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Case 1-1 Opening Case iii

Information Technology for Management Digital Strategies for Insight, Action, and Sustainable Performance

10th Edition

EFRAIM TURBAN

LINDA VOLONINO, Canisius College

GREGORY R. WOOD, Canisius College

Contributing authors:

JANICE C. SIPIOR, Villanova University GUY H. GESSNER, Canisius College

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VP & EXECUTIVE PUBLISHER: Don Fowley EXECUTIVE EDITOR: Beth Lang Golub SPONSORING EDITOR: Mary O’Sullivan PROJECT EDITOR: Ellen Keohane ASSOCIATE EDITOR: Christina Volpe MARKETING MANAGER: Margaret Barrett MARKETING ASSISTANT: Elisa Wong SENIOR CONTENT MANAGER: Ellinor Wagner SENIOR PRODUCTION EDITOR: Ken Santor SENIOR PHOTO EDITOR: Lisa Gee DESIGNER: Kristine Carney COVER DESIGNER Wendy Lai COVER IMAGE © Ajgul/Shutterstock

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BRIEF CONTENTS

1 Doing Business in Digital Times 1 2 Data Governance and IT Architecture Support Long-Term

Performance 33

3 Data Management, Big Data Analytics, and Records Management 70 4 Networks for Efficient Operations and Sustainability 110 5 Cybersecurity and Risk Management 141

6 Attracting Buyers with Search, Semantic, and Recommendation Technology 181

7 Social Networking, Engagement, and Social Metrics 221 8 Retail, E-commerce, and Mobile Commerce Technology 264

9 Effective and Efficient Business Functions 297 10 Strategic Technology and Enterprise Systems 331 11 Data Visualization and Geographic Information Systems 367

12 IT Strategy and Balanced Scorecard 389 13 Project Management and SDLC 412 14 Ethical Risks and Responsibilities of IT Innovations 438

Glossary G-1

Organizational Index O-1

Name Index N-1

Subject Index S-1

Part 1

Part 2

Part 3

Part 4

Digital Technology Trends Transforming How Business Is Done

Winning, Engaging, and Retaining Consumers with Technology

Optimizing Performance with Enterprise Systems and Analytics

Managing Business Relationships, Projects, and Codes of Ethics

v

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CONTENTS

Part 1 Digital Technology Trends Transforming How Business Is Done

1 Doing Business in Digital Times 1 Case 1.1, Opening Case: McCain Foods’s Success Factors: Dashboards, Innovation, and Ethics 2 1.1 Every Business Is a Digital Business 6

1.2 Business Process Management and Improvement 15

1.3 The Power of Competitive Advantage 19

1.4 Enterprise Technology Trends 25

1.5 How Your IT Expertise Adds Value to Your Performance and Career 27 Case 1.2, Business Case: Restaurant Creates Opportunities to Engage Customers 31 Case 1.3, Video Case: What Is the Value of Knowing More and Doing More? 32

2 Data Governance and IT Architecture Support Long-Term Performance 33 Case 2.1, Opening Case: Detoxing Dirty Data with Data Governance at Intel Security 34 2.1 Information Management 37

2.2 Enterprise Architecture and Data Governance 42

2.3 Information Systems: The Basics 47

2.4 Data Centers, Cloud Computing, and Virtualization 53

2.5 Cloud Services Add Agility 62 Case 2.2, Business Case: Data Chaos Creates Risk 67 Case 2.3, Video Case: Cloud Computing: Three Case Studies 69

3 Data Management, Big Data Analytics, and Records Management 70 Case 3.1, Opening Case: Coca-Cola Manages at the Point That Makes a Difference 71 3.1 Database Management Systems 75 3.2 Data Warehouse and Big Data Analytics 86 3.3 Data and Text Mining 96 3.4 Business Intelligence 99 3.5 Electronic Records Management 102 Case 3.2, Business Case: Financial Intelligence Fights Fraud 108 Case 3.3, Video Case: Hertz Finds Gold in Integrated Data 108

4 Networks for Efficient Operations and Sustainability 110 Case 4.1, Opening Case: Sony Builds an IPv6 Network to Fortify Competitive Edge 111

4.1 Data Networks, IP Addresses, and APIs 113 4.2 Wireless Networks and Mobile Infrastructure 123

4.3 Collaboration and Communication Technologies 127 4.4 Sustainability and Ethical Issues 130 Case 4.2, Business Case: Google Maps API for Business 139 Case 4.3, Video Case: Fresh Direct Connects for Success 140

5 Cybersecurity and Risk Management 141 Case 5.1, Opening Case: BlackPOS Malware Steals Target’s Customer Data 142 5.1 The Face and Future of Cyberthreats 144

5.2 Cyber Risk Management 152

5.3 Mobile, App, and Cloud Security 163

5.4 Defending Against Fraud 166

5.5 Compliance and Internal Control 169 Case 5.2, Business Case: Lax Security at LinkedIn Exposed 177 Case 5.3, Video Case: Botnets, Malware Security, and Capturing Cybercriminals 179

vii

Part 2 Winning, Engaging, and Retaining Consumers with Technology

6 Attracting Buyers with Search, Semantic, and Recommendation Technology 181 Case 6.1, Opening Case: Nike Golf Drives Web Traffic with Search Engine Optimization 182 6.1 Using Search Technology for Business Success 186 6.2 Organic Search and Search Engine Optimization 198 6.3 Pay-Per-Click and Paid Search Strategies 203 6.4 A Search for Meaning—Semantic Technology 205 6.5 Recommendation Engines 209 Case 6.2, Business Case: Recommending Wine to Online Customers 217 Case 6.3, Video Case: Power Searching with Google 218

7 Social Networking, Engagement, and Social Metrics 221 Case 7.1, Opening Case: The Connected Generation Influences Banking Strategy 222 7.1 Web 2.0—The Social Web 225 7.2 Social Networking Services and Communities 235 7.3 Engaging Consumers with Blogs and Microblogs 245 7.4 Mashups, Social Metrics, and Monitoring Tools 250 7.5 Knowledge Sharing in the Social Workplace 255 Case 7.2, Business Case: Social Customer Service 259 Case 7.3, Video Case: Viral Marketing: Will It Blend? 261

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8 Retail, E-commerce, and Mobile Commerce Technology 264 Case 8.1, Opening Case: Macy’s Races Ahead with Mobile Retail Strategies 265 8.1 Retailing Technology 268 8.2 Business to Consumer (B2C) E-commerce 271 8.3 Business to Business (B2B) E-commerce and E-procurement 277 8.4 Mobile Commerce 279 8.5 Mobile Transactions and Financial Services 286 Case 8.2, Business Case: Chegg’s Mobile Strategy 293 Case 8.3, Video Case: Searching with Pictures Using MVS 294

11.4 Geospatial Data and Geographic Information Systems 384 Case 11.2, Visualization Case: Are You Ready for Football? 387 Case 11.3, Video Case: The Beauty of Data Visualization 387

viii Contents

Part 3 Optimizing Performance with Enterprise Systems and Analytics

9 Effective and Efficient Business Functions 297 Case 9.1, Opening Case: Ducati Redesigns Its Operations 299 9.1 Solving Business Challenges at All Management Levels 302 9.2 Manufacturing, Production, and Transportation Management Systems 306 9.3 Sales and Marketing Systems 312 9.4 Accounting, Finance, and Regulatory Systems 315 9.5 Human Resources Systems, Compliance, and Ethics 323 Case 9.2, Business Case: HSBC Combats Fraud in Split-second Decisions 329 Case 9.3, Video Case: United Rentals Optimizes Its Workforce with Human Capital Management 330

10 Strategic Technology and Enterprise Systems 331 Case 10.1, Opening Case: Strategic Technology Trend— 3D Printing 332 10.1 Enterprise Systems 337 10.2 Enterprise Social Platforms 341 10.3 Enterprise Resource Planning Systems 346 10.4 Supply Chain Management Systems 352 10.5 Customer Relationship Management Systems 358 Case 10.2, Business Case: Avon’s Failed SAP Implementation: Enterprise System Gone Wrong 364 Case 10.3, Video Case: Procter & Gamble: Creating Conversations in the Cloud with 4.8 Billion Consumers 365

