby Awards
are the leading international awards honoring excellence in interactive design, creativity, usability,
and functionality on the Internet. With nearly 70 categories, website entries make up the majority
of Webby winners, nominees, and honorees. Some are beautiful to look at and interact with. Others
are a testament to usability and functionality. And a handful excel across the board. To be selected
among the best is an incredible achievement worthy of praise and perhaps a little bragging.
Visit the latest edition of the Webby Awards at www.webbyawards.com and answer the following
questions:
■ Which nominations were the most surprising?
■ Which nominations were you unfamiliar with but will now use?
■ Were there any examples of Web 1.0 winners?
■ Were there any examples of Web 3.0 winners?
■ List the top five websites you think deserve to win a Webby.
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C H A P T E R 14
L E A R N I N G O U T C O M E S
14.1. Compare the four categories of ebusiness models.
14.2. Describe the six ebusiness tools for connecting and
communicating.
14.3. Identify the four challenges associated with
ebusiness.
Ebusiness Models
A business model is a plan that details how a company creates, delivers, and generates rev-
enues. Some models are quite simple: A company produces a good or service and sells it
to customers. If the company is successful, sales exceed costs and the company generates a
profit. Other models are less straightforward, and sometimes it’s not immediately clear who
makes money and how much. Radio and network television are broadcast free to anyone with
a receiver, for instance; advertisers pay the costs of programming.
The majority of online business activities consist of the exchange of products and services
either between businesses or between businesses and consumers. An ebusiness model is a
plan that details how a company creates, delivers, and generates revenues on the Internet.
Ebusiness models fall into one of the four categories (1) business-to-business, (2) business-to-
consumer, (3) consumer-to-business, and (4) consumer-to-consumer (see Figure 14.1).
BUSINESS-TO-BUSINESS (B2B)
Business-to-business (B2B) applies to businesses buying from and selling to each other over
the Internet. Examples include medical billing service, software sales and licensing, and vir-
tual assistant businesses. B2B relationships represent 80 percent of all online business and are
more complex with greater security needs than the other types.
LO 14.1 Compare the four catego-
ries of ebusiness models.
Ebusiness
FIGURE 14.1
Ebusiness Models.
Ebusiness Term Definition
Business-to-
business (B2B)
Business-to-
consumer (B2C)
Consumer -to-
business (C2B)
Consumer -to-
consumer (C2C)
Applies to businesses buying from and selling
to each other over the Internet.
Applies to any business that sells its products
or services to consumers over the Internet.
Applies to any consumer that sells a product or
service to a business over the Internet.
Applies to sites primarily o�ering goods and
services to assist consumers interacting with
each other over the Internet.
Business
Business Consumer
Consumer
B2B
C2B
B2C
C2C
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Electronic marketplaces, or emarketplaces, are interactive business communities providing
a central market where multiple buyers and sellers can engage in ebusiness activities. By tight-
ening and automating the relationship between the two parties, they create structures for con-
ducting commercial exchange, consolidating supply chains, and creating new sales channels.
BUSINESS-TO-CONSUMER (B2C)
Business-to-consumer (B2C) applies to any business that sells its products or services
directly to consumers online. Carfax offers car buyers detailed histories of used vehicles for
a fee. An eshop, sometimes referred to as an estore or etailer, is an online version of a retail
store where customers can shop at any hour. It can be an extension of an existing store such
as The Gap or operate only online such as Amazon.com. There are three ways to operate as a
B2C: brick-and-mortar, click-and-mortar, and pure play (see Figure 14.2).
CONSUMER-TO-BUSINESS (C2B)
Consumer-to-business (C2B) applies to any consumer who sells a product or service to a
business on the Internet. One example is customers of Priceline.com, who set their own prices
for items such as airline tickets or hotel rooms and wait for a seller to decide whether to supply
them. The demand for C2B ebusiness will increase over the next few years due to customers’
desire for greater convenience and lower prices.
CONSUMER-TO-CONSUMER (C2C)
Consumer-to-consumer (C2C) applies to customers offering goods and services to each
other on the Internet. A good example of C2C is an auction where buyers and sellers solicit
consecutive bids from each other and prices are determined dynamically. EBay, the Internet’s
most successful C2C online auction website, links like-minded buyers and sellers for a small
commission. Other types of online auctions include forward auctions, where sellers market to
many buyers and the highest bid wins, and reverse auctions, where buyers select goods and
services from the seller with the lowest bid.
EBUSINESS FORMS AND REVENUE-GENERATING STRATEGIES
As more and more companies began jumping on the ebusiness bandwagon, new forms of
ebusiness began to emerge (see Figure 14.3). Many of the new forms of ebusiness went to
market without clear strategies on how they were going to generate revenue.
FIGURE 14.2
Forms of Business-to-
Consumer Operations.
Brick-and-Mortar Business
A business that operates in
a physical store without an
Internet presence.
Example: T.J. Maxx
Pure-Play (Virtual) Business
A business that operates on
the Internet only without a
physical store.
Example: Google
Click-and-Mortar Business
A business that operates
in a physical store and on
the Internet.
Example: Barnes & Noble
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Google is an excellent example of an ebusiness that did not figure out a way to gener-
ate profits until many years after its launch. Google’s primary line of business is its search
engine; however, the company does not generate revenue from people using its site to search
the Internet. It generates revenue from the marketers and advertisers that pay to place their ads
on the site. Adwords are keywords that advertisers choose to pay for and appear as sponsored
links on the Google results pages.  
About 200 million times each day, people from all over the world access Google to perform
searches. Adwords, a part of the Google site, allows advertisers to bid on common
search terms. The advertisers simply enter in the keywords they want to bid on and
the maximum amounts they want to pay per click per day. Google then determines a
price and a search ranking for those keywords based on how much other advertisers
are willing to pay for the same terms. Pricing for keywords can range from 5 cents
to $10 a click. Paid search is the ultimate in targeted advertising because consumers
type in exactly what they want. A general search term such as tropical vacation costs
less than a more specific term such as Hawaiian vacation. Whoever bids the most for
a term appears in a sponsored advertisement link either at the top or along the side of
the search-results page.
A search engine is website software that finds other pages based on keyword
matching similar to Google. Search engine ranking evaluates variables that search
engines use to determine where a URL appears on the list of search results. Search
engine optimization (SEO) combines art along with science to determine how to
make URLs more attractive to search engines resulting in higher search engine
ranking (see Figure 14.4). The better the SEO, the higher the ranking for a website
in the list of search engine results. SEO is critical because most people view only
the first few pages of a search result. After that a person is more inclined to begin
a new search than review pages and pages of search results. Websites can generate
revenue through:
■ Pay-per-click: generates revenue each time a user clicks on a link to a retailer’s
website.
■ Pay-per-call: generates revenue each time a user clicks on a link that takes the
user directly to an online agent waiting for a call.
■ Pay-per-conversion: generates revenue each time a website visitor is converted
to a customer.
FIGURE 14.3
Ebusiness Forms.
Form Description Examples
Content providers Generate revenues by providing digital
content such as news, music, photos,
or videos.
Netflix.com, iTunes.com, CNN.com
Infomediaries Provide specialized information on
behalf of producers of goods and
services and their potential customers.
Edmunds.com, BizRate.com,
Bloomberg.com,
Zillow.com
Online marketplaces Bring together buyers and sellers of
products and services.
Amazon.com, eBay.com, Priceline.
com
Portals Operate central website for users to
access specialized content and other
services.
Google.com, Yahoo.com, MSN.com
Service providers Provide services such as photo sharing,
video sharing, online backup and
storage.
Flickr.com, Mapquest.com,
YouTube.com
Transaction brokers Process online sales transactions. Etrade.com, Charlesschwab.com,
Fidelity.com
FIGURE 14.4
Different Forms of Searching.
Top to bottom: © Image
Source RF, all rights reserved.,
© Design Pics/Darren
Greenwood, © Bull’s Eye/Getty
Images, © Fancy/Superstock,
© Ingram Publishing, © Sergiy
Serdyuk/Alamy Stock Photo
Search Engine
Search Engine
Ranking
Search
Optimization
Pay-per-Click
Pay-per-Call
Pay-per-
Conversion
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Ebusinesses must have a revenue model, or a model for making money. Some compa-
nies charge a flat fee for access to the material or services and some business charge fees
for use. For instance, will the ebusiness accept advertising or sell subscriptions or licens-
ing rights? Figure 14.5 lists the different benefits and challenges of various ebusiness
revenue models.1
Ebusiness Tools for Connecting and
Communicating
As firms began to move online, more MIS tools were created to support ebusiness processes
and requirements. The tools supporting and driving ebusiness are highlighted in Figure 14.6
and covered below in detail.
EMAIL
Email, short for electronic mail, is the exchange of digital messages over the Internet. No
longer do business professionals have to wait for the mail to receive important documents as
email single-handedly increased the speed of business by allowing the transfer of documents
with the same speed as the telephone. Its chief business advantage is the ability to inform and
communicate with many people simultaneously, immediately, and with ease. There are no
time or place constraints, and users can check, send, and view emails whenever they require.
LO 14.2 Describe the six ebusi-
ness tools for connecting and
communicating.
FIGURE 14.5
Ebusiness Revenue Models.
Ebusiness Revenue
Model Benefits Challenges
Advertising fees ■ Well-targeted advertisements
can be perceived as value-added
content by trading participants.
■ Easy to implement
■ Limited revenue potential
■ Overdone or poorly targeted
advertisements can be disturbing
elements on the website.
License fees ■ Creates incentives to do many
transactions
■ Customization and back-end
integration lead to lock-in of
participants.
