Laudon Laudon (2022) MIS - 17th Edition - Chapter 1 PDF

1 CHAP TER Information Systems in Global Business Today LEARNING OBJECTIVES CHAPTER CASES After reading this chapter, you will...

1 CHAP TER Information Systems in Global Business Today LEARNING OBJECTIVES CHAPTER CASES After reading this chapter, you will be able to Smart Stores Reinvent the Retail Space answer the following questions: Will the Coronavirus Pandemic Make 1-1 How are information systems Working from Home the New Normal? transforming business, and why are Digital Transformation of Healthcare at they so essential for running and Singapore’s Jurong Health Services managing a business today? Changes in the Financial Industry: Adyen and 1-2 What is an information system? Fintech How does it work? What are its management, organization, and technology components? Why are VIDEO CASES complementary assets essential Business in the Cloud: Facebook, Google, for ensuring that information and eBay Data Centers systems provide genuine value for UPS Global Operations with the DIAD and organizations? Worldport 1-3 What academic disciplines are used Instructional Video: to study information systems, and Tour IBM’s Raleigh Data Center how does each contribute to an understanding of information systems? 1-4 How will MIS help my career? MyLab MIS Discussion Questions: 1-4, 1-5, 1-6; Hands-On MIS Projects: 1-7, 1-8, 1-9, 1-10; eText with Conceptual Animations 34 M01_LAUD3281_17_GE_C01.indd 34 4/18/2021 4:10:09 PM  Smart Stores Reinvent the Retail Space A lthough there has been an upsurge in online shopping, retail stores are not going away. Some traditional retailers are fighting back by using in- formation technology to provide new ways to bring people into physical stores or enhance their in-store experiences, even with new requirements for social distancing. Acrelec, a French digital signage company, is piloting technology to help retailers manage store curbside pickups by customers placing orders online. Customers can use a retailer’s smartphone app to indicate they are coming to pick up an order, and the Acrelec system will estimate when a customer will arrive at a particular store. Object-recognition cameras identify exactly when a customer’s car arrives and where it is parked. Acrelec is especially useful for big-box retailers, grocery stores, and home-improvement stores. Shelves have become more than just a surface for storing and displaying objects. New systems for “smart” shelves use proximity sensors, 3D cameras, microphones, RFID readers, and weight sensors to enable interactions between shoppers in physical stores and the shelves they’re standing in front of. These systems can create a highly personalized shop- ping experience that fundamentally improves the way shoppers move inside physical stores. Brands and retailers such as Pepsi, Walmart, and Albertsons are starting to use Smart Shelf by AWM to replicate the benefits of the online experience in physical retail environments. Using super-wide-an- © Eric Eric/123RF gle low-light HD cameras, retailers deploying Smart Shelf are able to view and track their products in real-time. The solution improves operational efficiencies by highlighting specific shelves that need product stocking and allows for real- time on-shelf marketing to consumers. When retailers connect Smart Shelf to their mobile apps, they can help shoppers locate products themselves through their smartphones and tablets. AWM Frictionless is a walk-in, walk-out solution enabling customers to shop as normal and check out by simply exiting the store. The system uses digital shelving and object-recognition cameras to keep track of which customers leave with which items. When customers enter a store, they are required to have mobile device and facial recognition scans, which allow the system to charge their digital accounts when they leave with purchases and receive a receipt via email or text message. 35 M01_LAUD3281_17_GE_C01.indd 35 4/18/2021 4:10:10 PM  36 Part One Organizations, Management, and the Networked Enterprise In March 2020 AWM opened a low-contact cashierless micromarket called QuickEats at a luxury apartment community owned by Greenwood & McKenzie in Santa Ana California. QuickEats utilizes AWM Frictionless and features grab- and-go products such as sodas, water, juice drinks, sandwiches, cheese plates, fruit, and household cleaning items. AWM Smart Shelf is able to personalize shoppers’ experiences when they are in stores based on the items they pick up, even if they don’t purchase them. For example, if a customer picks up a box of cookies and then puts it back, the re- tailer can use the system to offer a discount on the shelf beneath that item the next time the shopper encounters it in the store. Cofounder Kurtis Van Horn believes that Smart Shelf can provide the same level of customization and per- sonalization as found in online shopping to brick-and-mortar stores. AWM also offers an anonymous consumer behavior tracking application that can direct customers to other parts of a store using digital signage, enabling up-to-the-minute advertising and pricing. AWM solutions can be implemented in a wide range of store sizes and formats, from micromarkets, to convenience stores, to larger-format retailers. Technology is redefining the role of the shelf in retail marketing. Sources: www.smartshelf.com, accessed April 29, 2020; AWM SmartShelf Launches Southern California’s First Autonomous Micromarket in Santa Ana’s Nineteen01 Community,” Businesswire, March 24, 2020; Jared Council, “Retailers Hope In-Store Tech Will Keep Shoppers in Stores,” Wall Street Journal, January 15, 2020. T he companies and technologies described here show how essential in- formation systems are today. Today, retail stores are struggling to stay alive and relevant as more shoppers gravitate to online shopping and the Internet. One solution is to use leading-edge innovative information tech- nology to provide new ways of drawing buyers into physical stores and mak- ing the in-store buying experience more efficient, safe, and pleasant. The information flows that drive these reimagined retail businesses have be- come much more digital, making use of mobile tools and object-recognition technology. The chapter-opening diagram calls attention to important points raised by this case and this chapter. To compete more effectively against online retailers and take advantage of new technology solutions, brick-and-mortar retail stores are using innovative systems based on object-recognition technology, sensors, and smartphones. The use of leading-edge digital technologies to drive business operations and management decisions is a key topic today in the MIS world and will be discussed throughout this text. It is also important to note that deploying information technology has changed the way customers of Acrelec and AWM Smart Shelf run their busi- nesses. To effectively use new digital tools, these companies had to redesign jobs and procedures for gathering, inputting, and accessing information. These changes had to be carefully planned to make sure they enhanced efficiency, service, and profitability. Here are some questions to think about: How do Acrelec’s and AWM’s systems change retail operations? How do they improve the customer experience? M01_LAUD3281_17_GE_C01.indd 36 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 37 Business Challenges Mounting competition from online retailers Devise technology Opportunities from new technology strategy Management Select technologies Revise job functions Revise business Information Business Organization processes System Solutions AWM Smart Shelf Increase sales View and track products in Improve service Smartphones real time Improve operations Object-recognition Technology Personalize shopper technology