Chapter 1 Information Systems in Global Business Today PDF

1 CHAP TER Information Systems in Global Business Today LEARNING OBJECTIVES CHAPTER CASES After reading this chapter, you will be able to Smart Stores Re...

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 UPS Competes Globally with Information they so essential for running and Technology managing a business today? New Technology at UPS Clashes with 1-2 What is an information system? Outdated Ways of Working How does it work?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 2 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. 3 4 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: Jared Council, “Retailers Hope In-Store Tech Will Keep Shoppers in Stores,” Wall Street Journal, January 15, 2020; “Micromarket in Santa Ana’s Nineteen01 Community,” Businesswire, March 24, 2020; www.smartshelf.com, accessed April 29, 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?  Chapter 1 Information Systems in Global Business Today 5 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 United States or the rest of the global economy anymore. In 2019, global spending on information technology (IT) and IT ser- vices 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 tech- nologies (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 investment in information technology consisting of IT equip- ment, software, and research and development (R&D) accounted for over 40 percent of US total capital spending. 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. 6 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. 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  Chapter 1 Information Systems in Global Business Today 7 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 products. While this iconic vision of e-commerce is still very powerful and the fastest-growing form of retail in the United States, 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 approached $300 billion in 2020 (and is growing more than 20 percent a year) (Meola, 2019). 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 8 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 GoToMeetings, 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.  Chapter 1 Information Systems in Global Business Today 9 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:Lindsey Jacobson, “As Coronavirus Forces Millions to Work at home more difficult. Remotely, the US Economy May Have Reached a ‘Tipping Point’ in Favor of Working from Home,” CNBC, March 23, 2020; Rita Zeidner, Full-time employees are four times more likely to “Coronavirus Makes Work from Home the New Normal,” All Things have remote work options than part-time employees. Work, March 21, 2020; Dana Mattioli and Konrad Putzier, “The End According to Global Workplace Analytics, a typical re- of the Office,” Wall Street Journal, May 16-17, 2020; Cate Pye, “Coro- navirus: What Does the ‘New Normal’ Mean for How We Work?” mote worker is college-educated, at least 45 years old, Computer Weekly, April 3, 2020; Josh Lowy, “Overcoming Remote and earns an annual salary of $58,000 while working Work Challenges,” MIT Sloan Management Review, April 9, 2020; for a company with more than 100 employees. Derek Thompson, “The Coronavirus Is Creating a Huge, Stressful Experiment in Working from Home,” The Atlantic, March 13, 2020; Although email and text messaging are very use- Kevin Roose, “Sorry, but Working from Home Is Overrated,” New ful, they are not effective tools for communication York Times, March 10, 2020; Rani Molla, “This Is the End of the Of- compared to the information exchange and personal fice as We Know It,” Vox, April 14, 2020. 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. 10 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. 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 offshore 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.)  Chapter 1 Information Systems in Global Business Today 11 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 the United States and most other advanced countries as well as achieving stra- tegic 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 Target and manufacturing firms such as General Motors and GE 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 12 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.  Chapter 1 Information Systems in Global Business Today 13 The Mandarin Oriental in Manhattan and other high-end hotels exemplify the use of information systems and technologies to achieve customer intimacy. These hotels use computers to keep track of guests’ preferences, such as their preferred room temperature, check-in time, frequently dialed telephone num- bers, and television programs, and store these data in a large data repository. Individual rooms in the hotels are networked to a central network server com- puter so that they can be remotely monitored and controlled. When a customer arrives at one of these hotels, the system automatically changes the room con- ditions, such as dimming the lights, setting the room temperature, or select- ing 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. JCPenney exemplifies the benefits of information systems–enabled supplier intimacy. Every time a dress shirt is bought at a JCPenney store in the United States, the record of the sale appears immediately on computers in Hong Kong at the TAL Apparel Ltd. supplier, a contract manufacturer that produces one in eight 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 JCPenney store, bypassing completely the retailer’s warehouses. In other words, JCPenney’s shirt inventory is near zero, as is the cost of storing it. 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, Verizon Corporation, one of the largest telecommunications companies in the United States, uses a web-based digital dashboard to provide managers with precise real-time information on customer complaints, network performance for each locality served, and line outages or storm-damaged lines. Using this information, managers can immediately allocate repair resources to affected areas, inform consumers of repair efforts, and restore service fast. 