■ Up-front fee is a barrier to entry for
participants.
■ Price differentiation is complicated.
Subscription fees ■ Creates incentives to do
transactions
■ Price can be differentiated.
■ Possibility to build additional
revenue from new user groups
■ Fixed fee is a barrier to entry for
participants.
Transaction fees ■ Can be directly tied to savings
(both process and price savings)
■ Important revenue source when
high level of liquidity (transaction
volume) is reached
■ If process savings are not
completely visible, use of the
system is discouraged (incentive to
move transactions offline).
■ Transaction fees likely to decrease
with time
Value-added services
fees
■ Service offering can be
differentiated.
■ Price can be differentiated.
■ Possibility to build additional
revenue from established and
new user groups (third parties)
■ Cumbersome process for customers
to continually evaluate new
services
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An Internet service provider (ISP) is a company that provides access to the Internet for a
monthly fee. Major ISPs in the United States include AOL, AT&T, Comcast, Earthlink, and
Netzero, as well as thousands of local ISPs including regional telephone companies.
INSTANT MESSAGING
Real-time communication occurs when a system updates information at the same rate it
receives it. Email was a great advancement over traditional communication methods such
as the U.S. mail, but it did not operate in real time. Instant messaging (IMing) is a service
that enables instant or real-time communication between people. Businesses immediately saw
what they could do:
■ Answer simple questions quickly and easily.
■ Resolve questions or problems immediately.
■ Transmit messages as fast as naturally flowing conversation.
■ Easily hold simultaneous IM sessions with multiple people.
■ Eliminate long-distance phone charges.
■ Quickly identify which employees are at their computers.
PODCASTING
Podcasting converts an audio broadcast to a digital music player. Podcasts can increase mar-
keting reach and build customer loyalty. Companies use podcasts as marketing communica-
tion channels discussing everything from corporate strategies to detailed product overviews.
The senior executive team can share weekly or monthly podcasts featuring important issues or
expert briefings on new technical or marketing developments.
VIDEOCONFERENCING
A videoconference allows people at two or more locations to interact via two-way video
and audio transmissions simultaneously as well as share documents, data, computer displays,
FIGURE 14.6
Ebusiness Tools.
Content
Management
System
Email
Podcasting
Videoconferencing
Instant
Messaging
Web
Conferencing
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and whiteboards. Point-to-point videoconferences connect two people, and multipoint confer-
ences connect more than two people at multiple locations.
Videoconferences can increase productivity because users participate without leaving their
offices. They can improve communication and relationships, because participants see each
other’s facial expressions and body language, both important aspects of communication that
are lost with a basic telephone call or email. They also reduce travel expenses, a big win for
firms facing economic challenges. Of course, nothing can replace meeting someone face-to-
face and shaking hands, but videoconferencing offers a viable and cost-effective alternative.
WEB CONFERENCING
Web conferencing, or a webinar, blends videoconferencing with document sharing and
allows the user to deliver a presentation over the web to a group of geographically dispersed
participants. Regardless of the type of hardware or software the attendees are running, every
participant can see what is on anyone else’s screen. Schools use web conferencing tools such
as Illuminate Live to deliver lectures to students, and businesses use tools such as WebEx to
demonstrate products. Web conferencing is not quite like being there, but professionals can
accomplish more sitting at their desks than in an airport waiting to make travel connections.
CONTENT MANAGEMENT SYSTEMS
In the fourth century BC Aristotle cataloged the natural world according to a systematic orga-
nization, and the ancient library at Alexandria was reportedly organized by subject, connecting
like information with like. Today content management systems help companies manage the
creation, storage, editing, and publication of their website content. Content management systems
are user-friendly; most include web-based publishing, search, navigation, and indexing to orga-
nize information; and they let users with little or no technical expertise make website changes.
A search is typically carried out by entering a keyword or phrase (query) into a text field and
clicking a button or a hyperlink. Navigation facilitates movement from one web page to another.
Content management systems play a crucial role in getting site visitors to view more than just
the home page. If navigation choices are unclear, visitors may hit the “Back” button on their first
(and final) visit to a website. One rule of thumb to remember is that each time a user has to click
to find search information, there is a 50 percent chance the user will leave the website instead. A
key principle of good website design, therefore, is to keep the number of clicks to a minimum.
Taxonomy is the scientific classification of organisms into groups based on similarities
of structure or origin. Taxonomies are also used for indexing the content on the website into
categories and subcategories of topics. For example, car is a subtype of vehicle. Every car
is a vehicle, but not every vehicle is a car; some vehicles are vans, buses, and trucks. Tax-
onomy terms are arranged so that narrower/more specific/“child” terms fall under broader/
more generic/“parent” terms. Information architecture is the set of ideas about how all infor-
mation in a given context should be organized. Many companies hire information architects to
create their website taxonomies. A well-planned taxonomy ensures search and navigation are
easy and user-friendly. If the taxonomy is confusing, the site will soon fail.
The Challenges of Ebusiness
Although the benefits of ebusiness are enticing, developing, deploying, and managing ebusi-
ness systems is not always easy. Figure 14.7 lists the challenges facing ebusiness.
IDENTIFYING LIMITED MARKET SEGMENTS
The main challenge of ebusiness is the lack of growth in some sectors due to product or ser-
vice limitations. The online food sector has not grown in sales, in part because food products
are perishable and consumers prefer to buy them at the supermarket as needed. Other sectors
with limited ebusiness appeal include fragile or consumable goods and highly sensitive or
confidential businesses such as government agencies.
LO 14.3 Identify the four chal-
lenges associated with ebusiness.
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MANAGING CONSUMER TRUST
Trust in the ebusiness exchange deserves special attention. The physical sepa-
ration of buyer and seller, the physical separation of buyer and merchandise,
and customer perceptions about the risk of doing business online provide
unique challenges. Internet marketers must develop a trustworthy relationship
to make that initial sale and generate customer loyalty. A few ways to build
trust when working online include being accessible and available to commu-
nicate in person with your customers; using customers’ testimonials that link
to your client website or to provide their contact information; and accepting
legitimate forms of payment such as credit cards.
ENSURING CONSUMER PROTECTION
An organization that wants to dominate with superior customer service as a competitive advan-
tage must not only serve but also protect its customers, guarding them against unsolicited
goods and communication, illegal or harmful goods, insufficient information about goods and
suppliers, invasion of privacy and misuse of personal information, and online fraud. System
security, however, must not make ebusiness websites inflexible or difficult to use.
ADHERING TO TAXATION RULES
Many believe that U.S. tax policy should provide a level playing field for traditional retail
businesses, mail-order companies, and online merchants. Yet the Internet marketplace remains
mostly free of traditional forms of sales tax, partly because ecommerce law is vaguely defined
and differs from state to state. For now, companies that operate online must obey a patchwork
of rules about which customers are subject to sales tax on their purchases and which are not.
FIGURE 14.7
Challenges Facing
Ebusiness.
Identifying
Limited Market
Segments
Managing
Consumer Trust
Ensuring
Consumer
Protection
Adhering to
Taxation Rules
1. What is the ebusiness model implemented by Slack?
2. What is the revenue model implemented by Slack?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
HelloFresh is at the forefront of disrupting a multi trillion-dollar industry at the very beginning of its
online transition. HelloFresh is a truly local food product, uniquely suited to individual tastes and
meal-time preferences offering delivery of a giant box of delicious food with recipes to enable easy
and enjoyable meal preparation for a weekly fee. 
HelloFresh aims to provide each and every household in its 7 markets with the opportunity to
enjoy wholesome home-cooked meals with no planning, no shopping, and no hassle required. Every-
thing required for weeknight meals, carefully planned, locally sourced and delivered to your door at
the most convenient time for each subscriber. Behind the scenes, a huge data driven technology plat-
form puts us in the prime position for disrupting the food supply chain and for fundamentally changing
the way consumers shop for food. HelloFresh has local founders across the globe who are able to
leverage the global platform, and at the same time ensure that the HelloFresh product in each market
truly reflects the local community.
Chapter Fourteen Case: HelloFresh Hello Delicious
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The soft subscription model business enables us to leverage our weekly subscriber touch points to
consistently manage supply chains and demand, and to optimize the customer experience as well as
our business economics.  Customers sign-up for a box containing between 2 and 5 meals per week
for a flat fee.  If the customer is out of town or unavailable he can easily cancel any week without a
penalty provided they notify HelloFresh in advance.
Dominik Richter has been CEO since starting HelloFresh in 2011. He has responsibility for keeping
a general oversight of the business and strategy. Prior to HelloFresh, Dominik worked with Goldman
Sachs in London. Dominik graduated with a degree in International Business in 2009, and from the
London School of Economics in 2010 with a Masters in Finance.
Thomas Griesel has been responsible for the logistics and operations behind HelloFresh since
founding with Dominik in 2011. Previously, Thomas had spent time at OC&C Strategy Consultants and
worked on a range of his own businesses and ideas. He graduated from with a degree in International
Business Administration in 2009, and from the London Business School in 2010 with a Masters in
Management.
2011
All the way back in 2011, Dominik and Thomas arrived in Berlin, intent on starting a new and disruptive
business. With a love of healthy food, nutrition, cooking, and a desire to make access to healthy food
as easy as possible for as many people as possible – starting a Food at Home business seemed the
natural choice.
2012
After examining business models from Sweden to Japan to very local ideas, they and a group of
like-minded individuals formulated the recipe for HelloFresh. The team started early in 2012 packing
shopping bags in Berlin, Amsterdam and London with a view to target the highest density population
areas in Europe. Quite quickly, they started getting requests from people outside those areas who all
wanted to become a part of the HelloFresh family. Wanting to serve as many people as possible, the
team developed a logistics model that enabled them to deliver to every single household across a
given country.