11 Data Visualization and Geographic Information Systems 367 Case 11.1, Opening Case: Safeway and PepsiCo Apply Data Visualization to Supply Chain 369 11.1 Data Visualization and Learning 371 11.2 Enterprise Data Mashups 377 11.3 Digital Dashboards 380

Part 4 Managing Business Relationships, Projects, and Codes of Ethics

12 IT Strategy and Balanced Scorecard 389 Case 12.1, Opening Case: Intel’s IT Strategic Planning Process 390 12.1 IT Strategy and the Strategic Planning Process 392 12.2 Aligning IT with Business Strategy 397 12.3 Balanced Scorecard 400 12.4 IT Sourcing and Cloud Strategy 403 Case 12.2, Business Case: AstraZeneca Terminates $1.4B Outsourcing Contract with IBM 409 Case 12.3, Data Analysis: Third-Party versus Company-Owned Offshoring 410

13 Project Management and SDLC 412 Case 13.1, Opening Case: Keeping Your Project on Track, Knowing When It Is Doomed, and DIA Baggage System Failure 413 13.1 Project Management Concepts 417

13.2 Project Planning, Execution, and Budget 421

13.3 Project Monitoring, Control, and Closing 428

13.4 System Development Life Cycle 432 Case 13.2, Business Case: Steve Jobs’ Shared Vision Project Management Style 436 Case 13.3, Demo Case: Mavenlink Project Management and Planning Software 437

14 Ethical Risks and Responsibilities of IT Innovations 438 Case 14.1, Opening Case: Google Glass and Risk, Privacy, and Piracy Challenges 439 14.1 Privacy Paradox, Privacy, and Civil Rights 442 14.2 Responsible Conduct 448 14.3 Technology Addictions and the Emerging Trend of Focus Management 453 14.4 Six Technology Trends Transforming Business 454 Case 14.2, Business Case: Apple’s CarPlay Gets Intelligent 458 Case 14.3, Video Case: Vehicle-to-Vehicle Technology to Prevent Collisions 459

Glossary G-1

Organizational Index O-1

Name Index N-1 Subject Index S-1

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Business strategy and operations are driven by data, digi- tal technologies, and devices. Five years from now, we will look back upon today as the start of a new era in business and technology. Just like the way e-business started with the emergence of the Web, this new era is created by the convergence of social, mobile, big data, analytics, cloud, sensor, software-as-a-service, and data visualization tech- nologies. These technologies enable real-time insights, business decisions, and actions. Examples of how they determine tomorrow’s business outcomes are:

• Insight. Combining the latest capabilities in big data analytics, reporting, collaboration, search, and machine-to-machine (M2M) communication helps enterprises build an agility advantage, cut costs, and achieve their visions.

• Action. Fully leveraging real-time data about opera- tions, supply chains, and customers enables managers to make decisions and take action in the moment.

• Sustainable performance. Deploying cloud services, managing projects and sourcing agreements, respect- ing privacy and the planet, and engaging customers across channels are now fundamental to sustaining business growth.

• Business optimization. Embedding digital capability into products, services, machines, and business pro- cesses optimizes business performance—and creates strategic weapons.

In this tenth edition, students learn, explore, and analyze the three dimensions of business performance improve- ment: digital technology, business processes, and people.

What Is New in the Tenth Edition—and Why It Matters Most Relevant Content. Prior to and during the writing process, we attended practitioner conferences and con- sulted with managers who are hands-on users of leading technologies, vendors, and IT professionals to learn about their IT/business successes, challenges, experiences, and recommendations. For example, during an in-person interview with a Las Vegas pit boss, we learned how real-time monitoring and data analytics recommend the minimum bets in order to maximize revenue per minute at gaming tables. Experts outlined opportunities and strategies to leverage cloud services and big data

PREFACE

to capture customer loyalty and wallet share and justify significant investments in leading IT.

More Project Management with Templates. In response to reviewers’ requests, we have greatly increased cover- age of project management and systems development lifecycle (SDLC). Students are given templates for writing a project business case, statement of work (SOW), and work breakdown structure (WBS). Rarely covered, but critical project management issues included in this edition are project post-mortem, responsibility matrix, go/no go decision factors, and the role of the user community.

New Technologies and Expanded Topics. New to this edition are 3D printing and bioprinting, project portfolio management, the privacy paradox, IPv6, outsource rela- tionship management (ORM), and balanced scorecard. With more purchases and transactions starting online and attention being a scarce resource, students learn how search, semantic, and recommendation technologies func- tion to improve revenue. The value of Internet of Things (IoT) has grown significantly as a result of the compound impact of connecting people, processes, data, and things.

Easier to Grasp Concepts. A lot of effort went into mak- ing learning easier and longer-lasting by outlining content with models and text graphics for each opening case (our version of infographics) as shown in Figure P-1—from the Chapter 12 opening case.

Engaging Students to Assure Learning The tenth edition of Information Technology for Management engages students with up-to-date cover- age of the most important IT trends today. Over the years, this IT textbook had distinguished itself with an emphasis on illustrating the use of cutting edge business technologies for achieving managerial goals and objec- tives. The tenth edition continues this tradition with more hands-on activities and analyses. Each chapter contains numerous case studies and real world examples illustrating how businesses increase productivity, improve efficiency, enhance communica- tion and collaboration, and gain a competitive edge through the use of ITs. Faculty will appreciate a variety of options for reinforcing student learning, that include three Case Studies per chapter, including an opening case, a business case and a video case.

ix

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x Preface

Throughout each chapter are various learning aids, which include the following:

• Learning Outcomes are listed at the beginning of each chapter to help students focus their efforts and alert them to the important concepts that will be discussed.

• The Chapter Snapshot provides students with an over- view of the chapter content.

• IT at Work boxes spotlight real-world cases and inno- vative uses of IT.

• Definitions of Key Terms appear in the margins throughout the book.

• Tech Note boxes explore topics such as “4G and 5G Networks in 2018” and “Data transfers to main- frames.”

• Career Insight boxes highlight different jobs in the IT for management field.

At the end of each chapter are a variety of features designed to assure student learning:

• Critical Thinking Questions are designed to facilitate student discussion.

• Online and Interactive Exercises encourage students to explore additional topics.

• Analyze and Decide questions help students apply IT concepts to business decisions.

Details of New and Enhanced Features of the Tenth Edition The textbook consists of fourteen chapters organized into four parts. All chapters have new sections as well as updated sections, as shown in Table P-1.

Strategic directional

statements

Strategic plan

gic

egic

2. Technology & Business Outlook. A team of senior management, IT, and business unit representatives develop the two-to-five-year business outlook & technology outlook.

3. Current State Assessment & Gap Analysis. Analysis of the current state of IT, enterprise systems, & processes, which are compared with results of step 2 to identify gaps and necessary adjustments to IT investment plans.

4. Strategic Imperatives, Strategies, & Budget for Next Year. Develop next year’s priorities, road map, budget, & investment plan. Annual budget approved.

5. Governance Decisions & IT Road Map. The budget guides the governance process, including supplier selection and sourcing.

6. Balanced Scorecard Reviews. Performance is measured monthly.

1. Enterprise Vision. Senior management & leaders develop & communicate the enterprise’s two-to-five-year strategic vision & mission and identify the direction & focus for upcoming year.

Figure P-1 Model of Intel’s 6-step IT strategic planning process, from Chapter 12.

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Preface xi

TABLE P-1 Overview of New and Expanded IT Topics and Innovative Enterprises Discussed in the Chapters

Chapter New and Expanded IT and Business Topics Enterprises in a Wide Range of Industries

1: Doing Business in Digital Times

• Era of Mobile-Social-Cloud-Big Data • Digital connectivity and convergence • Internet of Things (IoT), or machine-to-machine

(M2M) technology • Farm-to-fork traceability • Business process management • Near-fi eld communication (NFC)

• McCain Foods Ltd • Zipcar • Pei Wei Asian Diner • Teradata

2: Data Governance and IT Architecture Support Long-Term Performance

• Data governance and quality • Master data management (MDM) • Cloud services • Collaboration • Virtualization and business continuity • software-, platform-, infrastructure-, and data-

as-a-service

• Intel Security • Liberty Wines • Unilever • Vanderbilt University

Medical Center

3: Data Management, Big Data Analytics and Records Management

• Big data analytics and machine-generated data • Business intelligence (BI) • Hadoop • NoSQL systems • Active data warehouse apps • Compliance

• Coca-Cola • Hertz • First Wind • Argo Corp. • Wal-Mart • McDonalds • Infi nity Insurance • Quicken Loans, Inc. • U.S. military • CarMax

4: Networks for Effi cient Operations and Sustain- ability

• IPv6 • API • 4G and 5G networks • Net neutrality • Location-aware technologies • Climate change • Mobile infrastructure • Sustainable development

• Sony • Google Maps • Fresh Direct • Apple • Spotify • Caterpillar, Inc.