experiences HD cameras Sensors 1-1 How are information systems transforming business, and why are they so essential for running and managing a business today? It’s not business as usual in the global economy anymore. Information systems and technologies are transforming the global business environment. In 2019, global spending on information technology (IT) and IT services was nearly $3.8 trillion (Gartner, 2019). In addition, firms spent another $160 billion on management consulting and services—much of which involves redesigning firms’ business operations to take advantage of these new technologies (Statista, 2020). In fact, most of the business value of IT investment derives from these organizational, management, and cultural changes inside firms (Saunders and Brynjolfsson, 2016). Figure 1.1 shows that between 1999 and 2019, capital in- vestment in information technology consisting of IT equipment, software, and research and development (R&D) accounted for over 40 percent of US total capital spending. A similar pattern has occurred globally. As managers, most of you will work for firms that are intensively using information systems and making large investments in information technol- ogy. You will certainly want to know how to invest this money wisely. If you make wise choices, your firm can outperform competitors. If you make poor choices, you will be wasting valuable capital. This book is dedicated to help- ing you make wise decisions about information technology and information systems. What’s New in Management Information Systems? Plenty. In fact, there’s a whole new world of doing business using new tech- nologies for managing and organizing. What makes the MIS field the most ex- citing area of study in schools of business is the continuous change in tech- nology, management, and business processes. Five changes are of paramount importance. M01_LAUD3281_17_GE_C01.indd 37 4/18/2021 4:10:10 PM  38 Part One Organizations, Management, and the Networked Enterprise FIGURE 1.1 INFORMATION TECHNOLOGY CAPITAL INVESTMENT Information technology capital investment, defined as IT equipment, software and research and development (R&D) spending, amounted to over 40 percent of total US capital spending (in nominal GDP) between 1999 and 2019. A similar pattern has oc- curred globally. Source: US Bureau of Economic Analysis. IT EQUIPMENT, SOFTWARE, and R&D SPENDING IN NOMINAL GDP (as a percent of total capital spending in nominal GDP) 100 95 90 85 80 75 70 65 60 Percent 55 50 IT Equipment, Software, & R&D 46.8% 45 40 35 30 25 20 15 10 5 19 8 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 9 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 IT Innovations A continuing stream of information technology innovations is transforming the traditional business world. Examples include the emergence of cloud computing, the growth of a mobile digital business platform based on smartphones and tablet computers, big data and the Internet of Things (IoT), business analytics, machine learning systems, and the use of social networks by managers to achieve business objectives. Most of these changes have oc- curred in the past few years. These innovations are enabling 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 industries, are being destroyed while new businesses are springing up. New Business Models For instance, the emergence of online video services for streaming or downloading, such as Netflix, Apple TV Channels, and Ama- zon, has forever changed how premium video is distributed and even cre- ated. Netflix by early 2020 had attracted more than 167 million subscribers worldwide to what it calls the “Internet TV revolution.” Netflix has moved into premium TV show production with nearly 1,200 original shows in 2019, such as American Vandal, Suburra, The Crown, Friends From College, House of Cards, and Orange Is the New Black, challenging cable and broadcast producers of TV shows, and potentially disrupting cable network dominance of TV show pro- duction. Apple has struck deals with major Hollywood studios for recent mov- ies and TV shows. A growing trickle of viewers are unplugging from cable and using only the Internet for entertainment. E-commerce Expansion E-commerce sales worldwide amounted to nearly $3.6 trillion in 2019 and are expected to approach $5 trillion by 2021 (Lipsman, 2019). E-commerce is changing how firms design, produce, 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 M01_LAUD3281_17_GE_C01.indd 38 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 39 in jeopardy. Facebook and other social networking sites such as YouTube, Twit- ter, and Tumblr, along with Netflix, Apple Music, and many other media firms, 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 prod- ucts. While this iconic vision of e-commerce is still very powerful and the fastest- growing form of retail worldwide, growing up alongside is a whole new value stream based on selling services, not goods. It’s a services model of e-commerce. Growth in social commerce is spurred by powerful growth of the mobile platform: 98 percent of Facebook’s users access the service from mobile phones and tablets. Information systems and technologies are the foundation of this new services- based e-commerce. Mobile retail e-commerce worldwide approached $2.55 billion in 2020 (and is growing at almost 20 percent a year) (eMarketer, 2020). Management Changes The management of business firms has changed: With new mobile smartphones, high-speed wireless Wi-Fi networks, and tablets, re- mote salespeople on the road are only seconds away from their managers’ ques- tions and oversight. Management is going mobile. Managers on the move are in direct, continuous contact 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 really important information they need for accurate and timely decisions. In addition to their public uses on the web, social networking tools, wikis, and blogs are becoming important corporate tools for communication, collaboration, and information sharing. Changes in Firms and Organizations Compared to industrial organizations of the previous century, new fast-growing twenty-first-century business firms put less emphasis on hierarchy and structure and more emphasis on employees taking on multiple roles and tasks and collaborating with others on a team. They put greater emphasis on competency and skills rather than position in the hierarchy. They em- phasize higher-speed and more-accurate decision making based on data and analy- sis. They are more aware of changes in technology, consumer attitudes, and culture. They use social media to enter into conversations with consumers and demonstrate a greater willingness to listen to consumers, in part because they have no choice. They show better understanding of the importance of information technology in creating and managing business firms and other organizations. To the extent organi- zations and business firms demonstrate these characteristics, they are twenty-first- century digital firms. You can see some of these trends at work in the Interactive Session on Organizations, which examines the impact on work and management as many companies had their employees work remotely during the coronavirus pan- demic of 2020. Globalization Challenges and Opportunities: A Flattened World Prior to AD 1500, there was no truly global economic system of trade that con- nected all the continents on earth although there were active regional trade markets. After the sixteenth century, a global trading system began to emerge based on advances in navigation and ship technology. The world trade that ensued after these developments has brought the peoples and cultures of the world much closer together. The Industrial Revolution was really a worldwide phenomenon energized by expansion of trade among