2013
The HelloFresh product started to rapidly gain in popularity, as subscribers shared the excitement
about their weekly boxes, with friends and colleagues. Subscriber referrals accelerated, as it became
clear that HelloFresh had finally solved the “What’s for dinner tonight” problem for its subscribers.
2014
Having launched on the East Coast of the U.S in December 2012, HelloFresh moved to cover the
entire country in September 2014. Over the short time since then, HelloFresh has grown rapidly to
become one of the largest players in this market.
Questions
1. Do you consider HelloFresh a form of disruptive or sustaining technology?
2. Is HelloFresh an example of Web 1.0 (ebusiness) or Web 2.0 (Business 2.0)?
3. Describe the ebusiness model associated with HelloFresh.
4. Describe the revenue model associated with HelloFresh.
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R E V I E W Q U E S T I O N S
1. What is a business model?
2. How did ebusiness change traditional business models?
3. What are the benefits and challenges associated with ebusiness? 
4. What is the difference between a B2B and C2C?
5. What is the difference between a C2B and B2C?
6. What is a pure-play? Provide an example.
7. What is a brick-and-mortar? Provide an example.
8. What is click-and-mortar? Provide an example.
9. Why is search engine ranking important to a company?
10. What is the difference between search engine ranking and search engine optimization?
14.1. Compare the four categories of ebusiness models.
■ Business-to-business (B2B) applies to businesses buying from and selling to each other over
the Internet.
■ Business-to-consumer (B2C) applies to any business that sells its products or services to con-
sumers over the Internet.
■ Consumer-to-business (C2B) applies to any consumer who sells a product or service to a busi-
ness over the Internet.
■ Consumer-to-consumer (C2C) applies to sites primarily offering goods and services to assist
consumers interacting with each other over the Internet.
The primary difference between B2B and B2C are the customers; B2B customers are other businesses,
whereas B2C markets to consumers. Overall, B2B relations are more complex and have higher security
needs and is the dominant ebusiness force, representing 80 percent of all online business.
14.2. Describe the six ebusiness tools for connecting and communicating.
As firms began to move online, more MIS tools were created to support ebusiness processes and
requirements. The ebusiness tools used to connect and communicate include email, instant messag-
ing, podcasting, content management systems, videoconferencing, and web conferencing.
14.3. Identify the four challenges associated with ebusiness.
Although the benefits of ebusiness are enticing, developing, deploying, and managing ebusiness sys-
tems is not always easy. The challenges associated with ebusiness include identifying limited market
segments, managing consumer trust, ensuring consumer protection, and adhering to taxation rules.
L E A R N I N G O U T C O M E R E V I E W
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1. Nasty Gal–Eight Years Old and Worth $100 Million
Sophia Amoruso is the founder and CEO of Nasty Gal, an eight-year-old online fashion retail com-
pany worth over $100 million. Nasty Gal sells new and vintage clothing, accessories, and shoes
online. Founder Sophia Amoruso started the company on eBay, selling one-of-a-kind vintage pieces
that she sourced, styled, photographed, and shipped herself. The following is excerpted from her
new book, #GIRLBOSS.
“I never started a business. I started an eBay store, and ended up with a business. I never would
have done it had I known it was going to become this big. I was 22 and, like most 22-year-olds, I
was looking for a way to pay my rent and buy my Starbucks chai. Had someone shown me the future
of where Nasty Gal would be in 2014, I would have gasped in revulsion, thinking, ‘Oh, no, that is way
too much work.’
There are different kinds of entrepreneurs. There are the ones who start a business because
they’re educated and choose to, and the ones who do it because it is really the only option. I defi-
nitely fall into the latter category.”
The Internet is a great place to start a business! If Sophia Amoruso had started her business in
a traditional store, would she have found success? List the advantages Sophia Amoruso gained by
selling her items on eBay. If you could start a business on eBay, what would it be and how would you
use ebusiness to your advantage?
2. Using Hashtags
If you have ever seen a word with a # before it in Facebook or Twitter, you have seen a hashtag.
A hashtag is a keyword or phrase used to identify a topic and is preceded by a hash or pound sign
(#). Hashtags provide an online audience to expand business exposure and directly engage with
customers. Customers can type any search keyword in a social media site with a hashtag before the
word and the search results will show all related posts. Hashtags can be used to reference promo-
tions, observe market trends, and even provide links to helpful tips.
When you understand hashtags, you can use them to find business ideas and research potential
employers. Pick a company you would like to work for and see whether you can find any related
hashtags including what they are tweeting and posting. See whether you can find any information
on partners and competitors. Which hashtags generate discussion or offer business insights? Check
Twitter’s and Facebook’s trending topics and see whether there are any issues or insights on your
career area.
3. Virtual Abandonment
Approximately 35 percent of online shopping carts are abandoned prior to checkout. Abandoned
shopping carts relate directly to lost revenues for a business. It is like a customer walking out of the
store, leaving his or her cart full of chosen items. Businesses need to focus on why the customers
are virtually walking out of their stores. The problem typically lies in the checkout process and can
be fixed by the following:
■ Make sure the checkout button is easy to find.
■ Make sure personal information is safe and the website’s security is visible.
■ Streamline the checkout process so the customer has as few clicks as possible.
■ Do not ask shoppers to create an account prior to checkout, but you can ask them to create an
account after checkout.
■ Ensure your return policy is visible.
M A K I N G B U S I N E S S D E C I S I O N S
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Have you ever abandoned a virtual shopping cart? In a group, visit a website that you or your peers
have recently abandoned and review the checkout process. Was it difficult, cumbersome, or lacking
security? Then visit Amazon.com and review its checkout process and determine whether Amazon is
meeting the preceding recommendations.
4. Viral Foxes and Devil Babies
Viral marketing can be a company’s greatest success or its worst nightmare. Here are a few popular
examples:
■ “What Does the Fox Say?” The video created by a pair of Norwegian variety show brothers
displays people, dressed up as animals, dancing around in the woods and singing a catchy
song. The video received over 400 million views on YouTube and skyrocketed the band Ylvis
to virtual stardom.
■ The video of a robotic devil baby left in an unattended stroller in the middle of the street in
Manhattan attracted over 50 million views in a month. The creators of the devil baby video,
Thinkmodo, was creating buzz for the 20th Century Fox movie it was promoting, Devil’s Due.
■ Domino’s Pizza employees posted a video showing them making sandwiches with unsanitary
ingredients. The video went viral and ended with the arrest of the employees and an apology
from the CEO.
Research the web and find an example of a viral video that helped a business achieve success and
one that caused a business to fail. Do you think it is important for a business to try to manage its
online reputation actively? What can a company do if a negative video goes viral, such as the one
concerning Domino’s Pizza?
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C H A P T E R 15
L E A R N I N G O U T C O M E S
15.1. Explain Web 2.0, and identify its four characteristics.
15.2. Explain how Business 2.0 is helping communities
network and collaborate.
15.3. Describe the three Business 2.0 tools for collaborating.
15.4. Explain the three challenges associated with
Business 2.0.
15.5. Describe Web 3.0 and the next generation of online
business.
Web 2.0: Advantages of Business 2.0
In the mid-1990s the stock market reached an all-time high as companies took advantage of
ebusiness and Web 1.0, and many believed the Internet was the wave of the future. When
new online businesses began failing to meet earning expectations, however, the bubble burst.
Some then believed the ebusiness boom was over, but they could not have been more wrong.
Web 2.0 (or Business 2.0) is the next generation of Internet use—a more mature, distinc-
tive communications platform characterized by new qualities such as collaboration, sharing,
and free. Business 2.0 encourages user participation and the formation of communities that
contribute to the content. In Business 2.0, technical skills are no longer required to use and
publish information to the World Wide Web, eliminating entry barriers for online business.
Traditional companies tended to view technology as a tool required to perform a process
or activity, and employees picked up information by walking through the office or hanging
out around the water cooler. Business 2.0 technologies provide a virtual environment that, for
many new employees, is just as vibrant and important as the physical environment. Figure 15.1
highlights the common characteristics of Business 2.0.1
CONTENT SHARING THROUGH OPEN SOURCING
An open system consists of nonproprietary hardware and software based on publicly
known standards that allow third parties to create add-on products to plug into or interoper-
ate with the system. Thousands of hardware devices and software applications created and
sold by third-party vendors interoperate with computers, such as iPods, drawing software,
and mice.
Source code contains instructions written by a programmer specifying the actions to be
performed by computer software. Closed source is any proprietary software licensed under
exclusive legal right of the copyright holder. Open source refers to any software whose source
code is made available free (not on a fee or licensing basis as in ebusiness) for any third
party to review and modify. Business 2.0 is capitalizing on open source software. Mozilla,
for example, offers its Firefox web browser and Thunderbird email software free. Mozilla
believes the Internet is a public resource that must remain open and accessible to all; it con-
tinuously develops free products by bringing together thousands of dedicated volunteers from
LO 15.1 Explain Web 2.0, and
identify its four characteristics.
Creating Collaborative
Partnerships
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around the world. Mozilla’s Firefox now holds more than 20 percent of the browser market
and is quickly becoming a threat to Microsoft’s Internet Explorer. How do open source soft-
ware companies generate revenues? Many people are still awaiting an answer to this very
important question.2
USER-CONTRIBUTED CONTENT
Ebusiness was characterized by a few companies or users posting content for the masses.
Business 2.0 is characterized by the masses posting content for the masses. User-contributed
content (or user-generated content) is created and updated by many users for many users.
