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Introduction to Information Systems Supporting and Transforming Business Sixth Edition

R. Kelly Rainer Jr. Brad Prince

Vice President & Director George Hoffman Executive Editor Lisé Johnson Executive Marketing Manager Christopher DeJohn Product Design Manager Allison Morris Sponsoring Editor Jennifer Manias Market Solutions Assistant Amanda Dallas Senior Content Manager Dorothy Sinclair Senior Production Editor Jane Lee Design Director Harry Nolan Senior Designer Wendy Lai Senior Photo Editor Billy Ray Production Management Services Thomson Digital Front Cover Image A-Digit/Getty Images, Inc. Back Cover Image Pedro Castellano/Getty Images, Inc.

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Rainer, R. Kelly, Jr., 1949– Introduction to Information Systems : Supporting and Transforming Business / R. Kelly Rainer Jr., Brad Prince. — Sixth edition. 1 online resource. Includes index. Description based on print version record and CIP data provided by publisher; resource not viewed. ISBN 978-1-119-10799-6 (pdf) – ISBN 978-1-119-10800-9 (looseleaf) 1. Information technology. 2. Computer networks. 3. Management information systems. I. Prince, Brad, 1978- II. Title. T58.5 658.4'038011 —dc23 2015025301

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vPREFACE

v

What Do Information Systems Have to Do with Business? This edition of Rainer and Prince’s Introduction to Information Systems will answer this ques- tion for you. In every chapter, you will see how real global businesses use technology and information systems to increase their profi tability, gain market share, improve their customer service, and manage their daily operations. In other words, you will learn how information systems provide the foundation for modern business enterprises.

Our goal is to teach all business majors, especially undergraduates, how to use IT to master their current or future jobs and to help ensure the success of their organization. Our focus is not on merely learning the concepts of information technology but rather on applying those concepts to perform business processes more effi ciently and effectively. We concentrate on placing information systems in the context of business, so that you will more readily grasp the concepts presented in the text.

Preface

What’s In ITFor rMe?

The theme of this book, What’s in IT for Me?, is a question asked by most students who take this course. Our book will show you that IT is the backbone of any business, whether you’re majoring in Accounting, Finance, Marketing, Human Resources, Operations Management, or MIS.

New to This Edition The sixth edition contains many exciting additions and changes. These elements make the text more interesting and readable for students of all majors, while still providing the most current information possible in the rapidly changing fi eld of information systems.

Overall • A new section on Relational Database Operations in Chapter 5 (Data and Knowledge

Management). • Expanded coverage on Big Data in Chapter 5 (Data and Knowledge Management). • A new section on The Internet of Things in Chapter 8 (Wireless, Mobile Computing, and

Mobile Commerce). • All new or updated chapter-opening and closing cases. • All new or updated IT’s About Business boxes in every chapter.

MKTACCT FIN POMHRM MIS

vi PREFACE

Key Features We have been guided by the following goals that we believe will enhance the teaching and learning experience.

“What’s in IT for Me?” theme • We show why IT is important by calling attention in each chapter to how that chapter’s

IT topic relates to students in each major.

° A feature of this edition is chapter-opening “teasers” that list specifi c tasks for each major that the chapter will help prepare students to do.

° Throughout each chapter, icons guide the reader to relevant issues for their specifi c functional area—Accounting (ACC), Finance (FIN), Marketing (MKT), Operations Management (POM), Management Information Systems (MIS), and Human Resources Management (HRM).

° Every chapter concludes with a summary of how the concepts relate to each functional area (“What’s in IT for Me?”).

Active Learning We recognize the need to actively involve students in problem solving, creative thinking, and capitalizing on opportunities. Therefore, we have included in every chapter a variety of hands-on exercises, activities, and mini-cases, including exercises that require students to use software application tools. Through these activities and an interactive Web site, we enable students to apply the concepts they learn.

Diversifi ed and Unique Examples from Different Industries Extensive use of vivid examples from large corporations, small businesses, and government and not-for-profi t organizations helps to enliven concepts by demonstrating the capabilities of IT, its cost and justifi cation, and innovative ways in which real corporations are using IT in their operations. Each chapter constantly highlights the integral connection between IT and busi- ness. This is especially evident in the “IT’s About Business” boxes.

