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MANAGEMENT INFORMATION SYSTEMS

MANAGING THE DIGITAL FIRM

SIXTEENTH EDITION

Kenneth C. Laudon New York University

Jane P. Laudon Azimuth Information Systems

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Library of Congress Cataloging-in-Publication Data

Names: Laudon, Kenneth C., author. | Laudon, Jane P. (Jane Price), author. Title: Management information systems: managing the digital firm / Kenneth C. Laudon, New York University, Jane P. Laudon, Azimuth Information Systems. Description: Sixteenth edition. | New York, NY: Pearson, [2020] | Includes bibliographical references and index. Identifiers: LCCN 2018053013| ISBN 9780135191798 | ISBN 0135191793 Subjects: LCSH: Management information systems. Classification: LCC T58.6 .L376 2020 | DDC 658.4/038011--dc23 LC record available at https://lccn.loc.gov/2018053013

ISBN 10: 0-13-519179-3 ISBN 13: 978-0-13-519179-8

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iii

ABOUT THE AUTHORS

Kenneth C. Laudon is a Professor of Information Systems at New York University’s Stern School of Business. He holds a B.A. in Economics from Stanford and a Ph.D. from Columbia University. He has authored 12 books dealing with electronic commerce, information sys- tems, organizations, and society. Professor Laudon has also written more than 40 articles concerned with the social, organizational, and management impacts of information systems, privacy, ethics, and multimedia technology.

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

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

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

Jane Price Laudon is a management con- sultant in the information systems area and the author of seven books. Her special inter- ests include systems analysis, data manage- ment, MIS auditing, software evaluation, and teaching business professionals how to design and use information systems.

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

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

iv

BRIEF CONTENTS

PART ONE Organizations, Management, and the Networked Enterprise 1

Chapter 1 Information Systems in Global Business Today 2 Chapter 2 Global E-business and Collaboration 40 Chapter 3 Information Systems, Organizations, and Strategy 78 Chapter 4 Ethical and Social Issues in Information Systems 120

PART TWO Information Technology Infrastructure 161 Chapter 5 IT Infrastructure and Emerging Technologies 162 Chapter 6 Foundations of Business Intelligence: Databases and Information

Management 210

Chapter 7 Telecommunications, the Internet, and Wireless Technology 250 Chapter 8 Securing Information Systems 294

PART THREE Key System Applications for the Digital Age 337 Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise

Applications 338

Chapter 10 E-commerce: Digital Markets, Digital Goods 372 Chapter 11 Managing Knowledge and Artificial Intelligence 418 Chapter 12 Enhancing Decision Making 458

PART FOUR Building and Managing Systems 491 Chapter 13 Building Information Systems 492 Chapter 14 Managing Projects 532 Chapter 15 Managing Global Systems 564

Glossary G-1

Indexes I-1

v

COMPLETE CONTENTS

PART ONE Organizations, Management, and the Networked Enterprise 1

Chapter 1 Information Systems in Global Business Today 2 Opening Case: PCL Construction: The New Digital Firm 3 1-1 How are information systems transforming business, and why are they

so essential for running and managing a business today? 5 How Information Systems Are Transforming Business 6 • What’s New in Management Information Systems? 7

Interactive Session | Management Can You Run the Company with Your iPhone? 9

Globalization Challenges and Opportunities: A Flattened World 11 • The Emerging Digital Firm 12 • Strategic Business Objectives of Information Systems 13

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? 16 What Is an Information System? 16 • Dimensions of Information Systems 18

Interactive Session | Technology UPS Competes Globally with Information Technology 23

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

1-3 What academic disciplines are used to study information systems, and how does each contribute to an understanding of information systems? 28 Technical Approach 28 • Behavioral Approach 29 • Approach of This Text: Sociotechnical Systems 29

1-4 How will MIS help my career? 30 The Company 30 • Position Description 31 • Job Requirements 31 • Interview Questions 31 • Author Tips 31

Review Summary 32 • Key Terms 33 • Review Questions 33 • Discussion Questions 34

Hands-On MIS Projects 34 Collaboration and Teamwork Project 35 Case Study: Did Information Systems Cause Deutsche Bank to Stumble? 36 References: 39

vi Contents

Chapter 2 Global E-business and Collaboration 40 Opening Case: Enterprise Social Networking Helps Sanofi Pasteur