Websites such as Flickr, Wikipedia, and YouTube, for example, move control of online media
from the hands of leaders to the hands of users. Netflix and Amazon both use user-generated
content to drive their recommendation tools, and websites such as Yelp use customer reviews
to express opinions on products and services. Companies are embracing user-generated con-
tent to help with everything from marketing to product development and quality assurance.
Native advertising is an online marketing concept in which the advertiser attempts to gain
attention by providing content in the context of the user’s experience in terms of its content,
format, style, or placement. One of the most popular forms of user-generated content is a
reputation system, where buyers post feedback on sellers. eBay buyers voluntarily comment
on the quality of service, their satisfaction with the item traded, and promptness of ship-
ping. Sellers comment about prompt payment from buyers or respond to comments left by
the buyer. Companies ranging from Amazon to restaurants are using reputation systems to
improve quality and enhance customer satisfaction.
COLLABORATION INSIDE THE ORGANIZATION
A collaboration system is a set of tools that supports the work of teams or groups by facilitat-
ing the sharing and flow of information. Business 2.0’s collaborative mind-set generates more
information faster from a wider audience. Collective intelligence is collaborating and tapping
into the core knowledge of all employees, partners, and customers. Knowledge can be a real
competitive advantage for an organization. The most common form of collective intelligence
found inside the organization is knowledge management (KM), which involves capturing,
classifying, evaluating, retrieving, and sharing information assets in a way that provides con-
text for effective decisions and actions. The primary objective of knowledge management is to
be sure that a company’s knowledge of facts, sources of information, and solutions are readily
available to all employees whenever it is needed. A knowledge management system (KMS)
supports the capturing, organization, and dissemination of knowledge (i.e., know-how)
FIGURE 15.1
Characteristics of
Business 2.0.
Business 2.0 Characteristics
Content
Sharing
Through Open
Sourcing
Collaboration
Inside the
Organization
User-
Contributed
Content
Collaboration
Outside the
Organization
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throughout an organization. KMS can distribute an organization’s knowledge base by inter-
connecting people and digitally gathering their expertise.
A great example of a knowledge worker is a golf caddie. Golf caddies give advice such as
“The rain makes the third hole play 10 yards shorter.” If a golf caddie is good and gives accu-
rate advice it can lead to big tips. Collaborating with other golf caddies can provide bigger
tips for all. How can knowledge management make this happen? Caddies could be rewarded
for sharing course knowledge by receiving prizes for sharing knowledge. The course manager
could compile all of the tips and publish a course notebook for distribution to all caddies. The
goal of a knowledge management system is that everyone wins. Here the caddies make big-
ger tips and golfers improve their play by benefiting from the collaborative experiences of the
caddies, and the course owners win as business increases.
KM has assumed greater urgency in American business over the past few years as millions
of baby boomers prepare to retire. When they punch out for the last time, the knowledge they
gleaned about their jobs, companies, and industries during their long careers will walk out
with them—unless companies take measures to retain their insights.
Explicit and Tacit Knowledge
Not all information is valuable. Individuals must determine what information qualifies as
intellectual and knowledge-based assets. In general, intellectual and knowledge-based assets
fall into one of two categories: explicit or tacit. As a rule, explicit knowledge consists of any-
thing that can be documented, archived, and codified, often with the help of IT. Examples of
explicit knowledge are assets such as patents, trademarks, business plans, marketing research,
and customer lists. Tacit knowledge is the knowledge contained in people’s heads. The chal-
lenge inherent in tacit knowledge is figuring out how to recognize, generate, share, and man-
age knowledge that resides in people’s heads. While information technology in the form of
email, instant messaging, and related technologies can help facilitate the dissemination of
tacit knowledge, identifying it in the first place can be a major obstacle.
COLLABORATION OUTSIDE THE ORGANIZATION
The most common form of collective intelligence found outside the organization is crowdsourcing,
which refers to the wisdom of the crowd. The idea that collective intelligence is greater than
the sum of its individual parts has been around for a long time (see Figure 15.2). With Busi-
ness 2.0 the ability to efficiently tap into its power is emerging. For many years organizations
believed that good ideas came from the top. CEOs collaborated only with the heads of sales
and marketing, the quality assurance expert, or the road warrior salesman. The organization
chart governed who should work with whom and how far up the chain of command a sugges-
tion or idea would travel. With Business 2.0 this belief is being challenged, as firms capitalize
FIGURE 15.2
Crowdsourcing: The
Crowd Is Smarter Than the
Individual.
© Punchstock/Digital Vision
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on crowdsourcing by opening up a task or problem to a wider group to find better or cheaper
results from outside the box. Crowdfunding sources capital for a project by raising many small
amounts from a large number of individuals, typically via the Internet. 
With Business 2.0, people can be continuously connected, a driving force behind collabo-
ration. Traditional ebusiness communications were limited to face-to-face conversations and
one-way technologies that used asynchronous communications, or communication such as
email in which the message and the response do not occur at the same time. Business 2.0
brought synchronous communication, or communications that occur at the same time such
as IM or chat. Ask a group of college students when they last spoke to their parents. For most
the answer is less than hour ago, as opposed to the traditional response of a few days ago. In
business, too, continuous connections are now expected in today’s collaborative world.
Networking Communities with Business 2.0
Social media refers to websites that rely on user participation and user-contributed content,
such as Facebook, YouTube, and Digg. A social network is an application that connects people
by matching profile information. Providing individuals with the ability to network is by far
one of the greatest advantages of Business 2.0. Social networking is the practice of expand-
ing your business and/or social contacts by constructing a personal network (see Figure 15.3).
Social networking sites provide two basic functions. The first is the ability to create and main-
tain a profile that serves as an online identity within the environment. The second is the
ability to create connections between other people within the network. Social networking
analysis (SNA) maps group contacts (personal and professional), identifying who knows each
other and who works together. In a company it can provide a vision of how employees work
together. It can also identify key experts with specific knowledge such as how to solve a com-
plicated programming problem or launch a new product.
Business 2.0 simplifies access to information and improves the ability to share it. Instead
of spending $1,000 and two days at a conference to meet professional peers, business people
can now use social networks such as LinkedIn to meet new contacts for recruiting, prospect-
ing, and identifying experts on a topic. With executive members from all the Fortune 500
companies, LinkedIn has become one of the more useful recruiting tools on the web.
Social graph  represents the interconnection of relationships in a social network. Social
networking sites can be especially useful to employers trying to find job candidates with
unique or highly specialized skill sets that may be harder to locate in larger communities.
Many employers also search social networking sites to find “dirt” and character references for
potential employees. Keep in mind that what you post on the Internet stays on the Internet.4
LO 15.2 Explain how Business 2.0
is helping communities network
and collaborate.
FIGURE 15.3
Social Network Example.3
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SOCIAL TAGGING
Tags are specific keywords or phrases incorporated into website
content for means of classification or taxonomy. An item can have
one or more tags associated with it, to allow for multiple browseable
paths through the items, and tags can be changed with minimal effort
(see Figure 15.4). Social tagging describes the collaborative activity
of marking shared online content with keywords or tags as a way to
organize it for future navigation, filtering, or search. The entire user
community is invited to tag, and thus essentially defines, the content.
Flickr allows users to upload images and tag them with appropriate
keywords. After enough people have done so, the resulting tag collec-
tion will identify images correctly and without bias.  A hashtag is a
keyword or phrase used to identify a topic and is preceded by a hash
or pound sign (#). For example, the hashtag #sandiegofire helped
coordinate emergency responses to a fire.
Folksonomy is similar to taxonomy except that crowdsourcing
determines the tags or keyword-based classification system. Using
the collective power of a community to identify and classify con-
tent significantly lowers content categorization costs, because there
is no complicated nomenclature to learn. Users simply create and
apply tags as they wish. For example, while cell phone manufacturers
often refer to their products as mobile devices, the folksonomy could
include mobile phone, wireless phone, smartphone, iPhone, Black-
Berry, and so on. All these keywords, if searched, should take a user
to the same site. Folksonomies reveal what people truly call things
(see Figure 15.5). They have been a point of discussion on the web
because the whole point of having a website is for your customers to find it. The majority of
websites are found through search terms that match the content.5
A website bookmark is a locally stored URL or the address of a file or Internet page saved
as a shortcut. Social bookmarking allows users to share, organize, search, and manage book-
marks. Del.icio.us, a website dedicated to social bookmarking, provides users with a place
to store, categorize, annotate, and share favorites. StumbleUpon is another popular social
bookmarking website that allows users to locate interesting websites based on their favorite
subjects. The more you use the service, the more the system “learns” about your interests and
the better it can show you websites that interest you. StumbleUpon represents a new social
networking model in which content finds the users instead of the other way around. Stumble-
Upon is all about the users and the content they enjoy.6
FIGURE 15.4
Social Tagging Occurs When
Many Individuals Categorize
Content.
© Radius Images/Corbis
FIGURE 15.5
Folksonomy Example: The
User-Generated Names for
Cellular Phones.
Cellular
Phone
Mobile
Phone
BlackBerry
iPhone
Cell
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Business 2.0 Tools for Collaborating
Social networking and collaborating are leading businesses in new directions, and Figure 15.6
provides an overview of the tools that harness the “power of the people,” allowing users to
share ideas, discuss business problems, and collaborate on solutions.
BLOGS
A blog, or web log, is an online journal that allows users to post their own comments, graph-
ics, and video. Unlike traditional HTML web pages, blog websites let writers communicate—
and readers respond—on a regular basis through a simple yet customizable interface that does
not require any programming. A selfie is a self-photograph placed on a social media website.
