MANAGING THE DIGITAL FIRM

Management Information Systems

MANAGING THE DIGITAL FIRM TWELFTH EDITION

Kenneth C. Laudon

New York University

Jane P. Laudon

Azimuth Information Systems

Prentice Hall

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

About the Authors

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

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

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

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

Jane Price Laudon is a management consultant in the information systems area and the author of seven books. Her special interests include systems analysis, data management,

MIS auditing, software evaluation, and teaching business professionals how to design and use information systems.

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

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

Brief Contents

Part One Organizations, Management, and the Networked Enterprise 1

Chapter 1

Information Systems in Global Business Today 2

Chapter 2

Global E-Business and Collaboration 40

Chapter 3 Information Systems, Organizations, and Strategy 78 Chapter 4

Ethical and Social Issues in Information Systems 120

Part Two Information Technology Infrastructure 161

Chapter 5

IT Infrastructure and Emerging Technologies 162

Chapter 6 Foundations of Business Intelligence: Databases and Information Management 206

Chapter 7 Telecommunications, the Internet, and Wireless Technology 244 Chapter 8

Securing Information Systems 290

Part Three Key System Applications for the Digital Age 333

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 334

Chapter 10

E-Commerce: Digital Markets, Digital Goods 370

Chapter 11

Managing Knowledge 414

Chapter 12

Enhancing Decision Making 452

Part Four Building and Managing Systems 485

Chapter 13

Building Information Systems 486

Chapter 14

Managing Projects 526

Chapter 15

Managing Global Systems 558

(available on the Web at www.pearsonhighered.com/laudon)

References R 1 Glossary G 1 Photo and Screen Shot Credits P 1 Indexes I 1

Complete Contents

Part One Organizations, Management, and the Networked

Enterprise 1

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

1.1 The Role of Information Systems in Business Today 5 How Information Systems Are Transforming Business 5 • What’s New In

Management Information Systems? 6 • Globalization Challenges and Opportunities: A Flattened World 8

◆ Interactive Session: Management MIS in Your Pocket 10

The Emerging Digital Firm 11 • Strategic Business Objectives of Information Systems 12

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

Systems 17 ◆ Interactive Session: Technology UPS Competes Globally with Information

Technology 22

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

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

Sociotechnical Systems 29

1.4 Hands-on MIS Projects 31 Management Decision Problems 31 • Improving Decision Making: Using

Databases to Analyze Sales Trends 31 • Improving Decision Making: Using the Internet to Locate Jobs Requiring Information Systems Knowledge 32

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

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

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

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

2.1 Business Processes and Information Systems 43 Business Processes 43 • How Information Technology Enhances Business

Processes 44 Processes 44

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

Enterprise 51 ◆ Interactive Session: Organizations Domino’s Sizzles with Pizza Tracker 52

E-business, E-commerce, and E-government 55

2.3 Systems for Collaboration and Teamwork 55 What is Collaboration? 56 • Business Benefits of Collaboration and

Teamwork 57 • Building a Collaborative Culture and Business Processes 58 • Tools and Technologies for Collaboration and Teamwork 59

◆ Interactive Session: Management Virtual Meetings: Smart Management 62

2.4 The Information Systems Function in Business 68 The Information Systems Department 68 • Organizing the Information

Systems Function 69

2.5 Hands-on MIS Projects 70 Management Decision Problems 70 • Improving Decision Making: Using a

Spreadsheet to Select Suppliers 70 • Achieving Operational Excellence: Using Internet Software to Plan Efficient Transportation Routes 71

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

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

Management Decisions and Systems 74 ◆ Case Study: Collaboration and Innovation at Procter & Gamble 75

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

Strategy? 79

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

3.2 How Information Systems Impact Organizations and Business Firms 89 Economic Impacts 89 • Organizational and Behavioral Impacts 91 • The

Internet and Organizations 93 • Implications for the Design and Understanding of Information Systems 94