nations, making na- tions both competitors and collaborators in business. The Internet has greatly heightened the competitive tensions among nations as global trade expands M01_LAUD3281_17_GE_C01.indd 39 4/18/2021 4:10:10 PM  40 Part One Organizations, Management, and the Networked Enterprise INTERACTIVE SESSION ORGANIZATIONS Will the Coronavirus Pandemic Make Working from Home the New Normal? As COVID-19 continued to spread around the globe, laptop computers, tablets, smartphones, email, mes- companies large and small started to make changes saging, and videoconferencing tools. As companies to the way they work, shuttering their offices and shift their work from face-to-face to remote, video con- requiring most or all of their employees to work ferencing is becoming the new normal for meetings. remotely from their homes. People are trying to have good conversations, share During the pandemic, ClearRisk, which offers critical information, generate new ideas, reach con- integrated, cloud-based software solutions for sensus, and make decisions quickly on this platform. claims, fleet, incident, and insurance certificate Although less than ideal for face-to-face interac- management had its entire staff working from tions, videoconferencing is becoming more powerful home. and affordable. There are many options, includ- Many large law firms, including Reed Smith, ing Skype, Skype for Business, Zoom, Microsoft Baker McKenzie, and Nixon Peabody, closed Teams, Amazon Chime, BlueJeans, Cisco’s WebEx, offices and required work at home during the GoToMeeting, and Google Meet. Some business peo- pandemic. The law firms emphasized that they ple are using the same tools they do in their personal could continue to serve clients despite office communications, such as FaceTime and Facebook closings and remote work. Messenger. (FaceTime now supports group video OpenText Corp., a Canadian provider of enter- chat with up to 32 people.) prise information management products, plans Video conference software such as WebEx and to eliminate more than half of its 120 offices BlueJeans appears designed for more corporate uses. globally, with 2000 of its 15,000-person work- Other software such as Microsoft’s Skype and Zoom force working from home permanently. feels more consumer-friendly and easier to set up, In mid-May 2020, Twitter Inc. notified employ- with free or low-cost versions suitable for smaller ees that most of them could work from home businesses. Skype works for video chats, calls, and indefinitely. instant messaging and can handle up to 50 people in According to a recent MIT report, 34 percent of a single video call. Skype allows calls to be recorded Americans who previously commuted to work stated in case someone misses a meeting. Skype also pro- that they were working from home by the first week vides file-sharing capabilities, caller ID, voicemail, a of April 2020 due to the coronavirus outbreak. Prior split view mode to keep conversations separate, and to the pandemic, the number of people regularly screen share on mobile devices. working from home remained in the single digits, Up to 1,000 users can participate in a single Zoom with only about 4 percent of the US workforce work- video call, and 49 videos can appear on the screen at ing from home at least half the time. However, the once. Zoom includes collaboration tools like simul- trend of working from home had been slowly gaining taneous screen-sharing and co-annotation, and the momentum thanks to advances in information tech- ability to record meetings and generate transcripts. nology for remote work and changes in corporate Users can adjust meeting times, select multiple work culture. The coronavirus pandemic may mark hosts, and communicate via chat if microphones and a tipping point. cameras are turned off. It’s likely that many people who started working There are definite benefits to remote work: lower from home for the first time during the pandemic overhead, more flexible schedules, reductions in will continue to do so thereafter. New health guide- employee commuting time and attrition rates, and lines about distancing will require some workplaces increases in productivity. (Many companies reported to expand to accommodate all their employees or to that productivity did not suffer when employees have a significant percentage of employees work per- worked at home during the pandemic.) According to manently from home. Global Workplace Analytics, a typical company saves Information technologies driving these changes about $11,000 per half-time telecommuter per year. include broadband high-speed Internet connections, Working remotely also poses challenges. M01_LAUD3281_17_GE_C01.indd 40 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 41 Not all employees have access to the Internet connection of face-to-face conversations. Remote at home, and many work in industries that require work also inhibits the creativity and innovative on-site work. About 80 percent of American adults thinking that take place when people interact with have high-speed broadband Internet service at home. each other face-to-face, and videoconferencing is However, according to a Pew Research Center study, only a partial solution. Studies have found that peo- racial minorities, older adults, rural residents, and ple working together in the same room tend to solve people with lower levels of education and income problems more quickly than remote collaborators, are less likely to have in-home broadband service. and that team cohesion suffers when members work In addition, one in five American adults access the remotely. Internet only through their smartphones. Employees with little children or small apartments find working Sources: Dana Mattioli and Konrad Putzier, “The End of the Office,” at home more difficult. Wall Street Journal, May 16-17, 2020; Rani Molla, “This Is the End of the Office as We Know It,” Vox, April 14, 2020; Josh Lowy, “Over- Full-time employees are four times more likely to coming Remote Work Challenges,” MIT Sloan Management Review, have remote work options than part-time employees. April 9, 2020; Cate Pye, “Coronavirus: What Does the ‘New Normal’ According to Global Workplace Analytics, a typical re- Mean for How We Work?” Computer Weekly, April 3, 2020; Lindsey Jacobson, “As Coronavirus Forces Millions to Work Remotely, the mote worker is college-educated, at least 45 years old, US Economy May Have Reached a ‘Tipping Point’ in Favor of Work- and earns an annual salary of $58,000 while working ing from Home,” CNBC, March 23, 2020; Derek Thompson, “The for a company with more than 100 employees. Coronavirus Is Creating a Huge, Stressful Experiment in Working from Home,” The Atlantic, March 13, 2020; Kevin Roose, “Sorry, but Although email and text messaging are very use- Working from Home Is Overrated,” New York Times, March 10, 2020. ful, they are not effective tools for communication compared to the information exchange and personal CASE STUDY QUESTIONS 1. Define the problem described in this case. What 3. Will working from home become the dominant are the management, organization, and technol- way of working in the future? Why or why not? ogy issues raised by this problem? 