From a business perspective, blogs are no different from marketing channels such as video,
print, audio, or presentations. They all deliver results of varying kinds. Consider Sun Micro-
system’s Jonathan Schwartz and GM’s Bob Lutz, who use their blogs for marketing, sharing
ideas, gathering feedback, press response, and image shaping. Starbucks has developed a blog
called My Starbucks Idea, allowing customers to share ideas, tell Starbucks what they think of
other people’s ideas, and join discussions. Blogs are an ideal mechanism for many businesses
because they can focus on topic areas more easily than traditional media, with no limits on
page size, word count, or publication deadline.7
Microblogs
Microblogging is the practice of sending brief posts (140 to 200 characters) to a personal
blog, either publicly or to a private group of subscribers who can read the posts as IMs or
as text messages. The main advantage of microblogging is that posts can be submitted by
a variety of means, such as instant messaging, email, or the web. By far the most popular
microblogging tool is Twitter, which allows users to send microblog entries called tweets to
anyone who has registered to “follow” them. Senders can restrict delivery to people they want
to follow them or, by default, allow open access.
Real Simple Syndication (RSS)
Real Simple Syndication (RSS) is a web format used to publish frequently updated works,
such as blogs, news headlines, audio, and video, in a standardized format. An RSS document
or feed includes full or summarized text, plus other information such as publication date and
authorship. News websites, blogs, and podcasts use RSS, constantly feeding news to consum-
ers instead of having them search for it. In addition to facilitating syndication, RSS allows a
website’s frequent readers to track updates on the site.
LO 15.3 Describe the three Busi-
ness 2.0 tools for collaborating.
FIGURE 15.6
Business 2.0 Communication
and Collaboration Tools.

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

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

Popular business
examples include
Wikipedia, National
Institute of Health,
Intelopedia,
LexisNexis, Wiki for
Higher Education
Content from
more than one
source to create a
new product or
service

Examples include
Zillow, Infopedia,
Trendsmap,
SongDNA,
ThisWeKnow
BLOG WIKI MASHUP
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WIKIS
A wiki (the word is Hawaiian for quick) is a type of collaborative web page that allows users to
add, remove, and change content, which can be easily organized and reorganized as required.
While blogs have largely drawn on the creative and personal goals of individual authors, wikis
are based on open collaboration with any- and everybody. Wikipedia, the open encyclopedia
that launched in 2001, has become one of the 10 most popular web destinations, reaching an
estimated 217 million unique visitors a month.8
A wiki user can generally alter the original content of any article, while the blog user
can only add information in the form of comments. Large wikis, such as Wikipedia, protect
the quality and accuracy of their information by assigning users roles such as reader, edi-
tor, administrator, patroller, policy maker, subject matter expert, content maintainer, software
developer, and system operator. Access to some important or sensitive Wikipedia material is
limited to users in these authorized roles.9
The network effect describes how products in a network increase in value to users as the
number of users increases. The more users and content managers on a wiki, the greater the
network effect because more users attract more contributors, whose work attracts more users,
and so on. For example, Wikipedia becomes more valuable to users as the number of its con-
tributors increases.
Wikis internal to firms can be vital tools for collecting and disseminating knowledge
throughout an organization, across geographic distances, and between functional business
areas. For example, what U.S. employees call a “sale” may be called “an order booked” in the
United Kingdom, an “order scheduled” in Germany, and an “order produced” in France. The
corporate wiki can answer any questions about a business process or definition. Companies
are also using wikis for documentation, reporting, project management, online dictionaries,
and discussion groups. Of course, the more employees who use the corporate wiki, the greater
the network effect and valued added for the company.
MASHUPS
A mashup is a website or web application that uses content from more than one source
to create a completely new product or service. The term is typically used in the context
of music; putting Jay-Z lyrics over a Radiohead song makes something old new. The web
version of a mashup allows users to mix map data, photos, video, news feeds, blog entries,
and so on to create content with a new purpose. Content used in mashups is typically
sourced from an application programming interface (API), which is a set of routines,
protocols, and tools for building software applications. A programmer then puts these
building blocks together.
Most operating environments, such as Microsoft Windows, provide an API so that pro-
grammers can write applications consistent with them. Many people experimenting with
mashups are using Microsoft, Google, eBay, Amazon, Flickr, and Yahoo! APIs, leading
to the creation of mashup editors. Mashup editors are WYSIWYG, or What You See Is
What You Get, tools. They provide a visual interface to build a mashup, often allowing the
user to drag and drop data points into a web application. An ezine is a magazine published
only in electronic form on a computer network. Flipboard is a social-network aggregation,
magazine-format application software for multiple devices that collects content from social
media and other websites, presents it in magazine format, and allows users to flip through
the content.
Whoever thought technology could help sell bananas? Dole Organic now places three-digit
farm codes on each banana and creates a mashup using Google Earth and its banana database.
Socially and environmentally conscious buyers can plug the numbers into Dole’s website and
look at a bio of the farm where the bananas were raised. The site tells the story of the farm and
its surrounding community, lists its organic certifications, posts some photos, and offers a link
to satellite images of the farm in Google Earth. Customers can personally monitor the produc-
tion and treatment of their fruit from the tree to the grocer. The process assures customers that
their bananas have been raised to proper organic standards on an environmentally friendly,
holistically minded plantation.10
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The Challenges of Business 2.0
As much as Business 2.0 has positively changed the global landscape of business, a few chal-
lenges remain in open source software, user-contributed content systems, and collaboration
systems, all highlighted in Figure 15.7. We’ll briefly describe each one.
TECHNOLOGY DEPENDENCE
Many people today expect to be continuously connected, and their depen-
dence on technology glues them to their web connections for everything
from web conferencing for a university class or work project to making plans
with friends for dinner. If a connection is down, how will they function?
How long can people go without checking email, text messaging, or listen-
ing to free music on Pandora or watching on-demand television? As society
becomes more technology-dependent, outages hold the potential to cause
ever-greater havoc for people, businesses, and educational institutions.
INFORMATION VANDALISM
Open source and sharing are both major advantages of Business 2.0, and ironically they are
major challenges as well. Allowing anyone to edit anything opens the door for individuals to
purposely damage, destroy, or vandalize website content. One of the most famous examples
of wiki vandalism occurred when a false biography entry read that John Seigenthaler Sr. was
assistant to Attorney General Robert F. Kennedy in the early 1960s and was thought to have been
directly involved in the assassinations of both Kennedy and his brother, President John F. Kennedy.
Seigenthaler did work as an assistant to Robert Kennedy, but he was never involved in the
assassinations. Wiki vandalism is a hot issue and for this reason wiki software can now store
all versions of a web page, tracking updates and changes and ensuring the site can be restored
to its original form if the site is vandalized. It can also color-code the background ensuring the
user understands which areas have been validated and which areas have not. The real trick to
wiki software is to determine which statements are true and which are false, a huge issue when
considering how easily and frequently wiki software is updated and changed.11
VIOLATIONS OF COPYRIGHT AND PLAGIARISM
Online collaboration makes plagiarism as easy as clicking a mouse. Unfortunately a great deal
of copyrighted material tends to find its ways to blogs and wikis where many times blame
cannot be traced to a single person. Clearly stated copyright and plagiarism policies are a
must for all corporate blogs and wikis.
Web 3.0: Defining the Next Generation of
Online Business Opportunities
While Web 1.0 refers to static text-based information websites and Web 2.0 is about user-
contributed content, Web 3.0 is based on “intelligent” web applications using natural lan-
guage processing, machine-based learning and reasoning, and intelligent applications. Web
3.0 is the next step in the evolution of the Internet and web applications. Business leaders who
explore its opportunities will be the first to market with competitive advantages.
Web 3.0 offers a way for people to describe information such that computers can start to
understand the relationships among concepts and topics. To demonstrate the power of Web
3.0, let’s look at a few sample relationships, such as Adam Sandler is a comedian, Lady Gaga
is a singer, and Hannah is friends with Sophie. These are all examples of descriptions that
can be added to web pages allowing computers to learn about relationships while displaying
the information to humans. With this kind of information in place, there will be a far richer
interaction between people and machines with Web 3.0.
LO 15.4 Explain the three chal-
lenges associated with Business
2.0.
LO 15.5 Describe Web 3.0 and
the next generation of online
business.
FIGURE 15.7
Challenges of Business 2.0.
Technology Dependence
Information Vandalism
Violations of Copyright
and Plagiarism
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Applying this type of advanced relationship knowledge to a company can create new
opportunities. After all, businesses run on information. Whereas Web 2.0 brings people closer
together with information using machines, Web 3.0 brings machines closer together using
information. These new relationships unite people, machines, and information so a business
can be smarter, quicker, more agile, and more successful.
One goal of Web 3.0 is to tailor online searches and requests specifically to users’ prefer-
ences and needs. For example, instead of making multiple searches, the user might type a
complex sentence or two in a Web 3.0 browser, such as “I want to see a funny movie and
then eat at a good Mexican restaurant. What are my options?” The Web 3.0 browser will
analyze the request, search the web for all possible answers, organize the results, and present
them to the user.
Tim Berners-Lee, one of the founders of the WWW, has described the semantic web as
a component of Web 3.0 that describes things in a way that computers can understand. The
semantic web is not about links between web pages; rather it describes the relationships
between things (such as A is a part of B and Y is a member of Z) and the properties of things
(size, weight, age, price). If information about music, cars, concert tickets, and so on is stored
in a way that describes the information and associated resource files, semantic web applica-
tions can collect information from many different sources, combine it, and present it to users
in a meaningful way. Although Web 3.0 is still a bit speculative, some topics and features are
certain to be included in it, such as:12
■ Integration of legacy devices: the ability to use current devices such as iPhones, laptops,
and so on, as credit cards, tickets, and reservations tools.
