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Introduction to Information Systems
CHAPTER OUTLINE LEARNING OBJECTIVES
1.1 Why Should I Study Information Systems? 1.1 Identify the reasons why being an informed user of information

systems is important in today’s world.

1.2 Overview of Computer-Based Information 1.2 Describe the various types of computer-based information Systems systems in an organization.

1.3 How Does IT Impact Organizations? 1.3 Discuss ways in which information technology can affect

managers and nonmanagerial workers.

1.4 Importance of Information Systems to 1.4 Identify positive and negative societal effects of the increased Society use of information technology.

Opening Case

CHAPTER 1

FanDuel and DraftKings

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FanDuel ( www.fanduel.com ), founded in 2009, and DraftKings (www

.draftkings.com), founded in 2012, operate web-based daily fantasy sports (DFS) games. The two companies began operations by taking advantage of an exclusion in the 2006 Unlawful Internet Gambling En­ forcement Act. This statute bans credit card issuers and banks from working with poker and sports-betting websites, effectively prevent­ ing U.S. customers from participating in those industries. The federal statute, however, exempts fantasy sports because they are considered games of skill, not luck. To maintain legal status, the operator of a fan­ tasy sports business must follow four rules: (1) publish prize amounts before the games begin, (2) make prize amounts independent of the number of players in the game, (3) level the playing field by allowing anyone in a league to draft any player they want, and (4) disregard point spreads and game scores.

FanDuel and DraftKings deliver simple and fast fantasy betting. After paying an entry fee, players become eligible to win daily cash pay­ outs based on the statistical performance of athletes in games played that day. Traditional fantasy sports often frustrate players because the

experience lasts for an entire season. If a player drafts a bad team, then he or she is stuck with that team for several months. Serious fantasy league players also analyze large amounts of statistics, roster changes, and injury reports. Many casual players do not have time for such anal­ yses. In contrast to these leagues, FanDuel and DraftKings allow cus­ tomers to play for just a day, a weekend, or a week.

The companies allow players to participate for free or bet up to $5,000 to draft a team of players in the National Football League (NFL), the National Basketball Association (NBA), Major League Base­ ball (MLB), and the National Hockey League (NHL). Players can com­ pete head-to-head against another individual or in a league with up to 125,000 teams. The winner is the one with the best player statistics, which translate into fantasy points. The companies take an average of 9 percent of each prize.

MIS

FanDuel and DraftKings spend millions of dollars on com­ puting power from Amazon Web Services and other cloud computing providers. Cloud computing (discussed in Technology Guide 3) enables the companies to manage, as only one example, the increase in web traffic just before Sunday’s NFL kickoff. At that time, the firms must manage hundreds of thousands of simultaneous users, who make a

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2 CHAPTER 1 Introduction to Information Systems

myriad of roster changes per hour. The companies also provide mil­ lions of live scoring updates per minute during games, meaning that they must manage almost 10 terabytes of network traffic during game day. (A terabyte equals 1 trillion bytes.)

Professional sports have noted that FanDuel and DraftKings, with their easy-to-use apps, appeal to young and mobile sports fans. Fur­ thermore, these fans have money at stake, so they are more inclined to watch games on television than they otherwise would. An increase in viewers leads to an increase in advertising rates for the teams. In fact, in 2015, FanDuel signed multiyear sponsorship agreements with 15 NFL teams. These deals generally include stadium signage, radio and digital advertising, and other promotions. Interestingly, the NBA owns an equity stake in FanDuel.

The two companies had tremendous success. In 2015, they processed a combined $3 billion in player-entry fees and realized a combined revenue of $280 million. By the fall of 2016, the companies claimed to have almost 60 million players in the United States.

Despite their success, FanDuel and DraftKings faced serious prob­ lems. Their first problem is that they can operate only as long as the federal government and state governments allowed them to do so. At the federal level, the government could close the fantasy loophole in the 2006 statute at any time. At the state level, each state can decide that DFS constitutes gambling and prohibit DFS in that state.

Significantly, the federal statute does not give daily fantasy sports businesses immunity from state laws. In November 2015, New York Attorney General Eric Schneiderman sent cease-and-desist letters to both companies, declaring that their games constituted illegal gam­ bling under state law and ordering both to stop accepting bets from New York residents.

Shortly thereafter, the two companies agreed on a strategy to push for legislation clarifying daily fantasy sport’s legality in each state. On June 18, 2016, the DFS bill passed the New York state leg­ islature and on August 3, New York Governor Andrew Cuomo signed it into law. FanDuel and DraftKings immediately began allowing New York residents to play again.

Their second problem involves litigation. Three federal grand ju­ ries—in Boston, New York, and Tampa, Florida—have notified one or both companies that they are under criminal investigation. Further­ more, a class-action lawsuit, consolidated in Massachusetts, alleges conspiracy, fraud, negligence, and other claims. The lawsuit repre­ sents losing DFS players from 25 states and the District of Columbia.

Their third problem is that industry analysts estimate that 60 per­ cent of the firms’ revenue comes from approximately 15,000 high- volume players wagering at least $10,000 per year. Some 50 players who are analytics-driven professionals each wager at least $1 million per year. These figures underscore the fact that the vast majority of DFS players lose.

As of the fall of 2016, FanDuel and DraftKings are conducting expensive state-by-state campaigns seeking regulatory and legal clarity on the gambling issue. To be permitted to operate in various states, the two companies had to make needed improvements in their

operations. Specifically, they now provide areas for players of all skill levels, particularly to make beginning players feel comfortable and welcome. Both companies’ employees are prohibited from competing on rival sites. The firms have created tiers of players so that beginning players can avoid playing against professional players. Along these lines, FanDuel introduced “Experienced Player Indicators” and Draft­ Kings introduced “Experienced Player Badges.”

Interestingly, in the spring of 2016, FanDuel suspended contests on college sports in all states as part of a negotiation with the National Collegiate Athletic Association.

As a result of their problems, the companies’ market values have decreased markedly and neither company was profitable in 2016. As of fall 2016, some 20 states have pending legislation permitting DFS.

And the unanswered question? Why have the two DFS companies not yet merged?

Sources: Compiled from D. Van Natta, “Welcome to the Big Time,” ESPN, August 24, 2016; A. Carr, “The Most Dangerous CEO in Sports,” Fast Company, May 2016; D. Purdum, “DraftKings, FanDuel to Stop Offering College Fantasy Games,” ESPN.com , March 31, 2016; A. Berzon, “Fantasy Sports Industry Mounts Lobbying Blitz,” Wall Street Journal, February 15, 2016; M. Brown, “FanDuel Lays Off Workers as Legal Pressure Mounts,” Forbes, January 20, 2016; J. Brustein, “New York Gambles on a Daily Fantasy Ban,” Bloomberg BusinessWeek, November 23–29, 2015; R. Axon, “Facing Threat from N.Y. Attorney General, FanDuel Suspends Entries in State,” USA Today, November 17, 2015; L. Baker, “FanDuel, DraftKings Vow to Fight New York’s Halt on Bets,” Reuters, November 12, 2015; D. Alba, “DraftKings and FanDuel Scandal Is a Cautionary Startup Tale,” Wired, October 9, 2015; D. Roberts, “Flight of Fantasy,” Fortune, October 1, 2015; D. Roberts, “Are DraftKings and FanDuel Legal?” Fortune, September 24, 2015; J. Brustein and I. Boudway, “Just a Fantasy,” Bloomberg BusinessWeek, September 14–20, 2015; K. Wagner, “DraftKings and FanDuel Are Battling over Your Favorite Teams,” www

.recode.net, July 17, 2015; R. Sandomir, “FanDuel and DraftKings, Leaders in Daily Fantasy Sports, Are Quickly Gaining Clout,” New York Times, July 13, 2015; S. Rodriguez, “Yahoo Enters World of Daily Fantasy Sports, Takes on DraftKings and FanDuel,” International Business Times, July 8, 2015; B. Schrotenboer, “FanDuel Signs Deals with 15 NFL Teams, Escalating Daily Fantasy Integration,” USA Today, April 21, 2015; D. Primack, “DraftKings and FanDuel Close in on Massive New Investments,” Fortune, April 6, 2015;

R. Bertoni, “Fantasy Sports, Real Money,” Forbes, January 19, 2015; B. Schrotenboer, “Fantasy Sports Debate: Gambling or Not Gambling?” USA Today, January 12, 2015; www.fanduel.com, www.draftkings.com, accessed September 20, 2016.

Questions

1. Describe how information technology is essential to the compa­ nies’ operations.

2. Is information technology one of the companies’ problems? Ex­ plain your answer.

3. Describe the companies’ information technology infrastructure. Now discuss possible technological problems that the companies might have.

4. The companies face serious problems that are not related to in­ formation technology. Can information technology help them ad­ dress these problems? Why or why not? Explain your answer.

Introduction

Before we proceed, we need to define information technology and information systems. Infor­ mation technology (IT) refers to any computer-based tool that people use to work with infor­ mation and to support the information and information-processing needs of an organization.

Introduction 3

An information system (IS) collects, processes, stores, analyzes, and disseminates informa­ tion for a specific purpose.

