Reinventing best buy case study questions

Case Questions

Choose any three case studies from chapters 1-3 that we have not covered in class and answer the discussion questions.

Chapter 1:
Google
Questions 1,2,3 & 5
Chapter 2
Groupon
Questions 1,3,4 & 5
Zipcar
Questions 1,2,3,4
Chapter 3
The FBI
Questions 1,2,3,4
Southest Airlines
Questions 1,2,3,4
•Individual assignment, no collaboration
•Short essay form

5TH EDITION

Managing and Using Information Systems A Strategic Approach

KERI E. PEARLSON KP Partners

CAROL S. SAUNDERS University of Central Florida Dr. Theo and Friedl Schoeller Research Center for Business and Society

JOHN WILEY & SONS, INC.

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To Yale & Hana

To Rusty, Russell & Kristin

VP & EXECUTIVE PUBLISHER: Don Fowley EXECUTIVE EDITOR: Beth Lang Golub ASSISTANT EDITOR: Samantha Mandel PROGRAM ASSISTANT: Elizabeth Mills MARKETING MANAGER: Chris Ruel MARKETING ASSISTANT: Ashley Tomeck DESIGNER: Wendy Lai ASSOCIATE PRODUCTION MANAGER: Joyce Poh PRODUCTION EDITOR: Jolene Ling

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Library of Congress Cataloging-in-Publication Data Pearlson, Keri.

Managing and using information systems: a strategic approach/Keri E. Pearlson, Carol S. Saunders. – 5th ed. p. cm.

Includes index. ISBN 978-1-118-28173-4 (pbk.) 1. Knowledge management. 2. Information technology–Management. 3. Management information systems.

4. Electronic commerce. I. Saunders, Carol S. II. Title. HD30.2.P4 2013 658.4 0038011—dc23 2012015379

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cPreface Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without the talking about the other.1

Bill Gates Microsoft

I’m not hiring MBA students for the technology you learn while in school, but for your ability to learn about, use and subsequently manage new technologies when you get out.

IT Executive Federal Express

Give me a fish and I eat for a day; teach me to fish and I eat for a lifetime. Proverb

Managers do not have the luxury of abdicating participation in information systems decisions. Managers who choose to do so risk limiting their future business options. Information systems are at the heart of virtually every business interaction, process, and decision, especially when one considers the vast penetration of the Web in the last few years. Mobile and social technologies have brought information systems to an entirely new level within firms, and between individuals in their personal lives. Managers who let someone else make decisions about their informa- tion systems are letting someone else make decisions about the very foundation of their business. This is a textbook about managing and using information, written for current and future managers as a way of introducing the broader implications of the impact of information systems.

The goal of this book is to assist managers in becoming knowledgeable partic- ipants in information systems decisions. Becoming a knowledgeable participant means learning the basics and feeling comfortable enough to ask questions. It does not mean having all the answers nor having a deep understanding of all the technologies out in the world today. No text will provide managers with everything they need to know to make important information systems decisions. Some texts instruct on the basic technical background of information systems. Others discuss applications and their life cycle. Some take a comprehensive view of the management information systems (MIS) field and offer readers snapshots of current systems along with chapters describing how those technologies are designed, used, and integrated into business life.

This book takes a different approach. This text is intended to provide the reader with a foundation of basic concepts relevant to using and managing information. It is not intended to provide a comprehensive treatment on any one aspect of MIS, for certainly

1 http://www.woopidoo.com/business quotes/authors/bill-gates-quotes.htm.

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each aspect is itself a topic of many books. It is not intended to provide readers with enough technological knowledge to make them MIS experts. It is not intended to be a source of discussion of any particular technology. This textbook is written to help managers begin to form a point of view of how information systems will help, hinder, and create opportunities for their organizations.

The idea for this text grew out of discussions with colleagues in the MIS area. Many faculties use a series of case studies, trade and popular press readings, and Web sites to teach their MIS courses. Others simply rely on one of the classic texts, which include dozens of pages of diagrams, frameworks, and technologies. The initial idea for this text emerged from a core MIS course taught at the business school at the University of Texas at Austin. That course was considered an “appetizer” course—a brief introduc- tion into the world of MIS for MBA students. The course had two main topics: using information and managing information. At the time, there was no text like this one, hence students had to purchase thick reading packets made up of articles and case studies to provide them with the basic concepts. The course was structured to provide the general MBA with enough knowledge of the field of MIS that they could recognize opportunities to use the rapidly changing technologies available to them. The course was an appetizer to the menu of specialty courses, each of which went much deeper into the various topics. But completion of the appetizer course meant that students were able to feel comfortable listening to, contributing to, and ultimately participating in information systems decisions.

Today, many students are digital natives—people who have grown up using information technologies all of their lives. That means that students come to their courses with significantly more knowledge about things like tablets, apps, personal computers, smartphones, texting, the Web, social networking, file downloading, online purchasing, and social media than their counterparts in school just a few years ago. This is a significant trend that is projected to continue; students will be increasingly knowledgeable in personally using technologies. That knowledge has begun to change the corporate environment. Today’s digital natives expect to find information systems in corporations that provide at least the functionality they have at home. At the same time, they expect to be able to work in ways that take advantage of the technologies they have grown to depend on for social interaction, collaboration, and innovation. This edition of the text has been completely edited with this new group of students in mind. We believe the basic foundation is still needed for managing and using information systems, but we understand that the assumptions and knowledge base of today’s students is significantly different.

Also different today is the vast amount of information amassed by firms, sometimes called the “Big Data Problem.” Not only have organizations figured out that there is a lot of data around their processes, their interactions with customers, their products, and their suppliers, but with the increase in communities and social interactions on the Web, there is an additional pressure to collect and analyze vast amounts of unstructured information contained in these conversations to identify trends, needs, and projections. We believe that today’s managers face an increasing amount of pressure to understand what is being said by those inside and outside their corporations and to join the

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conversations as much as reasonable. That is significantly different from just a few years ago.