Misuse of IS Like other textbooks, this text presents many examples of IS success. But we also provide numerous examples of IS failures, in the context of lessons that can be learned from such fail- ures. Misuse of IS can be very expensive, as we illustrate.

Innovation and Creativity In today’s rapidly changing environment, creativity and innovation are essential for a business to operate effectively and profi tably. Throughout the text we demonstrate how IT facilitates these concepts.

Global Focus Because an understanding of global competition, partnerships, and trading is essential to success in business, we provide a broad selection of international cases and examples. We discuss how IT facilitates export and import, the management of multinational companies, and electronic trading around the globe.

Focus on Ethics With corporate scandals appearing daily in the news, ethics and ethical questions have come to the forefront of business people’s minds. In addition to a chapter that concentrates on ethics

viiPREFACE

and privacy (Chapter 3), we have included examples and cases that focus on business ethics throughout the chapters.

Pedagogical Structure Other pedagogical features provide a structured learning system that reinforces the concepts through features such as chapter-opening organizers, section reviews, frequent applications, and hands-on exercises and activities. Chapter-opening organizers include the following pedagogical features:

• The Learning Objectives provide an overview of the key concepts students should come away with after reading the chapter.

• Web Resources highlight ancillary materials available on the book companion site and within WileyPLUS for both instructors and students.

• The Chapter Outline lists the major chapter headings. • An opening case identifi es a business problem faced by an actual company, describes the

IT solution applied to the business problem, presents the results of the IT solution, and summarizes what students can learn from the case.

• New “What’s in IT for Me?” “teasers” give students a quick hint about skills in their majors for which this chapter will help prepare them.

Study aids are provided throughout each chapter. These include the following:

• IT’s About Business cases provide real-world applications, with questions that relate to concepts covered in the text. Icons relate these sections to the specifi c functional areas.

• Highlighted Examples interspersed throughout the text illustrate the use (and misuse) of IT by real-world organizations, thus making the conceptual discussion more concrete.

• Tables list key points or summarize different concepts. • End-of-section reviews (Before You Go On . . .) prompt students to pause and test their under-

standing of basic concepts before moving on to the next section.

End-of-chapter study aids provide extensive opportunity for the reader to review and actually “do something” with the concepts they have just studied:

• What’s in IT for Me? is a unique chapter summary section that demonstrates the relevance of topics for different functional areas (accounting, fi nance, marketing, production/operations management, and human resources management).

• The Chapter Summary, keyed to learning objectives listed at the beginning of the chapter, enables students to review the major concepts covered in the chapter.

• The end-of-chapter Glossary facilitates studying by listing and defi ning all of the key terms introduced in the chapter.

• Discussion Questions and Problem-Solving Activities provide practice through active learn- ing. These exercises are hands-on opportunities to use the concepts discussed in the chapter.

• A Case presents a brief case study organized around a business problem and explains how IT helped to solve it. Questions at the end of the case relate it to concepts discussed in the chapter.

Online Resources www.wiley.com/college/rainer This text also facilitates the teaching of an introductory IS course by providing extensive sup- port materials for instructors and students. Go to www.wiley.com/college/rainer to access the Student and Instructor Web Sites.

http://www.wiley.com/college/rainer
http://www.wiley.com/college/rainer
viii PREFACE

Instructor’s Manual The Instructor’s Manual, created by Bob Gehling of Auburn University at Montgomery, includes a chapter overview, teaching tips and strategies, answers to all end-of-chapter ques- tions, supplemental mini-cases with essay questions and answers, and experiential exercises that relate to particular topics.

Test Bank The Test Bank, written by Jennifer Gerow of Virginia Military Institute, is a comprehensive resource for test questions. It contains multiple-choice, true/false, short answer, and essay ques- tions for each chapter. The multiple-choice and true/false questions are labeled according to diffi culty: easy, medium, or hard.