2. Identify the information technologies used to pro- vide a solution to this problem. Was this a success- ful solution? Why or why not? and strengthened the benefits that flow from trade, and also created significant dislocations in labor markets. In 2005, journalist Thomas Friedman wrote an influential book declaring the world was now flat, by which he meant that the Internet and global communi- cations had greatly expanded the opportunities for people to communicate with one another and reduced the economic and cultural advantages of developed countries. The United States and European countries were in a fight for their economic lives, according to Friedman, competing for jobs, markets, resources, and even ideas with highly educated, motivated populations in low-wage areas in the less developed world (Friedman, 2007). This globalization presents you and your business with both challenges and opportunities. A growing percentage of the economy of the United States and other ad- vanced industrial countries in Europe and Asia depends on imports and exports. In 2019, an estimated 30 percent of the world economy resulted from foreign trade of goods and services, both imports and exports. Half of Fortune 500 US firms obtain nearly 50 percent of their revenue from foreign operations. For instance, more than 50 percent of Intel’s revenues in 2019 came from overseas sales of its microprocessors. M01_LAUD3281_17_GE_C01.indd 41 4/18/2021 4:10:10 PM  42 Part One Organizations, Management, and the Networked Enterprise It’s not just goods that move across borders. So too do jobs, some of them high- level jobs that pay well and require a college degree. For instance, since 2000, the United States has lost an estimated 5 million manufacturing jobs to offshore, low-wage producers, so manufacturing is now a small part of US employment (less than 9 percent). In a normal year, about 300,000 service jobs move off- shore to lower-wage countries, many of them in less-skilled information system occupations but also in tradable service jobs in architecture, financial services, customer call centers, consulting, engineering, and even radiology. On the plus side, the US economy created 2.6 million new jobs in 2018. Employment in information systems and the other service occupations listed previously has rapidly expanded in sheer numbers, wages, productivity, and quality of work. Outsourcing has actually accelerated the development of new systems in the United States and worldwide by reducing the cost of building and maintaining them. In 2019 job openings in information systems and tech- nologies far exceeded the supply of applicants. The challenge for you as a business student is to develop high-level skills through education and on-the-job experience that cannot be outsourced. The challenge for your business is to avoid markets for goods and services that can be produced offshore much less expensively. The opportunities are equally im- mense. Throughout this book you will find examples of companies and indi- viduals who either failed or succeeded in using information systems to adapt to this new global environment. What does globalization have to do with management information systems? That’s simple: everything. The emergence of the Internet into a full-blown international communications system has drastically reduced the costs of operating and transacting on a global scale. Communication between a fac- tory floor in Shanghai and a distribution center in Rapid City, South Dakota, is now instant and virtually free. Customers can now shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. Firms producing goods and services on a global scale achieve extraordinary cost reductions by finding low-cost suppliers and managing production facili- ties in other countries. Internet service firms, such as Google and eBay, are able to replicate their business models and services in multiple countries without having to redesign their expensive fixed-cost information systems infrastructure. Briefly, information systems enable globalization. The Emerging Digital Firm All of the changes we have just described, coupled with equally significant or- ganizational redesign, have created the conditions for a fully digital firm. A digital firm can be defined along several dimensions. A digital firm is one in which nearly all of the organization’s significant business relationships with cus- tomers, suppliers, and employees are digitally enabled and mediated. Core busi- ness processes are accomplished through digital networks spanning the entire organization or linking multiple organizations. Business processes refer to the set of logically related tasks and behaviors that organizations develop over time to produce specific business results and the unique manner in which these activities are organized and coordinated. Developing a new product, generating and fulfilling an order, creating a mar- keting plan, and hiring an employee are examples of business processes, and the ways organizations accomplish their business processes can be a source of competitive strength. (A detailed discussion of business processes can be found in Chapter 2.) M01_LAUD3281_17_GE_C01.indd 42 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 43 Key corporate assets—intellectual property, core competencies, and financial and human assets—are managed through digital means. In a digital firm, any piece of information required to support key business decisions is available at any time and anywhere in the firm. Digital firms sense and respond to their environments far more rapidly than traditional firms, giving them more flexibility to survive in turbulent times. Digital firms offer extraordinary opportunities for more-flexible global organization and management. In digital firms, both time shifting and space shifting are the norm. Time shifting refers to business being conducted continuously, 24/7, rather than in narrow “work day” time bands of 9 a.m. to 5 p.m. Space shifting means that work takes place in a global workshop as well as within national boundaries. Work is accomplished physically wherever in the world it is best accomplished. Many firms, such as Cisco Systems, 3M, and GE, are close to becoming digi- tal firms, using the Internet to drive every aspect of their business. Most other companies are not fully digital, but they are moving toward close digital inte- gration with suppliers, customers, and employees. Strategic Business Objectives of Information Systems What makes information systems so essential today? Why are businesses in- vesting so much in information systems and technologies? In the United States, more than 25 million business and financial managers, and 36 million profes- sional workers in the labor force rely on information systems to conduct busi- ness. Information systems are essential for conducting day-to-day business in most advanced countries as well as achieving strategic business objectives. Entire sectors of the economy are nearly inconceivable without substan- tial investments in information systems. E-commerce firms such as Amazon, eBay, Google, and E*Trade simply would not exist. Today’s service industries— finance, insurance, and real estate as well as personal services such as travel, medicine, and education—could not operate without information systems. Similarly, retail firms such as Walmart and Tesco and manufacturing firms such as General Motors and Siemens require information systems to survive and prosper. Just as offices, telephones, filing cabinets, and efficient tall buildings with elevators were once the foundations of business in the twentieth century, information technology is a foundation for business in the twenty-first century. There is a growing interdependence between a firm’s ability to use informa- tion technology and its ability to implement corporate strategies and achieve corporate goals (see Figure 1.2). What a business would like to do in five years often depends on what its systems will be able to do. Increasing market share, becoming the high-quality or low-cost producer, developing new products, and increasing employee productivity depend more and more on the kinds and quality of information systems in the organization. The more you understand about this relationship, the more valuable you will be as a manager. Specifically, business firms invest heavily in information systems to