This book includes an introduction, twelve chapters of text and minicases, and a set of case studies and supplemental readings on a Web site. The introduction makes the argument introduced in this preface that managers must be knowledge- able participants in information systems decisions. The first few chapters build a basic framework of relationships between business strategy, information systems strategy, and organizational strategy and explore the links between these strategies. Readers will also find a chapter on how information systems relate to business transformation. Supplemental materials, including longer cases from all over the globe, can be found on the W eb. Please v isit http://www.wiley.com/ college/pearlson for more information.

General managers also need some foundation on how IT is managed if they are to successfully discuss their next business needs with IT professionals who can help them. Therefore, the remaining chapters describe the basics of information architecture and infrastructure, the business of IT, the governance of the IS organization, the sourcing of information systems, project management, business intelligence, business analytics and knowledge management, and relevant ethical issues.

No text in the field of MIS is current. The process of writing the chapters, coupled with the publication process, makes a text somewhat out-of-date prior to delivery to its audience. With that in mind, this text is written to summarize the “timeless” elements of using and managing information. Although this text is complete in and of itself, learning is enhanced by coupling the chapters with the most current readings and cases. Students are encouraged to search the Web for examples and current events and bring them into the discussions of the issues at hand. The format of each chapter begins with a navigational guide, a short case study and the basic language for a set of important management issues. This is followed up with a set of managerial concerns related to the topic. The chapter concludes with a summary, a set of study questions, key words, and case studies.

This is the fifth edition of this text, and this version includes several significant additions and revisions. Each chapter now has a Social Business Lens, a textbox that calls out one topic related to the main chapter, but that is enabled or fundamental to using social tools in the enterprise. Most chapters also have a Geographic Lens box, a single idea from a global issue related to the topic of the main chapter. Gone are the “food for thought” sections in each chapter. Some have been incorporated into the main part of the chapter, and others have been moved to the companion Web site available to instructors using this text. Each chapter has been significantly revised, with newer concepts added, discussions of more current topics fleshed out, and old, outdated topics removed or at least their discussion shortened. And every chapter now has a navigation box to help the reader understand the flow and key topics of the chapter.

Who should read this book? General managers interested in participating in information systems decisions will find this a good reference resource for the language and concepts of IS. Managers in the information systems field will find this book a good

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resource for beginning to understand the general manager’s view of how information systems affect business decisions. And IS students will be able to use the readings and concepts in this book as the beginning point in their journey to become informed and successful business people.

The information revolution is here. Where do you fit in?

Keri E. Pearlson and Carol S. Saunders

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cAcknowledgments Books of this nature are written only with the support of many individuals. We would like to personally thank several individuals who helped with this text. Although we’ve made every attempt to include everyone who helped make this book a reality, there is always the possibility of unintentionally leaving some out. We apologize in advance if that is the case here.

Brandt Walker helped us with this edition by researching various topics, finding cases, and verifying examples from previous editions. We really appreciate his thoughtful efforts. We also appreciate the considerable efforts of Parul Acharya and Arturo Watlington III, students at the University of Central Florida who enthusiastically helped with proofreading, research and background checking of facts. Thank you also goes to Matthew Riley and Steve Kaplan of Presidio for help with the infrastructure and architecture concepts.

We also want to acknowledge and thank pbwiki.com. Without their incredible and free wiki, we would have been relegated to e-mailing drafts of chapters back and forth. For this edition, as with the fourth edition, we wanted to use Web 2.0 tools as we wrote about them. We found that having used the wiki for our previous edition, we were able to get up and running much faster than if we had to start over without the platform.

We have been blessed with the help of our colleagues in this and in previous editions of the book. They helped us by writing cases and reviewing the text. Our thanks continue to go out to Dennis Galletta, Jonathan Trower, Espen Andersen, Janis Gogan, Ashok Rho, Yvonne Lederer Antonucci, E. Jose Proenca, Bruce Rollier, Dave Oliver, Celia Romm, Ed Watson, D. Guiter, S. Vaught, Kala Saravanamuthu, Ron Murch, John Greenwod, Tom Rohleder, Sam Lubbe, Thomas Kern, Mark Dekker, Anne Rutkowski, Kathy Hurtt, Kay Nelson, John Butler, Philip Russell Saunders, Mihir Parikh, and Craig Tidwell. In addition, the students of the spring 2008 Technology Management and summer 2008 Information Resource Management classes at the University of Central Florida provided comments that proved helpful in writing some cases and making revisions. Though we cannot thank them by name, we also greatly appreciate the comments of the anonymous reviewers who have made a mark on this edition.

The book would not have been started were it not for the initial suggestion of a wonderful editor at John Wiley & Sons, Inc., Beth Lang Golub. Her persistence and patience have helped shepherd this book through many months of creation, modifica- tion, evaluation, and production, and she will shepherd it through translation into other languages. Special thanks go to Samantha Mandel, who very patiently helped us through the revision process. We also appreciate the help of all the staff at Wiley, who have made this edition a reality.

From Keri: Thank you to my husband, Dr. Yale Pearlson, and my daughter, Hana Pearlson. Once again, their patience with me while I worked on this edition was incredibly supportive. They understood my manic moments, and celebrated the

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victories and completion with as much joy as if they had written this book themselves. They also provided some ideas and examples, especially around the social business topics. I love you guys!