The test bank is available for use in Respondus’ easy-to-use software. Respondus is a powerful tool for creating and managing exams that can be printed to paper or published directly to Black- board, WebCT, Desire2Learn, eCollege, ANGEL, and other eLearning systems. For more infor- mation on Respondus and the Respondus Test Bank Network, please visit www.respondus.com.

PowerPoint Presentations The PowerPoint Presentations consist of a series of slides for each chapter of the text that are designed around the text content, incorporating key points from the text and all text illustra- tions as appropriate.

Wiley Information Systems Hub http://wileyiscommunity.ning.com/

This is a new online, interactive community designed to support the teaching of the Intro IS course. The Hub will allow IS faculty to explore a centralized and constantly updated set of current articles for use in class, connect with IS colleagues for help and advice about upcom- ing course topics, and share course materials with other IS faculty. The Community Manager is David Firth of the University of Montana

Weekly Updates Weekly updates, harvested from around the web by David Firth of the University of Mon- tana, provide you with the latest IT news and issues. These are posted every Monday morning throughout the year at http://wileyinformationsystemsupdates.com/ and include links to articles and videos as well as discussion questions to assign or use in class.

Image Library All textbook fi gures are available for download from the Web site. These fi gures can easily be added to PowerPoint presentations.

Offi ceGrader Offi ceGraderTM is an Access-based VBA macro that enables automatic grading of Offi ce assign- ments. The macros compare Offi ce fi les and grade them against a master fi le. Offi ceGraderTM is available for Word, Access, Excel, and PowerPoint for Offi ce 2010 and Offi ce 2013. For more information, contact your Wiley sales representative or visit www.wiley.com/college/microsoft and click on “Offi ceGrader.”

WileyPlus Learning Space What is WileyPLUS Learning Space? It’s a place where students can learn, collaborate, and grow. Through a personalized experience, students create their own study guide while they interact with course content and work on learning activities.

http://wileyiscommunity.ning.com/
http://wileyinformationsystemsupdates.com/
http://www.respondus.com
http://www.wiley.com/college/microsoft
ixPREFACE

WileyPLUS Learning Space combines adaptive learning functionality with a dynamic new e-textbook for your course—giving you tools to quickly organize learning activities, manage student collaboration, and customize your course so that you have full control over content as well as the amount of interactivity between students.

You can:

• Assign activities and add your own materials • Guide students through what’s important in the e-textbook by easily assigning specifi c

content • Set up and monitor collab orative learning groups • Assess student engagement • Benefi t from a sophisticated set of reporting and diagnostic tools that give greater insight

into class activity Learn more at www.wileypluslearningspace.com. If you have questions, please contact your Wiley representative.

Wiley Flex Wiley provides a wide variety of printed and electronic formats that provide many choices to your students at a range of price points. Contact your Wiley sales representative for more details on any of the below.

Wiley E-Textbook E-Textbooks are complete digital versions of the text that help students study more effi ciently as they:

• Access content online and offl ine on your desktop, laptop and mobile device • Search across the entire book content • Take notes and highlight • Copy and paste or print key sections

Wiley E-Text: Powered by VitalSource (available for all titles) Ask your sales representative about other available formats.

Wiley Custom This group’s services allow you to:

• Adapt existing Wiley content and combine texts • Incorporate and publish your own materials • Collaborate with our team to ensure your satisfaction

Wiley Custom Select Wiley Custom Select allows you to build your own course materials using selected chapters of any Wiley text and your own material if desired. For more information, contact your Wiley sales representative or visit http://customselect.wiley.com/.

Acknowledgments Creating, developing, and producing a text for an introduction to information technology course is a formidable undertaking. Along the way, we were fortunate to receive continuous evaluation, criticism, and direction from many colleagues who regularly teach this course. We would like to acknowledge the contributions made by the following individuals.