achieve six strategic business objectives: operational excellence; new products, services, and business models; customer and supplier intimacy; improved decision mak- ing; competitive advantage; and survival. Operational Excellence Businesses continuously seek to improve the efficiency of their operations in order to achieve higher profitability. Information systems and technologies are some of the most important tools available to managers for achieving higher M01_LAUD3281_17_GE_C01.indd 43 4/18/2021 4:10:10 PM  44 Part One Organizations, Management, and the Networked Enterprise FIGURE 1.2 THE INTERDEPENDENCE BETWEEN ORGANIZATIONS AND INFORMATION SYSTEMS In contemporary systems, there is a growing interdependence between a firm’s infor- mation systems and its business capabilities. Changes in strategy, rules, and business processes increasingly require changes in hardware, software, databases, and telecom- munications. Often, what the organization would like to do depends on what its systems will permit it to do. Hardware Business Strategic Objectives Business Processes Software Data Management Business Information Telecommunications Firm System levels of efficiency and productivity in business operations, especially when coupled with changes in business practices and management behavior. Walmart, the largest retailer on earth, exemplifies the power of informa- tion systems coupled with state-of-the-art business practices and supportive management to achieve world-class operational efficiency. In fiscal year 2019, Walmart achieved $524 billion in sales—nearly one-tenth of retail sales in the United States—in large part because of its Retail Link system, which digitally links its suppliers to every one of Walmart’s stores. As soon as a customer pur- chases an item, the supplier monitoring the item knows to ship a replacement to the shelf. Walmart is the most efficient retail store in the industry. New Products, Services, and Business Models Information systems and technologies are a major enabling tool for firms to cre- ate new products and services as well as entirely new business models. A busi- ness model describes how a company produces, delivers, and sells a product or service to create wealth. Today’s music industry is vastly different from the industry a decade ago. Apple Inc. transformed an old business model of music distribution based on vinyl records, tapes, and CDs into an online, legal distribution model based on its own technology platform. Apple has prospered from a continuing stream of innovations, including the iTunes music service, the iPad, and the iPhone. Customer and Supplier Intimacy When a business really knows its customers and serves them well, the custom- ers generally respond by returning and purchasing more. This raises revenues and profits. Likewise with suppliers—the more a business engages its suppliers, the better the suppliers can provide vital inputs. This lowers costs. How to re- ally know your customers or suppliers is a central problem for businesses with millions of offline and online customers. High-end hotels, such as the Mandarin Oriental hotel group, which operates hotels in Asia, Europe, and the Americas, exemplify the use of information M01_LAUD3281_17_GE_C01.indd 44 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 45 systems and technologies to achieve customer intimacy. These hotels use com- puters to keep track of guests’ preferences, such as their preferred room tem- perature, check-in time, frequently dialed telephone numbers, and television programs, and store these data in a large data repository. Individual rooms in the hotels are networked to a central network server computer so that they can be remotely monitored and controlled. When a customer arrives at one of these hotels, the system automatically changes the room conditions, such as dim- ming the lights, setting the room temperature, or selecting appropriate music, based on the customer’s digital profile. The hotels also analyze their customer data to identify their best customers and to develop individualized marketing campaigns based on customers’ preferences. Charles Tyrwhitt, a UK retailer specializing in dress shirts, and JCPenney, a US department store chain, exemplify the use of information systems to en- able supplier and customer intimacy. Every time a dress shirt is bought one of their stores, the record of the sale appears immediately on computers in Hong Kong at their supplier. TAL Apparel, a contract manufacturer that produces one in six dress shirts sold in the United States. TAL runs the numbers through a computer model it developed and then decides how many replacement shirts to make and in what styles, colors, and sizes. TAL then sends the shirts to each store, bypassing the retailer’s warehouses. These systems reduce inventory costs and ensure that what customers want are actually on the shelves. Improved Decision Making Many business managers operate in an information fog bank, never really having the right information at the right time to make an informed decision. Instead, managers rely on forecasts, best guesses, and luck. The result is over- or underproduction of goods and services, misallocation of resources, and poor response times. These poor outcomes raise costs and lose customers. In the past decade, information systems and technologies have made it possible for managers to use real-time data from the marketplace when making decisions. For instance, Privi Organics Ltd., a leading Indian company that manufac- tures, supplies, and exports aroma chemical products worldwide, uses the Oracle Human Capital Management system for real-time insight into individual employee information—including performance rating and compensation his- tory. The system helps managers make faster human resource decisions, such as promotions or transfers, by integrating all employee records across the orga- nization. Managers are able to quickly review employee performance ratings for the previous three years and drill down into more details. A digital dash- board helps management view and monitor hiring status in multiple locations, such as the number of open positions and the time taken to fill these positions. Competitive Advantage When firms achieve one or more of these business objectives—operational ex- cellence; new products, services, and business models; customer/supplier inti- macy; and improved decision making—chances are they have already achieved a competitive advantage. Doing things better than your competitors, charging less for superior products, and responding to customers and suppliers in real time all add up to higher sales and higher profits that your competitors cannot match. Apple Inc., Walmart, and UPS, described later in this chapter, are indus- try leaders because they know how to use information systems for this purpose. M01_LAUD3281_17_GE_C01.indd 45 4/18/2021 4:10:10 PM  46 Part One Organizations, Management, and the Networked Enterprise Survival Business firms also invest in information systems and technologies because they are necessities of doing business. Sometimes these “necessities” are driven by industry-level changes. For instance, after Barclays Bank introduced the first automated teller machines (ATMs) in London in 1967, its competitors rushed to provide ATMs to their customers to keep up. Today, virtually all large banks around the world have regional ATMs and link to national and international ATM networks, such as Cirrus. Providing ATM services to retail banking cus- tomers is simply required in the retail banking business. Most nations have statutes and regulations that create a legal duty for compa- nies and their employees to retain records, including digital records. For instance, the European Council’s Regulation on Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) and the U.S. Toxic Substances Control Act (1976), which regulates the exposure of employees to toxic chemicals, require firms to re- tain records on employee exposure for a certain period of time. Many other pieces of national and regional legislation impose significant information retention and reporting requirements on US businesses. Firms turn to information systems to provide the capability to respond to these record management requirements. 