Innovate and Improve Quality 41

2-1 What are business processes? How are they related to information systems? 43 Business Processes 43 • How Information Technology Improves Business Processes 45

2-2 How do systems serve the different management groups in a business, and how do systems that link the enterprise improve organizational performance? 45 Systems for Different Management Groups 46 • Systems for Linking the Enterprise 51

Interactive Session | Organizations Data Changes How NFL Teams Play the Game and How Fans See It 52

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

2-3 Why are systems for collaboration and social business so important, and what technologies do they use? 56 What Is Collaboration? 56 • What Is Social Business? 57 • Business Benefits of Collaboration and Social Business 58 • Building a Collaborative Culture and Business Processes 60 • Tools and Technologies for Collaboration and Social Business 60

Interactive Session | Technology Videoconferencing: Something for Everyone 62

2-4 What is the role of the information systems function in a business? 66 The Information Systems Department 66 • Organizing the Information Systems Function 68

2-5 How will MIS help my career? 68 The Company 68 • Position Description 68 • Job Requirements 69 • Interview Questions 69 • Author Tips 69

Review Summary 70 • Key Terms 71 • Review Questions 71 • Discussion Questions 72

Hands-On MIS Projects 72 Collaboration and Teamwork Project 73 Case Study: Should Companies Embrace Social Business? 74 References: 77

Chapter 3 Information Systems, Organizations, and Strategy 78 Opening Case: Technology Helps Starbucks Find Better Ways to Compete 79 3-1 Which features of organizations do managers need to know about to

build and use information systems successfully? 81 What Is an Organization? 81 • Features of Organizations 84

3-2 What is the impact of information systems on organizations? 89 Economic Impacts 89 • Organizational and Behavioral Impacts 90 • The Internet and Organizations 93 • Implications for the Design and Understanding of Information Systems 93

Contents vii

3-3 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems? 94 Porter’s Competitive Forces Model 94 • Information System Strategies for Dealing with Competitive Forces 96

Interactive Session | Organizations Digital Technology Helps Crayola Brighten Its Brand 98

The Internet’s Impact on Competitive Advantage 100 • The Business Value Chain Model 101

Interactive Session | Technology Smart Products—Coming Your Way 102 Synergies, Core Competencies, and Network-Based Strategies 105

3-4 What are the challenges posed by strategic information systems, and how should they be addressed? 109 Sustaining Competitive Advantage 109 • Aligning IT with Business Objectives 109 • Managing Strategic Transitions 110

3-5 How will MIS help my career? 111 The Company 111 • Position Description 111 • Job Requirements 111 • Interview Questions 112 • Author Tips 112

Review Summary 112 • Key Terms 113 • Review Questions 113 • Discussion Questions 114

Hands-On MIS Projects 114 Collaboration and Teamwork Project 115 Case Study: Grocery Wars 116 References: 118

Chapter 4 Ethical and Social Issues in Information Systems 120 Opening Case: Are Cars Becoming Big Brother on Wheels? 121 4-1 What ethical, social, and political issues are raised by information

systems? 123 A Model for Thinking about Ethical, Social, and Political Issues 124 • Five Moral Dimensions of the Information Age 126 • Key Technology Trends that Raise Ethical Issues 126

4-2 What specific principles for conduct can be used to guide ethical decisions? 129 Basic Concepts: Responsibility, Accountability, and Liability 129 • Ethical Analysis 129 • Candidate Ethical Principles 130 • Professional Codes of Conduct 131 • Some Real-World Ethical Dilemmas 131

4-3 Why do contemporary information systems technology and the Internet pose challenges to the protection of individual privacy and intellectual property? 131 Information Rights: Privacy and Freedom in the Internet Age 132 • Property Rights: Intellectual Property 138

4-4 How have information systems affected laws for establishing account- ability and liability and the quality of everyday life? 142 Computer-Related Liability Problems 142 • System Quality: Data Quality and System Errors 143 • Quality of Life: Equity, Access, and Boundaries 144

viii Contents

Interactive Session | Organizations Will Automation Kill Jobs? 148 Health Risks: RSI, CVS, and Cognitive Decline 149