5: Cyber Security and Risk Management

• BYOD and social risks • Advanced persistent threats (APT), malware,

and botnets • IT governance • Cloud security • Fraud detection and prevention

• Target • LinkedIn • Boeing

6: Attracting Buyers with Search, Semantic and Recommendation Technology

• Search technology • Search engine optimization (SEO) • Google Analytics • Paid search strategies

• Nike • Netfl ix • Wine.com

(continued)

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xii Preface

TABLE P-1 Overview of New and Expanded IT Topics and Innovative Enterprises Discussed in the Chapters (continued)

Chapter New and Expanded IT and Business Topics Enterprises in a Wide Range of Industries

7: Social Networking, Engagement and Social Metrics

• Social network services (SNS) • Web 2.0 tools for business collaboration • Crowdfunding • Privacy

• Citibank • American Express • Facebook • Twitter • Cisco

8: Retail, E-commerce and Mobile Commerce Technology

• Innovation in traditional and web-based retail • Omni-channel retailing • Visual search • Mobile payment systems

• Macys • Chegg • Amazon

9: Effective and Effi cient Business Functions

• Customer experience (CX) • eXtensible Business Reporting Language

(XBRL) • Order fulfi llment process • Transportation management systems • Computer-integrated manufacturing (CIM) • SaaS • TQM • Auditing information systems

• Ducati Motor Holding • HSBC • SAS • United Rentals • First Choice Ski

10: Strategic Technology and Enterprise Systems

• 3D printing, additive manufacturing • Enterprise social platforms • Yammer, SharePoint, and Microsoft Cloud

• Avon • Procter & Gamble • Organic Valley Family

of Farms • Red Robin Gourmet

Burgers, Inc. • Salesforce.com • Food and Drug Administra-

tion (FDA) • U.S. Army Materiel

Command (AMC) • 1-800-Flowers

11: Data Visualization and Geographic Informa- tion Systems

• Data visualization • Mobile dashboards • Geospatial data and geocoding • Geographic Information Systems (GIS) • Supply chain visibility • Reporting tools; analytical tools • Self-service mashup capabilities

• Safeway • PepsiCo • eBay • Tableau • Hartford Hospital • General Motors (GM)

12: IT Strategy and Balanced Scorecard

• IT strategic planning process • Value drivers • Outsource relationship management (ORM) • Service level agreements (SLAs) • Outsourcing lifecycle • Applications portfolio

• Intel • AstraZeneca • IBM • Commonwealth Bank of

Australia (CBA)

(continued)

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Preface xiii

TABLE P-1 Overview of New and Expanded IT Topics and Innovative Enterprises Discussed in the Chapters (continued)

Chapter New and Expanded IT and Business Topics Enterprises in a Wide Range of Industries

13: Project Management and SDLC

• Project management lifecycle • Project Portfolio Management (PPM) • Project business case • Project business case, statement of work (SOW),

work breakdown structure (WBS), milestone schedule, and Gantt chart

• Triple constraint • Critical path • Systems feasibility studies

• Denver International Airport

• U.S. Census • Mavenlink Project

Management and Planning Software

14: Ethical Risks and Responsibilities of IT Innovations

• Privacy paradox • Social recruitment and discrimination • Responsible conduct • Vehicle-to-vehicle (V2V) technology • Ethics of 3D printing and bioprinting • Tech addictions • Tech trends

• Google Glass • Apple’s CarPlay • SnapChat • Target

Supplementary Materials An extensive package of instructional materials is avail- able to support this tenth edition. These materials are accessible from the book companion Web site at www. wiley.com/college/turban.

• Instructor’s Manual. The Instructor’s Manual presents objectives from the text with additional information to make them more appropriate and useful for the instructor. The manual also includes practical applica- tions of concepts, case study elaboration, answers to end-of-chapter questions, questions for review, ques- tions for discussion, and Internet exercises.

• Test Bank. The test bank contains over 1,000 ques- tions and problems (about 75 per chapter) consisting of multiple-choice, short answer, fill-ins, and critical thinking/essay questions.

• Respondus Test Bank. This electronic test bank is a powerful tool for creating and managing exams that can be printed on paper or published directly to Blackboard, ANGEL, Desire2Learn, Moodle, and other learning systems. Exams can be created offline using a familiar Windows environment, or moved from one LMS to another.

• PowerPoint Presentation. A series of slides designed around the content of the text incorporates key points from the text and illustrations where appropriate.

E-book Wiley E-Textbooks offer students the complete content of the printed textbook on the device of their preference— computer, iPad, tablet, or smartphone—giving students the freedom to read or study anytime, anywhere. Students can search across content, take notes, and highlight key materials. For more information, go to www.wiley.com/ college/turban.

Acknowledgments Many individuals participated in focus groups or review- ers. Our sincere thanks to the following reviewers of the tenth edition who provided valuable feedback, insights, and suggestions that improved the quality of this text:

Joni Adkins, Northwest Missouri State University Ahmad Al-Omari, Dakota State University Rigoberto Chinchilla, Eastern Illinois University Michael Donahue, Towson University Samuel Elko, Seton Hill University Robert Goble, Dallas Baptist University Eileen Griffin, Canisius College Binshan Lin, Louisiana State University in Shreveport Thomas MacMullen, Eastern Illinois University James Moore, Canisius College Beverly S. Motich, Messiah College

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http://www.wiley.com/college/turban
http://www.wiley.com/college/turban
http://www.wiley.com/college/turban
http://www.wiley.com/college/turban
xiv Preface

Barin Nag, Towson University Luis A. Otero, Inter-American University of Puerto Rico, Metropolitan Campus John Pearson, Southern Illinois University Daniel Riding, Florida Institute of Technology Josie Schneider, Columbia Southern University Derek Sedlack, South University Eric Weinstein, The University of La Verne Patricia White, Columbia Southern University Gene A. Wright, University of Wisconsin–Milwaukee

We are very thankful to our assistants, Samantha Palisano and Olena Azarova. Samantha devoted many hours of research, provided clerical support, and con- tributed to the writing of Chapter 6. Olena assisted with

research and development of graphics for Chapter 7. We are fortunate and thankful for the expert and encour- aging leadership of Margaret Barrett, Beth Golub, Ellen Keohane, and Mary O’Sullivan. To them we extend our sincere thanks for your guidance, patience, humor, and support during the development of this most recent ver- sion of the book. Finally, we wish to thank our families and colleagues for their encouragement, support, and understanding as we dedicated time and effort to cre- ating this new edition of Information Technology for Management.

Linda Volonino Greg Wood

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Chapter Snapshot

Make no mistake. Businesses are experiencing a digital transformation as digital technology enables changes unimaginable a decade ago. High-performance organi- zations are taking advantage of what is newly possible from innovations in mobile, social, cloud, big data, data analytics, and visualization technologies. These digital forces enable unprecedented levels of connectivity, or connectedness, as listed in Figure 1.1.

Think how much of your day you have your phone nearby—and how many times you check it. Nearly 80 percent of people carry their phone for all but two hours of their day; and 25 per cent of 18- to 44-year-olds cannot remember not having their phone with them (Cooper, 2013).

As a business leader, you will want to know what steps to take to get a jump on the mobile, social, cloud,

Doing Business in Digital Times1

Chapter

1. Describe the use of digital technology in every facet of business and how digital channels are being leveraged.

2. Explain the types, sources, characteristics, and control of enterprise data, and what can be accomplished with near real time data.