1-2 What is an information system? How does it work? What are its management, organization, and technology components? Why are complementary assets essential for ensuring that information systems provide genuine value for organizations? So far we’ve used information systems and technologies informally without defin- ing the terms. Information technology (IT) consists of all the hardware and software that a firm needs to use in order to achieve its business objectives. This includes not only computer machines, storage devices, and handheld mo- bile devices but also software, such as the Windows or Linux operating systems, the Microsoft Office desktop productivity suite, and the many thousands of computer programs that can be found in a typical large firm. “Information sys- tems” are more complex and can be best understood by looking at them from both a technology and a business perspective. What Is an Information System? An information system can be defined technically as a set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control in an organization. In addition to sup- porting decision making, coordination, and control, information systems may also help managers and workers analyze problems, visualize complex subjects, and create new products. Information systems contain information about significant people, places, and things within the organization or in the environment surrounding it. By infor- mation we mean data that have been shaped into a form that is meaningful and useful to human beings. Data, in contrast, are streams of raw facts representing events occurring in organizations or the physical environment before they have been organized and arranged into a form that people can understand and use. M01_LAUD3281_17_GE_C01.indd 46 4/18/2021 4:10:10 PM  Chapter 1 Information Systems in Global Business Today 47 FIGURE 1.3 DATA AND INFORMATION Raw data from a supermarket checkout counter can be processed and organized to produce meaningful information, such as the total unit sales of dish detergent or the total sales revenue from dish detergent for a specific store or sales territory. Da on ta m ati In for 331 Brite Dish Soap 1.29 Sales Region: Northwest 863 BL Hill Coffee 4.69 Store: Superstore #122 173 Meow Cat.79 331 Brite Dish Soap 1.29 Information ITEM NO. DESCRIPTION UNITS SOLD 663 Country Ham 3.29 System 331 Brite Dish Soap 7,156 524 Fiery Mustard 1.49 113 Ginger Root.85 YTD SALES 331 Brite Dish Soap 1.29. $9,231.24.. A brief example contrasting information and data may prove useful. Supermarket checkout counters scan millions of pieces of data from bar codes, which describe each product. Such pieces of data can be totaled and analyzed to provide meaningful information, such as the total number of bottles of dish detergent sold at a particular store, which brands of dish detergent were selling the most rapidly at that store or sales territory, or the total amount spent on that brand of dish detergent at that store or sales region (see Figure 1.3). Three activities in an information system produce the information that or- ganizations need to make decisions, control operations, analyze problems, and create new products or services. These activities are input, processing, and out- put (see Figure 1.4). Input captures or collects raw data from within the orga- nization or from its external environment. Processing converts this raw input into a meaningful form. Output transfers the processed information to the people who will use it or to the activities for which it will be used. Information systems also require feedback, which is output that is returned to appropriate members of the organization to help them evaluate or correct the input stage. In the AWM Smart Shelf system, input includes the digital results from scan- ning on-shelf products and store shelf identification codes, along with scanned images of items customers have selected for purchase. Computers store and process these data to keep track of the items on each shelf, the items each customer purchases or examines, and a history of the customer’s purchases and items of interest. The system then determines what items on what shelves need restocking, and what items should be recommended to each customer. The system provides meaningful information such as all the items sold in a particular store or on a particular store shelf on a specific day, what items have been purchased by a specific customer, and which items need restocking. Although computer-based information systems use computer technology to process raw data into meaningful information, there is a sharp distinction be- tween a computer and a computer program on the one hand and an informa- tion system on the other. Computers and related software programs are the technical foundation, the tools and materials, of modern information systems. Computers provide the equipment for storing and processing information. Computer programs, or software, are sets of operating instructions that direct and control computer processing. Knowing how computers and computer M01_LAUD3281_17_GE_C01.indd 47 4/18/2021 4:10:11 PM  48 Part One Organizations, Management, and the Networked Enterprise FIGURE 1.4 FUNCTIONS OF AN INFORMATION SYSTEM An information system contains information about an organization and its surrounding environment. Three basic activities—input, processing, and output—produce the infor- mation organizations need. Feedback is output returned to appropriate people or activi- ties in the organization to evaluate and refine the input. Environmental actors, such as customers, suppliers, competitors, stockholders, and regulatory agencies, interact with the organization and its information systems. ENVIRONMENT Suppliers Customers ORGANIZATION INFORMATION SYSTEM Processing Classify Input Output Arrange Calculate Feedback Regulatory Stockholders Competitors Agencies programs work is important in designing solutions to organizational problems, but computers are only part of an information system. A house is an appropriate analogy. Houses are built with hammers, nails, and wood, but these do not make a house. The architecture, design, setting, landscap- ing, and all of the decisions that lead to the creation of these features are part of the house and are crucial for solving the problem of putting a roof over one’s head. Computers and programs are the hammers, nails, and lumber of computer- based information systems, but alone they cannot produce the information a particular organization needs. To understand information systems, you must un- derstand the problems they are designed to solve, their architectural and design elements, and the organizational processes that lead to the solutions. Dimensions of Information Systems To fully understand information systems, you must understand the broader or- ganization, management, and information technology dimensions of systems (see Figure 1.5) and their power to provide solutions to challenges and prob- lems in the business environment. We refer to this broader understanding of in- formation systems, which encompasses an understanding of the management and organizational dimensions of systems as well as the technical dimensions of systems, as information systems literacy. Computer literacy, in contrast, focuses primarily on knowledge of information technology. The field of management