From Carol: Rusty, thank you for being my compass (always keeping me headed in the right direction) and my release valve (patiently walking me through stressful times— like writing revisions). I couldn’t do it without you. Every year I love you more! I love you, Kristin, Russell, and Janel very much!

viii c Acknowledgments

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cAbout the Authors Dr. Keri E. Pearlson is president of KP Partners, an advisory services firm specializing in creating business leaders skilled in the strategic use of information systems and organizational design in the Web 2.0 world. Dr. Pearlson is an entrepreneur, teacher, researcher, consultant, and thought leader. She has held various positions in academia and industry. She was a member of the information systems faculty at the Graduate School of Business at the University of Texas at Austin, where she taught management information systems courses to MBAs and executives. She held positions at the Harvard Business School, CSC, nGenera (formerly the Concours Group), AT&T, and Hughes Aircraft Company. While writing this edition, she was also an Adjunct faculty member at Babson College, in Wellesley, MA, and elected the first President of the Austin Area Society of Information Management chapter.

She is co-author of Zero Time: Providing Instant Customer Value—Every Time, All the Time (John Wiley & Sons, 2000). Her work has been published in numerous places including Sloan Management Review, Academy of Management Executive, and Infor- mation Resources Management Journal. Many of her case studies have been published by Harvard Business School Publishing and are used all over the world. She currently writes a blog on issues at the intersection of IT and business strategy. It’s available at www.kp partners .com.

Dr. Pearlson holds a Doctorate in Business Administration (DBA) in Management Information Systems from the Harvard Business School and both a Master’s Degree in Industrial Engineering Management and a Bachelor’s Degree in Applied Mathematics from Stanford University.

Dr. Carol S. Saunders is professor of Management at the University of Central Florida in Orlando, Florida, and Schoeller Senior Fellow (2012) at the University of Erlangen- Nuremberg. She served as General Conference Chair of the International Conference on Information Systems (ICIS) in 1999 and Telecommuting in 1996. She was the chair of the ICIS Executive Committee in 2000. For three years, she served as editor-in-chief of MIS Quarterly. She has received the Association of Information Systems (AIS) LEO award for lifetime accomplishments and is a Fellow of the AIS.

Her current research interests include the impact of information system on power and communication, overload, virtual teams, virtual worlds, time, sourcing, and inter- organizational linkages. Her research is published in a number of journals including MIS Quarterly, Information Systems Research, Journal of MIS, Communications of the ACM, Academy of Management Journal, Academy of Management Review, Communications Research, and Organization Science.

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cContents Introduction 1

The Case for Participating in Decisions about Information Systems 3 What If a Manager Doesn’t Participate? 6 Social Business Lens 8 Skills Needed to Participate Effectively in Information

Technology Decisions 9 Basic Assumptions 11 Economics of Information Versus Economics of Things 17 Summary 19 Key Terms 20 Discussion Questions 20 Case Study I-1: Terry Cannon, MBA 20 Case Study I-2: Anyglobal Company Inc. 22

c CHAPTER 1 The Information Systems Strategy Triangle 23

Brief Overview of Business Strategy Frameworks 26 Brief Overview of Organizational Strategies 33 Social Business Lens: Building a Social Business Strategy 34 Brief Overview of Information Systems Strategy 36 Summary 37 Key Terms 38 Discussion Questions 39 Case Study 1-1: Lego 39 Case Study 1-2: Google 41

c CHAPTER 2 Strategic Use of Information Resources 44

Evolution of Information Resources 45 Information Resources as Strategic Tools 47 How Can Information Resources Be Used Strategically? 51 Social Business Lens: Social Capital 64 Strategic Alliances 64 Risks 66 Co-Creating IT and Business Strategy 68 Summary 69 Key Terms 70

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Discussion Questions 70 Case Study 2-1: Groupon 71 Case Study 2-2: Zipcar 72

c CHAPTER 3 Organizational Strategy and Information Systems 74

Information Systems and Organizational Design 78 Social Business Lens: Social Networks 85 Information Systems and Management Control Systems 85 Information Systems and Culture 89 Summary 95 Key Terms 96 Discussion Questions 96 Case Study 3-1: The Merger of AirTran by Southwest Airlines:

Will the Organizational Cultures Merge? 97 Case Study 3-2: The FBI 98

c CHAPTER 4 Information Systems and the Design of Work 100

Work Design Framework 102 How Information Technology Supports Communication and Collaboration 104 How Information Technology Changes the Nature of Work 104 Social Business Lens: Activity Streams 113 How Information Technology Changes Where and When Work Is

Done and Who Does It 116 Gaining Acceptance for IT-Induced Change 128 Summary 130 Key Terms 131 Discussion Questions 132 Case Study 4-1: Trash and Waste Pickup Services, Inc. 132 Case Study 4-2: Social Networking: How does IBM Do It? 133

c CHAPTER 5 Information Systems for Managing Business Processes 135

Silo Perspective versus Business Process Perspective 137 Building Agile and Dynamic Business Processes 142 Changing Business Processes 143 Workflow and Mapping Processes 145 Enterprise Systems 148 Social Business Lens: Crowdsourcing Changes Innovation Processes 161 Summary 162 Key Terms 163 Discussion Questions 163 Case Study 5-1: Santa Cruz Bicycles 164 Case Study 5-2: Boeing 787 Dreamliner 165

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c CHAPTER 6 Architecture and Infrastructure 167