Interactive Session | Technology How Harmful Are Smartphones? 151 4-5 How will MIS help my career? 152

The Company 152 • Position Description 152 • Job Requirements 152 • Interview Questions 153 • Author Tips 153

Review Summary 153 • Key Terms 154 • Review Questions 154 • Discussion Questions 155

Hands-On MIS Projects 155 Collaboration and Teamwork Project 156 Case Study: Facebook Privacy: Your Life for Sale 157 References: 160

PART TWO Information Technology Infrastructure 161

Chapter 5 IT Infrastructure and Emerging Technologies 162 Opening Case: PeroxyChem’s Cloud Computing Formula for

Success 163

5-1 What is IT infrastructure, and what are the stages and drivers of IT infrastructure evolution? 165 Defining IT Infrastructure 165 • Evolution of IT Infrastructure 167 • Technology Drivers of Infrastructure Evolution 171

5-2 What are the components of IT infrastructure? 175 Computer Hardware Platforms 176 • Operating System Platforms 178 • Enterprise Software Applications 178 • Data Management and Storage 179 • Networking/Telecommunications Platforms 179 • Internet Platforms 179 • Consulting and System Integration Services 180

5-3 What are the current trends in computer hardware platforms? 180 The Mobile Digital Platform 180 • Consumerization of IT and BYOD 180

Interactive Session | Technology Is Business Ready for Wearable Computers? 181

Quantum Computing 183 • Virtualization 183 • Cloud Computing 183

Interactive Session | Organizations Look to the Cloud 186 Edge Computing 188 • Green Computing 189 • High-Performance and Power-Saving Processors 190

5-4 What are the current computer software platforms and trends? 190 Linux and Open Source Software 190 • Software for the Web: Java, HTML, and HTML5 191 • Web Services and Service-Oriented Architecture 192 • Software Outsourcing and Cloud Services 193

5-5 What are the challenges of managing IT infrastructure and management solutions? 196 Dealing with Platform and Infrastructure Change 196 • Management and Governance 197 • Making Wise Infrastructure Investments 197

Contents ix

5-6 How will MIS help my career? 200 The Company 200 • Position Description 200 • Job Requirements 200 • Interview Questions 201 • Author Tips 201

Review Summary 201 • Key Terms 202 • Review Questions 203 • Discussion Questions 204

Hands-On MIS Projects 204 Collaboration and Teamwork Project 205 Case Study: Is BYOD Good for Business? 206 References: 209

Chapter 6 Foundations of Business Intelligence: Databases and Information Management 210 Opening Case: Data Management Helps the Charlotte Hornets Learn More

About Their Fans 211

6-1 What are the problems of managing data resources in a traditional file environment? 213 File Organization Terms and Concepts 213 • Problems with the Traditional File Environment 214

6-2 What are the major capabilities of database management systems (DBMS), and why is a relational DBMS so powerful? 216 Database Management Systems 217 • Capabilities of Database Management Systems 219 • Designing Databases 222 • Non-relational Databases, Cloud Databases, and Blockchain 224

6-3 What are the principal tools and technologies for accessing information from databases to improve business performance and decision making? 227 The Challenge of Big Data 227 • Business Intelligence Infrastructure 228

Interactive Session | Technology Kraft Heinz Finds a New Recipe for Analyzing Its Data 230

Analytical Tools: Relationships, Patterns, Trends 231 • Databases and the Web 235

6-4 Why are information policy, data administration, and data quality assurance essential for managing the firm’s data resources? 236 Establishing an Information Policy 236 • Ensuring Data Quality 237

Interactive Session | Organizations Databases Where the Data Aren’t There 239

6-5 How will MIS help my career? 240 The Company 240 • Position Description 240 • Job Requirements 241 • Interview Questions 241 • Author Tips 241

Review Summary 241 • Key Terms 242 • Review Questions 243 • Discussion Questions 244