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x PREFACE

We would like thank the Wiley team: Lisé Johnson, Executive Editor; Jennifer Manias, Sponsoring Editor; Allison Morris, Product Design Manager; Chris DeJohn, Executive Marketing Manager; and Amanda Dallas, Market Solutions Assistant. We also thank the production team, including Dorothy Sinclair, Senior Content Manager; Jane Lee, Senior Production Editor; and Gaurav Uppal of Thomson Digital. And thanks to Harry Nolan, Design Director; Wendy Lai, Senior Designer; and Billy Ray, Senior Photo Editor. We also would like to thank Robert Weiss for his skillful and thorough editing of the manuscript.

We also acknowledge and appreciate Bob Gehling and Jennifer Gerow for their work on the supplements, and David Firth for his work on the Weekly Updates and the new Faculty Hub. Many thanks also to Alina M. Chircu and Marco Marabelli of Bentley University for developing material that enhances our coverage of business processes and ERP. Finally, we thank all the faculty listed below who have generously shared their varied opinions by review- ing the manuscript and/or completing our user surveys.

Kelly Rainer Brad Prince

Ahlam Alhweiti, Southern New Hampshire University Barbara Gordon, Seminole State College of Florida Milele Hallingquest, Iowa State University Sandy Keeter, Southern New Hampshire University Nicole Lytle-Kosola, California State University, San Bernardino Joe Parker, Southern New Hampshire University Melissa Ray, University of Phoenix Donna Rex, York University Kevin Scheibe, Iowa State University Kevin Wilhelmsen, University of Phoenix Gaya P. Agrawal, Rutgers University Ihssan Alkadi, South Louisiana Community College Mary Baldwin-Grimes, Gateway Technical College Mary Barnard, IUPUI Nicholas Barnes, Nichols College Lisa Reeves Bertin, Penn State University Shenango Campus Mark Best, The University of Kansas Neelima Bhatnagar, University of Pittsburgh at Johnstown Dan Brandon, Christian Brothers University Fredrick Bsharah, Cape Cod Community College Jessie Brown, Macquarie City Campus Patrick Browning, The University of Southern Mississippi Trini Callava, University of Miami Pam Carter, North Carolina A&T State University Antoinette Cevenini, Macquarie City Campus Lewis Chasalow, The University of Findlay H. Michael Chung, California State University Long Beach Ken Corley, Appalachian State University Jose Cruz, University of Puerto Rico - Mayaguez Barry Cumbie, University of Southern Mississippi Subhasish Dasgupta, George Washington University

Lauren Eder, Rider University Greg Foudray, Salem State University Bob Gehling, Auburn University Montgomery Cody Gray, Portland Community College Eileen Griffi n, Canisius College Heather Griffo, Portland Community College Joseph Harder, Indiana State University Jeff Harper, Indiana State University Jim Howatt, Luther College Chang-tseh Hsieh, University of Southern Mississippi Scott Hunsinger, Appalachian State University Micki Hyde, Indiana University of Pennsylvania Jinman Kim, University of Sydney Richard Klein, Florida International University Dana Ladd, University of Findlay Faith Lamprey, Rhode Island College Christine Lazaro, Gateway Technical College Mark Lewis, Alfred University Susan Li, Adelphi University Thomas Long, DePaul University James Scott Magruder, The University of Southern Mississippi Kalana Malimage, Mississippi State University Efrem Mallach, Rhode Island College Steven Mandelbaum, George Washington University Nichelle Manuel, IADT Stanley Marcinczyk, Central Connecticut State University Robert Marmelstein, East Stroudsburg University Tom Mattson, University of Hawaii Lee McClain, Western Washington University Rodger Morrison, Troy University Mahdi Nasereddin, Penn State University

Reviewers

xiPREFACE

Bill Neumann, University of Arizona Cynthia Nitsch, University of San Diego Anthony Offor, Sanford-Brown College Jim Ott, Fontbonne University Neal Parker, Appalachian State University Sheila Pearson, Southern Arkansas University Jennifer Percival, University of Ontario Institute of Technology Olga Petkova, Central Connecticut State University Sean Piotrowski, Rider University Robert Plant, University of Miami Carol Pollard, Appalachian State University Simon Poon, University of Sydney Drew Procaccino, Rider University Carl Rebman, University of San Diego Howard D Rees, Rider University Lisa Rich, Athens State University Jim Ryan, Troy University Anselm Sequeira, University of Southern Mississippi