3. Identify the five forces of competitive advantage and evaluate how they are reinforced by IT.

4. Describe enterprise technology trends and explain how they influence strategy and operations.

5. Assess how IT adds value to your career path and per- formance, and the positive outlook for IT management careers.

Learning Outcomes

1

Digital Technology Trends Transforming How Business Is DonePart 1

Chapter Snapshot Case 1.1 Opening Case: McCain Foods’ Success Factors—Dashboards, Innovation, and Ethics

1.1 Every Business Is a Digital Business 1.2 Business Process Management and

Improvement 1.3 The Power of Competitive Advantage 1.4 Enterprise Technology Trends 1.5 How Your IT Expertise Adds Value to Your

Performance and Career

Key Terms

Assuring Your Learning

• Discuss: Critical Thinking Questions • Explore: Online and Interactive Exercises • Analyze & Decide: Apply IT Concepts

to Business Decisions

Case 1.2 Business Case: Restaurant Creates Opportunities to Engage Customers

Case 1.3 Video Case: What Is the Value of Knowing More and Doing More?

References

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big data, analytics, and visualization technologies that will move your businesses forward. Faced with opportunities and challenges, you need to know how to lever- age them before or better than your competitors.

In this opening chapter, you read about the powerful impacts of digital technol- ogy on management, business, government, entertainment, society, and those it will have on the future. You learn of the latest digital trends taking place across indus- tries and organizations—small and medium businesses, multinational corporations, government agencies, the health-care industry, and nonprofits.

Big data are datasets whose size and speed are beyond the ability of typical database software tools to capture, store, manage, and analyze. Examples are machine- generated data and social media texts.

Data analytics refers to the use of software and statistics to find meaningful insight in the data, or better under- stand the data.

Data visualization (viz) tools make it easier to understand data at a glance by display- ing data in summarized formats, such as dashboards and maps, and by enabling drill-down to the detailed data.

Figure 1.1 We are in the era of mobile-social- cloud-big data that shape business strate- gies and day-to-day operations.

CASE 1.1 OPENING CASE McCain Foods’ Success Factors: Dashboards, Innovation, and Ethics

COMPANY OVERVIEW You most likely have eaten McCain Foods products (Figure 1.2, Table 1.1). McCain is a market leader in the frozen food industry—producing one-third of the world’s supply of french fries. The company manufactures, distributes, and sells more than

Figure 1.2 McCain Foods, Ltd. overview.

2

An estimated 15 billion devices are connected to the Internet—forecasted to hit 50 billion by 2020 as more devices connect via mobile networks.

Over 1 million websites engage in Facebook e-commerce.

Over 200 million social media users are mobile only, never accessing it from a desktop or laptop. Mobile use generates 30% of Facebook’s ad revenue.

More data are collected in a day now than existed in the world 10 years ago. Half of all data are in the cloud and generated by mobile and social activities—known as big data.

Sales offices in 110 countries

55 production plants on 6 continents

22,000 employees

Global Reach

Good ethics is good business.

Good food, better life.

Corporate Culture Dashboards

Data analytics

Real time reporting systems

Digital Technology

Frozen food manufacturer

Market leader in french fries

Brand

McCain Foods, Ltd.

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CASE 1.1 Opening Case 3

TABLE 1.1 Opening Case Overview

Company McCain Foods, Ltd. www.mccain.com

Industry The global company manufactures, sells, and distributes frozen food products.

Product lines More than 100 oven-ready frozen food products

Digital technology Dashboards are implemented throughout the organization from boardrooms to factory fl oors. Dashboards have drill-down capabilities.

Business challenges The frozen food industry faced tough challenges from health and nutrition trends that are emphasizing fresh foods. Industry is highly competitive because it is expected to experience slow growth through 2018.

Taglines “Good food. Better life.” and “It’s all good.”

Figure 1.3 Frozen food is one of the most dynamic and largest sectors of the food industry.

100 oven-ready frozen foods—pizzas, appetizers, meals, and vegetables. McCain is a global business-to-business (B2B) manufacturer with 55 production facilities on 6 continents. The company sells frozen foods to other businesses—wholesalers, retail- ers, and restaurants from sales offices in 110 countries. McCain supplies frozen fries to Burger King and supermarket chains (Figure 1.3).

Business-to-business (B2B) commerce. The selling of products and services to other businesses.

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4 Chapter 1 Doing Business in Digital Times

Food manufacturers must be able to trace all ingredients along their supply chain in case of contamination. Achieving end-to-end traceability is complex given the number of players in food supply chains. Several communication and tracking technologies make up McCain’s supply chain management (SCM) system to keep workers informed of actual and potential problems with food quality, inventory, and shipping as they occur. McCain’s SCM system ensures delivery of the best products possible at the best value to customers. In addition, the company strives to prevent food shortages worldwide by analyzing huge volumes of data to predict crop yields.

Supply chain. All businesses involved in the production and distribution of a product or service.

FROZEN FOOD INDUSTRY CHALLENGES

McCain Foods had to deal with three major challenges and threats:

1. Drop in demand for frozen foods. McCain operated in an industry that was facing tougher competition. Health-conscious trends were shifting customer demand toward fresh food, which was slowing growth in the frozen foods market.

2. Perishable inventory. Of all the types of manufacturing, food manufacturers face unique inventory management challenges and regulatory requirements. Their inventory of raw materials and fi nished goods can spoil, losing all their value, or food can become contaminated. Regulators require food manufacturers to able to do recalls quickly and effectively. Food recalls have destroyed brands and been fi nancially devastating.

3. Technology-dependent. Food manufacturers face the pressures that are common to all manufacturers. They need information reporting systems and digital devices to manage and automate operations, track inventory, keep the right people informed, support decisions, and collaborate with business partners.

McCain Foods worked with Burger King (BK) to develop lower-calorie fries called Satisfries (Figure 1.4). These crinkle-cut fries have 30 percent less fat and 20 percent fewer calories than BK’s classic fries. This food innovation has shaken up the fast-food industry and given BK an advantage with end-consumers who are demanding healthier options.

Figure 1.4 McCain Foods and Burger King jointly developed Satisfries—a french fry innovation with 30 percent less fat and 20 percent fewer calories than BK’s current fries and 40 percent less fat and 30 percent fewer calories than McDonald’s fries.

MCCAIN FOODS’ BUSINESS AND IT STRATEGIES

The McCain brothers, who founded the company, follow this simple philosophy: “Good ethics is good business.” McCain prides itself on the quality and conve- nience of its products, which is reflected in the It’s All Good brand image. The It’s All Good branding effort was launched in 2010 after surveys found that customers were concerned about the quality and nutrition of frozen foods. Since then, many of products have been improved and manufactured in healthier versions.

Managing with Digital Technology McCain had integrated its diverse sources of data into a single environment for analysis. Insights gained from its data analytics helped improve manufacturing processes, innovation, and competitive advantage.

McCain Foods invested in data analytics and visualization technologies to maximize its capability to innovate and gain insights from its huge volumes of data. The company tracks, aggregates, and analyzes data from operations and business customers in order to identify opportunities for innovation in every area of the busi- ness. The results of data analytics are made available across the organization—from

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CASE 1.1 Opening Case 5

Figure 1.5 Data visualizations of KPIs make them easy to understand at a glance.

executive boardrooms to the factory floors—on dashboards. Dashboards are data visualizations (data viz) that display the current status of key performance indica- tors (KPIs) in easy-to-understand formats (Figure 1.5). KPIs are business metrics used to evaluate performance in terms of critical success factors, or strategic and operational goals.

Dashboards Create Productive Competition Among Factory Workers McCain implemented 22,000 reports and 3,000 personal reporting systems that include dashboards. Dashboards display summarized data graphically in a clear and concise way. By clicking a graph, the user can drill down to the detailed data. The dashboards reach most of McCain’s 18,000 employees worldwide.

Dashboards have created healthy competition that has led to better perfor- mance. Ten-foot dashboards hang on factory walls of plants around the world. They are strategically placed near the cafeteria so employees can see the KPIs and per- formance metrics of every plant. With this visibility, everyone can know in near real time exactly how well they are doing compared to other plants. The competition among factories has totally transformed the work environment—and organizational culture—in the plants and increased production performance.