Hands-On MIS Projects 244 Collaboration and Teamwork Project 245 Case Study: How Reliable Is Big Data? 246 References: 248

x Contents

Chapter 7 Telecommunications, the Internet, and Wireless Technology 250 Opening Case: Tour de France Wins with Wireless Technology 251 7-1 What are the principal components of telecommunications networks

and key networking technologies? 253 Networking and Communication Trends 253 • What Is a Computer Network? 254 • Key Digital Networking Technologies 256

7-2 What are the different types of networks? 259 Signals: Digital Versus Analog 259 • Types of Networks 259 • Transmission Media and Transmission Speed 261

7-3 How do the Internet and Internet technology work, and how do they support communication and e-business? 261 What Is the Internet? 261 • Internet Addressing and Architecture 262

Interactive Session | Organizations Net Neutrality: The Battle Rages On 265 Internet Services and Communication Tools 267

Interactive Session | Management Monitoring Employees on Networks: Unethical or Good Business? 270

The Web 271

7-4 What are the principal technologies and standards for wireless networking, communication, and Internet access? 279 Cellular Systems 279 • Wireless Computer Networks and Internet Access 280 • RFID and Wireless Sensor Networks 282

7-5 How will MIS help my career? 285 The Company 285 • Position Description 285 • Job Requirements 285 • Interview Questions 286 • Author Tips 286

Review Summary 286 • Key Terms 287 • Review Questions 288 • Discussion Questions 288

Hands-On MIS Projects 288 Collaboration and Teamwork Project 289 Case Study: Google, Apple, and Facebook Battle for Your Internet

Experience 290

References: 293

Chapter 8 Securing Information Systems 294 Opening Case: Hackers Target the U.S. Presidential Election: What

Happened? 295

8-1 Why are information systems vulnerable to destruction, error, and abuse? 297 Why Systems are Vulnerable 298 • Malicious Software: Viruses, Worms, Trojan Horses, and Spyware 299 • Hackers and Computer Crime 302 • Internal Threats: Employees 306 • Software Vulnerability 307

8-2 What is the business value of security and control? 308 Legal and Regulatory Requirements for Electronic Records Management 308

Interactive Session | Technology Meltdown and Spectre Haunt the World’s Computers 309

Electronic Evidence and Computer Forensics 311

Contents xi

8-3 What are the components of an organizational framework for security and control? 312 Information Systems Controls 312 • Risk Assessment 313 • Security Policy 314 • Disaster Recovery Planning and Business Continuity Planning 315 • The Role of Auditing 315

8-4 What are the most important tools and technologies for safeguarding information resources? 316 Identity Management and Authentication 316 • Firewalls, Intrusion Detection Systems, and Anti-malware Software 318 • Securing Wireless Networks 320 • Encryption and Public Key Infrastructure 320 • Securing Transactions with Blockchain 322 • Ensuring System Availability 323 • Security Issues for Cloud Computing and the Mobile Digital Platform 323

Interactive Session | Management How Secure Is the Cloud? 324 Ensuring Software Quality 326

8-5 How will MIS help my career? 327 The Company 327 • Position Description 327 • Job Requirements 327 • Interview Questions 327 • Author Tips 328

Review Summary 328 • Key Terms 329 • Review Questions 330 • Discussion Questions 330

Hands-On MIS Projects 330 Collaboration and Teamwork Project 332 Case Study: Is the Equifax Hack the Worst Ever—and Why? 333 References: 336

PART THREE Key System Applications for the Digital Age 337

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 338 Opening Case: Avon Beautifies Its Supply Chain 339 9-1 How do enterprise systems help businesses achieve operational

excellence? 341 What are Enterprise Systems? 341 • Enterprise Software 342 • Business Value of Enterprise Systems 343

9-2 How do supply chain management systems coordinate planning, production, and logistics with suppliers? 344

Interactive Session | Management Soma Bay Prospers with ERP in the Cloud 345

The Supply Chain 346 • Information Systems and Supply Chain Management 348 • Supply Chain Management Software 349 • Global Supply Chains and the Internet 350 • Business Value of Supply Chain Management Systems 352