3.3 Using Information Systems to Achieve Competitive Advantage 94 Porter’s Competitive Forces Model 95 Information System Strategies for Dealing with Competitive Forces 96 •

The Internet’s Impact on Competitive Advantage 99 ◆ Interactive Session: Organizations How Much Do Credit Card Companies Know

About You? 100 The Business Value Chain Model 102 ◆ Interactive Session: Management Is the iPad a Disruptive Technology? 103 Synergies, Core Competencies, and Network-Based Strategies 106

Contents vii

3.4 Using Systems for Competitive Advantage: Management Issues 111 Sustaining Competitive Advantage 111 • Aligning IT with Business

Objectives 111 • Managing Strategic Transitions 112

3.5 Hands-on MIS Projects 113 Management Decision Problems 113 • Improving Decision Making: Using a

Database to Clarify Business Strategy 113 • Improving Decision Making: Using Web Tools to Configure and Price an Automobile 114

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

Review Summary 115 • Key Terms 116 • Review Questions 116 • Discussion Questions 117 • Video Cases 117 • Collaboration and Teamwork: Identifying

Opportunities for Strategic Information Systems 117 ◆ Case Study: Will TV Succumb to the Internet? 118

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

4.1 Understanding Ethical and Social Issues Related to Systems 123

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

4.2 Ethics in an Information Society 129 Basic Concepts: Responsibility, Accountability, and Liability 129 • Ethical

Analysis 129 • Candidate Ethical Principles 130 • Professional Codes of Conduct 131 • Some Real-World Ethical Dilemmas 131

4.3 The Moral Dimensions of Information Systems 131 Information Rights: Privacy and Freedom in the Internet Age 131 •

Property Rights: Intellectual Property 138 • Accountability, Liability, and Control 141 • System Quality: Data Quality and System Errors 143 • Quality of Life: Equity, Access, and Boundaries 143

◆ Interactive Session: Organizations The Perils of Texting 147 ◆ Interactive Session: Technology Too Much Technology 151

4.4 Hands-on MIS Projects 153 Management Decision Problems 153 • Achieving Operational Excellence:

Creating a Simple Blog 154 • Improving Decision Making: Using Internet Newsgroups for Online Market Research 154

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

Review Summary 155 • Key Terms 155• Review Questions 156 • Discussion Questions 156 • Video Cases 156 • Collaboration and Teamwork: Developing a Corporate Ethics Code 156 ◆ Case Study: When Radiation Therapy Kills 157 Review Summary 155 • Key Terms 155• Review Questions 156 • Discussion Questions 156 • Video Cases 156 • Collaboration and Teamwork: Developing a Corporate Ethics Code 156 ◆ Case Study: When Radiation Therapy Kills 157

Part Two Information Technology Infrastructure 161

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

5.1 IT Infrastructure 165 Defining IT Infrastructure 165 • Evolution of IT Infrastructure 166 •

Technology Drivers of Infrastructure Evolution 170

5.2 Infrastructure Components 175 Computer Hardware Platforms 175 • Operating System Platforms 177 •

Enterprise Software Applications 177 ◆ Interactive Session: Technology New to the Touch 178 Data Management and Storage 179 • Networking/Telecommunications

Platforms 180 • Internet Platforms 180 • Consulting and System Integration Services 181

5.3 Contemporary Hardware Platform Trends 181 The Emerging Mobile Digital Platform 181 • Grid Computing 182 •

Virtualization 182 • Cloud Computing 183 • Green Computing 184 • Autonomic Computing 185 • High-performance and Power-saving Processors 185

◆ Interactive Session: Organizations Is Green Computing Good for Business? 186

5.4 Contemporary Software Platform Trends 187 Linux and Open Source Software 187 • Software for the Web: Java and Ajax

188 • Web Services and Service-Oriented Architecture 189 • Software Outsourcing and Cloud Services 191