From Vision to Implementation 168 The Leap from Strategy to Architecture to Infrastructure 170 From Strategy to Architecture to Infrastructure: An Example 177 Architectural Principles 180 Enterprise Architecture 180 Virtualization and Cloud Computing 183 Other Managerial Considerations 185 Social Business Lens: Building Social-Mobile Applications 192 Summary 192 Key Terms 193 Discussion Questions 193 Case Study 6-1: Enterprise Architecture at American Express 194 Case Study 6-2: The Case of Extreme Scientists 195

c CHAPTER 7 The Business of IT 197

Organizing to Respond to Business Demand: A Maturity Model 198 Understanding the IT Organization 199 What a Manager Can Expect from the IT Organization 199 Managing IT Activities Globally 203 What the IT Organization Does Not Do 205 Chief Information Officer 206 Social Business Lens: Community Management 208 Building a Business Case 209 IT Portfolio Management 213 Valuing IT Investments 215 Monitoring IT Investments 218 Funding IT Resources 222 How Much Does IT Cost? 226 Summary 231 Key Terms 233 Discussion Questions 233 Case Study 7-1: Troon Golf 234 Case Study 7-2: Balanced Scorecards at BIOCO 235

c CHAPTER 8 Governance of the Information Systems Organization 236

IT Governance 237 IT Governance and Security 244 Social Business Lens: The Consumerization of Technology 248 Decision-Making Mechanisms 248 Governance Frameworks for Control Decisions 251 Summary 257

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Key Terms 257 Discussion Questions 257 Case Study 8-1: IT Governance at University of the Southeast 258 Case Study 8-2: The Big Fix at Toyota Motor Sales (TMS) 259

c CHAPTER 9 Information Systems Sourcing 261

Sourcing Decision Cycle Framework 262 Social Business Lens: iCloud 274 Outsourcing and Strategic Networks 283 Summary 284 Key Terms 285 Discussion Questions 285 Case Study 9-1: Crowdsourcing at AOL 285 Case Study 9-2: Altia Business Park 286

c CHAPTER 10 Managing IT Projects 288

What Defines a Project? 290 What is Project Management? 292 Project Elements 295 IT Projects 301 IT Project Development Methodologies and Approaches 303 Social Business Lens: Mashups 311 Managing IT Project Risk 312 Summary 319 Key Terms 320 Discussion Questions 320 Case Study 10-1: Implementing Enterprise Change Management at

Southern Company 321 Case Study 10-2: Dealing with Traffic Jams in London 322

c CHAPTER 11 Knowledge Management, Business Intelligence, and Analytics 325

Knowledge Management, Business Intelligence, and Business Analytics 327

Data, Information, and Knowledge 330 Knowledge Management Processes 335 Business Intelligence 335 Competing with Business Analytics 336 Components of Business Analytics 338 Big Data 340 Social Analytics 342

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Social Business Lens: Social Graphs 344 Caveats for Managing Knowledge and Business Intelligence 345 Summary 345 Key Terms 346 Discussion Questions 346 Case Study 11-1: Stop & Shop’s Scan It! App 347 Case Study 11-2: Business Intelligence at CKE Restaurants 348

c CHAPTER 12 Using Information Ethically 350

Responsible Computing 352 Corporate Social Responsibility 356 PAPA: Privacy, Accuracy, Property, and Accessibility 359 Social Business Lens: Personal Data 363 Security and Controls 369 Summary 371 Key Terms 372 Discussion Questions 372 Case Study 12-1: Ethical Decision Making 372 Case Study 12-2: Midwest Family Mutual Goes Green 375

Glossary 377

Index 387

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cIntroduction This chapter introduces the perspectives that are used throughout this text. It begins by making the case for general manager participation in information systems decisions and the consequences that arise when managers do not participate in IS decisions. Basic assumptions about management, business, and information systems made by the authors are stated. The chapter concludes with a brief discussion about the difference between the economics of information versus things.

Why do managers need to understand and participate in the information decisions of their organizations? After all, most corporations maintain entire departments dedicated to the management of information systems (IS). These departments are staffed with highly skilled professionals devoted to the field of technology. Shouldn’t managers rely on experts to analyze all the aspects of IS and to make the best decisions for the organization? The answer to that question is no.

Managing information is a critical skill for success in today’s business environment. All decisions made by companies involve, at some level, the management and use of IS. Managers today need to know about their organization’s capabilities and uses of information as much as they need to understand how to obtain and budget financial resources. The ubiquity of personal devices such as smart phones, laptops and tablets, and access to apps within corporations and externally over the Internet, highlights this fact because today’s technologies form the backbone for virtually all business models. This backbone easily crosses the globe, adding the need for a global competency to the manager’s skill set. Further, the proliferation of supply chain partnerships and the vast amount of technology available to individuals outside of the corporation has extended the urgent need for business managers to be involved in technology decisions. In addition, the availability of seemingly free (or at least very inexpensive) applications, collaboration tools and innovation engines in the consumer area has changed the landscape once again, increasing the integration of IS and business processes. A manager who does not understand the basics of managing and using information cannot be successful in this business environment.

The majority of U.S. adults own a smart phone, laptop, and access to online apps. According to the Pew Research Center, in 2011, 83% of U.S. adults had a cell phone of some kind, and of those who had a mobile phone, 42% had a smart phone.1 Individuals now have to manage a virtual “personal IS” and make decisions about applications to purchase. Doesn’t that give them insight into managing information systems in corpo- rations? Students often think that because of their personal experience with technology, they also are experts in corporate IS. There is some truth in that perspective, but it’s also a very dangerous perspective for managers to take. Certainly managing one’s own

1 Smartphone Adoption and Usage, July 2011, http://pewinternet.org/Reports/2011/Smartphones.aspx.

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information systems gives some experience that is useful in the corporate setting such as knowing about interesting apps, being able to use a variety of technologies for different purposes, and being familiar with the ups and downs of networking. But in a corporate setting, information systems must be enterprise-ready. They must be scalable for large number of employees; they must be delivered in an appropriate manner for the enterprise; they must be managed with corporate guidelines, and sometimes governmental regula- tions, in mind. Issues like security, privacy, risk, and architecture take on a new meaning within an enterprise, and someone has to manage them. A similar phenomenon occurred in the early days of database applications. Individuals who used a personal computer version of a database assumed they understood databases, but they ran into issues when they try to integrate enterprise-level data from multiple users. That required a different architecture and skill set. Enterprise-level managing and using information systems require a unique perspective managers develop over time.