Linda Spauldig, Gateway Technical College Suneel Sharma, GDGWI-Lancaster University Troy Strader, Drake University Sharon Tabor, Boise State University Zaiyong Tang, Salem State University Christopher Taylor, Appalachian State University Gary Templeton, Mississippi State University Cheryl Ucakar, Gateway Technical College Michael Waclawiczek, Salem State University Shouhong Wang, University of Massachusetts Dartmouth John Wee, University of Mississippi Brian West, University of Louisiana at Lafayette Paul Wheatcraft, Portland Community College Melody White, University of North Texas Dezhi Wu, Southern Utah University Carol Wysocki, Columbia Basin College Li Richard Ye, Carlifornia State University, Northridge Saad Yousuf, Gateway Technical College

xiiiBRIEF CONTENTS

xiii

Brief Contents [Chapter 1] Introduction to

Information Systems 1

[Chapter 2] Organizational Strategy, Competitive Advantage, and Information Systems 31

[Chapter 3] Ethics and Privacy 66

[Chapter 4] Information Security 85

[Chapter 5] Data and Knowledge Management 121

[Chapter 6] Telecommunications and Networking 161

[Chapter 7] E-Business and E-Commerce 197

[Chapter 8] Wireless, Mobile Computing, and Mobile Commerce 229

[Chapter 9] Social Computing 262

[Chapter 10] Information Systems Within the Organization 293

[Chapter 11] Customer Relationship Management and Supply Chain Management 320

[Chapter 12] Business Intelligence 355

[Chapter 13] Acquiring Information Systems and Applications 380

[Technology Guide 1] Hardware 409

[Technology Guide 2] Software 424

[Technology Guide 3] Cloud Computing 433

[Technology Guide 4] Intelligent Systems 456

[Index] 471

xiv CONTENTS

xiv

[Chapter 1] Introduction to Information Systems 1

1.1: Why Should I Study Information Systems? 3 1.2: Overview of Computer-Based Information Systems 9 1.3: How Does IT Impact Organizations? 18 1.4: Importance of Information Systems to Society 22

[Chapter 2] Organizational Strategy, Competitive Advantage, and Information Systems 31

2.1: Business Processes 34 2.2: Business Process Reengineering, Business Process

Improvement, and Business Process Management 40 2.3: Business Pressures, Organizational Responses, and

Information Technology Support 44 2.4: Competitive Advantage and Strategic Information

Systems 52

[Chapter 3] Ethics and Privacy 66 3.1: Ethical Issues 70 3.2: Privacy 74

[Chapter 4] Information Security 85 4.1: Introduction to Information Security 88 4.2: Unintentional Threats to Information Systems 90 4.3: Deliberate Threats to Information Systems 94 4.4: What Organizations Are Doing to Protect Information

Resources 99 4.5: Information Security Controls 102

[Chapter 5] Data and Knowledge Management 121

5.1: Managing Data 124 5.2: The Database Approach 126 5.3: Big Data 131 5.4: Data Warehouses and Data Marts 137

5.5: Knowledge Management 145 5.6: Appendix: Fundamentals of Relational Database Operations 147

[Chapter 6] Telecommunications and Networking 161

6.1: What Is a Computer Network? 164 6.2: Network Fundamentals 167 6.3: The Internet and the World Wide Web 171 6.4: Network Applications: Discovery 178 6.5: Network Applications: Communication 180 6.6: Network Applications: Collaboration 184 6.7: Network Applications: Educational 187

[Chapter 7] E-Business and E-Commerce 197

7.1: Overview of E-Business and E-Commerce 201 7.2: Business-to-Consumer (B2C) Electronic Commerce 209 7.3: Business-to-Business (B2B) Electronic Commerce 217 7.4: Ethical and Legal Issues in E-Business 219

[Chapter 8] Wireless, Mobile Computing, and Mobile Commerce 229

8.1: Wireless Technologies 233 8.2: Wireless Computer Networks and Internet Access 239 8.3: Mobile Computing and Mobile Commerce 245 8.4: The Internet of Things 251 8.5: Wireless Security 255