5.5 Management Issues 194 Dealing with Platform and Infrastructure Change 194 • Management and

Governance 194 • Making Wise Infrastructure Investments 195

5.6 Hands-on MIS Projects 198 Management Decision Problems 198 • Improving Decision Making: Using a

Spreadsheet to Evaluate Hardware and Software Options 198 • Improving Decision Making: Using Web Research to Budget for a Sales Conference 199

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

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

◆ Case Study: Salesforce.com: Cloud Services Go Mainstream 203

Chapter 6 Foundations of Business Intelligence: Databases and Information Management 206

◆ Opening Case: RR Donnelley Tries to Master Its Data 207

6.1 Organizing Data in a Traditional File Environment 209 File Organization Concepts 209 • Problems with the Traditional File

Environment 210

Contents ix

6.2 The Database Approach to Data Management 212 Database Management Systems 212 • Capabilities of Database Management

Systems 217 • Designing Databases 219

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

◆ Interactive Session: Technology What Can Businesses Learn from Text

Mining? 227 Databases and the Web 228

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

◆ Interactive Session: Organizations Credit Bureau Errors—Big People

Problems 232

6.5 Hands-on MIS Projects 234 Management Decision Problems 234 • Achieving Operational Excellence:

Building a Relational Database for Inventory Management 235 • Improving Decision Making: Searching Online Databases for Overseas Business Resources 236

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

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

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

Chapter 7 Telecommunications, the Internet, and Wireless Technology 244

◆ Opening Case: Hyundai Heavy Industries Creates a Wireless Shipyard 245

7.1 Telecommunications and Networking in Today’s Business World 247 Networking and Communication Trends 247 • What Is a Computer

Network? 247 • Key Digital Networking Technologies 250

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

Transmission Media 255

7.3 The Global Internet 257 What Is the Internet? 257 • Internet Addressing and Architecture 258 •

Internet Services and Communication Tools 261 ◆ Interactive Session: Organizations The Battle Over Net Neutrality 262 ◆ Interactive Session: Management Monitoring Employees on Networks:

Unethical or Good Business? 266 The Web 268

7.4 The Wireless Revolution 275 Cellular Systems 276 • Wireless Computer Networks and Internet

Access 276 • RFID and Wireless Sensor Networks 279 Access 276 • RFID and Wireless Sensor Networks 279

7.5 Hands-on MIS Projects 282 Management Decision Problems 282 • Improving Decision Making: Using

Spreadsheet Software to Evaluate Wireless Services 282 • Achieving Operational Excellence: Using Web Search Engines for Business Research 282

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

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

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

Experience 287

Chapter 8 Securing Information Systems 290 ◆ Opening Case: You’re On Facebook? Watch Out! 291

8.1 System Vulnerability and Abuse 293 Why Systems Are Vulnerable 293 • Malicious Software: Viruses, Worms,

Trojan Horses, and Spyware 296 • Hackers and Computer Crime 298 • Internal Threats: Employees 302 • Software Vulnerability 303

◆ Interactive Session: Management When Antivirus Software Cripples Your

Computers 304

8.2 Business Value of Security and Control 305 Legal and Regulatory Requirements for Electronic Records

Management 306 • Electronic Evidence and Computer Forensics 307

8.3 Establishing a Framework for Security and Control 308 Information Systems Controls 308 • Risk Assessment 309 • Security Policy

310 • Disaster Recovery Planning and Business Continuity Planning 310 • The Role of Auditing 312

8.4 Technologies and Tools for Protecting Information Resources 312 Identity Management and Authentication 312 • Firewalls, Intrusion

Detection Systems, and Antivirus Software 314 • Securing Wireless Networks 316 • Encryption and Public Key Infrastructure 317 • Ensuring System Availability 318 • Security Issues for Cloud Computing and the Mobile Digital Platform 320 • Ensuring Software Quality 320