IT has far-reaching effects on individuals, organizations, and our planet. Although this text is largely devoted to the many ways in which IT has transformed modern organizations, you will also learn about the significant impacts of IT on individuals and societies, the global economy, and our physical environment. IT is also making our world smaller, enabling more and more people to communicate, collaborate, and compete, thereby leveling the competitive playing field.

This text focuses on the successful applications of IT in organizations. That is, how orga­ nizations can use IT to solve business problems and gain a competitive advantage in the mar­ ketplace. However, as you see in this chapter’s opening case, not all business problems can be solved with IT. This situation means that you must continue to develop your business skills!

When you graduate, you either will start your own business or you will work for an organi­ zation, whether it is public sector, private sector, for-profit, or not-for-profit. Your organization will have to survive and compete in an environment that has been radically transformed by information technology. This environment is global, massively interconnected, intensely com­ petitive, 24/7/365, real-time, rapidly changing, and information-intensive. To compete success­ fully, your organization must use IT effectively.

As you read this chapter and this text, keep in mind that the information technologies you will learn about are important to businesses of all sizes. No matter what area of business you major in, what industry you work for, or the size of your company, you will benefit from learning about IT. Who knows? Maybe you will use the tools you learn about in this class to make your great idea a reality by becoming an entrepreneur and starting your own business! In fact, as you see in the chapter opening case and IT’s About Business 1.1, you can use information technol­ ogy to help you start your own business.

The modern environment is intensely competitive not only for your organization, but for you as well. You must compete with human talent from around the world. Therefore, you per­ sonally will have to make effective use of IT.

Accordingly, this chapter begins with a discussion of why you should become knowledge­ able about IT. Next, it distinguishes among data, information, and knowledge, and differenti­ ates computer-based information systems from application programs. Finally, it considers the impacts of information systems on organizations and on society in general.

IT’s About Business 1.1

New Delivery Services Use Information Technology and delivery fleets in their attempt to serve customers who are will­

ing to pay a bit extra to have things done quickly. These companies

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also often do not hire their workers. Rather, they use independent Webvan, an online grocery business that went bankrupt in 2001, is contractors who are willing to forgo benefits packages (e.g., health considered to be the largest dotcom failure in history. The compa­ insurance, 401(k) plans) for jobs they can perform whenever they ny’s business model was to deliver products to customers’ homes want to.

within 30 minutes of a time the customer chose. The delivery services differ from more established grocery

Today, busy consumers are increasingly looking for the con- delivery companies such as FreshDirect ( www.freshdirect.com ), venience of having many items delivered on demand, with food Peapod ( www.peapod.com ), and AmazonFresh (https://fresh being the largest category. In fact, despite the well-known failure of .amazon.com) because they do not actually sell groceries directly Webvan, many same-day, third-party delivery services are emerg­ to you. Instead, you select what you want online or through an app ing to compete in the delivery industry, which is worth about $70 and choose a delivery time. The service then sends a contractor to billion a year. Delivery services are an excellent strategy for small the store to pick up your order and deliver it to your door. Let’s take businesses to differentiate themselves from their competitors and a look at some of these services.

to compete with giant online retailers.

Delivery service providers include some of the largest firms Instacart. Instacart ( www.instacart.com ) delivers items from in technology and retail, as well as specialized startups. The major chains such as Safeway, Whole Foods, and Costco as well as local challenge facing these companies is how to deliver groceries and markets. Instacart has no physical infrastructure. In fact, the com­ other items door-to-door without incurring unmanageable costs. pany consists of two grocery-delivery smartphone apps.

These companies use information technology, such as apps Customers place orders using Instacart’s website or mobile on GPS-enabled smartphones, to bypass the need for warehouses app. A separate app, used by more than 4,000 personal shoppers

10 CHAPTER 1 Introduction to Information Systems

Why Should I Study Information Systems? 5

whom Instacart has hired across 15 cities, guides the shoppers to stores from which they buy goods. The app can actually identify the aisle and the shelf where an item is located. The goal is to deliver orders within one hour of the order being placed.

Personal shoppers fill several orders at once as they go from store to store. The app suggests the optimal driving route to a cus­ tomer’s home, taking into account weather, traffic, sporting events, and local construction. Instacart charges a premium based on the size of each purchase. The company also offers a $99-per-year membership that waives the delivery fee for orders greater than

$35.

Postmates. Postmates ( https://postmates.com ) works like this: The company’s 13,000 couriers receive orders on their smart- phones. For example, a customer wants 18 pounds of crushed ice, and Postmates offers the courier $4.80 to pick up the ice and deliver it. When the courier accepts the job, his phone guides him to the grocery store and then to the customer.

The majority of deliveries made by Postmates are hot meals. The company analyzes data such as food-preparation times to be­ come more effective at stacking—as their couriers drop off one or­ der, their next pickup is already assigned and being prepared.

Although roughly 80 percent of Postmates’ orders are pre­ pared food, the company is expanding to deliver other commodi­ ties; for example, healthcare and beauty products. Postmates has also reached a deal with Apple to deliver MacBooks and other prod­ ucts the same day that customers purchase them online.

Uber. In 2015, Uber ( www.uber.com ) launched an option on its app, called UberEats, in New York and Chicago. UberEats delivers meals from local restaurants, with the “menu” items changing daily. UberEats is displayed on the Uber app only when a user is in an area that is covered.

GrubHub/Seamless. GrubHub/Seamless ( www.grubhub.com ) is a top online ordering provider, partnering with more than 45,000 restaurants. The app allows customers to flip through menus, place orders, and pay for delivery through the web or a mobile app. In 2015, the company bought out competitors Restaurants on the Run and DiningIn. These acquisitions enable GrubHub/Seamless to own the “last mile” of the supply chain and become a one-stop shop for food, from ordering to delivery.

Ola Cabs. Ola Cabs (Ola; https://www.olacabs.com ) provides different types of cab service in India. Customers can reserve a cab through a web browser or a mobile app. The company commands about 60 percent of the market share in India. In 2015, Ola launched a grocery delivery service, Ola Store, that offers customers a choice of 12,000 items in 13 categories, everything from fruits and vegeta­ bles to baby items.

These companies do experience challenges. To begin with, the workforce that is essential to this business model may present a problem. That is, their labor costs will probably rise. Also, several on-demand companies are being sued for classifying their couriers as independent contractors rather than as employees to avoid pro­ viding them with benefits packages. In June 2015, California’s labor commissioner ruled that a driver for Uber should be classified as a company employee.

Another challenge is that convenience can be expensive be­ cause delivery charges can vary greatly. For example, Instacart of­ fers flat rates, whereas Postmates’ fees depend on the distance of the delivery. Besides delivery costs, Instacart charges a premium

for items from some of the stores it delivers from. Another down­ side is that shoppers may miss out on using coupons or browsing for cheaper alternatives in the store. Also, the orders do not always go according to plan. For example, if an item is sold out, then the delivery person has to call the customer for instructions on what to do.

Perhaps the most serious challenge in the delivery market is competition from many large, established companies that offer de­ livery services. Consider these examples:

· Amazon ( www.amazon.com ) was looking into crowdsourc­ ing (see Chapter 6) to use a mobile app to hook up individuals to deliver packages and existing brick-and-mortar stores to warehouse them.

· Walmart, which gets half of its sales from groceries, is explor­ ing the online food business ( http://grocery.walmart.com ). Customers order online and Walmart employees select and bag the products. When customers arrive at the store, em­ ployees load the groceries into the customers’ cars.

· Safeway grocery stores ( https://shop.safeway.com ) offers its “fresh to your door” delivery service.

· Starbucks (www.starbucks.com ) offers a delivery service.

With the intense competition in the delivery services market, it is too early to predict any results. However, the companies dis­ cussed in this case are receiving large amounts of venture capital funding.

Sources: Compiled from B. Solomon, “Why GrubHub Is Building What Its CEO Calls ‘A S***** Business,’” Forbes, April 20, 2016; J. Russell, “India’s Ola Takes a Leaf Out of Uber’s Book with New Grocery-Delivery Service,” TechCrunch, July 21, 2015; L. Rao, “Instacart Is Asking Its Customers to Do Something New,” Fortune, June 26, 2015; K. Kokalitcheva, “Why On- Demand Delivery Startup Postmates Really Raised $80 Million,” Fortune, June 25, 2015; M. Kosoff, “$2 Billion Grocery Delivery Startup Instacart Is Reclassifying Some of Its Workers as Employees,” Business Insider, June 22, 2015; G. Bensinger, “Amazon’s Next Delivery Drone: You,” Wall Street

Journal, June 16, 2015; A. Connolly, “Amazon Considers Copying Postmates with New Crowdsourced Delivery Service,” The Next Web, June 16, 2015;

L. Heller, “Amazon’s Uber-Like Delivery Service Could Be Coming Soon,” Forbes, June 16, 2015; P. Vasan, “Tech Giants Serving Up Real Compe­ tition for FreshDirect,” CNBC, June 12, 2015; J. Pinsker, “What Does the

On-Demand Workforce Look Like?” The Atlantic, May 20, 2015; L. Jennings, “New Services Disrupt Restaurant Delivery Landscape,” Nation’s Restaurant News, May 18, 2015; K. Taylor, “We Tested Chipotle and McDonald’s New Delivery Services. Here’s What Happened,” Entrepreneur, May 6, 2015;

R. Paley, “Watch Out Seamless: New Delivery Services Are Invading Your Turf,” Yahoo!, May 1, 2015; A. Stevenson, “Death to Amazon? Postmates’ Boost to Small Business,” CNBC, April 29, 2015; P. Sawers, “Uber Launches a Curated Meal-Delivery Service in New York and Chicago,” Venture Beat, April 28, 2015; K. Steinmetz, “Go Fetch,” Time, March 16, 2015; B. Solomon, “America’s Most Promising Company: Instacart, the $2 Billion Grocery App,” Forbes, January 21, 2015; D. Matthews, “Watch Out, Seamless and Grub­ Hub—Amazon Is Coming for You,” Fast Company, December 3, 2014.