Consider the now-historic rise of companies such as Amazon.com, Google and Zappos. Amazon.com began as an online bookseller and rapidly outpaced traditional brick-and-mortar businesses like Barnes and Noble, Borders, and Waterstones. Man- agement at the traditional companies responded by having their IS support personnel build Web sites to compete. But upstart Amazon.com moved on ahead, keeping its leadership position on the Web by leveraging its new business model into other marketplaces, such as music, electronics, health and beauty products, lawn and garden products, auctions, tools and hardware, and more. It cleared the profitability hurdle by achieving a good mix of IS and business basics: capitalizing on operational efficiencies derived from inventory software and smarter storage, cost cutting, and effectively partnering with such companies as Toys “R” Us Inc. and Target Corporation.2 More recently Amazon.com changed the basis of competition in another market, but this time it was the Web services business. Amazon.com Web services offers clients the extensive technology platform used for Amazon.com, but in an on-demand fashion for developing and running the client’s own applications. Shoe retailer Zappos.com challenged Ama- zon’s business model, in part by coupling a social business strategy with exemplary service and sales, and they were so successful that Amazon.com bought them.

Likewise, Google played an important role in revolutionizing the way information is located, changing the playing field for advertising and publishing business models. Google began in 1999 as a basic search company but quickly learned that a unique business model was a critical factor for future success. The company changed the way people thought about Web content by making it available in a searchable format with an incredibly fast response time and in a host of languages. Further, Google’s keyword- targeted advertising program revolutionized the way companies advertise. By 2001, Google announced its first quarter of profitability, solidifying the way the world finds information, publishes, and advertises.3 More recently, Google expanded into a com- plete suite of Web-based applications, such as calendaring, e-mail, collaboration, shopping, and maps and then enhanced the applications by combining them with social

2 Robert Hof, “How Amazon Cleared the Profitability Hurdle,” BusinessWeek Online (February 4, 2002), http://www.businessweek.com/magazine/content/02_05/b3768079.htm (accessed on May 23, 2002). 3 Adapted from information at www.google.com/corporate/history.html (accessed on June 17, 2005).

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tools to increase collaboration. Further, like Amazon.com, Google also offers clients similar on-demand services.4

These and other online businesses are able to succeed where traditional companies have not, in part because their management understood the power of information, IS, and the Web. These exemplary online businesses did not succeed because their managers could build Web pages or assemble an IS network. Quite the contrary. The executives in these new businesses understood the fundamentals of managing and using information and could marry that knowledge with a sound, unique business vision to achieve domination of their intended market spaces.

The goal of this book is to provide the foundation to help the general business manager become a knowledgeable participant in IS decisions because any IS decision in which the manager does not participate can greatly affect the organization’s ability to succeed in the future. This introduction outlines the fundamental reasons for taking the initiative to participate in IS decisions. Moreover, because effective participation requires a unique set of managerial skills, this introduction identifies the most important ones. These skills are helpful not just in making IS decisions, but all business decisions. We describe how managers should participate in the decision-making process and outline key topics to consider which develop this point of view. Finally, this introduction presents current models for understanding the nature of a business and an information system to provide a framework for the discussions that follow in subsequent chapters.

c THE CASE FOR PARTICIPATING IN DECISIONS ABOUT INFORMATION SYSTEMS

Experience shows that business managers have no problem participating in most organizational decisions, even those outside their normal business expertise. For example, ask a plant manager about marketing problems, and the result is likely to be a detailed opinion on both key issues and recommended solutions. Dialogue among managers routinely crosses all business functions in formal as well as informal settings, with one general exception: IS. Management continues to tolerate ignorance in this area relative to other specialized business functions. Culturally, managers can claim igno- rance of IS issues without losing prestige among colleagues. On the other hand, admitting a lack of knowledge regarding marketing or financial aspects of the business earns colleagues’ contempt.

These attitudes are attributable to the historic role that IS played in businesses. For many years, technology was regarded as a support function and treated as administrative overhead. Its value as a factor in important management decisions was minimal. It often took a great deal of technical knowledge to understand even the most basic concepts.

However, in today’s business environment, maintaining this back-office view of technology is certain to cost market share and could ultimately lead to the failure of the organization. Technology has become entwined with all the classic functions of

4 For more information on the latest services by these two companies, see http://www.amazon.com and http:// www.google.com/enterprise/cloud/.

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business—operations, marketing, accounting, finance—to such an extent that under- standing its role is necessary for making intelligent and effective decisions about any of them. Furthermore, a general understanding of key IS concepts is possible without the extensive technological knowledge required just a few years ago. Most managers today have personal technology such as a smart phone or tablet that is more functional than many corporate-supported personal computers provided by enterprises just a few years ago. In fact, the proliferation of personal technologies makes everyone a “pseudo- expert.” Each individual must manage applications on smart phones, make decisions about applications to purchase, and procure technical support when the systems fail. Finally, with the robust number of consumer applications available on the Web, many decisions historically made by the IS group are increasingly being made by individuals outside the IS, sometimes at the detriment of corporate objectives.

Therefore, understanding basic fundamentals about using and managing informa- tion is worth the investment of time. The reasons for this investment are summarized in Figure I-1 and are discussed next.

A Business View

Information technology (IT) is a critical resource for today’s businesses. It both supports and consumes a significant amount of an organization’s resources. Just like the other three major types of business resources—people, money, and machines—it needs to be managed wisely.

IT spends a significant portion of corporate budgets. Worldwide IT spending topped $3.7 trillion in 2011, a jump of almost 8% from the previous year. It’s projected to continue to increase.5 More than 350 companies each plan to invest more than $1 billion in IT, particularly in cloud, social, mobile and big data. Companies in a Gartner study reported that cloud services will grow five times faster than overall IT enterprise spending annually through 2015.