[Chapter 9] Social Computing 262 9.1: Web 2.0 266 9.2: Fundamentals of Social Computing in Business 274 9.3: Social Computing in Business: Shopping 276 9.4: Social Computing in Business: Marketing 280 9.5: Social Computing in Business:

Customer Relationship Management 284

Contents

xvCONTENTS

9.6: Social Computing in Business: Human Resource Management 285

[Chapter 10] Information Systems within the Organization 293

10.1: Transaction Processing Systems 296 10.2: Functional Area Information Systems 297 10.3: Enterprise Resource Planning (ERP) Systems 305 10.4: ERP Support for Business Processes 311

[Chapter 11] Customer Relationship Management and Supply Chain Management 320

11.1: Defi ning Customer Relationship Management 322 11.2: Operational Customer Relationship Management

Systems 328 11.3: Analytical Customer Relationship Management

Systems 331 11.4: Other Types of Customer Relationship

Management 332 11.5: Supply Chains 337 11.6: Supply Chain Management 339 11.7: Information Technology Support for Supply Chain

Management 343

[Chapter 12] Business Intelligence 355 12.1: Managers and Decision Making 358 12.2: What is Business Intelligence? 363 12.3: Business Intelligence Applications

for Data Analysis 367 12.4: Business Intelligence Applications

for Presenting Results 370

[Chapter 13] Acquiring Information Systems and Applications 380

13.1: Planning for and Justifying IT Applications 384 13.2: Strategies for Acquiring IT Applications 387 13.3: The Traditional Systems Development Life Cycle 393 13.4: Alternative Methods and Tools for Systems

Development 399

[Technology Guide 1] Hardware 409 TG 1.1: Introduction to Hardware 410 TG 1.2: Strategic Hardware Issues 410

TG 1.3: Computer Hierarchy 411 TG 1.4: Input and Output Technologies 413 TG 1.5: The Central Processing Unit 416

[Technology Guide 2] Software 424 TG 2.1: Software Issues 425 TG 2.2: Systems Software 427 TG 2.3: Application Software 428

[Technology Guide 3] Cloud Computing 433

TG 3.1: Introduction to Cloud Computing 434 TG 3.2: What Is Cloud Computing? 436 TG 3.3: Different Types of Clouds 439 TG 3.4: Cloud Computing Services 442 TG 3.5: The Benefi ts of Cloud Computing 445 TG 3.6: Concerns and Risks with Cloud

Computing 447 TG 3.7: Web Services and Service-Oriented

Architecture 450

[Technology Guide 4] Intelligent Systems 456

TG 4.1: Introduction to Intelligent Systems 457 TG 4.2: Expert Systems 459 TG 4.3: Neural Networks 463 TG 4.4: Fuzzy Logic 464 TG 4.5: Genetic Algorithms 465 TG 4.6: Intelligent Agents 465

[Index] 471

Chapter

What’s In Me?ITFor T h i s C h a p t e r W i l l H e l p P r e p a r e Y o u T o …

MKTACCT FIN POM HRM MIS

ACCOUNTING

Monitor social media for

compliance

FINANCE

Collaborate with external fi nancial

experts

MARKETING

Receive real-time feedback from

customers

PRODUCTION OPERATIONS

MANAGEMENT

Partners/ customers

collaborate on product

development

HUMAN RESOURCES

MANAGEMENT

Enhance recruiting efforts

MIS

Develop internal company social

networks

Introduction to Information Systems

1

[ LEARNING OBJECTIVES ] [ CHAPTER OUTLINE ] [ WEB RESOURCES ]