Questions

1. Describe the information technology used and developed by the entrepreneurs who founded Instacart, Postmates, GrubHub/Seamless, Uber, and Ola Cabs. What is the impact of these technologies on the costs of starting a business?

2. What are the advantages and disadvantages of being an in­ dependent contractor for a company?

3. Would you consider a job as a courier for one of these com­ panies? Why or why not?

Why Should I Study Information Systems?
1.1

You are part of the most connected generation in history: You have grown up online; you are, quite literally, never out of touch; you use more information technologies (in the form of digital devices), for more tasks, and are bombarded with more information, than any generation in history. The MIT Technology Review refers to you as Homo conexus. Information technologies are so deeply embedded in your lives that your daily routines would be almost unrecognizable to a college student just 20 years ago.

Essentially, you practice continuous computing, surrounded by a movable information network. This network is created by constant cooperation between the digital devices you carry (for example, laptops, tablets, and smartphones); the wired and wireless networks that you access as you move about; and web-based tools for finding information and communicating and collaborating with other people. Your network enables you to pull information about vir­ tually anything from anywhere, at any time, and to push your own ideas back to the web, from wherever you are, through a mobile device. Think of everything you do online, often with your smartphone: register for classes; take classes (and not just at your university); access class syl­ labi, information, PowerPoints, and lectures; research class papers and presentations; conduct banking; pay your bills; research, shop, and buy products from companies and other people; sell your “stuff”; search for, and apply for, jobs; make your travel reservations (hotel, airline, rental car); create your own blog and post your own podcasts and videocasts to it; design your own page on Facebook and LinkedIn; make and upload videos to YouTube; take, edit, and print your own digital photographs; stream music and movies to your personal libraries; use RSS feeds to create your personal electronic newspaper; text and tweet your friends and family throughout your day; send Snaps; and many other activities. (Note: If any of these terms are unfamiliar to you, don’t worry. You will learn about everything mentioned here in detail later in this text.)

The Informed User—You!
So, the question is: Why you should learn about information systems and information technol­ ogies? After all, you can comfortably use a computer (or other electronic devices) to perform many activities, you have been surfing the web for years, and you feel confident that you can manage any IT application that your organization’s MIS department installs.

The answer lies in you becoming an informed user; that is, a person knowledgeable about information systems and information technology. There are several reasons why you should become an informed user.

MIS

In general, informed users tend to get more value from whatever technologies they use. You will enjoy many benefits from being an informed user of IT, including:

· You will benefit more from your organization’s IT applications because you will under­ stand what is “behind” those applications (see Figure 1.1); that is, what you see on your computer screen is brought to you by your MIS department, who is operating behind your screen.

· You will be in a position to enhance the quality of your organization’s IT applications with your input.

· Even as a new graduate, you will quickly be in a position to recommend—and perhaps help select—the IT applications that your organization will use.

· Being an informed user will keep you abreast of both new information technologies and rapid developments in existing technologies. Remaining on top of things will help you to anticipate the impacts that new and improved technologies will have on your organization and to make recommendations on the adoption and use of these technologies.

FIGURE 1.1 MIS provides what users see and use on their computers.

· You will understand how using IT can improve your organization’s performance and team­ work as well as your own productivity.

@ Slaomir Fajer/iStockphoto

· If you have ideas of becoming an entrepreneur, then being an informed user will help you use IT when you start your own business.

Going further, managing the IS function within an organization is no longer the exclusive responsibility of the IS department. Rather, users now play key roles in every step of this pro­ cess. The overall objective in this text is to provide you with the necessary information to con­ tribute immediately to managing the IS function in your organization. In short, the goal is to help you become a very informed user!

IT Offers Career Opportunities
Because IT is vital to the operation of modern businesses, it offers many employment opportunities. The demand for traditional IT staff—programmers, business analysts, systems analysts, and designers—is substantial. In addition, many well-paid jobs exist in areas such as the Internet and electronic commerce (e-commerce), mobile commerce (m-commerce), net­ work security, telecommunications, and multimedia design.

MIS

The IS field includes the people in various organizations who design and build information systems, the people who use those systems, and the people responsible for managing those systems. At the top of the list is the chief information officer (CIO).

The CIO is the executive who is in charge of the IS function. In most modern organizations, the CIO works with the chief executive officer (CEO), the chief financial officer (CFO), and other senior executives. Therefore, he or she actively participates in the organization’s strategic plan­ ning process. In today’s digital environment, the IS function has become increasingly strategic within organizations. As a result, although most CIOs still rise from the IS department, a grow­ ing number are coming up through the ranks in the business units (e.g., marketing or finance). Regardless of your major, you could become the CIO of your organization one day. This is an­ other reason to be an informed user of information systems!

TABLE 1.1

Information Technology Jobs

Position

Job Description

Chief Information Officer

Highest-ranking IS manager; responsible for all strategic planning in the organization

IS Director

Manages all systems throughout the organization and the day-to-day operations of the entire IS organization

Information Center Manager

Manages IS services such as help desks, hot lines, training, and consulting

Applications Development Manager

Coordinates and manages new systems development projects

Project Manager

Manages a particular new systems development project

Systems Analyst

Interfaces between users and programmers; determines information requirements and technical specifications for new applications

Operations Manager

Supervises the day-to-day operations of the data or computer center

Programming Manager

Coordinates all applications programming efforts

Social Media Manager

Coordinates all social media development efforts and all social media monitoring and response efforts

Business Analyst

Focuses on designing solutions for business problems; interfaces closely with users to demonstrate how IT can be used innovatively

Systems Programmer

Creates the computer code for developing new systems software or maintaining existing systems software

Applications Programmer

Creates the computer code for developing new applications or maintaining existing applications

Emerging Technologies Manager

Forecasts technology trends; evaluates and experiments with new technologies

Network Manager

Coordinates and manages the organization’s voice and data networks

Database Administrator

Manages the organization’s databases and oversees the use of database-management software

Auditing or Computer Security Manager

Oversees the ethical and legal use of information systems

Webmaster

Manages the organization’s website

Web Designer

Creates websites and pages

Table 1.1 provides a list of IT jobs, along with a description of each one. For further details about careers in IT, see www.computerworld.com/careertopics/careers and www.monster.com .

Career opportunities in IS are strong and are projected to remain strong over the next 10 years. In fact, the U.S. News & World Report listed its “100 best jobs of 2016,” Money listed its “best jobs in America for 2016,” and Forbes listed its “10 best jobs” for 2016. Let’s take a look at these rankings. (Note that the rankings differ because the magazines used different criteria in their research.) As you can see, jobs suited for MIS majors rank extremely high in all three lists. The magazines with their job rankings are as follows:

U.S. News & World Report (out of 100)

3: Computer systems analyst 13: Software developer

20: Web developer

29: IT manager

Money

1: Software engineer

7: IT Analyst

Forbes (out of 10)

3: Information security analyst 7: Software engineer

8: Computer systems analyst

Not only do IS careers offer strong job growth, the pay is excellent as well. The Bureau of Labor Statistics, an agency within the Department of Labor that is responsible for tracking and analyzing trends relating to the labor market, notes that the median salary in 2016 for “com­ puter and information systems managers” was approximately $130,000, and predicted that the profession would grow by an average of 15 percent per year through 2022.

Managing Information Resources
Managing information systems in modern organizations is a difficult and complex task. Several factors contribute to this complexity. First, information systems have enormous strategic value to organizations. Firms rely on them so heavily that, in some cases, when these systems are not working (even for a short time), the firm cannot function. (This situation is called “being hostage to information systems”). Second, information systems are very expensive to acquire, operate, and maintain.

A third factor contributing to the difficulty in managing information systems is the evo­ lution of the management information systems (MIS) function within the organization. When businesses first began to use computers in the early 1950s, the MIS department “owned” the only computing resource in the organization, the mainframe. At that time, end users did not interact directly with the mainframe.

In contrast, in the modern organization, computers are located in all departments, and al­ most all employees use computers in their work. This situation, known as end user computing, has led to a partnership between the MIS department and the end users. The MIS department now acts more as of a consultant to end users, viewing them as customers. In fact, the main function of the MIS department is to use IT to solve end users’ business problems.