These resources must return value, or they will be invested elsewhere. The business manager, not the IS specialist, decides which activities receive funding, estimates the risk associated with the investment, and develops metrics for evaluating the performance of the

Reasons

IS must be managed as a critical resource

IS enable change in the way people work together

IS are part of almost every aspect of business

IS enable or inhibit business opportunities and new strategies

IS can be used to combat business challenges from competitors

FIGURE I-1 Reasons why business managers should participate in information systems decisions.

5 http://www.gartner.com/technology/research/it-spending-forecast/ (accessed on February 12, 2012).

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investment. Therefore, the business manager needs a basic grounding in managing and using information. On the flip side, IS managers need a business view to be able to explain how the technology will impact the business and what the tradeoffs are.

People and Technology Work Together

In addition to financial issues, a manager must know how to mesh technology and people to create effective work processes. Collaboration is increasingly common, especially with the rise of social networking. Companies are reaching out to individual customers using social technologies such as Facebook, Twitter, YouTube and numerous other tools. In fact, the term Web 2.0 describes the use of World Wide Web (the Internet) applications that facilitate, information sharing, user-centered design, interoperability and collabo- ration among users. Technology facilitates the work that people do and the way they interact with each other. Appropriately incorporating IS into the design of a business model enables people to focus their time and resources on issues that bear directly on customer satisfaction and other revenue- and profit-generating activities.

Adding a new IS to an existing organization, however, requires the ability to manage change. The skilled business manager must balance the benefits of introducing new technology with the costs associated with changing the existing behaviors of people in the workplace. There may be choices of technology solutions each with different impact and a decision must incorporate a clear understanding of the consequences. Making this assessment does not require detailed technical knowledge. It does require an under- standing of what the short-term and long-term consequences are likely to be, how to mitigate the risks associated with and why adopting new technology may be more appropriate in some instances than in others. Understanding these issues also helps managers know when it may prove effective to replace people with technology at certain steps in a process.

Integrating Business with Information Systems

IS are integrated with almost every aspect of business and have been for quite some time. For example, as former CEO of Walmart Stores International, Bob Martin described IS’s role, “Today technology plays a role in almost everything we do, from every aspect of customer service to customizing our store formats or matching our merchandising strategies to individual markets in order to meet varied customer preferences.”6 IS place information in the hands of Walmart associates so that decisions can be made closer to the customer. IS help simplify organizational activities and processes such as moving goods, stocking shelves, or communicating with suppliers. For example, handheld scanners provide floor associates with immediate and real time access to inventory in their store and the ability to locate items in surrounding stores, if necessary.

6 “The End of Delegation? Information Technology and the CEO,” Harvard Business Review (September– October 1995), 161.

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Rapid Change in Technology

The proliferation of new technologies creates a business environment filled with opportunities. The changing demographics of the workforce and the integration of “digital natives,” individuals who have grown up completely fluent in the use of personal technologies and the Web, also increase the rate of adoption of new tech- nologies beyond the pace of traditional organizations. Even today, new uses of the Internet produce new types of online businesses that keep every manager and executive on alert. New business opportunities spring up with little advance warning. The manager’s role is to frame these opportunities so that others can understand them, to evaluate them against existing business needs and choices, and finally to pursue those that fit with an articulated business strategy. The quality of the information at hand affects the quality of both the decision and its implementation. Managers must develop an understanding of what information is crucial to the decision, how to get it, and how to use it. They must lead the changes driven by IS.

Competitive Challenges

Competitors come from both expected and unexpected places. General managers are in the best position to see the emerging threats and utilize IS effectively to combat ever- changing competitive challenges. Further, general managers are often called on to demonstrate a clear understanding of how their own technology programs and products compare with those of their competitors. A deep understanding of the capabilities of the organization coupled with existing IS can create a competitive advantage and change the competitive landscape for the entire industry.

Customer Pull

With the emergence of social networks such as Facebook and Renren, social microblogs such as Sina Weibo and Twitter, social media and the Web, businesses have had to redesign their existing business models to account for the change in power now yielded by customers and others in their communities. Social media have given powerful voices to customers and communities and businesses must listen. Redesigning the customer experience when interacting with a company is top of mind for many managers and the key driver is IS. Social IT enable new and often deeper relationships with a large number customers and companies are learning how to integrate and leverage this capability into existing and new business models.

c WHAT IF A MANAGER DOESN’T PARTICIPATE?

Decisions about IS directly affect the profits of a business. The basic formula Profit ¼ Revenue � Expenses can be used to evaluate the impact of these decisions. Adopting the wrong technologies can cause a company to miss business opportunities and any revenues those opportunities would generate. Inadequate IS can cause a breakdown in servicing customers, which hurts sales. Poorly deployed social IT resources can badly damage the reputation of a strong brand. On the expense side, a miscalculated investment in

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technology can lead to overspending and excess capacity or under spending and restricted opportunity. Inefficient business processes sustained by ill-fitting IS also increase expenses. Lags in implementation or poor process adaptation each reduce profits and therefore growth. IS decisions can dramatically affect the bottom line.

Failure to consider IS strategy when planning business strategy and organizational strategy leads to one of three business consequences: (1) IS that fail to support business goals, (2) IS that fail to support organizational systems, and (3) a misalignment between business goals and organizational capabilities. These consequences are discussed briefly in the following section and in more detail in later chapters. The driving questions to consider are the potential effects on an organization’s ability to achieve its business goals. How will the consequences impact the way people work? Will the organization still be able to implement its business strategy?