■ Intelligent applications: the use of agents, machine learning, and semantic web concepts to
complete intelligent tasks for users.
■ Open ID: the provision of an online identity that can be easily carried to a variety of
devices (cell phones, PCs) allowing for easy authentication across different websites.
■ Open technologies: the design of websites and other software so they can be easily inte-
grated and work together.
■ A worldwide database: the ability for databases to be distributed and accessed from
anywhere.
EGOVERNMENT: THE GOVERNMENT MOVES ONLINE
Recent business models that have arisen to enable organizations to take advantage of the Internet
and create value are within egovernment. Egovernment involves the use of strategies and
technologies to transform government(s) by improving the delivery of services and enhancing
the quality of interaction between the citizen-consumer and all branches of government.
One example of an egovernment portal, FirstGov.gov, the official U.S. gateway to all gov-
ernment information, is the catalyst for a growing electronic government. Its powerful search
engine and ever-growing collection of topical and customer-focused links connect users to
millions of web pages, from the federal government, to local and tribal governments, to for-
eign nations around the world. Figure 15.8 highlights and adds to our discussion specific
egovernment models.
MBUSINESS: SUPPORTING ANYWHERE BUSINESS
Internet-enabled mobile devices are quickly outnumbering personal computers. Mobile business
(or mbusiness, mcommerce) is the ability to purchase goods and services through a wire-
less Internet-enabled device. The emerging technology behind mbusiness is a mobile device
equipped with a web-ready micro-browser that can perform the following services:
■ Mobile entertainment—downloads for music, videos, games, voting, ring tones, as well as
text-based messaging services.
■ Mobile sales/marketing—advertising, campaigns, discounts, promotions, and coupons.
■ Mobile banking—manage accounts, pay bills, receive alerts, and transfer funds.
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■ Mobile ticketing—purchase tickets for entertainment, transportation, and parking includ-
ing the ability to automatically feed parking meters.
■ Mobile payments—pay for goods and services including in-store purchases, home deliv-
ery, vending machines, taxis, gas, and so on.
Organizations face changes more extensive and far reaching in their implications than any-
thing since the modern industrial revolution occurred in the early 1900s. Technology is a
primary force driving these changes. Organizations that want to survive must recognize the
immense power of technology, carry out required organizational changes in the face of it, and
learn to operate in an entirely different way.
FIGURE 15.8
Extended Ebusiness Models.
Business
Business Consumer
Consumer
B2B
conisint.com
C2B
priceline.com
B2C
dell.com
C2C
ebay.com
Government
G2B
export.gov
G2C
medicare.gov
Government
B2G
lockheedmartin.com
C2G
egov.com
G2G
disasterhelp.gov
1. Categorize Slack as an example of Web 1.0 (ebusiness) or Web 2.0 (Business 2.0).
2. Explain the four characteristics of Business 2.0 and how each applies to Slack.
3. How could Slack use social networking analysis to help organizations function more efficiently?
O P E N I N G C A S E S T U D Y Q U E S T I O N S
Pinterest has been called the latest addiction for millions of people around the world. Pinterest, a
visual social media network, allows users to create “interest boards” where they “pin” items of inter-
ests found on the web. Terms you need to understand to use Pinterest include:
■ Pin: A link to an image from a computer or a website. Pins can include captions for other users.
Users upload, or “pin,” photos or videos to boards.
■ Board: Pins live on boards and users can maintain separate boards, which can be categorized by
activity or interests, such as cooking, do-it-yourself activities, fitness, music, movies, etc.
■ Repin: After pinning an item, it can be repinned by other Pinterest users, spreading the content
virally. Repinning allows users to share items they like with friends and family.
Chapter Fifteen Case: Pinterest – Billboards for the Internet
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“Pinning” is simply done by clicking on a photo or video that captures the attention of a user,
whether it be by uploading personal photos or repinning a photo or video from a fellow user. Started
in 2010, Pinterest has already attracted over 10 million users with the majority being women between
the ages of 25 and 54. Millions of people visit the website each day to find what new items will spark
their interest as there are always more and more things to see.
Pinterest is considered a social network, but unlike other social networks, such as Twitter and
Facebook, Pinterest is open to invited users only, meaning it is an invitation-only website and users
must “ask” for an invitation before gaining access. Upon accepting the invitation, users can gain
access to the website and begin inviting their own “friends” with whom they have connections on
Facebook or Twitter. Pinterest’s primary mission is to:
connect everyone in the world through the ‘things’ they find interesting. We think that a favorite
book, toy, or recipe can reveal a common link between two people. With millions of new pins added
every week, Pinterest is connecting people all over the world based on shared tastes and interests.
Just like on other social networks, Pinterest users can compile a list of people they want to follow.
A user can link a Pinterest board to a Facebook account, allowing instant access to quickly see which
of his or her Facebook friends are on the social network. Adding bookmarks allows the user to pin
images to other websites such as a book at Barnes & Noble or a set of mugs at Pier 1 Imports. The
image is automatically linked to the retailer’s website, and if another user clicks on the image, that
user receives additional information on the product or service. If users pin a specific image of a plate
or sweater, they can add the item’s price in the description, which will automatically place a banner
ad on the image and show the listed price. If users are unsure of what they are looking for, they can
search for a specific event or theme such as “twenty-first birthday party” for a whole array of ideas.
Essentially, Pinterest allows users to paint a visual picture. Just imagine a wedding planner talking
to a bride about her upcoming event, and the bride mentions she would like a “classic modernism”
wedding. If the wedding planner was confused on what exactly the bride meant by classic modern-
ism, she could quickly visit Pinterest to find an entire suite of photos and videos to spark ideas of how
to coordinate the event.
The Business Value of Pinterest
Visual Communication
Pinterest is by far one of the hottest social media spaces available today. Offering all kinds of valuable
information from useful cleaning tips to fantastic recipes to beautiful photos and videos, the website
is extremely valuable for sharing anything visual. Pinterest is in no way simply a passing fad as com-
panies begin to use the website for social marketing.
One of the best business uses of Pinterest is allowing employees to visually communicate and
brainstorm. Visual communication is a new experience for many employees and the phrase “A picture
is worth a thousand words” can help a company perform many tasks from generating new products
to transforming business processes. In fact, many companies are using Pinterest to solicit feedback
directly from employees, customers, and suppliers to ensure the company is operating efficiently and
effectively. Soliciting feedback directly from customers allows companies to have a customer service
support team handle problems before they become mainstream issues. Providing customers with a
new channel to post their thoughts and concerns about products or services can provide valuable
feedback for any company. Companies typically state that they may not respond to every question
or comment, but that they take each and every concern into account, demonstrating that they are
devoted to creating a bond between themselves and their customers.
Driving Traffic
Pinterest drives traffic—it is that simple! Even though the website operates under an invitation-only
model, it has attracted more than 10 million users in less than two years. That number might seem
small compared to powerhouses such as Facebook, Twitter, or Google, but it demonstrates there is
enough of an audience to send a decent amount of traffic to any business. The images a business pins
up should be linked to the relevant page of its website. If users are attracted by it, they may click on
it to find out more.
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Pinterest also drives traffic by providing higher rankings on search engine optimization as com-
panies appear higher and higher on search lists the more users are pinning to their boards. Linking
is one of the key factors search engines consider, and with Pinterest gaining in popularity, it is also
growing as a trustworthy domain. The number of Pinterest users combined with its ability to increase
search rankings will play an important role when a company is looking to increase visibility and drive
traffic to its website. Data from Shareholic found that Pinterest sent more referral traffic to bloggers
than Google+, YouTube, and LinkedIn combined, falling just behind Twitter.
Product Branding
Pinterest is an extraordinary branding tool, offering a place where companies can create a pres-
ence and community around a product, idea, event, or company. Just like other social networking
websites, Pinterest allows a company to reach out and engage its customers, vendors, suppliers,
and even employees to communicate about its products and services. Recently the National Football
League’s Minnesota Vikings began using Pinterest to create a following of favorite photos, statistics,
and even game-day recipes!
Pinterest recently deployed an iPhone application that allows users to pin photos and video from
their cameras instantly on their boards. Pinterest’s unique competitive advantage is its ability to host
billions of images and redirect users to the appropriate sources in a user-friendly interface.
Pinterest’s Dilemma
Since its inception, Pinterest has been under fire from sites such as Flikr, Photobucket, and Instagram
over attributing credit to those who own the images that are pinned. Many users are concerned that
they may one day be sued for the improper use of an image they pinned.
The Pinterest Terms of Use state, “If you are a copyright owner, or are authorized to act on behalf
of one, or authorized to act under any exclusive right under copyright, please report alleged copy-
right infringements taking place on or through the Site by completing the following DMCA Notice of
Alleged Infringement and delivering it to Pinterest’s Designated Copyright Agent.”
To protect Pinterest from third-party litigation claims (such as those from authors claiming copy-
right infringement), Pinterest has incorporated the following statement into its indemnity clause: “You
agree to indemnify and hold harmless Pinterest and its officers, directors, employees and agents,
from and against any claims, suits, proceedings, disputes, demands, liabilities, damages, losses,
costs and expenses, including, without limitation, reasonable legal and accounting fees (including
costs of defense of claims, suits or proceedings brought by third parties), arising out of or in any way
related to (i) your access to or use of the Services or Pinterest Content, (ii) your User Content, or (iii)
your breach of any of these Terms.”