MIS

As a result of these developments, the responsibility for managing information resources is now divided between the MIS department and the end users. This arrangement raises several important questions: Which resources are managed by whom? What is the role of the MIS department, its structure, and its place within the organization? What is the appropriate relationship between the MIS department and the end users? Regardless of who is doing what, it is essential that the MIS department and the end users work in close cooperation.

There is no standard way to divide responsibility for developing and maintaining informa­ tion resources between the MIS department and the end users. Instead, that division depends on several factors: the size and nature of the organization, the amount and type of IT resources, the organization’s attitudes toward computing, the attitudes of top management toward com­ puting, the maturity level of the technology, the amount and nature of outsourced IT work, and even the countries in which the company operates. Generally speaking, the MIS department is responsible for corporate-level and shared resources, and the end users are responsible for departmental resources. Table 1.2 identifies both the traditional functions and various new, consultative functions of the MIS department.

So, where do the end users come in? Take a close look at Table 1.2. Under the traditional MIS functions, you will see two functions for which you provide vital input: managing systems development and infrastructure planning. Under the consultative MIS functions, in contrast, you exercise the primary responsibility for each function, while the MIS department acts as your advisor.

Before you go on. . .
1. Rate yourself as an informed user. (Be honest; this isn’t a test!)

2. Explain the benefits of being an informed user of information systems.

3. Discuss the various career opportunities offered in the IT field.

The Changing Role of the Information Systems Department

TABLE 1.2

Traditional Functions of the MIS Department

Managing systems development and systems project management

· As an end user, you will have critical input into the systems development process. You will learn about systems development in Chapter 13.

Managing computer operations, including the computer center Staffing, training, and developing IS skills

Providing technical services

Infrastructure planning, development, and control

· As an end user, you will provide critical input about the IS infrastructure needs of your department.

New (Consultative) Functions of the MIS Department

Initiating and designing specific strategic information systems

· As an end user, your information needs will often mandate the development of new strategic information systems.

You will decide which strategic systems you need (because you know your business needs better than the MIS department does), and you will provide input into developing these systems.

Incorporating the Internet and electronic commerce into the business

· As an end user, you will be primarily responsible for effectively using the Internet and electronic commerce in your business. You will work with the MIS department to accomplish this task.

Managing system integration including the Internet, intranets, and extranets

· As an end user, your business needs will determine how you want to use the Internet, your corporate intranets, and extranets to accomplish your goals. You will be primarily responsible for advising the MIS department on the most effective use of the Internet, your corporate intranets, and extranets.

Educating the non-MIS managers about IT

· Your department will be primarily responsible for advising the MIS department on how best to educate and train your employees about IT.

Educating the MIS staff about the business

· Communication between the MIS department and the business units is a two-way street. You will be responsible for educating the MIS staff on your business, its needs, and its goals.

Partnering with business-unit executives

· Essentially, you will be in a partnership with the MIS department. You will be responsible for seeing that this partnership is one “between equals” and ensuring its success.

Managing outsourcing

· Outsourcing is driven by business needs. Therefore, the outsourcing decision resides largely with the business units (that is, with you). The MIS department, working closely with you, will advise you on technical issues such as communications bandwidth and security, as well as other issues.

Proactively using business and technical knowledge to seed innovative ideas about IT

· Your business needs will often drive innovative ideas about how to effectively use information systems to accomplish your goals. The best way to bring these innovative uses of IS to life is to partner closely with your MIS department. Such close partnerships have amazing synergies!

Creating business alliances with business partners

· The needs of your business unit will drive these alliances, typically along your supply chain. Again, your MIS department will act as your advisor on various issues, including hardware and software compatibility, implementing extranets, communications, and security.

Overview of Computer-Based Information Systems
1.2

Organizations refer to their management information systems functional area by several names, including the MIS Department, the Information Systems (IS) Department, the Infor­ mation Technology (IT) Department, and the Information Services Department. Regardless of the name, however, this functional area deals with the planning for—and the development,

10 CHAPTER 1 Introduction to Information Systems

Overview of Computer-Based Information Systems 11

FIGURE 1.2 Data, Information, and Knowledge

management, and use of—information technology tools to help people perform all the tasks related to information processing and management. Recall that information technology re­ lates to any computer-based tool that people use to work with information and to support the information and information-processing needs of an organization.

As previously stated, an information system collects, processes, stores, analyzes, and disseminates information for a specific purpose. The purpose of information systems has been defined as getting the right information to the right people at the right time in the right amount and in the right format. Because information systems are intended to supply useful informa­ tion, we need to differentiate between information and two closely related terms: data and knowledge (see Figure 1.2).

Data items refer to an elementary description of things, events, activities, and transac­ tions that are recorded, classified, and stored but are not organized to convey any specific meaning. Data items can be numbers, letters, figures, sounds, and images. Examples of data items are collections of numbers (e.g., 3.11, 2.96, 3.95, 1.99, 2.08) and characters (e.g., B, A, C, A, B, D, F, C).

Information refers to data that have been organized so that they have meaning and value to the recipient. For example, a grade point average (GPA) by itself is data, but a student’s name coupled with his or her GPA is information. The recipient interprets the meaning and draws conclusions and implications from the information. Consider the examples of data provided in the preceding paragraph. Within the context of a university, the numbers could be grade point averages, and the letters could be grades in an Introduction to MIS class.

Knowledge consists of data and/or information that have been organized and processed to convey understanding, experience, accumulated learning, and expertise as they apply to a current business problem. For example, suppose that a company recruiting at your school has found over time that students with grade point averages over 3.0 have experienced the greatest success in its management program. Based on this accumulated knowledge, that company may decide to interview only those students with GPAs over 3.0. This example pre­ sents an example of knowledge because the company uses information—GPAs—to address a

business problem—hiring successful employees. As you can see from this example, organiza­ tional knowledge, which reflects the experience and expertise of many people, has great value to all employees.

Consider this example:

Data Information

Knowledge

[No context] [University context]

3.16 3.16 + John Jones = GPA

· Job prospects

2.92 2.92 + Sue Smith = GPA

· Graduate school prospects

1.39 1.39 + Kyle Owens = GPA

· Scholarship prospects

3.95 3.95 + Tom Elias = GPA

Data Information

Knowledge

[No context] [Professional baseball pitcher context]

3.16 3.16 + Ken Rice = ERA

2.92 2.92 + Ed Dyas = ERA

· Keep pitcher, trade pitcher, or

send pitcher to minor leagues

1.39 1.39 + Hugh Carr = ERA

· Salary/contract negotiations

3.95 3.95 + Nick Ford = ERA

GPA = Grade point average (higher is better).

ERA = Earned run average (lower is better); ERA is the number of runs per nine innings that a pitcher surrenders.

You see that the same data items, with no context, can mean entirely different things in different contexts.

Now that you have a clearer understanding of data, information, and knowledge, let’s shift our focus to computer-based information systems. As you have seen, these systems process data into information and knowledge that you can use.

A computer-based information system (CBIS) is an information system that uses com­ puter technology to perform some or all of its intended tasks. Although not all information systems are computerized today, most are. For this reason the term “information system” is typically used synonymously with “computer-based information system.” The basic compo­ nents of computer-based information systems are listed further on. The first four are called information technology components. Figure 1.3 illustrates how these four components in­ teract to form a CBIS.

· Hardware consists of devices such as the processor, monitor, keyboard, and printer. To­ gether, these devices accept, process, and display data and information.

· Software is a program or collection of programs that enable the hardware to process data.

· A database is a collection of related files or tables containing data.

· A network is a connecting system (wireline or wireless) that permits different computers to share resources.

· Procedures are the instructions for combining the preceding components to process in­ formation and generate the desired output.

· People use the hardware and software, interface with it, or use its output.

Figure 1.4 illustrates how these components are integrated to form the wide variety of information systems found within an organization. Starting at the bottom of the figure, you see that the IT components of hardware, software, networks (wireline and wireless), and databases form the information technology platform. IT personnel use these components to develop information systems, oversee security and risk, and manage data. These activities cumulatively are called information technology services. The IT components plus IT services comprise the

FIGURE 1.3 Computer-based information systems consist of hardware, software, databases networks, procedures, and people.

FIGURE 1.4 Information technology inside your organization.

organization’s information technology infrastructure. At the top of the pyramid are the var­ ious organizational information systems.

Computer-based information systems have many capabilities. Table 1.3 summarizes the most important ones.

Information systems perform these various tasks through a wide spectrum of applications. An application (or app) is a computer program designed to support a specific task or business process. (A synonymous term is application program.) Each functional area or department within a business organization uses dozens of application programs. For example, the hu­ man resources department sometimes uses one application for screening job applicants and

TABLE 1.3

Major Capabilities of Information Systems

Perform high-speed, high-volume numerical computations.

Provide fast, accurate communication and collaboration within and among organizations. Store huge amounts of information in an easy-to-access, yet small space.

Allow quick and inexpensive access to vast amounts of information, worldwide. Analyze and interpret vast amounts of data quickly and efficiently.