Information Systems Must Support Business Goals

IS represent a major investment for any firm in today’s business environment. Yet poorly chosen IS can actually become an obstacle to achieving business goals. The results can be disastrous if the systems do not allow the organization to realize its goals. When IS lack the capacity needed to collect, store, and transfer critical information for the business, decisions can be impacted and options limited. Customers will be dissatisfied or even lost. Production costs may be excessive. Worst of all, management may not be able to pursue desired business directions that are blocked by inappropriate IS. Victoria’s Secret experienced this problem when a Superbowl ad promoting an online fashion show generated so many inquiries to its Web site that it crashed. After spending large amount of money on the advertisement, it was wasted when potential customers could not access the site. Likewise, Toys “R” Us experienced such a calamity when its well-publicized Web site was unable to process and fulfill orders fast enough one holiday season. It not only lost those customers, but it also had a major customer relations issue to manage as a result.

Information Systems Must Support Organizational Systems

Organizational systems represent the fundamental elements of a business—its people, work processes, tasks, structure and control systems—and the plan that enables them to work efficiently to achieve business goals. If the company’s IS fail to support its organizational systems, the result is a misalignment of the resources needed to achieve its goals. For example, it seems odd to think that a manager might add functionality to a corporate Web site without providing the training these same employees need to use the tool effectively. Yet, this mistake—and many more costly ones—occur in businesses every day. Managers make major IS decisions without informing all the staff of resulting changes in their daily work. For example, an enterprise resource planning (ERP) system often dictates how many business processes are executed and the organization systems must change to reflect the new processes. Deploying technology without thinking through how it actually will be used in the organization—who will use it, how they will use it, how to make sure the applications chosen actually accomplish what is intended—results in significant expense. In another example, a company may decide to block access to the Internet, thinking that they are prohibiting employees from accessing

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offensive or unsecure sites. But that decision also means that employees can’t access social networking sites, which may be useful for collaboration, or other Web-based applications that may offer functionality to make the business more efficient.

The general manager, who, after all, is charged with ensuring that company resources are used effectively, must guarantee that the company’s IS support its organizational systems and that changes made in one system are reflected in the other. For example, a company that plans to allow workers to work remotely needs an information system strategy compatible with its organization strategy. Desktop PCs located within the corporate office are not the right solution for a telecommuting organization. Instead, laptop computers, applications that are accessible online anywhere and anytime, and

Social Business Lens

In this edition of the text, we introduce a new feature, the Social Business Lens. The explosion of consumer-based technologies, coupled with applications such as Facebook, Renren, Sina Weibo, Twitter, LinkedIn, YouTube, Foursquare, Skype, Pinterest, and more have brought into focus the concept of a social business. Some call this trend the consumerization of technology a term used to mean that technologies targeted at individual, personal users such as social tools, mobile phones, and Web applications are entering the corporation and pressuring the enterprise in new and unexpected ways. At the same time, technologies intended for the corporation, like cloud computing, are being retooled and “consumerized” to appeal to individuals outside the corporation.

This phenomenon is permeating every facet of business. There are new business models based on a social IT platform, new ways of connecting with stakeholders, governing, collaborating, doing work, and measuring results. In this book, we are particular about the terminology we use. Social IT is the term we use for all technologies in this space. We define social IT as the technologies used for collaboration, networking, and the general interaction between people over the Web. These include social networks and other applications that provide for interaction between people. Enterprise use of social IT for business applications, activities and processes is called social business.

Many use the term social media as an overarching term for this space, but increasingly social media refers to the marketing and sales applications of social IT, and we use it that way. Social networks are a specific type of tool, like Facebook, Ning, and similar tools. Social networking is the use of these types of social IT tools in a community. As of the writing of this text, the social space is still like the wild west; there are no widely accepted conventions about the terms and their meanings or the uses and their impact. But we have enough experience with social IT that we know it’s a major force bursting on the enterprise scene and it must be addressed in discussions of managing and using information systems.

Look for the box “Social Business Lens” in each chapter. In that space, we explore one topic related to that chapter from a social business perspective. We look through the lens of a social business.

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networks that facilitate information sharing are needed. Workers may want to use tablets or smart phones remotely, too, and those entail a different set of IS processes. If the organization only allows the purchase of desktop PCs and only builds systems accessible from desks within the office, the telecommuting program is doomed to failure.

c SKILLS NEEDED TO PARTICIPATE EFFECTIVELY IN INFORMATION TECHNOLOGY DECISIONS

Participating in IT decisions means bringing a clear set of skills to the table. All managers are asked to take on tasks that require different skills at different times. Those tasks can be divided into visionary tasks, or tasks that provide leadership and direction for the group; informational/interpersonal tasks, or tasks that provide information and knowl- edge the group needs to have to be successful; and structural tasks, tasks that organize the group. Figure I-2 lists basic skills required of managers who wish to participate successfully in key IT decisions. Not only does this list emphasize understanding,

Managerial Role Skills

Visionary Creativity—the ability to transform resources and create something new to the organization. Curiosity—the ability to question and learn about new ideas, applica- tions, technologies and business models. Confidence—the ability to believe in oneself and assert one’s ideas at the proper time. Focus on business solutions—the ability to bring experience and insight to bear on current business opportunities and challenges. Flexibility—the ability to change rapidly and effectively, such as by adapting processes, shifting perspectives, or adjusting a plan to achieve a new goal.

Informational and Interpersonal

Communication—the ability to share thoughts through speech, writing, text and images. Listening—the ability to hear and reflect back what others are saying. Information gathering—the ability to gather thoughts of others through listening, reading, and observing. Interpersonal skills—the ability to cooperate and collaborate with others on a team, among groups, or across a change of command to achieve results.

Structural Project management—the ability to plan, organize, direct and control company resources to effectively complete a project. Analytical skills—the ability to break down a problem into its elements for ease of understanding and analysis. Organizational skills—the ability to bring together distinct elements and combine them into an effective whole. Planning skills—the ability to develop objectives and to allocate resources to ensure objectives are met.