Better Predictions, Better Results The CEO, other executives, and managers view their dashboards from mobile devices or computers. They are able to monitor operations in factories and farms around the globe. Dashboards keep management informed because they can discover answers to their own questions by drilling down. Data are used to forecast and predict crop yields—and ultimately combine weather and geopolitical data to predict and avoid food shortages. By integrating all of its data into one environment and making the results available in near real time to those who need it, the organization is increasing its bottom line and driving innovation.

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Questions 1. All it takes is one compromised ingredient to contaminate food and

to put human lives at risk. Delays in communicating contaminated food increase the health risk and fi nes for violating the Food Safety Mod- ernization Act. How can the SCM system help McCain Foods reduce the risks related to low-quality or contaminated frozen foods reaching consumers?

2. What three challenges or threats facing McCain Foods and what is the reason for each challenge or threat?

3. How have dashboards on the factory fl oors impacted performance at McCain Foods?

4. What might be the KPIs of a frozen food manufacturer such as McCain Foods?

5. Explain how visibility about operations and performance created healthy competition among McCain’s factory workers.

6. Being able to make reliable predictions can improve business perfor- mance. Explain why.

Sources: Compiled from Smith (2013), Transparency Market Research (2013), and McCain Foods Teradata video (2013).

Digital business is a social, mobile, and Web-focused business.

Business model is how a business makes money. Digital business model defines how a business makes money digitally.

Customer experience (CX) is about building the digital infrastructure that allows cus- tomers to do whatever they want to do, through whatever channel they choose to do it.

Today, a top concern of well-established corporations, global financial institutions, born-on-the-Web retailers, and government agencies is how to design their digital business models in order to:

• deliver an incredible customer experience;

• turn a profit;

• increase market share; and

• engage their employees.

In the digital (online) space, the customer experience (CX) must measure up to the very best the Web has to offer. Stakes are high for those who get it right—or get it wrong. Forrester research repeatedly confirms there is a strong relationship between the quality of a firm’s CX and loyalty, which in turn increases revenue (Schmidt-Subramanian et al., 2013).

This section introduces the most disruptive and valuable digital technologies, which you will continue to read about throughout this book.

1.1 Every Business Is a Digital Business

DIGITAL TECHNOLOGIES OF THE 2010S—IN THE CLOUD, HANDHELD, AND WEARABLE

Consumers expect to interact with businesses anytime anywhere via mobile apps or social channels using technology they carry in their pockets. Mobile apps have changed how, when, and where work is done. Employees can be more produc- tive when they work and collaborate effortlessly from their handheld or wearable devices.

Cloud Computing

Enterprises can acquire the latest apps and digital services as they are needed and without large upfront investments by switching from owning IT resources to cloud computing (Figure 1.6). Cloud computing ranges from storing your files in Dropbox to advanced cloud services. In short, with the cloud, resources no longer depend on buying that resource. For example, Amazon Elastic Compute Cloud, known as

Cloud computing is a style of computing in which IT services are delivered on- demand and accessible via the Internet. Common exam- ples are Dropbox, Gmail, and Google Drive.

Food Safety Modernization Act (FSMA), signed into law in early 2011, requires all companies in food supply chains to be able to trace foods back to the point of origin (farm) and forward to the consumer’s plate (fork). The term for the effort is farm-to-fork traceability. Public health is the chief con- cern, followed by potential liability and brand protection issues.

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1.1 Every Business Is a Digital Business 7

Figure 1.6 Cloud computing is an important evolution in data storage, software, apps, and delivery of IT services. An example is Apple iCloud—a cloud service used for online storage and synchronization of mail, media fi les, contacts, calendar, and more.

EC2, eliminates the need to invest in hardware up front, so companies can develop and deploy applications faster. EC2 enables companies to quickly add storage capacity as their computing requirements change. EC2 reduces the time it takes to acquire server space from weeks to minutes.

Machine-to-Machine Technology

Sensors can be embedded in most products. Objects that connect themselves to the Internet include cars, heart monitors, stoplights, and appliances. Sensors are designed to detect and react, such as Ford’s rain-sensing front wipers that use an advanced optical sensor to detect the intensity of rain or snowfall and adjust wiper speed accordingly. Machine-to-machine (M2M) technology enables sensor- embedded products to share reliable real time data via radio signals. M2M and the Internet of Things (IoT) are widely used to automate business processes in industries ranging from transportation to health care. By adding sensors to trucks, turbines, roadways, utility meters, heart monitors, vending machines, and other equipment they sell, companies can track and manage their products remotely.

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Internet of things (IoT) refers to a set of capabilities enabled when physical things are connected to the Internet via sensors.

TECH NOTE 1.1 The Internet of Things

The phrase Internet of Things was coined by Kevin Ashton in 1999 while he was em- ployed at Procter & Gamble. It refers to objects (e.g., cars, refrigerators, roadways) that can sense aspects of the physical world, such as movement, temperature, light- ing, or the presence or absence of people or objects, and then either act on it or re- port it. Instead of most data (text, audio, video) on the Internet being produced and used by people, more data are generated and used by machines communicating with other machines—or M2M, as you read at the start of this chapter. Smart devices use IP addresses and Internet technologies like Wi-Fi to communicate with each other or directly with the cloud. Recent advances in storage and computing power avail- able via cloud computing are facilitating adoption of the IoT.

The IoT opens new frontiers for improving processes in retail, health care, manufacturing, energy, and oil and gas exploration. For instance, manufacturing processes with embedded sensors can be controlled more precisely or monitored

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8 Chapter 1 Doing Business in Digital Times

Big Data

There is no question that the increasing volume of data can be valuable, but only if they are processed and available when and where they are needed. The problem is that the amount, variety, structure, and speed of data being generated or collected by enterprises differ significantly from traditional data. Big data are what high- volume, mostly text data are called. Big data stream in from multiple channels and sources, including:

• mobile devices and M2M sensors embedded in everything from airport runways to casino chips. Later in this chapter, you will read more about the Internet of Things.

• social content from texts, tweets, posts, blogs.

• clickstream data from the Web and Internet searches.

• video data and photos from retail and user-generated content.

• financial, medical, research, customer, and B2B transactions.

Big data are 80 to 90 per cent unstructured. Unstructured data do not have a pre- dictable format like a credit card application form. Huge volumes of unstructured data flooding into an enterprise are too much for traditional technology to process and ana- lyze quickly. Big data tend to be more time-sensitive than traditional (or small) data.

The exploding field of big data and analytics is called data science. Data sci- ence involves managing and analyzing massive sets of data for purposes such as target marketing, trend analysis, and the creation of individually tailored products and services. Enterprises that want to take advantage of big data use real time data from tweets, sensors, and their big data sources to gain insights into their custom- ers’ interests and preference, to create new products and services, and to respond to changes in usage patterns as they occur. Big data analytics has increased the demand for data scientists, as described in Career Insight 1.1.

for hazards and then take corrective action, which reduces injuries, damage, and costs. IoT combined with big data analytics can help manufacturers improve the effi ciency of their machinery and minimize energy consumption, which often is the manufacturing industry’s second-biggest expense.

The health sector is another area where IoT can help signifi cantly. For example, a person with a wearable device that carries all records of his health could be monitored constantly. This connectivity enables health services to take necessary measures for maintaining the wellbeing of the person.

Data Scientist

Big data, analytics tools, powerful networks, and greater processing power have contributed to growth of the field of data science. Enterprises need people who are capable of analyzing and finding insights in data cap- tured from sensors, M2M apps, social media, wearable

technology, medical testing, and so on. Demand for data scientists is outpacing the supply of talent. It is projected that the data scientist career option will grow 19 per cent by 2020—surpassed only by video game design- ers. Talent scarcity has driven up salaries. According to

CAREER INSIGHT 1 . 1 HOT CAREER

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1.1 Every Business Is a Digital Business 9

Glassdoor data (glassdoor.com, 2014), the median salary for data scientists in the United States is $117,500. By contrast, a business analyst earns an average of $61,000.

Profiles of Data Scientists at Facebook, LinkedIn, and Bitly

• Facebook’s Jeff Hammerbacher. Jeff helped Facebook make sense out of huge volumes of user data when he joined the company in 2006. Facebook’s data science team analyzes the self-reported data on each user’s Facebook page in order to target ads based on things the user actually likes.