Automate both semiautomatic business processes and manual tasks.

another for monitoring employee turnover. The collection of application programs in a single department is usually referred to as a departmental information system (also known as a functional area information system). For example, the collection of application programs in the human resources area is called the human resources information system (HRIS). There are collections of application programs—that is, departmental information systems—in the other functional areas as well, such as accounting, finance, marketing, and production/ operations.

The importance of information systems cannot be understated. In fact, a 2016 report from the Software Alliance shows that information systems added more than $1 trillion of value to the United States gross domestic product.

Types of Computer-Based Information Systems
Modern organizations employ many different types of information systems. Figure 1.4 illus­ trates the different types of information systems that function within a single organization, and Figure 1.5 shows the different types of information systems that function among multiple organizations. You will study transaction processing systems, management information sys­ tems, and enterprise resource planning systems in Chapter 10. You will learn about customer relationship management (CRM) systems in Chapter 11, and supply chain management (SCM) systems in Chapter 11.

FIGURE 1.5 Information systems that function among multiple organizations.

In the next section you will learn about the numerous and diverse types of information sys­ tems employed by modern organizations. You will also read about the types of support these systems provide.

Breadth of Support of Information Systems. Certain information systems support parts of organizations, others support entire organizations, and still others support groups of organizations. This section addresses all of these systems.

Recall that each department or functional area within an organization has its own col­ lection of application programs, or information systems. These functional area information systems (FAISs) are supporting pillars for the information systems located at the top of Fig­ ure 1.4, namely, business intelligence systems and dashboards. As the name suggests, each FAIS supports a particular functional area within the organization. Examples are accounting IS, finance IS, production/operations management (POM) IS, marketing IS, and human resources IS.

ACCT FIN

Consider these examples of IT systems in the various functional areas of an organization. In finance and accounting, managers use IT systems to forecast revenues and business activity, to determine the best sources and uses of funds, and to perform audits to ensure that the organization is fundamentally sound and that all financial reports and docu­ ments are accurate.

MKT

In sales and marketing, managers use information technology to perform the following functions:

· Product analysis: Developing new goods and services.

· Site analysis: Determining the best location for production and distribution facilities.

· Promotion analysis: Identifying the best advertising channels.

· Price analysis: Setting product prices to obtain the highest total revenues.

Marketing managers also use IT to manage their relationships with their customers. In manufacturing, managers use IT to process customer orders, develop production schedules, control inventory levels, and monitor product quality. They also use IT to design and manu­ facture products. These processes are called computer-assisted design (CAD) and computer- assisted manufacturing (CAM).

POM

HRM

Managers in human resources use IT to manage the recruiting process, analyze and screen job applicants, and hire new employees. They also employ IT to help employees manage their careers, to administer performance tests to employees, and to monitor employee productivity. Finally, they rely on IT to manage compensation and benefits packages.

Two information systems that support the entire organization, enterprise resource plan­ ning systems (ERPs) and transaction processing systems, are designed to correct a lack of communication among the functional area ISs. For this reason Figure 1.4 shows ERP systems spanning the FAISs. ERP systems were an important innovation because the various functional area ISs were often developed as standalone systems and did not communicate effectively (if at all) with one another. ERP systems resolve this problem by tightly integrating the functional area ISs through a common database. In doing so, they enhance communications among the functional areas of an organization. For this reason, experts credit ERP systems with greatly increasing organizational productivity.

A transaction processing system (TPS) supports the monitoring, collection, storage, and processing of data from the organization’s basic business transactions, each of which gen­ erates data. When you are checking out at Walmart, for example, a transaction occurs each time the cashier swipes an item across the bar code reader. Significantly, within an organiza­ tion, different functions or departments can define a transaction differently. In accounting, for example, a transaction is anything that changes a firm’s chart of accounts. The information system definition of a transaction is broader: A transaction is anything that changes the firm’s database. The chart of accounts is only part of the firm’s database. Consider a scenario in which a student transfers from one section of an Introduction to MIS course to another section. This move would be a transaction to the university’s information system, but not to the university’s accounting department (the tuition payment would not change).

The TPS collects data continuously, typically in real time—that is, as soon as the data are generated—and it provides the input data for the corporate databases. TPSs are considered critical to the success of any enterprise because they support core operations. Significantly, nearly all ERP systems are also TPSs, but not all TPSs are ERP systems. In fact, modern ERP sys­ tems incorporate many functions that previously were handled by the organization’s functional area information systems. You study both TPSs and ERP systems in detail in Chapter 10.

ERP systems and TPSs function primarily within a single organization. Information sys­ tems that connect two or more organizations are referred to as interorganizational informa­ tion systems (IOSs). IOSs support many interorganizational operations, of which supply chain management is the best known. An organization’s supply chain is the flow of materials, infor­ mation, money, and services from suppliers of raw materials through factories and warehouses to the end customers.

Note that the supply chain in Figure 1.5 shows physical flows, information flows, and fi­ nancial flows. Digitizable products are those that can be represented in electronic form, such as music and software. Information flows, financial flows, and digitizable products go through the Internet, whereas physical products are shipped. For example, when you order a computer from www.dell.com , your information goes to Dell through the Internet. When your transaction is completed (that is, your credit card is approved and your order is processed), Dell ships your computer to you. (We discuss supply chains in more detail in Chapter 11.)

Electronic commerce (e-commerce) systems are another type of interorganizational information system. These systems enable organizations to conduct transactions, called busi­ ness-to-business (B2B) electronic commerce, and customers to conduct transactions with businesses, called business-to-consumer (B2C) electronic commerce. Figure 1.5 illustrates B2B and B2C electronic commerce. Electronic commerce systems are so important that we discuss them in detail in Chapter 7, with additional examples interspersed throughout the text. IT’s About Business 1.2 shows how information systems have enabled two roadside assistance companies to grow rapidly through e-commerce.

Support for Organizational Employees. So far, you have concentrated on infor­ mation systems that support specific functional areas and operations. Now you will learn about information systems that typically support particular employees within the organization.

Clerical workers, who support managers at all levels of the organization, include book­ keepers, secretaries, electronic file clerks, and insurance claim processors. Lower-level man­ agers handle the day-to-day operations of the organization, making routine decisions such as assigning tasks to employees and placing purchase orders. Middle managers make tactical decisions, which deal with activities such as short-term planning, organizing, and control.

Knowledge workers are professional employees such as financial and marketing ana­ lysts, engineers, lawyers, and accountants. All knowledge workers are experts in a particular subject area. They create information and knowledge, which they integrate into the business. Knowledge workers, in turn, act as advisors to middle managers and executives. Finally, ex­ ecutives make decisions that deal with situations that can significantly change the manner in which business is done. Examples of executive decisions are introducing a new product line, acquiring other businesses, and relocating operations to a foreign country.

Functional area information systems summarize data and prepare reports, primarily for middle managers, but sometimes for lower-level managers as well. Because these reports typically concern a specific functional area, report generators (RPGs) are an important type of functional area IS.

Business intelligence (BI) systems (also known as business analytics systems) pro­ vide computer-based support for complex, nonroutine decisions, primarily for middle manag­ ers and knowledge workers. (They also support lower-level managers, but to a lesser extent.) These systems are typically used with a data warehouse, and they enable users to perform their own data analysis. You learn about BI systems in Chapter 12.

Expert systems (ES) attempt to duplicate the work of human experts by applying reason­ ing capabilities, knowledge, and expertise within a specific domain. They have become valu­ able in many application areas, primarily, but not exclusively, areas involving decision making.

IT’s About Business 1.2
Disrupting the Roadside Assistance Industry
POM

The roadside assistance industry is worth $10 billion a year in the United States, encompassing a range of services including acci­ dents, dead batteries, flat tires, towing services, tire services, fuel services, and locksmith services. Today, the industry faces disrup­ tion from technology companies that are replacing call centers with algorithms that dispatch the nearest vehicle to help a driver who is locked out of his car or to winch a car out of a ditch. These companies provide an on-demand alternative to paying for insur­ ance plans that drivers might not use or to having to call a tow com­ pany without knowing how much it charges.

Two of these companies, Urgent.ly ( http://urgent.ly ) and Honk (www.honkforhelp.com ), offer flat rates, promise quick response times, and provide maps in their apps that display the location of the company vehicle, with real-time updates. The com­ panies do not charge annual membership fees, unlike the American Automobile Association (AAA; www.aaa.com ).

Customers are not restricted to particular tow-truck opera­ tors. The companies call the closest service vehicle to the customer, which can arrive in less than half the time and cost up to half the amounts charged by industry competitors. It costs $49 to get basic roadside help. Before users click for service, they are informed in advance of the total fee, which they pay by credit card.

These app-based roadside assistance services also bene­ fit tow-truck drivers, most of whom work as independents or for small operators. The traditional towing industry relies on receiving bookings from a central dispatcher, such as the AAA. Those drivers get an average of $23 per call, even though customers are typically charged $200. Drivers for Urgent.ly and Honk earn nearly double the traditional fee, mostly because these services don’t use call centers. These drivers can also attend to more calls in a day be­ cause the apps use algorithms for dispatching and the drivers have GPS on their smartphones.