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. 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 Citibank introduced the first au- tomated teller machines (ATMs) in the New York region in 1977 to attract cus- tomers through higher service levels, its competitors rushed to provide ATMs 14 Part One Organizations, Management, and the Networked Enterprise to their customers to keep up with Citibank. Today, virtually all banks in the United States have regional ATMs and link to national and international ATM networks, such as Cirrus. Providing ATM services to retail banking customers is simply a requirement of being in and surviving in the retail banking business. There are many federal and state statutes and regulations that create a legal duty for companies and their employees to retain records, including digital records. For instance, the Toxic Substances Control Act (1976), which regulates the expo- sure of US workers to more than 75,000 toxic chemicals, requires firms to retain records on employee exposure for 30 years. The Sarbanes-Oxley Act (2002), which was intended to improve the accountability of public firms and their auditors, re- quires certified public accounting firms that audit public companies to retain audit working papers and records, including all emails, for five years. The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), which was intended to strengthen regulation of the banking industry, requires firms to retain all records for 10 years. Many other pieces of federal and state legislation in health care, fi- nancial services, education, and privacy protection impose significant information retention and reporting requirements on US businesses. Firms turn to information systems and technologies to provide the capability to respond to these challenges. 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.  Chapter 1 Information Systems in Global Business Today 15 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 16 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.  Chapter 1 Information Systems in Global Business Today 17 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 18 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  Chapter 1 Information Systems in Global Business Today 19 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 20 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 in the Interactive Session on Technology. 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 informa- tion technology infrastructure and show how they all work together to create the technology platform for the organization. The Interactive Session on Technology describes some of the typical technol- ogies used in computer-based information systems today. 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 we have described. The organization element an- chors 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 informa- tion, taking inventory, 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.  Chapter Chapter1 5Information IT Infrastructure Systems andinEmerging Global Business Technologies Today 21 INTERACTIVE SESSION TECHNOLOGY UPS Competes Globally with Information Technology United Parcel Service (UPS) started out in 1907 in a The first thing a UPS driver picks up each day is closet-sized basement office. Jim Casey and Claude a handheld computer called a Delivery Information Ryan—two teenagers from Seattle with two bicycles Acquisition Device (DIAD), which can access a wire- and one phone—promised the “best service and low- less cell phone network. As soon as the driver logs est rates.” UPS has used this formula successfully on, his or her day’s route is downloaded onto the for more than a century to become the world’s larg- handheld. The DIAD also automatically captures est ground and air package-delivery company. It’s a customers’ signatures along with pickup and delivery global enterprise with more than 495,000 employees, information. Package tracking information is then 125,000 delivery vehicles, and 572 aircraft. transmitted to UPS’s computer network for storage Today UPS delivers 5.5 billion packages annu- and processing. From there, the information can be ally in more than 220 countries and territories. The accessed worldwide to provide proof of delivery to firm has been able to maintain leadership in small- customers or to respond to customer queries. It usu- package delivery services despite stiff competition ally takes less than 60 seconds from the time a driver from FedEx and the US Postal Service by investing presses “complete” on the DIAD for the new informa- heavily in advanced information technology. UPS tion to be available on the web. spends more than $1 billion each year to maintain Through its automated package tracking system, a high level of customer service while keeping costs UPS can monitor and even reroute packages through- low and streamlining its overall operations. out the delivery process. At various points along the It all starts with the scannable bar-coded label at- route from sender to receiver, bar code devices scan tached to a package, which contains detailed infor- shipping information on the package label and feed mation about the sender, the destination, and when data about the progress of the package into the cen- the package should arrive. Customers can download tral computer. Customer service representatives are and print their own labels using special software pro- able to check the status of any package from desk- vided by UPS or by accessing the UPS website. Before top computers linked to the central computers and the package is even picked up, information from respond immediately to inquiries from customers. the “smart” label is transmitted to one of UPS’s com- UPS customers can also access this information from puter centers in Mahwah, New Jersey, or Alpharetta, the company’s website using their own computers Georgia, and sent to the distribution center nearest or mobile phones. UPS now has mobile apps and a its final destination. mobile website for iPhone and Android smartphone Dispatchers at this center download the label data users. and use special routing software called ORION to cre- Anyone