Pinterest is well aware of the probability that many of the pinned images might be violating copy-
right infringement and is attempting to protect itself against any litigation claims resulting from users
intentionally or unintentionally breaking the law through its site. 13
Questions
1. Do you consider Pinterest a form of disruptive or sustaining technology? Why or why not?
2. What types of security and ethical dilemmas are facing Pinterest?
3. Do you consider Pinterest an example of Web 1.0 or Web 2.0?
4. What are the mobility benefits and challenges facing Pinterest?
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15.1. Explain Web 2.0, and identify its four characteristics.
Web 2.0, or Business 2.0, is the next generation of Internet use—a more mature, distinctive com-
munications platform characterized by new qualities such as collaboration, sharing, and being free.
Web 2.0 encourages user participation and the formation of communities that contribute to the con-
tent. In Web 2.0, technical skills are no longer required to use and publish information to the World
Wide Web, eliminating entry barriers for online business. The four characteristics of Web 2.0 include:
■ Content sharing through open sourcing.
■ User-contributed content.
■ Collaboration inside the organization.
■ Collaboration outside the organization.
15.2. Explain how Business 2.0 is helping communities network and collaborate.
A social network is an application that connects people by matching profile information. Providing
individuals with the ability to network is by far one of the greatest advantages of Business 2.0. Social
networking is the practice of expanding your business and/or social contacts by constructing a per-
sonal network. Business 2.0 simplifies the way individuals communicate, network, find employment,
and search for information.
15.3. Describe the three Business 2.0 tools for collaborating.
The three tools that harness the “power of the people” for Business 2.0 include blogs, wikis, and
mashups. A blog, or web log, is an online journal that allows users to post their own comments,
graphics, and video. Blog websites let writers communicate—and readers respond—on a regular
basis through a simple yet customizable interface that does not require any programming. A wiki is
a type of collaborative web page that allows users to add, remove, and change content, which can
be easily organized and reorganized as required. Whereas blogs have largely drawn on the creative
and personal goals of individual authors, wikis are based on open collaboration with any- and every-
body. A mashup is a website or web application that uses content from more than one source to
create a completely new product or service. A mashup allows users to mix map data, photos, video,
news feeds, blog entries, and so on to create content with a new purpose.
15.4. Explain the three challenges associated with Business 2.0.
As much as Business 2.0 has positively changed the global landscape of business, a few challenges
remain in open source software, user-contributed content systems, and collaboration systems.
These challenges include individuals forming unrealistic dependencies on technology, vandalism of
information on blogs and wikis, and the violation of copyrights and plagiarism.
15.5. Describe Web 3.0 and the next generation of online business.
Web 3.0 is based on intelligent web applications using natural language processing, machine-based
learning and reasoning, and intelligent applications. Web 3.0 is the next step in the evolution of the
Internet and web applications. Business leaders who explore its opportunities will be the first to mar-
ket with competitive advantages.
Web 3.0 offers a way for people to describe information in ways that enable computers to under-
stand the relationships among concepts and topics.
L E A R N I N G O U T C O M E R E V I E W
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M A K I N G B U S I N E S S D E C I S I O N S
1. The Toughest College Test You’ll Ever Take
If your professor asked you today to kick your social networking habits, do you think you could do
it? Can you go without Facebook, cell phones, or the Internet for a week? For a day? Recently, a Uni-
versity of Minnesota professor challenged her public relations class to go five days without media or
gadgets that didn’t exist before 1984. Out of the 43 students in the class, just a handful made it even
three days without new technology. Among those who didn’t, one student said, “My mother thought
I died.” How long could you go without any social media? What types of issues might you encoun-
ter without constant connections to your friends? How has social media affected society? How has
social media impacted businesses?
2. The Future of Wikipedia
Wikipedia is a multilingual, web-based, free-content encyclopedia project written collaboratively by
volunteers around the world. Since its creation in 2001, it has grown rapidly into one of the largest
reference websites. Some people believe Wikipedia will eventually fail under an assault by market-
ers and self-promoting users. Eric Goldman, a professor at the Santa Clara University School of Law,
argues that Wikipedia will see increasingly vigorous efforts to subvert its editorial process, including
the use of automated marketing tools to alter Wikipedia entries to generate online traffic. The site’s
editors will burn out trying to maintain it, he projects, or Wikipedia will change its open-access archi-
tecture and its mission. Do you agree or disagree with Professor Goldman’s argument? What can
Wikipedia do to combat the challenges of information vandalism and copyright/plagiarism issues?
3. Is Facebook Becoming the Whole World’s Social Network?
Facebook’s growth, which we already know is massive, is truly a global phenomenon. Nations
with the fastest membership growth rate are in South America and Asia. Is Facebook becoming
the global phone book? If you review InsideFacebook.com, you’ll find a detailed analysis of the
numerical growth rate of members per nation and the penetration Facebook is achieving among
each nation’s population. Particularly interesting was the monthly growth rate for Indonesia, the
1. What are the benefits and challenges associated with Web 2.0?
2. What are the four primary characteristics of Web 2.0?
3. What is the difference between closed source and open source?
4. How can a business use a reputation system?
5. Why are explicit knowledge and tacit knowledge important to a business?
6. Would a small business want to use crowdsourcing or crowdfunding?
7. How could a business use a blog, a wiki, and a mashup to improve communications?
8. What are the three challenges associated with Business 2.0?
9. What is the semantic web? 
10. How does mbusiness differ from ebusiness?
R E V I E W Q U E S T I O N S
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Philippines, Mexico, Argentina, and Malaysia—each of which showed about a 10 percent jump in
Facebook membership in a single month. In a group answer the following:
■ What potential business opportunities could be created by a worldwide social media network
or phone book?
■ Facebook, which contains personal data on each member, is becoming the world’s phone
book. What are the implications of a world phone book for social change?
■ What do you think would be the benefits and challenges of global social networking?
4. Five Ways Google Docs Speeds Up Collaboration 
Google Docs wants you to skip Microsoft Office and collaborate with your group in your browser
for free, especially when you’re not in the same physical space. Visit Google Docs and answer the
following questions. What are five ways the new Google Docs can help your team accomplish work
more efficiently, even when you’re not in the same room together? Is Google Docs open source soft-
ware? What revenue model is Google Docs following? Why would putting Google Docs and Microsoft
Office on your résumé help differentiate your skills? What other applications does Google create that
you are interested in learning to help collaborate and communicate with peers and co-workers? 
5. Anti-Social Networking
Before the Internet, angry customers could write letters or make phone calls, but their individual
power to find satisfaction or bring about change was relatively weak. Now, disgruntled consum-
ers can create a website or upload a video bashing a product or service, and their efforts can
be instantly seen by millions of people. Though many companies monitor the Internet and try to
respond to such postings quickly, power has clearly shifted to the consumer. Create an argument for
or against the following statement: “Social networking has given power to the consumer that ben-
efits society and creates socially responsible corporations.”
6. Collaborating for Nonprofits—Kiva
Kiva’s mission is to connect people through lending for the sake of alleviating poverty. Kiva is a
micro-lending online nonprofit organization that enables individuals to lend directly to entrepreneurs
throughout the world. If you want to participate in Kiva you simply browse the website (www.kiva.
org) and choose an entrepreneur that interests you, make a loan, then track your entrepreneur for
the next 6 to 12 months while he or she builds the business and makes the funds to repay the loan.
When the loan is up you can relend the money to someone else who is in need.14
Kiva is an excellent example of blending ethics and information technology. How is Kiva operating
differently than traditional nonprofits? What are the risks associated with investing in Kiva? When you
invest in Kiva you run three primary risks: entrepreneur risk, local field partner risk, and country risk.
Analyze each of these risks for potential unethical issues that might arise when donating to Kiva.
7. Connectivity Breakdown
When you are considering connectivity services for your business, you need to take continuous
access and connectivity seriously. What if one of your employees is about to close a multimillion-
dollar deal and loses the Internet connection, jeopardizing the deal? What if a disgruntled employee
decides to post your business’s collective intelligence on an open source blog or wiki?
What if your patient-scheduling software crashes and you have no idea which patients are sched-
uled to which operating rooms with which doctors? These are far worse scenarios than a teenage
boy not gaining access to his email or Facebook page. What management and technical challenges
do you foresee as people and businesses become increasingly dependent on connectivity? What
can managers do to meet these challenges and prevent problems?
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8. Blogging for Dollars
You have purchased a financial investment company, The Financial Level, that caters to individuals
and families. You would like to develop a few blogs for your customers, employees, and partners.
The goals for your customer blog are to gather honest feedback, provide a place for customers to
interact, and help find new opportunities for your businesses. The goals for the employee blog are
to gather knowledge, collect employment feedback, and offer a place where employees can post
anonymous feedback for issues and concerns so you can manage your staff better.
a. Research the Internet and find several customer blogs and employee blogs.
b. Determine the top three blogs for customers and for employees and critique the blogs for con-
tent, ease of use, and overall value.
c. Design a prototype customer blog and a prototype employee blog for The Financial Level,
using Word, PowerPoint, or a tool of your choice.
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C H A P T E R 16
L E A R N I N G O U T C O M E S
16.1. Describe the different wireless network categories. 16.2. Explain the different wireless network business
applications.