Drivers for Urgent.ly and Honk work as contractors, not em­ ployees, using the apps to find customers. The services use only recognized towing companies, which must have their own business licenses and insurance, so that they are covered in the event of ac­ cidents or other mishaps. The drivers must also add Urgent.ly and Honk to their insurance policies and get extra insurance for general liability. The apps check out towing companies’ customer reviews before signing them on to the services.

Urgent.ly and Honk face intense competition from both the AAA and car manufacturers that offer roadside assistance. Well- known examples are General Motors’ OnStar ( www.onstar.com ),

BMW, Volvo, Lexus, Acura, Mazda, Audi, and Ferrari. The AAA, a nonprofit organization, is a federation of 43 motor clubs dispersed throughout the United States. The organization responds to more than 30 million calls per year. Members typically receive travel discounts or other membership perks. In addition, the AAA offers members four free annual tows.

Each AAA motor club can customize its offerings. For example, in late 2014, the Mid-Atlantic club launched RescueMeNow ( www

.rescuemenow.co ), a web-based on-demand service for nonmem­ bers, which comes with a follow-up contract enticing users to join the organization.

The AAA does not disclose how much its towing-service con­ tractors are paid. However, tow-truck operators state that the amount is about $25 per call. One towing-service company owner claimed he makes about $75 if the same call comes through his Ur­ gent.ly app. Like Uber, both startups take about 25 percent of the total cost, and the driver keeps the rest.

How intense is the competition between the established orga­ nizations and the disrupters? Honk maintains that it has received a number of call-and-cancel orders that it traced to AAA employees. An AAA spokesperson acknowledged that the organization does “mys­ tery shop” to determine how the comparable services compare.

Sources: Compiled from D. Kunz, “New App Honk Offers Easy Roadside Assistance,” ABC News, March 8, 2016; A. Goodwin, “Urgent.ly Is Like Uber for Roadside Assistance,” CNET, June 11, 2015; J. Biggs, “Urgent.ly Is Uber for When Your Ride Breaks Down,” TechCrunch, February 14, 2015; H. Keiling, “Honk for Help: The Roadside Assistance Startup,” Insurance Zebra, February 12, 2015; R. Rudnansky, “Roadside Assistance Apps Challenging AAA,” Travel Pulse, December 11, 2014; K. Owram, “Watch Out, CAA: New Roadside Assistance Apps Seeking to ‘Revolutionize’ Towing Industry,” Financial Post, December 9, 2014; C. Elliott, “Have Roadside Assistance Apps Replaced AAA?” Outside, December 4, 2014; K. Steinmetz, “There’s an App for the Next Time Your Car Breaks Down,” Time, December 1, 2014; M. Carney, “Forget AAA: Honk Is a Nationwide On-Demand Towing Platform Fueled by Technology,” Pando, November 19, 2014; R. Gray, “Honk Is a New App that Offers Help on the Highway,” Fox News Travel, November 19, 2014; http://urgent.ly, www.honkforhelp.com, accessed September 21, 2016.

Questions

1. Discuss how information technology enables the business models of the Urgent.ly and Honk apps.

2. Describe the advantages and disadvantages of Urgent.ly and Honk for customers and for tow-truck operators.

3. Would you use Urgent.ly or Honk? Why or why not?

4. If you were the CEO of AAA, how would you compete with Urgent.ly and Honk? Provide specific examples in your answer.

For example, navigation systems use rules to select routes, but we do not typically think of these systems as expert systems. Significantly, expert systems can operate as standalone sys­ tems or be embedded in other applications. We examine ESs in greater detail in Technology Guide 4.

Dashboards (also called digital dashboards) are a special form of IS that support all managers of the organization. They provide rapid access to timely information and direct ac­ cess to structured information in the form of reports. Dashboards that are tailored to the infor­ mation needs of executives are called executive dashboards. Chapter 12 provides a thorough discussion of dashboards.

Types of Organizational Information Systems

TABLE 1.4

Type of System

Function

Example

Transaction processing system

Processes transaction data from terminal

Walmart checkout point-of­ sale business events

Enterprise resource planning

Integrates all functional areas of the organization.

Oracle, SAP system

Microsoft Office

Functional area IS

Supports the activities within specific functional area.

System for processing payroll

Decision support system

Provides access to data and analysis tools.

“What-if” analysis of changes in budget

Expert system

Mimics human expert in a particular area and makes decisions.

Credit card approval analysis

Executive dashboard

Presents structured, summarized information about aspects of business important to executives.

Status of sales by product

Supply chain management system

Manages flows of products, services, and information among organizations.

Walmart Retail Link system connecting suppliers to Walmart

Electronic commerce system

Enables transactions among organizations and between organizations and customers.

www.dell.com

Table 1.4 provides an overview of the different types of information systems used by organizations.

Before you go on. . .

1. What is a computer-based information system?

2. Describe the components of computer-based information systems.

3. What is an application program?

4. Explain how information systems provide support for knowledge workers.

5. As we move up the organization’s hierarchy from clerical workers to executives, how does the type of support provided by information systems change?

How Does IT Impact Organizations?
1.3

Throughout this text you will encounter numerous examples of how IT affects various types of organizations, which will give you an idea just how important IT actually is to organizations. In fact, for the vast majority of organizations, if their information systems fail, they cease opera­ tions until the problems are found and fixed. In Chapter 2, IT’s About Business 2.4 illustrates how costly and disruptive IT failures can be.

This section provides an overview of the impact of IT on modern organizations. As you read this section you will learn how IT will affect you as well.

IT Impacts Entire Industries
As of mid-2016, the technology required to transform industries through software had been developed and integrated and could be delivered globally. Software tools and Internet-based

18 CHAPTER 1 Introduction to Information Systems

How Does IT Impact Organizations? 17

services also enabled companies in many industries to launch new software-powered start­ ups without investing in new infrastructure or training new employees. For example, in 2000, operating a basic Internet application cost businesses approximately $150,000 per month. In mid-2016, operating that same application in Amazon’s cloud (we discuss cloud computing in detail in Technology Guide 3) cost less than $1,000 per month.

In essence, software is impacting every industry, and every organization must prepare for these impacts. Let’s examine a few examples of software disruption across several industries. Many of these examples focus on two scenarios: (1) industries in which software disrupted the previous market-leading companies and (2) industries in which a new company (or companies) used software to achieve a competitive advantage.

The Book Industry. What is the largest book publisher and bookseller in the United States today? Would it surprise you to learn that the answer is Amazon, a software company? Amazon’s core capability is its software engine, which can sell virtually anything online with­ out building or maintaining any retail stores. Now, even books themselves have become soft­ ware products, known as electronic (or digital) books, or e-books. (In the fall of 2016, electronic books were gaining in popularity, but approximately 80 percent of book sales were still for print books. Interestingly, according to a 2016 study, 92 percent of American college students prefer a print book to an electronic version of it.)

Consider the Borders bookstore chain. In 2001, Borders agreed to hand over its online business to Amazon because Borders was convinced that online book sales were nonstrategic and unimportant. Ten years later, Borders filed for bankruptcy.

The Music Industry. Total U.S. album sales peaked at 785 million units in 2000, which was the year after Napster was created. (Recall that Napster allowed anyone with a computer and a reasonably fast web connection to download and trade music for free.) From 2000 to 2016, the major music labels (companies) worked diligently to eliminate illegal downloading and sharing, but album sales continued to decline. The result was that the music labels earned about $8 billion less in annual retail sales in 2016 than they did in 2000. Also, before 1999 six major music labels dominated the industry. By 2015, a series of mergers had created the “Big Three” music labels: Warner Music Group ( www.wmg.com ), Universal Music ( www.universalmusic

.com ), and Sony ( www.sonymusic.com ).

These large changes in the music industry were due to the emergence of digital music streaming technologies over the Internet. Two digital-streaming business models emerged: In­ ternet radio companies such as Pandora ( www.pandora.com ) that allow subscribers to passively listen to music that is customized for their tastes, and interactive companies such as Spotify ( www.spotify.com ) and Apple’s iTunes ( www.apple.com/itunes ) that allow users to pick songs. Internet radio companies can operate under a government-mandated license that dictates how much they have to pay. In contrast, interactive companies must make deals with labels and music publishers in order to license music for legal use in the United States.

Responding to these disruptions, the Big Three music labels have been buying stakes in digital entertainment startups, such as established streaming services Spotify ( www.spotify

.com ) and Rdio ( www.rdio.com ). The labels buy stakes very cheaply, and then often give them­ selves the right to buy larger amounts at deep discounts to market at a later date. The labels have purchased parts of startups such as choose-your-own-adventure music video seller Eko ( https://helloeko.com ), song-recognition company Shazam ( www.shazam.com ), and Sound- Cloud ( https://soundcloud.com ). Industry analysts estimate that the three labels have amassed positions in digital music startups valued at some $3 billion.