with a package to ship can access the UPS ate the most efficient delivery route for each driver website to track packages, check delivery routes, cal- that considers traffic, weather conditions, and the culate shipping rates, determine time in transit, print location of each stop. Each UPS driver makes an av- labels, and schedule a pickup. The data collected at erage of 120 stops per day. In a network with 55,000 the UPS website are transmitted to the UPS central routes in the United States alone, shaving even one computer and then back to the customer after pro- mile off each driver’s daily route translates into big cessing. UPS also provides tools that enable custom- savings in time, fuel consumption, miles driven, and ers, such as Cisco Systems, to embed UPS functions, carbon emissions—as much as $50 million per year. such as tracking and cost calculations, into their own These savings are critical as UPS tries to boost websites so that they can track shipments without earnings growth as more of its business shifts to less- visiting the UPS site. profitable e-commerce deliveries. UPS drivers who UPS is now leveraging its decades of expertise used to drop off several heavy packages a day at one managing its own global delivery network to man- retailer now often make multiple stops scattered age logistics and supply chain activities for other across residential neighborhoods, delivering one companies. It created a UPS Supply Chain Solutions package per household. The shift requires more fuel division that provides a complete bundle of standard- and more time, increasing the cost to deliver each ized services to subscribing companies at a fraction package. of what it would cost to build their own systems and 22 Part One Organizations, Management, and the Networked Enterprise infrastructure. These services include supply chain systems with Quickbooks accounting software and design and management, freight forwarding, customs inventory software. brokerage, mail services, multimodal transporta- UPS provides both financial and shipping advice tion, and financial services in addition to logistics and services to 4Moms, a Pittsburgh-headquartered services. company with 80 employees that makes innovative UPS technology and business services are helpful baby products using consumer technology. 4Moms to businesses of all sizes, including small start-ups. uses UPS Trade Direct, which enables companies to Fondarific is a Savannah-based company that manu- reduce freight and inventory costs by bypassing dis- factures and sells fondant icings for decorating wed- tribution centers and shipping their goods directly ding cakes and childrens’cakes. UPS made it possible to retailers. The UPS Cargo Finance service helps for Fondarific to grow rapidly when international 4Moms manage the cost of inventory as it is shipped sales took off. UPS set up a class in exporting to teach around the world. Fondarific how to manage international sales and Sources: www.ups.com, accessed April 27, 2020; Sean Galea-Pace, logistics and how to use its WorldShip global shipping “UPS Supply Chain Introduces Smart Warehouse Technology,” Supply software for UPS package and freight services. UPS Chain Digital, April 24, 2020; and Bloomberg, “UPS Sees Payoff From also showed the company how to integrate shipping $20Bn Tech Bet,” SupplyChainBrain, April 24, 2019. CASE STUDY QUESTIONS 1. What are the inputs, processing, and outputs of 3. What strategic business objectives do UPS’s infor- UPS’s package tracking system? mation systems address? 2. What technologies are used by UPS? How are these 4. What would happen if UPS’s information systems technologies related to UPS’s business strategy? were not available? It Isn’t Just Technology: A Business Perspective on Information Systems Managers and business firms invest in information technology and systems be- cause they provide real economic value to the business. The decision to build or maintain an information system assumes that the returns on this investment will be superior to other investments in buildings, machines, or other assets. These superior returns will be expressed as increases in productivity, as in- creases in revenues (which will increase the firm’s stock market value), or per- haps as superior long-term strategic positioning of the firm in certain markets (which will produce superior revenues in the future). We can see that from a business perspective, an information system is an im- portant instrument for creating value for the firm. Information systems enable the firm to increase its revenue or decrease its costs by providing information that helps managers make better decisions or that improves the execution of business processes. For example, the information system for analyzing super- market checkout data illustrated in Figure 1.3 can increase firm profitability by helping managers make better decisions as to which products to stock and promote in retail supermarkets. Every business has an information value chain, illustrated in Figure 1.7, in which raw information is systematically acquired and then transformed through various stages that add value to that information. The value of an information system to a business, as well as the decision to invest in any new information system, is, in large part, determined by the extent to which the system will lead to better management decisions, more efficient business processes, and higher  Chapter 1 Information Systems in Global Business Today 23 FIGURE 1.7 THE BUSINESS INFORMATION VALUE CHAIN From a business perspective, information systems are part of a series of value-adding activities for ac- quiring, transforming, and distributing information that managers can use to improve decision making, enhance organizational performance, and, ultimately, increase firm profitability. Business Processes Supply Enterprise Customer Knowledge Chain Management Management Management Management Firm Profitability and Strategic Data Transfor- Dissemination Position Collection mation and into Business Storage Systems Planning Coordinating Controlling Modeling and Decision Making Information Processing Activities Management Activities