• LinkedIn’s DJ Patil. DJ worked at LinkedIn as chief data scientist. Many of the cool products on LinkedIn were built using data from self-reporting and machine learning.

• Bitly’s Hilary Mason. Hilary was chief scientist at Bitly, which offers URL shortening and redirec- tion services with real time link tracking. Bitly sees behavior from billions of people a month by analyz- ing tens of millions of links shared per day, which are clicked hundreds of millions times. The clickstreams generate an enormous amount of real time data. Using data analytics, Hillary and her team detected and solved business problems that were not evident.

Data Science Is Both an Art and a Science

In their 2012 Harvard Business Review article titled “Data Scientist: The Sexiest Job of the 21st Century,” authors Thomas Davenport and D. J. Patil define a data scientist as a “high-ranking professional with the train- ing and curiosity to make discoveries in the world of big data” (Davenport & Patil, 2012). They described how data scientist Jonathan Goldman transformed LinkedIn

after joining the company in 2006. At that time, LinkedIn had less than 8 million members. Goldman noticed that existing members were inviting their friends and col- leagues to join, but they were not making connections with other members at the rate executives had expected. A LinkedIn manager said, “It was like arriving at a con- ference reception and realizing you don’t know anyone. So you just stand in the corner sipping your drink—and you probably leave early.” Goldman began analyzing the data from user profiles and looked for patterns that to predict whose networks a given profile would land in. While most LinkedIn managers saw no value in Goldman’s work, Reid Hoffman, LinkedIn’s cofounder and CEO at the time, understood the power of analytics because of his experiences at PayPal. With Hoffman’s approval, Goldman applied data analytics to test what would happen if member were presented with names of other members they had not yet connected with, but seemed likely to know. He displayed the three best new matches for each member based on his or her LinkedIn profile. Within days, the click-through rate on those matches skyrocketed and things really took off. Thanks to this one feature, LinkedIn’s growth increased dra- matically.

The LinkedIn example shows that good data sci- entists do much more than simply try to solve obvious business problems. Creative and critical thinking are part of their job—that is, part analyst and part artist. They dig through incoming data with the goal of dis- covering previously hidden insights that could lead to a competitive advantage or detect a business crisis in enough time to prevent it. Data scientists often need to evaluate and select those opportunities and threats that would be of greatest value to the enterprise or brand.

Sources: Kelly (2013), Lockhard & Wolf (2012), Davenport & Patil (2012), U.S. Department of Labor, Bureau of Labor Statistics (2014).

SOCIAL-MOBILE-CLOUD MODEL

The relationship among social, mobile, and cloud technologies is shown in Figure 1.7. The cloud consists of huge data centers accessible via the Internet and forms the core by providing 24/7 access to storage, apps, and services. Handhelds and wearables, such as Google Glass, Pebble, and Sony Smartwatch (Figure 1.8), and their users form the edge. Social channels connect the core and edge. The SoMoClo integration creates the technical and services infrastructure needed for digital business. This infrastructure makes it possible to meet the expectations of employees, customers, and business partners given that almost everyone is con- nected (social), everywhere they go (mobile), and has 24/7 access to data, apps, and other services (cloud).

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10 Chapter 1 Doing Business in Digital Times

Here are three examples of their influence:

1. Powerful social infl uences impact advertising and marketing: Connections and feedback via social networks have changed the balance of infl uence. Consum- ers are more likely to trust tweets from ordinary people than recommendations made by celebrity endorsements. And, negative sentiments posted or tweeted can damage brands.

2. Consumer devices go digital and offer new services. The Nike Fuel- band wristband helps customers track their exercise activities and calories burned. The device links to a mobile app that lets users post their progress on Facebook.

3. eBay’s move to cloud technology improves sellers’ and buyers’ experiences. The world’s largest online marketplace, eBay, moved its IT infrastructure to the cloud. With cloud computing, eBay is able to introduce new types of landing pages and customer experiences without the delay associated with having to buy additional computing resources.

The balance of power has shifted as business is increasingly driven by individu- als for whom mobiles are an extension of their body and mind. They expect to use location-aware services, apps, alerts, social networks, and the latest digital capabili- ties at work and outside work. To a growing extent, customer loyalty and revenue growth depend on a business’s ability to offer unique customer experiences that wow customers more than competitors can.

Figure 1.7 Model of the integration of cloud, mobile, and social technologies. The cloud forms the core. Mobile devices are the endpoints. Social networks create the connections. ©

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1.1 Every Business Is a Digital Business 11

Figure 1.8 Strong interest in smart wearable technology refl ects growing consumer desire to be more digitally connected at all times using a collection of multiple devices. A smartwatch used at work, such as in a retail store, can provide shop fl oor staff with a screen to check stock availability.

DIGITAL BUSINESS MODELS

Business models are the ways enterprises generate revenue or sustain themselves. Digital business models define how businesses make money via digital technology. Companies that adopt digital business models are better positioned to take advan- tage of business opportunities and survive, according to the Accenture Technology Vision 2013 report (Accenture, 2013). Figure 1.9 contains examples of new tech- nologies that destroyed old business models and created new ones.

Figure 1.9 Digital business models refer to how companies engage their customers digitally to create value via websites, social channels, and mobile devices.

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Location-aware technologies track items through production and delivery to reduce wasted time and inefficiency in supply chains and other business-to- business (B2B) transactions.

Twitter dominates the reporting of news and events as they are still happening.

Facebook became the most powerful sharing network in the world.

Smartphones, tablets, other touch devices, and their apps reshaped how organizations interact with customers—and how customers want businesses to interact with them.

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The ways in which market leaders are transitioning to digital business models include the following:

• Amazon gains a competitive edge with high-tech tech support. Amazon is well known for radically changing online shopping and e-book reading experiences. Amazon’s CEO Jeffrey Bezos set a new standard for tech sup- port with MayDay (Figure 1.10). Within 15 seconds of touching the MayDay button on their Kindle Fire HDX tablet, customers get free, 24/7/365 tech support via video chat. MayDay works by integrating all customer data and instantly displaying the results to a tech agent when a customer presses the MayDay button. Plus, tech agents can control and write on a customer’s Fire screen. By circling and underlining various buttons on the display, it is dead simple for new Fire owners to become expert with their devices. Amazon’s objective is to educate the consumer rather than just fix the problem. In the highly competitive tablet wars, Amazon has successfully differentiated its tablet from those of big players like Apple, Samsung, and Asus (manufac- turer of Google’s Nexus 7) with the MayDay button.

• NBA talent scouts rely on sports analytics and advanced scouting systems. NBA talent scouts used to crunch players’ stats, watch live player perfor- mances, and review hours of tapes to create player profiles (Figure 1.11). Now software that tracks player performance has changed how basketball and soccer players are evaluated. For example, STATS’ SportVU tech- nology is revolutionizing the way sports contests are viewed, understood, played, and enjoyed. SportVU uses six palm-sized digital cameras that track the movement of every player on the court, record ball movement 25 times per second, and convert movements into statistics. SportVU produces real time and highly complex statistics to complement the tra- ditional play-by-play. Predictive sport analytics can provide a 360-degree view of a player’s performance and help teams make trading decisions.

Figure 1.10 MayDay video chat tech support.

Figure 1.11 Sports analytics and advanced scouting systems evaluate talent and performance for the NBA—offering teams a slight but critical competitive advantage.

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1.1 Every Business Is a Digital Business 13

Sports analytics bring about small competitive advantages that can shift games and even playoff series.

• Dashboards keep casino floor staff informed of player demand. Competition in the gaming industry is fierce, particularly during bad economic condi- tions. The use of manual spreadsheets and gut-feeling decisions did not lead to optimal results. Casino operators facing pressure to increase their bottom line have invested in analytic tools, such as Tangam’s Yield Management solution (TYM). TYM is used to increase the yield (profitability) of black- jack, craps, and other table games played in the pit (Figure 1.12). The analysis and insights from real time apps are used to improve the gaming experience and comfort of players.

Figure 1.12 Casinos are improving the profi tability of table games by monitoring and analyzing betting in real time.