The Video Industry. Blockbuster—which rented and sold videos and ancillary prod­ ucts through its chain of stores—was the industry leader until it was disrupted by a software company, Netflix ( www.netflix.com ). In mid-2016, Netflix had the largest subscriber base of any video service with millions of subscribers. Meanwhile, Blockbuster declared bankruptcy in Feb­ ruary 2011 and was acquired by satellite television provider Dish Network ( www.dish.com ) a month later.

The Software Industry. Incumbent software companies such as Oracle and Microsoft are increasingly threatened by software-as-a-service (SaaS) products (e.g., Salesforce.com) and Android, an open-source operating system developed by the Open Hand­ set Alliance ( www.openhandsetalliance.com ). (We discuss operating systems in Technology Guide 2 and SaaS in Technology Guide 3.)

MIS

The Videogame Industry. Today, the fastest-growing entertainment companies are videogame makers—again, software. Examples are: Zynga ( www.zynga.com ), the creator of FarmVille; Rovio ( www.rovio.com ), the maker of Angry Birds; and Minecraft ( www.minecraft.net ), now owned by Microsoft (www.microsoft.com).

The Marketing Industry. Today’s largest direct marketing companies in­ clude Facebook ( www.facebook.com ), Google ( www.google.com ), and Foursquare ( www

MKT

.foursquare.com ). All of these companies are using software to disrupt the retail marketing industry.

The Recruiting Industry. LinkedIn ( www.linkedin.com ) is disrupting the tra­ ditional job recruiting industry. For the first time, employees and job searchers can maintain their resumes on a publicly accessible website that interested parties can search in real time.

HRM

The Financial Services Industry. Software has transformed the finan­ cial services industry. Practically every financial transaction (for example, buying and selling stocks) is now performed by software. Also, many of the leading innovators in financial services are software companies. For example, Square ( https://squareup.com ) allows anyone to accept credit card payments with a mobile phone.

FIN

The Motion Picture Industry. The process of making feature-length computer- generated films has become incredibly IT intensive. Studios require state-of-the-art infor­ mation technologies, including massive numbers of servers, sophisticated software, and an enormous amount of storage (all described in Technology Guide 1).

Consider DreamWorks Animation ( www.dreamworksanimation.com ), a motion picture stu­ dio that creates animated feature films, television programs, and online virtual worlds. For a single motion picture, the studio manages more than 500,000 files and 300 terabytes (a tera­ byte is 1 trillion bytes) of data, and it uses about 80 million central processing unit (CPU; de­ scribed in Technology Guide 1) hours. As DreamWorks executives state, “In reality, our product is data that looks like a movie. We are a digital manufacturing company.”

Software is also disrupting industries that operate primarily in the physical world. Con­ sider these examples:

· The Automobile Industry: In modern cars, software is responsible for running the engines; controlling safety features; entertaining passengers; guiding drivers to their destinations; and connecting the car to mobile, satellite, and GPS networks. Other software functions in modern cars include Wi-Fi receivers, which turn your car into a mobile hot spot; software, which helps maximize fuel efficiency; and ultrasonic sensors, which enable some models to parallel park automatically.

The next step is to network all vehicles together, a necessary step toward the next ma­ jor breakthrough: self-driving, or driverless cars. The creation of software-powered driver­ less cars is already being undertaken at Google as well as at several major car companies, and interestingly, Apple.

· The Agriculture Industry: Agriculture is increasingly powered by software, including satel­ lite analysis of soils linked to per-acre seed selection software algorithms. Precision agri­ culture also makes use of automated, driverless tractors controlled by global positioning systems and software. (Precision agriculture is based on observing, measuring, and re­ sponding to inter- and intra-field variability.)

· The Fashion Industry: Women have long “borrowed” special-occasion dresses from depart­ ment stores, buying them and then returning them after wearing them for one evening. Now, Rent the Runway ( www.renttherunway.com ) has redefined the fashion business, mak­ ing expensive clothing available to more women than ever before. The firm is also disrupt­ ing traditional physical retailers. After all, why buy a dress when you can rent one for a very low price? Some department stores feel so threatened by Rent the Runway that they have reportedly told vendors that they will remove floor merchandise if it ever shows up on that company’s website (see Chapter 12 opening case).

· Education: College graduates owe approximately $1.3 trillion in student debt, a crippling burden for many recent graduates. Consider UniversityNow ( www.unow.com ), founded to make college more accessible to working adults by offering online, self-paced degrees. Two key characteristics distinguish UniversityNow from an increasing number of rivals: (1) very low fees (as little as $2,600, which includes tuition and books for as many courses as students can complete in one year) and (2) fully accredited degrees, from an associate’s degree to an M.B.A.

· The Legal Profession: Today, electronic discovery (e-discovery) software applications can analyze documents in a fraction of the time that human lawyers would take, at a fraction of the cost. For example, Blackstone Discovery ( www.blackstonediscovery.com ) helped one company analyze 1.5 million documents for less than $100,000. That company estimated that the process would have cost $1.5 million had it been performed by lawyers.

Law firms are now beginning to use a new artificial intelligence software package called ROSS ( www.rossintelligence.com ). For example, law firm BakerHostetler has hired ROSS to serve as a legal researcher in bankruptcy cases.

IT Reduces the Number of Middle Managers
IT makes managers more productive, and it increases the number of employees who can report to a single manager. Thus, IT ultimately decreases the number of managers and experts. It is reasonable to assume, therefore, that in coming years organizations will have fewer manage­ rial levels and fewer staff and line managers. If this trend materializes, promotional opportuni­ ties will decrease, making promotions much more competitive. Bottom line: Pay attention in school!

IT Changes the Manager’s Job
One of the most important tasks of managers is making decisions. A major consequence of IT has been to change the manner in which managers make their decisions. In this way, IT ulti­ mately has changed managers’ jobs.

IT often provides managers with near-real-time information, meaning that managers have less time to make decisions, making their jobs even more stressful. Fortunately, IT also pro­ vides many tools—for example, business analytics applications such as dashboards, search engines, and intranets—to help managers handle the volumes of information they must deal with on an ongoing basis.

So far in this section, we have been focusing on managers in general. Now, let’s focus on you. Because of advances in IT, you will increasingly supervise employees and teams who are geographically dispersed. Employees can work from anywhere at any time, and teams can con­ sist of employees who are literally dispersed throughout the world. Information technologies such as telepresence systems (discussed in Chapter 6) can help you manage these employ­ ees even though you do not often see them face to face. For these employees, electronic or “remote” supervision will become the norm. Remote supervision places greater emphasis on completed work and less emphasis on personal contacts and office politics. You will have to re­ assure your employees that they are valued members of the organization, thereby diminishing any feelings they might have of being isolated and out of the loop.

Will IT Eliminate Jobs?
One major concern of every employee, part-time or full-time, is job security. Relentless cost-cutting measures in modern organizations often lead to large-scale layoffs. Put simply, or­ ganizations are responding to today’s highly competitive environment by doing more with less. Regardless of your position, then, you consistently will have to add value to your organization and to make certain that your superiors are aware of this value.

Many companies have responded to difficult economic times, increased global competi­ tion, demands for customization, and increased consumer sophistication by increasing their investments in IT. In fact, as computers continue to advance in terms of intelligence and capa­ bilities, the competitive advantage of replacing people with machines is increasing rapidly. This process frequently leads to layoffs. At the same time, however, IT creates entirely new catego­ ries of jobs, such as electronic medical record keeping and nanotechnology.

IT Impacts Employees at Work
Many people have experienced a loss of identity because of computerization. They feel like “just another number” because computers reduce or eliminate the human element present in noncomputerized systems.

The Internet threatens to exert an even more isolating influence than have computers and television. Encouraging people to work and shop from their living rooms could produce some unfortunate psychological effects, such as depression and loneliness.

IT Impacts Employees’ Health and Safety. Although computers and information systems are generally regarded as agents of progress, they can adversely affect individuals’ health and safety. To illustrate this point, we consider two issues associated with IT: job stress and long-term use of the keyboard.

HRM

An increase in an employee’s workload and responsibilities can trigger job stress. Although computerization has benefited organizations by increasing productivity, it also has created an ever-expanding workload for some employees. Some workers feel overwhelmed and have be­ come increasingly anxious about their job performance. These feelings of stress and anxiety can actually diminish rather than improve workers’ productivity while jeopardizing their phys­ ical and mental health. Management can help alleviate these problems by providing training, redistributing the workload among workers, and hiring more workers.

On a more specific level, the long-term use of keyboards can lead to repetitive strain inju­ ries such as backaches and muscle tension in the wrists and fingers. Carpal tunnel syndrome is a particularly painful form of repetitive strain injury that affects the wrists and hands.

Designers are aware of the potential problems associated with the prolonged use of com­ puters. To address these problems, they continually attempt to design a better computing envi­ ronment. The science of designing machines and work settings that minimize injury and illness is called ergonomics. The goal of ergonomics is to create an environment that is safe, well lit, and comfortable. Examples of ergonomically designed products are antiglare screens that al­ leviate problems of fatigued or damaged eyesight and chairs that contour the human body to decrease backaches. Figure 1.6 displays some sample ergonomic products.