Business Value firm profitability. Although there are other reasons why systems are built, their primary purpose is to contribute to corporate value. The business perspective calls attention to the organizational and managerial na- ture of information systems. An information system represents an organizational and management solution, based on information technology, to a challenge or problem posed by the environment. Every chapter in this book begins with a short case study that illustrates this concept. A diagram at the beginning of each chapter illustrates the relationship between a business challenge and resulting manage- ment and organizational decisions to use IT as a solution to challenges generated by the business environment. You can use this diagram as a starting point for ana- lyzing any information system or information system problem you encounter. Review the diagram at the beginning of this chapter. The diagram shows how the AWM Smart Shelf system helps solve the business problem of brick-and- mortar stores losing market share to online retailers. This system provides a so- lution that takes advantage of opportunities provided by new object-recognition and wireless digital technology. AWM Smart Shelf digitally enables key business processes for inventory man- agement, sales, and marketing, helping retailers improve their overall business performance. The diagram also illustrates how management, technology, and organizational elements work together to create the systems. Complementary Assets: Organizational Capital and the Right Business Model Awareness of the organizational and managerial dimensions of information systems can help us understand why some firms achieve better results from their information systems than others. Studies of returns from information 24 Part One Organizations, Management, and the Networked Enterprise TABLE 1.2 COMPLEMENTARY SOCIAL, MANAGERIAL, AND ORGANIZATIONAL ASSETS REQUIRED TO OPTIMIZE RETURNS FROM INFORMATION TECHNOLOGY INVESTMENTS Organizational assets Supportive organizational culture that values efficiency and effectiveness Appropriate business model Efficient business processes Decentralized authority Distributed decision-making rights Strong IS development team Managerial assets Strong senior management support for technology investment and change Incentives for management innovation Teamwork and collaborative work environments Training programs to enhance management decision skills Management culture that values flexibility and knowledge-based decision making Social assets The Internet and telecommunications infrastructure IT-enriched educational programs raising labor force computer literacy Standards (both government and private sector) Laws and regulations creating fair, stable market environments Technology and service firms in adjacent markets to assist implementation technology investments show that there is considerable variation in the returns firms receive (see Figure 1.8). Some firms invest a great deal and receive a great deal (quadrant 2); others invest an equal amount and receive few returns (quad- rant 4). Still other firms invest little and receive much (quadrant 1), whereas FIGURE 1.8 VARIATION IN RETURNS ON INFORMATION TECHNOLOGY INVESTMENT Although, on average, investments in information technology produce returns far above those returned by other investments, there is considerable variation across firms. Source: Brynjolfsson, Erik, and Lorin M. Hitt. “Beyond Computation: Information Technology, Organizational Transformation, and Business Performance.” Journal of Economic Perspectives 14, No. 4 (2000). 4.0 1 2 2.0 Productivity (relative to 1.0 industry average).5.25 3 4.12.25 1.0 4.0 8.0 IT Capital Stock (relative to industry average)  Chapter 1 Information Systems in Global Business Today 25 others invest little and receive little (quadrant 3). This suggests that investing in information technology does not by itself guarantee good returns. What ac- counts for this variation among firms? The answer lies in the concept of complementary assets. Information tech- nology investments alone cannot make organizations and managers more effective unless they are accompanied by supportive values, structures, and be- havior patterns in the organization and other complementary assets. Business firms need to change how they do business before they can really reap the ad- vantages of new information technologies. Complementary assets are those assets required to derive value from a pri- mary investment (Teece, 1998). For instance, to realize value from automobiles requires substantial complementary investments in highways, roads, gasoline stations, repair facilities, and a legal regulatory structure to set standards and control drivers. Research indicates that firms that support their technology investments with investments in complementary assets, such as new business models, new business processes, management behavior, organizational culture, or training, receive superior returns, whereas those firms failing to make these comple- mentary investments receive less or no returns on their information technol- ogy investments (Brynjolfsson, 2005; Brynjolfsson and Hitt, 2000; Laudon, 1974). These investments in organization and management are also known as organizational and management capital. Table 1.2 lists the major complementary investments that firms need to make to realize value from their information technology investments. Some of this investment involves tangible assets, such as buildings, machinery, and tools. However, the value of investments in information technology de- pends to a large extent on complementary investments in management and organization. Key organizational complementary investments are a supportive busi- ness culture that values efficiency and effectiveness, an appropriate business model, efficient business processes, decentralization of authority, highly dis- tributed decision rights, and a strong information system (IS) development team. Important managerial complementary assets are strong senior man- agement support for change, incentive systems that monitor and reward individual innovation, a