1. Identify the reasons why being an informed user of information systems is important in today’s world.

2. Describe the various types of computer-based information systems in an organization.

3. Discuss ways in which information technology can affect managers and nonmanagerial workers.

4. Identify positive and negative societal effects of the increased use of information technology.

1.1 Why Should I Study Information Systems?

1.2 Overview of Computer- Based Information Systems

1.3 How Does IT Impact Organizations?

1.4 Importance of Information Systems to Society

• Student PowerPoints for note taking

• E-book • Author video lecture for each

chapter section

• Practice quizzes • Flash Cards for vocabulary review • Additional “IT’s About Business”

cases

• Video interviews with managers • Lab Manuals for Microsoft

Offi ce 2010 and 2013

2 CHAPTER 1 Introduction to Information Systems

Fundraising is a diffi cult and time-consuming process that diverts entrepreneurs from building their companies. For decades, entrepreneurs who sought to obtain funding from Silicon Valley’s small, wealthy group of angel investors found the process similar to breaking into an exclusive club. (An angel investor is an individual who provides capital for a startup, usually in exchange for convertible debt or ownership equity.) They had to work with their personal networks to set up meetings with fi nanciers and then negotiate pri- vately, with little awareness of fair market value or better opportunities elsewhere.

To assist these individuals, AngelList (https://angel.co), founded in 2010 in San Francisco, has created an online forum where founders of early-stage companies—called startups—post their ideas and meet investors who fund these often risky ventures. AngelList’s mission is to make startup investing transparent and effi cient.

How does AngelList work? Basically, startups access the site and create profi les that list infor- mation such as their previous fi nancial backers (if any) and the amount of capital they have already raised. They then utilize those profi les to make their “pitch” to hundreds of certifi ed investors—fi nancial fi rms as well as wealthy individuals and companies. To avoid fraud, Angel- List vets its investors by requiring them to provide a track record of their prior investments. At the same time, the company thoroughly researches any startups that it lists on its Web site.

AngelList restricts its services to startups that are trying to obtain funding for the fi rst time. For example, the company handles the regulatory paperwork to help startups complete the relevant forms. One feature on the company’s Web site, called “Syndicates,” lets investors pool their money under the direction of a single, wealthy investor known as a “lead.” Then, when- ever the lead decides to back a startup, so do the other investors, or “backers.” Leads set their own terms. For example, one lead investor collects up to a 20 percent “carry” fee from his back- ers, plus a portion of any positive return they receive if the startup is acquired or goes public. AngelList takes a 5 percent cut on any such paydays. In 2014, some $87 million worth of deals were transacted via AngelList’s syndicates.

Startups such as the private taxi service Uber (www.uber.com) and babysitting-jobs Web site Urbansitter (www.urbansitter.com) have used AngelList to make contact with new investors and quickly fi nalize their funding deals. In another example, Sprig (www.eatsprig.com), a San Francisco-based dinner delivery service, raised most of the money it needed for a new kitchen in a single day on AngelList.

At the end of 2013, AngelList added startup job listings to its Web site. In addition, it was lobbying the U.S. government to further relax fundraising restrictions contained in the JOBS Act, the 2012 Federal law that lowered regulatory requirements for startups. The company’s goal is for the public—rather than simply accredited investors—to use the site to provide fund- ing for promising startups.

And the bottom line? By early 2015, AngelList featured tens of thousands of businesses, and it had provided entrepreneurs with thousands of introductions to potential investors. Also in early 2015, AngelList expanded its investor syndicates to the United Kingdom.

Sources: Compiled from K. Collins, “AngelList Syndicates to Bring Investment to UK Startups,” Wired, February 13, 2015; D. Primack, “A Disrupter Shakes Up Angel Investing,” Fortune, December 1, 2014; B. Stone, “The Social Network for Startups,” Bloomberg BusinessWeek, January 20–26, 2014; F. Lardinois, “OnTheGo Raises $700K Seed Round from Foundry Group’s AngelList Syndicate and Others to Improve Smart Glasses,” TechCrunch, January 6, 2014; L. Rao, “Kima Ventures Will Allow Startups to Raise $150K Within 15 Days via AngelList,” TechCrunch, December 4, 2013; N. Hughes, “Will AngelList Help or Hurt Startup Fundraising,” GeekWire, October 12, 2013; A. Davidson, “Follow the Money: AngelList Has Blown Open Early- Stage Investments,” Wired, May 17, 2013; P. Sloan, “AngelList Attacks Another Startup Pain Point: Legal Fees,” CNET News, September 5, 2012; L. Rao, “AngelList Launches Docs to Help Startups Sign and Close Seed Rounds Online with Low Legal Fees,” TechCrunch, September 5, 2012; www.angellist.com, accessed January 20, 2015.