IT Provides Opportunities for People with Disabilities. Computers can create new employment opportunities for people with disabilities by integrating speech- recognition and vision-recognition capabilities. For example, individuals who cannot type can use a voice-operated keyboard, and individuals who cannot travel can work at home.

Going further, adaptive equipment for computers enables people with disabilities to per­ form tasks they normally would not be able to do. For example, the web and graphical user interfaces (GUIs; for example, Windows) can be difficult for people with impaired vision to use. To address this problem, manufacturers have added audible screen tips and voice interfaces, which essentially restore the functionality of computers to the way it was before GUIs became standard.

FIGURE 1.6 Ergonomic products protect computer users.

Other devices help improve the quality of life in more mundane but useful ways for peo­ ple with disabilities. Examples are a two-way writing telephone, a robotic page turner, a hair brusher, and a hospital-bedside video trip to the zoo or the museum. Several organizations specialize in IT designed for people with disabilities.

Before you go on. . .
1. Why should employees in all functional areas become knowledgeable about IT?

2. Describe how IT might change the manager’s job.

3. Discuss several ways in which IT impacts employees at work.

Importance of Information Systems to Society
1.4

This section explains in greater detail why IT is important to society as a whole. Other examples of the impact of IT on society appear throughout the text. IT’s About Business 1.3 illustrates how IT is impacting one society—Cuba—in its entirety.

IT Affects Our Quality of Life
IT has significant implications for our quality of life. The workplace can be expanded from the traditional 9-to-5 job at a central location to 24 hours a day at any location. IT can provide

24 CHAPTER 1 Introduction to Information Systems

Importance of Information Systems to Society 23

IT’s About Business 1.3
Information Technology Has the Potential for Revolutionizing Cuba
In recent years, Cuba’s private sector has been undergoing a huge transformation. Hundreds of thousands of Cubans have obtained licenses to operate small businesses, but only in a limited set of service categories such as restaurants, hair salons, and transla­ tion services. Despite the limitations, by mid-2016, the number of licensed entrepreneurs—called cuentapropistas in Cuba; roughly translated as “those who are on their own”—rose to almost 500,000.

Unfortunately, the vast majority of these entrepreneurs do not use the Internet because they do not have access to it. In fact, experts estimate that only about 5 percent of Cuba’s citizens have even periodic Internet access. As of mid-2016, only the “elite” had easy Internet access, and only 5 percent of Cubans could access the Internet from home. The public can visit cybercafés that are sanc­ tioned by the government. However, it costs more than $5 per hour to access sites outside the country. To put this in perspective, the average Cuban earns $20 a month. Another barrier to Internet ac­ cess is that visitors to cybercafés must sign agreements that their Internet use will not hurt “public security.”

As we discuss further on, Cuba is a country of memory sticks and human middlemen, physically sent to conduct what in the developed world are frictionless digital transactions. In Cuba, smartphones are common, but they do not have data connections. Furthermore, there is no legal way to send or receive payments us­ ing credit cards or PayPal.

Young, highly motivated Cuban entrepreneurs, the country’s millennials, are circumventing these enormous hindrances by us­ ing digital technologies in different ways. Let’s consider four exam­ ples: Revolico, AlaMesa, El Paquete Semanal, and Vistar.

MKT Revolico ( www.revolico.com ). Black markets have been commonplace in Cuba for many years, but it was difficult for buyers and sellers to find each other. In December 2007, a young Cuban anonymously created Revolico, a website for classified ads that quickly became the Craigslist of Cuba.

Three months after the site’s launch, the government blocked it. Revolico got around the blocks by changing the web address for its servers and e-mailing personalized URLs to its users. The back­ and-forth between Revolico and the government continues as of this writing (mid-2016). Despite these tensions, however, Revolico has become part of the daily life of many Cubans.

By July 2016, Revolico had approximately 8 million monthly page views and 25,000 new daily listings. About half of its traffic came from outside Cuba—most of it from south Florida, which houses a large Cuban population—where the site makes some money selling ads. In Cuba, Revolico has no legal standing. The site charges for premium listings, which it promotes. Associates of Revolico collect payment for those listings unofficially, in cash.

MKT AlaMesa ( www.alamesacuba.com ). AlaMesa is a web- site and Android app that promotes Cuban culinary culture (think Yelp and OpenTable). Going door to door, AlaMesa staff members check out restaurants, examine their menus, and, if the restaurants agree, list them on the website and app. More than 600 restau­ rants in nine Cuban provinces have agreed to be listed. Roughly 30

percent of these restaurants pay, in cash, to be promoted on the site and app. Foreigners planning a trip to Cuba can download the app while at home. In Cuba, devoted fans spread the app by physi­ cally passing memory sticks to one another.

El Paquete Semanal. El Paquete Semanal (“the weekly pack­ age”) is an instant Internet solution for a nonconnected country. More precisely, it is the Internet on a portable hard drive. El Paquete is a large digital collection of recent movies, TV shows, magazines, apps, software updates, and other digital content made available to Cubans. It is copied and distributed on portable hard drives to 100 people, who then distribute it to 1,000 people, and so on. El Paquete is delivered through an informal network of human “mules” who travel in public buses to every corner of the island. Most customers get the drive at home, where they exchange it for last week’s drive. Customers pay more for more recent material and they pay based on how much material they receive.

Vistar ( www.vistarmagazine.com ). In 2013, the Cuban govern­ ment’s Office of Periodicals and Publications turned down a young Cuban’s application to start an online magazine focusing on Cuba’s youth culture. The young man decided to publish the magazine anyway, without identifying the magazine’s creators. The first issue of Vistar came out in March 2014. It contained excellent photogra­ phy and articles on food, music, ballet, art, and celebrities. By July 2016, Vistar had published 16 monthly issues and even listed the magazine’s staff on the masthead. Significantly, the government has not yet officially objected.

Although Vistar’s readers have not been harassed by the gov­ ernment, they have to deal with their country’s lack of connectiv­ ity. As a result, they access the magazine by sharing memory sticks and hard drives. The magazine’s staff support themselves through advertising. This process is noteworthy because advertising that is not linked to the government has been almost nonexistent for half a century. Vistar, which now publishes in English as well as Spanish, has more than 100,000 downloads, with 60 percent of them origi­ nating outside Cuba.

Cuba’s relations with the United States are improving, follow­ ing then-President Obama’s decision in December 2014 to begin normalizing relations between the two countries. Under the pro­ posal, Cuban citizens could have access to much better communi­ cations technology. However, the Internet is still strictly controlled under the Raúl Castro regime, and there are economic barriers as well as political ones, so it’s not certain whether and when Cubans will have inexpensive and open Internet access.

What of the situation in the fall of 2016? Cuban citizens con­ tinue their entrepreneurial activities, not knowing whether the government will shut them down. In 2015, the Cuban state phone company, ETECSA, had 65 Wi-Fi hotspots, and another 80 hotspots were planned for installation in 2016. Cubans can access these hotspots for $2 per hour. Internet cafés and some hotels offer In­ ternet access for $4 to $6 per hour. Cubans wryly note that this is “good news, bad news.” The good news is that the government is allowing any Wi-Fi hotspots at all. The bad news is that most Cu­ bans still cannot afford to use them.

In the fall of 2016, approximately 15 percent of Cuban citizens have some form of Internet access. Furthermore, fewer than 5 per­ cent of Cubans have an Internet connection at home.

Sources: Compiled from D. Renwick, B. Lee, and J. McBride, “U.S.–Cuba Relations,” Council on Foreign Relations, September 7, 2016; E. Griffith, “What It’s Like Trying to Get Online in Cuba,” Fortune, April 22, 2016; “The Internet in Cuba Today,” Cuba Business Report, April 7, 2016; A. Popescu, “Cuban Web Entrepreneur Endures a Murky Status,” MIT Technology Review, October 6, 2015; I. Lakshmanan, “Where the Internet Revolution Is Waiting to Happen,” Bloomberg BusinessWeek, September 7–13, 2015; M. Helft, “Cuba’s Tech Revolutionaries,” Forbes, July 21, 2015; J. Hamre, “Cuba, an Internet Laggard, Opens Wi-Fi Hotspots across Country,” Reuters, July 2, 2015;

V. Burnett, “Cuba Offers Its Citizens Better Access to Internet,” New York Times, June 18, 2015; “Cuba to Expand Internet Access to Battle Country’s Dire Lack of Connectivity,” The Guardian, June 18, 2015; S. Marshall, “This Is What It’s Like Using the Internet in Cuba,” ABC News, March 31, 2015;

N. Young, “Cuba’s Underground Alternative to the Internet,” www.cbc.ca ,

January 25, 2015; T. Johnson, “No Internet in Cuba? For Some, Offline Link to World Arrives Weekly,” McClatchyDC, January 9, 2015; D. Talbot, “Cuba’s Internet Revolution Faces Economic and Political Realities,” MIT Technology

Review, December 21, 2014; S. Fernandes and A. Halkin, “Do Cubans Really Want U.S.-Style Internet Freedom?” nacla.org, December 20, 2014; P. Baker, “U.S. to Restore Full Relations with Cuba, Erasing a Last Trace of Cold War Hostility,” New York Times, December 17, 2014.