THE RECENT PAST AND NEAR FUTURE—2010S DECADE

We have seen great advances in digital technology since the start of this decade. Figure 1.13 shows releases by tech leaders that are shaping business and everyday life. Compare the role of your mobiles, apps, social media, and so on in your per- sonal life and work in 2010 to how you use them today. You can expect greater changes going forward to the end of this decade with the expansion of no-touch interfaces, mobility, wearable technology, and the IoT.

Companies are looking for ways to take advantage of new opportunities in mobile, big data, social, and cloud services to optimize their business processes. The role of the IT function within the enterprise has changed significantly—and will evolve rapidly over the next five years. As you will read throughout this book, the IT function has taken on key strategic and operational roles that determine the enterprise’s success or failure.

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Figure 1.13 Digital technology released since 2010.

• Google launched Android mobile OS to compete with iPhones By 2014, became the first billion-user mobile OS

• App Store opened on July 10, 2008 via an update to iTunes By mid-2011, over 15 billion apps downloaded from App Store

2008 • Apple launched iPad 100 million iPads sold in 2 years

2010 2011–2012 • No tough interfaces to communicate by simply gesturing or talking Microsoft’s Kinect for Windows Apple’s Siri Google’s Glass

• iWatch released integrates with iOS devices

2014

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14 Chapter 1 Doing Business in Digital Times

More objects are being embedded with sensors and gaining the ability to communicate with the Internet. This communi- cation improves business processes while reducing costs and risks. For example, sensors and network connections can be embedded in rental cars. Zipcar has pioneered the car rental by the hour business model. See Figure 1.14. Cars are leased for short time spans to registered members, making retail rental centers unnecessary. Traditional car rental agencies are starting to experiment with sensors so that each car’s use can be optimized to increase revenue.

When devices or products are embedded with sensors, companies can track their movements or monitor interac- tions with them. Business models can be adjusted to take advantage of what is learned from this behavioral data. For example, an insurance company offers to install location sensors in customers’ cars. By doing so, the company develops the ability to price the drivers’ policies on how a car is driven and where it travels. Pricing is customized to match the actual risks of operating a vehicle rather than based on general proxies—driver’s age, gender, or location of residence.

Opportunities for Improvement

Other applications of embedded physical things are:

• In the oil and gas industry, exploration and development rely on extensive sensor networks placed in the earth’s crust. The sensors produce accurate readings of the location, structure, and dimensions of potential fields.

The payoff is lower development costs and improved oil flows.

• In the health-care industry, sensors and data links can monitor patients’ behavior and symptoms in real time and at low cost. This allows physicians to more precisely diagnose disease and prescribe treatment regimens. For example, sensors embedded in patients with heart disease or chronic illnesses can be monitored continu- ously as they go about their daily activities. Sensors placed on congestive heart patients monitor many of these signs remotely and continuously, giving doctors early warning of risky conditions. Better management of congestive heart failure alone could reduce hospi- talization and treatment costs by $1 billion per year in the U.S.

• In the retail industry, sensors can capture shoppers’ pro- file data stored in their membership cards to help close purchases by providing additional information or offering discounts at the point of sale.

• Farm equipment with ground sensors can take into account crop and field conditions, and adjust the amount of fertilizer that is spread on areas that need more nutrients.

• Billboards in Japan scan people passing by, assessing how they fit consumer profiles, and instantly change the displayed messages based on those assessments.

• The automobile industry is developing systems that can detect imminent collisions and take evasive action. Certain basic applications, such as automatic braking systems, are available in high-end autos. The potential accident reduction savings resulting from wider deploy- ment of these sensor systems could exceed $100 billion annually.

Questions

1. Research Zipcar. How does this company’s business model differ from that of traditional car rental companies, such as Hertz or Avis?

2. Think of two physical things in your home or office that, if they were embedded with sensors and linked to a net- work, would improve the quality of your work or personal life. Describe these two scenarios.

3. What might the privacy concerns be?

IT at Work 1 .1 Zipcar and Other Connected Products

Figure 1.14 A Zipcar-reserved parking sign in Washington, DC.

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1.2 Business Process Management and Improvement 15

By 2016 wearable electronics in shoes, tattoos, and accessories will become a $10 billion industry, according to Gartner (2012).

Wearable technology builds computing, connectivity, and sensor capabilities into materials. The latest wearables are lightweight and may be found in athletic shoes, golf accessories, and fitness trackers. The wearables can include data analysis apps or services that send feedback or insights to the wearer. For example, Zepp Labs manufactures sensor- embedded gloves for golf, tennis, and baseball that analyze 1,000 data points per second to create 3D representations of a player’s swing. The sensors track every inch of a golfer’s swing, analyzes the movements, and then sends the wearers advice on how to improve their game. Sensors that weigh only half an ounce clip onto the glove. Another example is Sony’s SmartBand, a wristband that synchs with your phone to track how many steps you take, the number of calories you burn each day, and how well you sleep. The Lifelog app is the key to the Smartband. The app gives a visual display of a timeline and your activity, with boxes monitoring your steps, calories, kilometers walked, and more. Lifelog goes beyond

just fitness by also monitoring time spent on social networks and photos taken.

The major sources of revenue from wearable smart electronics are items worn by athletes and sports enthusiasts and devices used to monitor health conditions, such as auto- matic insulin delivery for diabetics.

Applications and services are creating new value for consumers, especially when they are combined with personal preferences, location, biosensing, and social data. Wearable electronics can provide more detailed data to retailers for targeting advertisements and promotions.

Questions

1. Discuss how wearable electronics and the instant feedback they send to your mobile device could be valuable to you.

2. How can data from wearable technology be used to improve worker productivity or safety?

3. What are two other potentially valuable uses of instant feedback or data from wearable technology?

4. How can wearable devices impact personal privacy?

IT at Work 1 . 2 Wearable Technology

All functions and departments in the enterprise have tasks that they need to com- plete to produce outputs, or deliverables, in order to meet their objectives. Business processes are series of steps by which organizations coordinate and organize tasks to get work done. In the simplest terms, a process consists of activities that convert inputs into outputs by doing work.

The importance of efficient business processes and continuous process improve- ment cannot be overemphasized. Why? Because 100 per cent of an enterprise’s perfor- mance is the result of its processes. Maximizing the use of inputs in order to carry out similar activities better than one’s competitors is a critical success factor. IT at Work 1.3 describes the performance gains at AutoTrader.com, the automobile industry’s largest online shopping marketplace, after it redesigned its order-to-cash process.

1.2 Business Process Management and Improvement Objectives define the desired benefits or expected per- formance improvements. They do not and should not describe what you plan to do, how you plan to do it, or what you plan to produce, which is the function of processes.

Questions 1. What are the benefi ts of cloud computing? 2. What is machine-to-machine (M2M) technology? Give an example of a

business process that could be automated with M2M. 3. Describe the relationships in the SoMoClo model. 4. Explain the cloud. 5. Why have mobile devices given consumers more power in the marketplace? 6. What is a business model? 7. What is a digital business model? 8. Explain the Internet of Things.

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16 Chapter 1 Doing Business in Digital Times

AutoTrader.com is the leading automotive marketplace, list- ing several million new and pre-owned vehicles, as shown in Figure 1.15. AutoTrader.com is one of the largest local online advertising entities, with profits of $300 million on $1.2 billion in revenues in 2013. The site attracts over 15 mil- lion unique visitors each month.

Outdated Order-to-Cash Process

AutoTrader processes thousands of orders and contracts each month. Its cross-functional order fulfillment process, or order-to-cash process, was outdated and could not handle the sales volume. The legacy process was run on My AutoTrader (MAT), a system based on Lotus Notes/Domino. MAT took an average of 6.3 to 8.3 days to fulfill orders and process contracts, as Figure 1.16 shows. MAT created a bot- tleneck that slowed the time from order to cash, or revenue generation. With over 100 coordinated steps, the process was bound to be flawed, resulting in long and error-prone cycle times. Cycle time is the time required to complete a given process. At AutoTrader, cycle time is the time between

the signing and delivery of a contract. Customers were aggravated by the unnecessary delay in revenue.