9-3 How do customer relationship management systems help firms achieve customer intimacy? 352 What Is Customer Relationship Management? 353 • Customer Relationship Management Software 353 • Operational and Analytical CRM 357 • Business Value of Customer Relationship Management Systems 357

xii Contents

9-4 What are the challenges that enterprise applications pose, and how are enterprise applications taking advantage of new technologies? 358 Enterprise Application Challenges 358

Interactive Session | Organizations Kenya Airways Flies High with Customer Relationship Management 359

Next-Generation Enterprise Applications 361

9-5 How will MIS help my career? 363 The Company 363 • Position Description 363 • Job Requirements 363 • Interview Questions 363 • Author Tips 364

Review Summary 364 • Key Terms 365 • Review Questions 365 • Discussion Questions 366

Hands-On MIS Projects 366 Collaboration and Teamwork Project 367 Case Study: Clemens Food Group Delivers with New Enterprise

Applications 368

References: 370

Chapter 10 E-commerce: Digital Markets, Digital Goods 372 Opening Case: Youtube Transforms the Media Landscape 373 10-1 What are the unique features of e-commerce, digital markets, and

digital goods? 375 E-commerce Today 376 • The New E-commerce: Social, Mobile, Local 377 • Why E-commerce Is Different 379 • Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace 382

10-2 What are the principal e-commerce business and revenue models? 385 Types of E-commerce 385 • E-commerce Business Models 386

Interactive Session | Organizations Uber: Digital Disruptor 389 E-commerce Revenue Models 390

10-3 How has e-commerce transformed marketing? 392 Behavioral Targeting 393 • Social E-commerce and Social Network Marketing 396

Interactive Session | Management “Socializing” with Customers 399 10-4 How has e-commerce affected business-to-business transactions? 400

Electronic Data Interchange (EDI) 401 • New Ways of B2B Buying and Selling 402

10-5 What is the role of m-commerce in business, and what are the most important m-commerce applications? 404 Location-Based Services and Applications 405 • Other Mobile Commerce Services 406

10-6 What issues must be addressed when building an e-commerce presence? 406 Develop an E-commerce Presence Map 406 • Develop a Timeline: Milestones 407

Contents xiii

10-7 How will MIS help my career? 408 The Company 408 • Job Description 408 • Job Requirements 409 • Interview Questions 409 • Author Tips 409

Review Summary 410 • Key Terms 410 • Review Questions 411 • Discussion Questions 412

Hands-On MIS Projects 412 Collaboration and Teamwork Project 413 Case Study: A Nasty Ending for Nasty Gal 414 References: 416

Chapter 11 Managing Knowledge and Artificial Intelligence 418 Opening Case: Machine Learning Helps Akershus University Hospital Make

Better Treatment Decisions 419

11-1 What is the role of knowledge management systems in business? 421 Important Dimensions of Knowledge 422 • The Knowledge Management Value Chain 423 • Types of Knowledge Management Systems 426

11-2 What are artificial intelligence (AI) and machine learning? How do businesses use AI? 427 Evolution of AI 427 • Major Types of AI 428 • Expert Systems 428 • Machine Learning 430 • Neural Networks 432 • Genetic Algorithms 435 • Natural Language Processing, Computer Vision Systems, and Robotics 436 • Intelligent Agents 437

11-3 What types of systems are used for enterprise-wide knowledge management, and how do they provide value for businesses? 438 Enterprise Content Management Systems 439 • Locating and Sharing Expertise 440 • Learning Management Systems 441

11-4 What are the major types of knowledge work systems, and how do they provide value for firms? 441 Knowledge Workers and Knowledge Work 441

Interactive Session | Management Sargent & Lundy Learns to Manage Employee Knowledge 442

Requirements of Knowledge Work Systems 443 • Examples of Knowledge Work Systems 444

Interactive Session | Technology The Reality of Virtual Reality 446 11-5 How will MIS help my career? 447

The Company 447 • Position Description 448 • Job Requirements 448 • Interview Questions 448 • Author Tips 448

Review Summary 449 • Key Terms 450 • Review Questions 450 • Discussion Questions 451

Hands-On MIS Projects 451 Collaboration and Teamwork Project 452 Case Study: Can Cars Drive Themselves—And Should They? 453 References: 456