◆ Interactive Session: Technology How Secure Is the Cloud? 321

8.5 Hands-on MIS Projects 323 Management Decision Problems 323 • Improving Decision Making: Using

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

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

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

◆ Case Study: Are We Ready for Cyberwarfare? 329

Contents xi

Part Three Key System Applications for the Digital Age 333

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 334

◆ Opening Case: Cannondale Learns to Manage a Global Supply Chain 335

9.1 Enterprise Systems 337 What Are Enterprise Systems? 337 • Enterprise Software 338 • Business

Value of Enterprise Systems 339

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

Supply Chain Management Software 344 ◆ Interactive Session: Organizations Southwest Airlines Takes Off with Better

Supply Chain Management 345

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

9.3 Customer Relationship Management Systems 349 What Is Customer Relationship Management? 349 • Customer Relationship

Management Software 351 • Operational and Analytical CRM 354 • Business Value of Customer Relationship Management Systems 355

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

Applications 356 ◆ Interactive Session: Technology Enterprise Applications Move to the Cloud 358

9.5 Hands-on MIS Projects 361 Management Decision Problems 361 • Improving Decision Making: Using

Database Software to Manage Customer Service Requests 361 • Achieving Operational Excellence: Evaluating Supply Chain Management Services 362

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

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

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

Chapter 10 E-Commerce: Digital Markets, Digital Goods 370 ◆ Opening Case: 4Food: Burgers Go Social 371

10.1 E-commerce and the Internet 373 E-Commerce Today 373 • Why E-Commerce Is Different 374 • Key

Concepts in E-Commerce: Digital Markets and Digital Goods in a Global Marketplace 378

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

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

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

Profit 390

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

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

10.4 Building an E-commerce Web Site 401 Pieces of the Site-building Puzzle 401 • Business Objectives, System

Functionality, and Information Requirements 402 • Building the Web Site: In-house Versus Outsourcing 402

10.5 Hands-on MIS 405 Management Decision Problems 405 • Improving Decision Making: Using

Spreadsheet Software to Analyze a Dot-Com Business 406 • Achieving Operational Excellence: Evaluating E-Commerce Hosting Services 406

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

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

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

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

Management Systems 415

11.1 The Knowledge Management Landscape 417 Important Dimensions of Knowledge 417 • The Knowledge Management

Value Chain 419 • Types of Knowledge Management Systems 421

11.2 Enterprise-Wide Knowledge Management Systems 422 Enterprise Content Management Systems 422 • Knowledge Network

Systems 424 • Collaboration Tools and Learning Management Systems 424

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

Knowledge Work Systems 426 • Examples of Knowledge Work Systems 427 ◆ Interactive Session: Technology Augmented Reality: Reality Gets Better 429

11 .4 Intelligent Techniques 431

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

◆ Interactive Session: Organizations The Flash Crash: Machines Gone Wild? 439

Hybrid AI Systems 441 • Intelligent Agents 441

11.5 Hands-on MIS Projects 443

Contents xiii Management Decision Problems 443 • Improving Decision Making:

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

Learning Track Module: Challenges of Knowledge Management Systems 444 Review Summary 445 • Key Terms 446 • Review Questions 446 • Discussion

Questions 447 • Video Cases 447 • Collaboration and Teamwork: Rating Enterprise Content Management Systems 447

◆ Case Study: San Francisco Public Utilities Commission Preserves Expertise with

Better Knowledge Management 448

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

12.1 Decision Making and Information Systems 455 Business Value of Improved Decision Making 455 • Types of Decisions 455 •

The Decision-Making Process 457 • Managers and Decision Making in the Real World 458 • High-Velocity Automated Decision Making 461

12.2 Business Intelligence in the Enterprise 461 What Is Business Intelligence? 462 • The Business Intelligence

Environment 463 • Business Intelligence and Analytics Capabilities 464 • Management Strategies for Developing BI and BA Capabilities 468