Redesigning the Order Fulfillment Process with BPM

Management had set three new objectives for the company: to be agile, to generate revenue faster, and to increase customer satisfaction. They invested in a BPM (business pro- cess management) solution—selecting webMethods from Software AG (softwareag.com, 2011). The BPM software was used to document how tasks were performed using the legacy system. After simplifying the process as much as possible, remaining tasks were automated or optimized. The new system cuts down the order fulfillment process to 1 day, as shown in Figure 1.17. Changes and benefits resulting from the redesigned process are:

• There are only six human tasks even though the pro- cess interacts with over 20 different data sources and systems, including the inventory, billing, and contract fulfillment.

• Tasks are assigned immediately to the right people, who are alerted when work is added to their queues.

• Fewer than five percent of orders need to go back to sales for clarification—a 400 percent improvement.

• Managers can check order fulfillment status anytime using webMethods Optimize for Process, which provides real time visibility into performance. They can measure key performance indicators (KPIs) in real time to see where to make improvements.

• Dealers can make changes directly to their contracts, which cut costs for personnel. Software and hardware costs are decreasing as the company retires old systems.

Sources: Compiled from Walsh (2012), softwareag.com (2011), Alesci &

Saitto (2012).

IT at Work 1 . 3 AutoTrader Redesigns Its Order-to-Cash Process

Figure 1.15 AutoTrader.com car search site.

Figure 1.16 AutoTrader’s legacy order fulfi llment process had an average cycle time of up to 8.3 days.

© N

et Ph

ot os

/A la

m y

Fulfillment Total Avg Quality

Assurance

Contract Delivered

Data EntryFax

2.8 days

2.8 days

.5 day 4 days 8.3 days

6.3 days

1 day

1 day2 days.5 day

New

Up-sell

Contract Signed

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1.2 Business Process Management and Improvement 17

Figure 1.17 AutoTrader’s objective is to process and fi ll orders within one day.

Questions

1. Discuss how the redesigned order process supports the company’s three new business objectives.

2. How does the reduced cycle time of the order fulfillment pro- cess improve revenue generation and customer satisfaction?

3. Does reducing the cycle time of a business process also reduce errors? Why or why not?

THREE COMPONENTS OF BUSINESS PROCESSES

Business processes have three basic components, as shown in Figure 1.18. They involve people, technology, and information.

Examples of common business processes are:

• Accounting: Invoicing; reconciling accounts; auditing

• Finance: Credit card or loan approval; estimating credit risk and financing terms

• Human resources (HR): Recruiting and hiring; assessing compliance with regulations; evaluating job performance

• IT or information systems: Generating and distributing reports and data visualizations; data analytics; data archiving

• Marketing: Sales; product promotion; design and implementation of sales campaigns; qualifying a lead

• Production and operations: Shipping; receiving; quality control; inventory management

• Cross-functional business processes: Involving two or more functions, for example, order fulfillment and product development

Designing an effective process can be complex because you need a deep under- standing of the inputs and outputs (deliverables), how things can go wrong, and how to prevent things from going wrong. For example, Dell had implemented a new process to reduce the time that tech support spent handling customer service calls. In an effort to minimize the length of the call, tech support’s quality dropped so much that customers had to call multiple times to solve their problems. The new process had backfired—increasing the time to resolve computer problems and aggravating Dell customers.

Figure 1.18 Three components of a business process.

Deliverables are the outputs or tangible things that are produced by a business pro- cess. Common deliverables are products, services, actions, plans, or decisions, such as to approve or deny a credit application. Deliverables are produced in order to achieve specific objectives.

Submit sales order

electronically

Day 1: Live online

processing of orders

Day 2: Order fulfillment

1 day elapsed

raw materials, data, knowledge, expertise

work that transforms inputs & acts on data and knowledge

products, services, plans, or actions

Inputs Activities

Business Process

Deliverables

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18 Chapter 1 Doing Business in Digital Times

Characteristics of Business Processes

Processes can be formal or informal. Formal processes are documented and have well-established steps. Order taking and credit approval processes are examples. Routine formal processes are referred to as standard operating procedures, or SOPs. A SOP is a well-defined and documented way of doing something. An effec- tive SOP documents who will perform the tasks; what materials to use; and where, how, and when the tasks are to be performed. SOPs are needed for the handling of food, hazardous materials, or situations involving safety, security, or compliance. In contrast, informal processes are typically undocumented, have inputs that may not yet been identified, and are knowledge-intensive. Although enterprises would pre- fer to formalize their informal processes in order to better understand, share, and optimize them, in many situations process knowledge remains in people’s heads.

Processes range from slow, rigid to fast-moving, adaptive. Rigid processes can be structured to be resistant to change, such as those that enforce security or compliance regulations. Adaptive processes are designed to respond to change or emerging conditions, particularly in marketing and IT.

Process Improvement

Given that a company’s success depends on the efficiency of its business processes, even small improvements in key processes have significant payoff. Poorly designed, flawed, or outdated business processes waste resources, increasing costs, causing delays, and aggravating customers. For example, when customers’ orders are not filled on time or correctly, customer loyalty suffers, returns increase, and reship- ping increases costs. The blame may be flawed order fulfilment processes and not employee incompetence, as described in IT at Work 1.2.

Simply applying IT to a manual or outdated process will not optimize it. Processes need to be examined to determine whether they are still necessary. After unnecessary processes are identified and eliminated, the remaining ones are redesigned (or reengineered) in order to automate or streamline them. Methods and efforts to eliminate wasted steps within a process are referred to as business process reengineering (BPR). The goal of BPR is to eliminate the unnecessary, non-value-added processes, then to simplify and automate the remaining processes to significantly reduce cycle time, labor, and costs. For example, reengineering the credit approval process cuts time from several days or hours to minutes or less. Simplifying processes naturally reduces the time needed to complete the process, which also cuts down on errors.

After eliminating waste, digital technology can enhance processes by (1) auto- mating existing manual processes; (2) expanding the data flows to reach more func- tions in order to make it possible for sequential activities to occur in parallel; and (3) creating innovative business processes that, in turn, create new business models. For instance, consumers can scan an image of a product and land on an e-commerce site, such as Amazon.com, selling that product. This process flips the traditional selling process by making it customer-centric.

Business Process Management

BPR is part of the larger discipline of business process management (BPM), which consists of methods, tools, and technology to support and continuously improve business processes. The purpose of BPM is to help enterprises become more agile and effective by enabling them to better understand, manage, and adapt their busi- ness processes. Vendors, consulting and tech firms offer BPM expertise, services, software suites, and tools.

BPM software is used to map processes performed either by computers or manually—and to design new ones. The software includes built-in templates show- ing workflows and rules for various functions, such as rules for credit approval. These

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1.3 The Power of Competitive Advantage 19

templates and rules provide consistency and high-quality outcomes. For example, Oracle’s WebLogic Server Process Edition includes server software and process integration tools for automating complex business processes, such as handling an insurance claim.

But, BPM initiatives can be extremely challenging, and in order to be suc- cessful, BPM requires buy-in from a broad cross section of the business, the right technology selection, and highly effective change management processes. You will read more about optimizing business processes and BPM’s role in the alignment of IT and business strategy in Chapter 13.

Questions 1. What is a business process? Give three examples. 2. What is the difference between business deliverables and objectives? 3. List and give examples of the three components of a business process. 4. Explain the differences between formal and informal processes. 5. What is a standard operating procedure (SOP)? 6. What is the purpose of business process management (BPM)?

In business, as in sports, companies want to win—customers, market share, and so on. Basically, that requires gaining an edge over competitors by being first to take advantage of market opportunities, providing great customer experiences, doing something well that others cannot easily imitate, or convincing customers why it is a more valuable alternative than the competition.

1.3 The Power of Competitive Advantage

Agility means being able to respond quickly.

Responsiveness means that IT capacity can be easily scaled up or down as needed, which essentially requires cloud computing.

Flexibility means having the ability to quickly integrate new business functions or to easily reconfigure software or apps.

BUILDING BLOCKS OF COMPETITIVE ADVANTAGE

Having a competitive edge means possessing an advantage over your competition. Once an enterprise has developed a competitive edge, maintaining it is an ongoing challenge. It requires forecasting trends and industry changes and what the company needs to do to stay ahead of the game. It demands that you continuously track your competitors and their future plans and promptly take corrective action. In summary, competitiveness depends on IT agility and responsiveness. The benefit of IT agility is being able to take advantage of opportunities faster or better than competitors.