Questions

1. What are the advantages that AngelList offers to entrepreneurs? 2. What are potential disadvantages that entrepreneurs might encounter by using AngelList?

(Hint: What if you listed your company profi le on AngelList and no investor provided funding?)

[ AngelList Helps

Entrepre- neurs Build Companies]

MKT

https://angel.co
http://www.uber.com
http://www.urbansitter.com
http://www.eatsprig.com
http://www.angellist.com
3SECTION 1.1 Why Should I Study Information Systems?

Introduction Before we proceed, we need to defi ne information technology (IT) and information systems (IS). Information technology refers to any computer-based tool that people use to work with information and to support the information and information-processing needs of an organiza- tion. An information system collects, processes, stores, analyzes, and disseminates information for a specifi c purpose.

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

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

As you read this chapter and this text, keep in mind that the information technologies you will learn about are important to businesses of all sizes. No matter what area of business you major in, what industry you work for, or the size of your company, you will benefi t from learn- ing about IT. Who knows? Maybe you will use the tools you learn about in this class to make your great idea a reality by becoming an entrepreneur and starting your own business! In fact, as you see in the chapter opening case, you can use information technology (in the form of AngelList.com) to help you raise the necessary funds to successfully grow your business.

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

Accordingly, this chapter begins with a discussion of why you should become knowledgeable about IT. It also distinguishes among data, information, and knowledge, and it differentiates computer-based information systems (CBIS) from application programs. Finally, it considers the impacts of information systems on organizations and on society in general.

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

Essentially, you practice continuous computing, surrounded by a movable information net- work. This network is created by constant cooperation between the digital devices you carry (e.g., laptops, tablets, and smartphones), the wired and wireless networks that you access as you move about, and Web-based tools for fi nding information and communicating and collaborat- ing with other people. Your network enables you to pull information about virtually anything from anywhere, at any time, and to push your own ideas back to the Web, from wherever you are, via a mobile device. Think of everything you do online, often with your smartphone: register for classes; take classes (and not just at your university); access class syllabi, informa- tion, PowerPoints, and lectures; research class papers and presentations; conduct banking; pay your bills; research, shop, and buy products from companies or other people; sell your “stuff”; search for, and apply for, jobs; make your travel reservations (hotel, airline, rental car); cre- ate your own blog and post your own podcasts and videocasts to it; design your own page on

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4 CHAPTER 1 Introduction to Information Systems

Facebook; make and upload videos to YouTube; take, edit, and print your own digital photo- graphs; “burn” your own custom-music CDs and DVDs; use RSS feeds to create your personal electronic newspaper; text and tweet your friends and family throughout your day; send Snaps; and many other activities. (Note: If any of these terms are unfamiliar to you, don’t worry. You will learn about everything mentioned here in detail later in this text.)

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

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

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

• First, you will benefi t more from your organization’s IT applications because you will understand what is “behind” those applications (see Figure 1.1). That is, what you see on your computer screen is brought to you by your MIS department, which is operating “behind” your screen.

• Second, you will be in a position to enhance the quality of your organization’s IT applica- tions with your input.

• Third, even as a new graduate, you will quickly be in a position to recommend—and per- haps help select—the IT applications that your organization will use.

• Fourth, being an informed user will keep you abreast of both new information technolo- gies and rapid developments in existing technologies. Remaining “on top of things” will help you to anticipate the impacts that “new and improved” technologies will have on your organization and to make recommendations on the adoption and use of these technologies.

USERS

@ Slaomir Fajer/iStockphoto

MIS FIGURE 1.1 MIS provides what users see on their computer screens.

MIS

5SECTION 1.1 Why Should I Study Information Systems?

• Fifth, you will understand how using IT can improve your organization’s performance and teamwork as well as your own productivity.

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

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

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

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