◆ Interactive Session: Organizations Data-Driven Schools 469

12.3 Business Intelligence Constituencies 471 Decision Support for Operational and Middle Management 471 • Decision

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

◆ Interactive Session: Management Piloting Valero with Real-time

Management 476

12.4 Hands-on MIS Projects 478 Management Decision Problems 478 • Improving Decision Making: Using

PivotTables to Analyze Sales Data 478 • Improving Decision Making: Using

a Web-Based DSS for Retirement Planning 479 Learning Track Module: Building and Using Pivot Tables 479 Review Summary 479 • Key Terms 480 • Review Questions 481 • Discussion

Questions 481 • Video Cases 481 • Collaboration and Teamwork: Designing a University GDSS 481

◆ Case Study: Does CompStat Reduce Crime? 482 ◆ Case Study: Does CompStat Reduce Crime? 482

Part Four Building and Managing Systems 475

Chapter 13 Building Information Systems 486 ◆ Opening Case: CIMB Group Redesigns Its Account Opening Process 487

13.1 Systems as Planned Organizational Change 489 Systems Development and Organizational Change 489 • Business Process

Redesign 491

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

Difference? 495

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

13.3 Alternative Systems-Building Approaches 506 Traditional Systems Life Cycle 506 • Prototyping 507 • End-User

Development 508 • Application Software Packages and Outsourcing 510 ◆ Interactive Session: Technology Zimbra Zooms Ahead with OneView 512

13.4 Application Development for the Digital Firm 513 Rapid Application Development (RAD) 514 • Component-Based

Development and Web Services 515

13.5 Hands-on MIS Projects 516 Management Decision Problems 516 • Improving Decision Making: Using

Database Software to Design a Customer System for Auto Sales 517 • Achieving Operational Excellence: Redesigning Business Processes for Web Procurement 518

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

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

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

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

System 527

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

Objectives 530

14.2 Selecting Projects 531 Management Structure for Information Systems Projects 531 • Linking

Systems Projects to the Business Plan 532 • Critical Success Factors 532 • Portfolio Analysis 534 • Scoring Models 535

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

538 • Limitations of Financial Models 539

Contents xv

14.4 Managing Project Risk 539 Dimensions of Project Risk 539 • Change Management and the Concept of

Implementation 540 • Controlling Risk Factors 542 • Designing for the Organization 546

◆ Interactive Session: Organizations DTS Systems Scores with Scrum and

Application Lifecycle Management 547 Project Management Software Tools 548 ◆ Interactive Session: Management Motorola Turns to Project Portfolio

Management 550

14.5 Hands-on MIS Projects 552 Management Decision Problems 552 • Improving Decision Making: Using

Spreadsheet Software for Capital Budgeting for a New CAD System 552 • Improving Decision Making: Using Web Tools for Buying and Financing a Home 553

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

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

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

Chapter 15 Managing Global Systems 558 (available on the Web at www.pearsonhighered.com/laudon)

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

World 559

15.1 The Growth of International Information Systems 561 Developing an International Information Systems Architecture 562 • The

Global Environment: Business Drivers and Challenges 563 • State of the Art 566

15.2 Organizing International Information Systems 567 Global Strategies and Business Organization 567 • Global Systems to Fit the

Strategy 568 • Reorganizing the Business 569

15.3 Managing Global Systems 570

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

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

Trade 575

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

Software Localization 579 ◆ Interactive Session: Organizations How Cell Phones Support Economic

Development 580

15.5 Hands-on MIS 582 Management Decision Problems 582 • Achieving Operational Excellence:

Building a Job Database and Web Page for an International Consulting Building a Job Database and Web Page for an International Consulting

Marketing and Pricing Research 583 Review Summary 584 • Key Terms 584 • Review Questions 585 • Discussion

Questions 585 • Video Cases 585 • Collaboration and Teamwork: Identifying Technologies for Global Business Strategies 585

◆ Case Study: WR Grace Consolidates Its General Ledger System 586 References R 1

Glossary G 1 Photo and Screen Shot Credits P 1 Indexes I 1

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

Chapter 1: Information Systems in Global Business Today The New Yankee Stadium Looks to the Future

MIS in Your Pocket UPS Competes Globally with Information Technology What’s the Buzz on Smart Grids?