Wireless Network Categories
As far back as 1896, Italian inventor Guglielmo Marconi demonstrated a wireless telegraph,
and in 1927, the first radiotelephone system began operating between the United States and
Great Britain. Automobile-based mobile telephones were offered in 1947. In 1964, the first
communications satellite, Telstar, was launched, and soon after, satellite-relayed telephone
service and television broadcasts became available. Wireless networks have exploded since
then, and newer technologies are now maturing that allow companies and home users alike to
take advantage of both wired and wireless networks.1
Before delving into a discussion of wireless networks, we should distinguish between
mobile and wireless, terms that are often used synonymously but actually have different mean-
ings. Mobile means the technology can travel with the user, for instance, users can download
software, email messages, and web pages onto a laptop or other mobile device for portable
reading or reference. Information collected while on the road can be synchronized with a PC
or company server. Wireless, on the other hand, refers to any type of operation accomplished
without the use of a hard-wired connection. There are many environments in which the net-
work devices are wireless but not mobile, such as wireless home or office networks with
stationary PCs and printers. Some forms of mobility do not require a wireless connection; for
instance, a worker can use a wired laptop at home, shut down the laptop, drive to work, and
attach the laptop to the company’s wired network.
In many networked environments today, users are both wireless and mobile; for example, a
mobile user commuting to work on a train can maintain a VoIP call and multiple TCP/IP con-
nections at the same time. Figure 16.1 categorizes wireless networks by type.
PERSONAL AREA NETWORKS
A personal area network (PAN) provides communication for devices owned by a single user
that work over a short distance. PANs are used to transfer files, including email, calendar
appointments, digital photos, and music. A PAN can provide communication between a wire-
less headset and a cell phone or between a computer and a wireless mouse or keyboard. Per-
sonal area networks generally cover a range of less than 10 meters (about 30 feet). Bluetooth
is a wireless PAN technology that transmits signals over short distances among cell phones,
computers, and other devices. The name is borrowed from Harald Bluetooth, a king in Den-
mark more than 1,000 years ago. Bluetooth eliminates the need for wires, docking stations, or
cradles, as well as all the special attachments that typically accompany personal computing
devices. Bluetooth operates at speeds up to 1 Mbps within a range of 33 feet or less. Devices
that are Bluetooth-enabled communicate directly with each other in pairs, like a handshake.
LO 16.1 Describe the different
wireless network categories.
Integrating Wireless
Technology in Business
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Up to eight can be paired simultaneously. And Bluetooth is not just for technology devices.
An array of Bluetooth-equipped appliances, such as a television set, a stove, and a thermostat,
can be controlled from a cell phone—all from a remote location.2
WIRELESS LANS
A wireless LAN (WLAN) is a local area network that uses radio signals to transmit and
receive data over distances of a few hundred feet. An access point (AP) is the computer or
network device that serves as an interface between devices and the network. Each computer
initially connects to the access point and then to other computers on the network. A wireless
access point (WAP) enables devices to connect to a wireless network to communicate with
each other. WAPs with multiple-in/multiple-out (MIMO) technology have multiple transmit-
ters and receivers, allowing them to send and receive greater amounts of data than traditional
networking devices. Wireless fidelity (Wi-Fi) is a means by which portable devices can con-
nect wirelessly to a local area network, using access points that send and receive data via
radio waves. Wi-Fi has a maximum range of about 1,000 feet in open areas such as a city park
and 250 to 400 feet in closed areas such as an office building. Wi-Fi infrastructure includes
the inner workings of a Wi-Fi service or utility, including the signal transmitters, towers, or
poles, along with additional equipment required to send out a Wi-Fi signal. Most WLANs use
a Wi-Fi infrastructure in which a wireless device, often a laptop, communicates through an
access point or base station by means of, for instance, wireless fidelity.
Areas around access points where users can connect to the Internet are often called
hotspots. Hotspots are designated locations where Wi-Fi access points are publically avail-
able. Hotspots are found in places such as restaurants, airports, and hotels—places where
business professionals tend to gather. Hotspots are extremely valuable for those business pro-
fessionals who travel extensively and need access to business applications. By positioning
hotspots at strategic locations throughout a building, campus, or city, network administrators
can keep Wi-Fi users continuously connected to a network or the Internet, no matter where
they roam.3
In a Wi-Fi network, the user’s laptop or other Wi-Fi-enabled device has a wireless adapter
that translates data into a radio signal and transmits it to the wireless access point. The wire-
less access point, which consists of a transmitter with an antenna that is often built into the
hardware, receives the signal and decodes it. The access point then sends the information to
the Internet over a wired broadband connection, as illustrated in Figure 16.2. When receiving
data, the wireless access point takes the information from the Internet, translates it into a radio
signal, and sends it to the computer’s wireless adapter. If too many people try to use the Wi-Fi
network at one time, they can experience interference or dropped connections. Most laptop
computers come with built-in wireless transmitters and software to enable computers to auto-
matically discover the existence of a Wi-Fi network.
Wi-Fi operates at considerably higher frequencies than cell phones use, which allows
greater bandwidth. The bandwidths associated with Wi-Fi are separated according to sev-
eral wireless networking standards, known as 802.11, for carrying out wireless local area
network communication. The Institute of Electrical and Electronics Engineers (IEEE)
researches and institutes electrical standards for communication and other technologies. IEEE
802.11n (orWireless-N) is the standard for wireless networking. Compared with earlier stan-
dards such as 802.11b, Wireless-N offers faster speeds, more flexibility, and greater range.
FIGURE 16.1
Wireless Communication
Network Categories.
Wireless Wide Area
Networks (WWANs)
Wireless
Metropolitan Area
Networks (WMANs)
Wireless Local Area
Networks (WLANs)
Wireless Networks
Personal Area
Networks (PANs)
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The organization denotes different versions of the standard—for example, Wireless-G and
Wireless-N—by a lowercase letter at the end of this number. Figure 16.3 outlines the band-
widths associated with a few of these standards.4
An increasing number of digital devices, including most laptops, netbooks, tablets such as
the iPad, and even printers are incorporating Wi-Fi technology into their design. Cell phones
are incorporating Wi-Fi so they can automatically switch from the cell network to a faster
Wi-Fi network where available for data communications. BlackBerrys and iPhones can con-
nect to an access point for data communications such as email and web browsing, but not for
voice unless they use the services of Skype or another VoIP.
WIRELESS MANs
A wireless MAN (WMAN) is a metropolitan area network that uses radio signals to trans-
mit and receive data. WMAN technologies have not been highly successful to date, mainly
because they are not widely available, at least in the United States. One with the potential for
success is Worldwide Interoperability for Microwave Access (WiMAX), a communications
technology aimed at providing high-speed wireless data over metropolitan area networks.
In many respects, WiMAX operates like Wi-Fi, only over greater distances and with higher
bandwidths. A WiMAX tower serves as an access point and can connect to the Internet or
another tower. A single tower can provide up to 3,000 square miles of coverage, so only a
few are needed to cover an entire city. WiMAX can support data communications at a rate of
70 Mbps. In New York City, for example, one or two WiMAX access points around the city
might meet the heavy demand more cheaply than hundreds of Wi-Fi access points. WiMAX
can also cover remote or rural areas where cabling is limited or nonexistent, and where it is
too expensive or physically difficult to install wires for the relatively few users.5
WiMAX can provide both line-of-sight and non-line-of-sight service. A non-line-of-
sight service uses a small antenna on a mobile device that connects to a WiMAX tower less
than six miles away where transmissions are disrupted by physical obstructions. This form
of service is similar to Wi-Fi but has much broader coverage area and higher bandwidths.
FIGURE 16.2
Wi-Fi Networks.
Access
Point
INTERNET
Wireless Network
Broadband
Modem
FIGURE 16.3
Wi-Fi Standards and
Bandwidths.
Wi-Fi Standard Bandwidth
802.11a 54 Mbps
802.11b 11 Mbps
802.11g 54 Mbps
802.11n 140 Mbps
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A line-of-sight option offers a fixed antenna that points at the WiMAX tower from a rooftop
or pole. This option is much faster than non-line-of-sight service, and the distance between the
WiMAX tower and antenna can be as great as 30 miles. Figure 16.4 illustrates the WiMAX
infrastructure.6
Some cellular companies are evaluating WiMAX as a means of increasing bandwidth for
a variety of data-intensive applications such as those used by smartphones. Sprint Nextel and
Clearwire are building a nationwide WiMAX network in the United States. WiMAX-capable
gaming devices, laptops, cameras, and even cell phones are being manufactured by companies
including Intel, Motorola, Nokia, and Samsung.7
WIRELESS WAN—CELLULAR COMMUNICATION SYSTEM
A wireless WAN (WWAN) is a wide area network that uses radio signals to transmit and
receive data. WWAN technologies can be divided into two categories: cellular communica-
tion systems and satellite communication systems.
Although mobile communications have been around for generations, including the walkie-
talkies of the 1940s and mobile radiophones of the 1950s, it was not until 1983 that cellular
telephony became available commercially. A cell phone is a device for voice and data, com-
municating wirelessly through a collection of stationary ground-based sites called base sta-
tions, each of which is linked to its nearest neighbor stations. Base station coverage areas are
about 10 square miles and are called cells, as Figure 16.5 illustrates.
The first cell phone was demonstrated in 1973 by Motorola (it weighed almost 2 pounds),
but it took 10 years for the technology to become commercially available. The Motorola
DynaTAC, marketed in 1983, weighed 1 pound and cost about $4,000. Cellular technology
has come a long way since then.8
FIGURE 16.4
WiMAX Infrastructure.
Line-of-Sight
Transmission
ISP WiMAX
Tower
Non-Line-of-Sight
Transmission
INTERNET
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Cellular systems were originally designed to provide voice services to mobile customers
and thus were designed to interconnect cells to the public telephone network. Increasingly,
they provide data services and Internet connectivity. There are more cell phones than landline
phones in many countries today, and it is no longer uncommon for cell phones to be the only
phones people have.
Cell phones have morphed into smartphones that offer more advanced computing ability
and connectivity than basic cell phones. They allow for web browsing, emailing, listening to
music, watching video, computing, keeping track of contacts, sending tex