information systems (MIS) tries to achieve this broader information systems literacy. MIS deals with behavioral issues as well as technical issues surrounding the development, use, and impact of informa- tion systems used by managers and employees in the firm. M01_LAUD3281_17_GE_C01.indd 48 4/18/2021 4:10:11 PM  Chapter 1 Information Systems in Global Business Today 49 FIGURE 1.5 INFORMATION SYSTEMS ARE MORE THAN COMPUTERS Using information systems effectively requires an understanding of the organization, management, and information technology shaping the systems. An information system creates value for the firm as an organizational and management solution to challenges posed by the environment. Organizations Technology Information Systems Management Let’s examine each of the dimensions of information systems—organizations, management, and information technology. Organizations Information systems are an integral part of organizations. Indeed, for some com- panies, such as credit reporting firms, there would be no business without an in- formation system. The key elements of an organization are its people, structure, business processes, politics, and culture. We introduce these components of orga- nizations here and describe them in greater detail in Chapters 2 and 3. Organizations have a structure that is composed of different levels and spe- cialties. Their structures reveal a clear-cut division of labor. Authority and re- sponsibility in a business firm are organized as a hierarchy, or a pyramid struc- ture. The upper levels of the hierarchy consist of managerial, professional, and technical employees, whereas the lower levels consist of operational personnel. Senior management makes long-range strategic decisions about products and services as well as ensures financial performance of the firm. Middle management carries out the programs and plans of senior management, and operational management is responsible for monitoring the daily activities of the business. Knowledge workers, such as engineers, scientists, or architects, design products or services and create new knowledge for the firm, whereas data workers, such as secretaries or clerks, assist with scheduling and com- munications at all levels of the firm. Production or service workers actually produce the product and deliver the service (see Figure 1.6). Experts are employed and trained for different business functions. The major business functions, or specialized tasks performed by business organizations, consist of sales and marketing, manufacturing and production, finance and ac- counting, and human resources (see Table 1.1). Chapter 2 provides more detail on these business functions and the ways in which they are supported by infor- mation systems. An organization coordinates work through its hierarchy and through its busi- ness processes. Most organizations’ business processes include formal rules that M01_LAUD3281_17_GE_C01.indd 49 4/18/2021 4:10:11 PM  50 Part One Organizations, Management, and the Networked Enterprise TABLE 1.1 MAJOR BUSINESS FUNCTIONS FUNCTION PURPOSE Sales and marketing Selling the organization’s products and services Manufacturing and production Producing and delivering products and services Finance and accounting Managing the organization’s financial assets and maintaining the organization’s financial records Human resources Attracting, developing, and maintaining the organization’s labor force; maintaining employee records have been developed over a long time for accomplishing tasks. These rules guide employees in a variety of procedures, from writing an invoice to respond- ing to customer complaints. Some of these business processes have been writ- ten down, but others are informal work practices, such as a requirement to return telephone calls from coworkers or customers, that are not formally docu- mented. Information systems automate many business processes. For instance, how a customer receives credit or how a customer is billed is often determined by an information system that incorporates a set of formal business processes. Each organization has a unique culture, or fundamental set of assumptions, values, and ways of doing things, that has been accepted by most of its mem- bers. You can see organizational culture at work by looking around your univer- sity or college. Some bedrock assumptions of university life are that professors know more than students, that the reason students attend college is to learn, and that classes follow a regular schedule. Parts of an organization’s culture can always be found embedded in its infor- mation systems. For instance, UPS’s first priority is customer service, which is an aspect of its organizational culture that can be found in the company’s pack- age tracking systems, which we describe in this section. FIGURE 1.6 LEVELS IN A FIRM Business organizations are hierarchies consisting of three principal levels: senior man- agement, middle management, and operational management. Information systems serve each of these levels. Scientists and knowledge workers often work with middle management. Senior Management Middle Management Scientists and knowledge workers Operational Management Production and service workers Data workers M01_LAUD3281_17_GE_C01.indd 50 4/18/2021 4:10:11 PM  Chapter 1 Information Systems in Global Business Today 51 Different levels and specialties in an organization create different inter- ests and points of view. These views often conflict over how the company should be run and how resources and rewards should be distributed. Conflict is the basis for organizational politics. Information systems come out of this cauldron of differing perspectives, conflicts, compromises, and agreements that are a natural part of all organizations. In Chapter 3, we examine these features of organizations and their role in the development of information systems in greater detail. Management Management’s job is to make sense out of the many situations faced by organiza- tions, make decisions, and formulate action plans to solve organizational problems. Managers perceive business challenges in the environment, they set the organiza- tional strategy for responding to those challenges, and they allocate the human and financial resources to coordinate the work and achieve success. Throughout, they must exercise responsible leadership. The business information systems described in this book reflect the hopes, dreams, and realities of real-world managers. But managers must do more than manage what already exists. They must also create new products and services and even re-create the organization from time to time. A substantial part of management responsibility is creative work driven by new knowledge and information. Information technology can play a powerful role in helping managers design and deliver new products and ser- vices and redirecting and redesigning their organizations. Chapter 12 treats management decision making in detail. Information Technology Information technology is one of many tools managers use to cope with change. Computer hardware is the physical equipment used for input, processing, and output activities in an information system. It consists of the following: comput- ers of various sizes and shapes (including mobile handheld devices); various input, output, and storage devices; and telecommunications devices that link computers together. Computer software consists of the detailed, preprogrammed instructions that control and coordinate the computer hardware components in an infor- mation system. Chapter 5 describes the contemporary software and hardware platforms used by firms today in greater detail. Data management technology consists of the software governing the orga- nization of data on physical storage media. More detail on data organization