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

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

Chapter 4: Ethical and Social Issues in Information Systems Behavioral Targeting And Your Privacy: You’re the Target The Perils of Texting

Too Much Technology When Radiation Therapy Kills

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

Salesforce.com: Cloud Services Go Mainstream

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

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

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

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

Chapter 10: E-Commerce: Digital Markets, Digital Goods 4Food: Burgers Go Social Twitter Searches for a Business Model

Facebook: Managing Your Privacy for Their Profit Amazon vs. Walmart: Which Giant Will Dominate E-commerce?

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

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

Chapter 13: Building Information Systems CIMB Group Redesigns Its Account Opening Process Can Business Process Management Make a Difference? Zimbra Zooms Ahead with OneView

Are Electronic Medical Records a Cure for Health Care?

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

Chapter 15: Managing Global Systems 3M: Sticky Film and Scratchy Things That Sell Around the World

Fonterra: Managing the World’s Milk Trade How Cell Phones Support Economic Development WR Grace Consolidates Its General Ledger System

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Preface

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

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

W HAT ’ S N EW IN T HIS E DITION

CURRENCY The 12th edition features all new opening, closing, and Interactive Session

cases. The text, figures, tables, and cases have been updated through November 2010 with the latest sources from industry and MIS research.

NEW FEATURES

• Thirty video case studies (2 per chapter) and 15 instructional videos are available online.

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

help future managers make better decisions.

NEW TOPICS

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

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

W HAT ’ S N EW IN MIS

Plenty. A continuing stream of information technology innovations is transforming the traditional business world. What makes the MIS field the most exciting area of study in schools of business is this continuous change in technology, management, and business processes. (Chapter 1 describes these changes in more detail.)

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

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

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

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

Preface xxiii remote salespeople on the road are only seconds away from their managers'

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

T HE 12 TH E DITION :T HE C OMPREHENSIVE S OLUTION FOR THE MIS C URRICULUM

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

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

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

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

THE CORE TEXT

The core text provides an overview of fundamental MIS concepts using an integrated framework for describing and analyzing information systems. This framework shows information systems composed of management, organization, and technology elements and is reinforced in student projects and case studies.

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

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Chapter Organization Each chapter contains the following elements:

• A chapter-opening case describing a real-world organization to establish the

theme and importance of the chapter • A diagram analyzing the opening case in terms of the management, organization, and technology model used throughout the text • A series of learning objectives • Two Interactive Sessions with case study questions and MIS in Action

projects • A Hands-on MIS Projects section featuring two management decision problems, a hands-on application software project, and a project to develop Internet skills

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

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

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

KEY FEATURES We have enhanced the text to make it more interactive, leading-edge, and

appealing to both students and instructors. The features and learning tools are described in the following sections.

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

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

Interactivity There's no better way to learn about MIS than by doing MIS. We provide different kinds of hands-on projects where students can work with real-world business scenarios and data, and learn first hand what MIS is all about. These projects heighten student involvement in this exciting subject.

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

Preface xxv explore concepts discussed in the chapter. Each video case consists of a video

about a real-world company, a background text case, and case study questions. These video cases enhance students' understanding of MIS topics and the relevance of MIS to the business world. In addition, there are 15 instructional videos that describe developments and concepts in MIS keyed to respective chapters.

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

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

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

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

Students practice using software in real-world settings for achieving operational excellence and enhancing decision making.

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Each chapter features a project to develop Internet skills for accessing information, conducting research, and performing online calculations and analysis.

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