and access methods can be found in Chapter 6. Networking and telecommunications technology, consisting of both physical devices and software, links the various pieces of hardware and trans- fers data from one physical location to another. Computers and communica- tions equipment can be connected in networks for sharing voice, data, images, sound, and video. A network links two or more computers to share data or resources, such as a printer. The world’s largest and most widely used network is the Internet. The Internet is a global “network of networks” that uses universal standards (de- scribed in Chapter 7) to connect millions of networks in more than 230 coun- tries around the world. The Internet has created a new “universal” technology platform on which to build new products, services, strategies, and business models. This same technol- ogy platform has internal uses, providing the connectivity to link different sys- tems and networks within the firm. Internal corporate networks based on Internet M01_LAUD3281_17_GE_C01.indd 51 4/18/2021 4:10:11 PM  52 Part One Organizations, Management, and the Networked Enterprise technology are called intranets. Private intranets extended to authorized users outside the organization are called extranets, and firms use such networks to co- ordinate their activities with other firms for making purchases, collaborating on design, and other interorganizational work. For most business firms today, using Internet technology is both a business necessity and a competitive advantage. The World Wide Web is a service provided by the Internet that uses uni- versally accepted standards for storing, retrieving, formatting, and displaying in- formation in a page format on the Internet. Web pages contain text, graphics, animations, sound, and video and are linked to other web pages. By clicking on highlighted words or buttons on a web page, you can link to related pages to find additional information and links to other locations on the web. The web can serve as the foundation for new kinds of information systems such as UPS’s web- based package tracking system described below. All of these technologies, along with the people required to run and man- age them, represent resources that can be shared throughout the organization and constitute the firm’s information technology (IT) infrastructure. The IT infrastructure provides the foundation, or platform, on which the firm can build its specific information systems. Each organization must carefully design and manage its IT infrastructure so that it has the set of technology services it needs for the work it wants to accomplish with information systems. Chapters 5 through 8 of this book examine each major technology component of infor- mation technology infrastructure and show how they all work together to cre- ate the technology platform for the organization. The Interactive Session on Technology describes some examples of the technologies used in computer-based information systems today. UPS’s global delivery system provides another example. UPS invests heavily in information systems technology to make its business more efficient and cus- tomer oriented. It uses an array of information technologies, including bar code scanning systems, wireless networks, large mainframe computers, handheld computers, the Internet, and many different pieces of software for tracking pack- ages, calculating fees, maintaining customer accounts, and managing logistics. Let’s identify the organization, management, and technology elements in the UPS package tracking system. The organization element anchors the package tracking system in UPS’s sales and production functions (the main product of UPS is a service—package delivery). It specifies the required procedures for identifying packages with both sender and recipient information, taking inven- tory, tracking the packages en route, and providing package status reports for UPS customers and customer service representatives. The system must also provide information to satisfy the needs of managers and workers. UPS drivers need to be trained in both package pickup and deliv- ery procedures and in how to use the package tracking system so that they can work efficiently and effectively. UPS customers may need some training to use UPS in-house package tracking software or the UPS website. UPS’s management is responsible for monitoring service levels and costs and for promoting the company’s strategy of combining low cost and superior ser- vice. Management decided to use computer systems to increase the ease of sending a package using UPS and of checking its delivery status, thereby reduc- ing delivery costs and increasing sales revenues. The technology supporting this system consists of handheld computers, bar code scanners, desktop computers, wired and wireless communications net- works, UPS’s data center, storage technology for the package delivery data, UPS in-house package tracking software, and software to access the web. The result is an information system solution to the business challenge of providing a high level of service with low prices in the face of mounting competition. M01_LAUD3281_17_GE_C01.indd 52 4/18/2021 4:10:11 PM  Chapter Chapter1 5Information IT Infrastructure Systems andinEmerging Global Business Technologies Today 53 INTERACTIVE SESSION TECHNOLOGY Digital Transformation of Healthcare at Singapore’s Jurong Health Services Jurong Health Services (JurongHealth) is one of System enables the hospital to both control access Singapore’s six public healthcare clusters. Healthcare to the wards and track or contact visitors and staff if clusters provide holistic and integrated care when necessary. patients move from one care setting, like a clinic, to Another IT system implemented is the Warehouse another, like a hospital. JurongHealth primarily man- Management System, which eliminates the tedious ages the 700-bed Ng Teng Fong General Hospital, the process of manually counting inventory. The system 400-bed Jurong Community Hospital, and the Jurong uses passive radio frequency identification (RFID) Medical Center, all of which are located in western technology and a two-bin shelving system to auto- Singapore. mate inventory top-up requests and improve inven- JurongHealth’s goal is to provide transformative tory management. Once the primary compartment medical care for its patients through the use of in- of the storage bin is empty, the clinical staff transfers novative information technologies. Underscoring the relevant RFID tag into a drop-box, where the this commitment, in 2016 JurongHealth’s Ng Teng reader automatically sends a request for drug replen- Fong General Hospital became the first hospital in ishment, thus avoiding stock-outs. Singapore and the ASEAN region, and fifth in Asia- JurongHealth has also implemented a Real-Time Pacific, to receive the highest level of the Healthcare Location Tracking System to automatically track pa- Information and Management Systems Society tients and medical equipment using Wi-Fi triangula- (HIMSS) Electronic Medical Record Adoption Model tion, low frequency exciters, and about 6,000 active Award, which measures a hospital’s implementation RFID tags attached to patients or medical equipment. of IT systems. These tags continuously communicate with the low JurongHealth has integrated more than 50 health- frequency exciters to transmit data to the backend care IT systems as part of the Project OneCare initia- system for processing, allowing hospital staff to pre- tive. The systems’ implementation and integration cisely locate patients and equipment, thus eliminat- took four years and has enabled the hospital to be- ing the need for tedious manual searching. come paperless, chartless, and filmless. For instance, JurongHealth made a conscious effort to en