FIGURE I-2 Skills of successful managers.

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organizing, planning, and solving the business needs of the organization, but it also is an excellent checklist for all managers’ professional growth.

These skills may not look much different from those required of any successful manager, which is the main point of this book: General managers can be successful participants in IS decisions without an extensive technical background. General man- agers who understand a basic set of IS concepts and who have outstanding managerial skills, such as those listed in Figure I-2, are ready for the digital economy.

How To Participate in Information Systems Decisions

Technical wizardry is not required to become a knowledgeable participant in the IS decisions of a business. Managers need curiosity, creativity, and the confidence to ask questions in order to learn and understand. A solid framework that identifies key management issues and relates them to aspects of IS provides the background needed to participate.

The goal of this book is to provide that framework. The way in which managers use and manage information is directly linked to business goals and the business strategy that drive both organizational and IS decisions. Aligning business and IS decisions together is critical. Business, organizational, and information strategies are fundamentally linked in what is called the Information Systems Strategy Triangle, discussed in the next chapter. Failing to understand this relationship is detrimental to a business. Failing to plan for the conse- quences in all three areas can cost a manager his or her job. This book provides a foundation for understanding business issues related to IS from a managerial perspective.

Organization of the Book

To be a knowledgeable participant, managers must know about both using information and managing information. The first five chapters offer basic frameworks to make this understanding easier. Chapter 1 uses the Information Systems Strategy Triangle frame- work to discuss alignment of IS and the business. This chapter also provides a brief overview of relevant frameworks for business strategy and organizational strategy. It is provided as background for those who have not formally studied organization theory or business strategy. For those who have studied these areas, this chapter is a brief refresher of major concepts used throughout the remaining chapters of the book. Subsequent chapters provide frameworks and sets of examples for understanding the links between IS and business strategy (Chapter 2), links between IS and organizational strategy (Chapter 3), collaboration and individual work (Chapter 4), and business processes (Chapter 5).

The rest of the text looks at issues related to the business manager’s role in managing IS itself. These chapters are the building blocks of an IS strategy. Chapter 6 provides a framework for understanding the four components of IS architecture: hardware, software, networks, and data. Chapter 7 discusses the business of IT, with a look at IS organization, funding models, portfolios, and monitoring options. Chapter 8 looks at the governance of IS resources. Chapter 9 explores sourcing and how companies provision IS resources. Chapter 10 focuses on project and change management. Chapter 11 dives into business intelligence, knowledge management, and analytics and provides an overview of how companies manage knowledge and create a competitive advantage using business ana- lytics. Finally, Chapter 12 discusses the ethical use of information, privacy, and security.

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c BASIC ASSUMPTIONS

Every book is based on certain assumptions, and understanding those assumptions makes a difference in interpreting the text. The first assumption made by this text is that managers must be knowledgeable participants in the IS decisions made within and affecting their organizations. That means that the general manager must have a basic understanding of the business and technology issues related to IS. Because technology changes rapidly, this text also assumes that the technology of today is different from the technology of yesterday, and most likely, the technology available to readers of this text today differs significantly from that available when the text was written. Therefore, this text focuses on generic concepts that are, to the extent possible, technology independent. It provides a framework on which to hang more current information, such as new uses of the Web, new social tools, or new networking technologies. It is assumed that the reader will seek out the most current sources to supplement the discussions of this text and to learn about the latest technology.

Although some may debate this next assumption, a second assumption is that the role of a general manager and the role of an IS manager are distinct and their skill sets differ. The general manager must have a basic knowledge of IS to make decisions that may have serious implications for the business. Whereas in addition to general business knowledge, the IS manager must have more in-depth knowledge of technology to manage IS and to partner with general managers who must use the information. As digital natives take on increasingly more managerial roles in corporations, this second assumption may have to be altered. But for this text, we assume a different skill set for the IS manager and we do not attempt to provide that here. Assumptions are also made about how business is done and what IS are in general.

Assumptions about Management

The classic view of management includes four activities performed by managers to reach organizational goals and each dependent on the others: planning, organizing, leading, and controlling (see Figure I-3). Conceptually, this simple model provides a framework

Planning Managers think through their goals and actions in advance. Their actions are usually based on some method, plan, or logic, rather than a hunch or gut feeling.

Organizing Managers coordinate the human and material resources of the organization. The effectiveness of an organization depends on its ability to direct its resources to attain its goals.

Leading Managers direct and influence subordinates, getting others to perform essential tasks. By establishing the proper atmosphere, they help their subordinates do their best.

Controlling Managers attempt to assure that the organization is moving toward its goal. If part of their organization is on the wrong track, managers try to find out why and set things right.

FIGURE I-3 Classic management model. Source: Adapted from James A. F. Stoner, Management, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1982).

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of the key tasks of management, which is useful for both general business and IS management activities. Although many books have been written describing each of these activities, organizational theorist Henry Mintzberg offers a view that most closely details the perspective relevant to IS management.

Mintzberg’s model describes management in behavioral terms by categorizing the three major roles a manager fills: interpersonal, informational, and decisional (see Figure I-4). This model is useful because it considers the chaotic nature of the environment in which managers actually work. Managers rarely have time to be reflective in their approaches to problems. They work at an unrelenting pace, and their activities are brief and often interrupted. Thus, quality information becomes

Type of Roles Manager’s Roles IS Examples

Interpersonal Figurehead CIO greets touring dignitaries.

Leader IS manager puts in long hours to help motivate project team to complete project on schedule in an environment of heavy budget cuts.

Liaison CIO works with the marketing and human resource vice presidents to make sure that the reward and compensation system is changed to encourage use of new IS supporting sales.

Informational Monitor Division manager compares progress on IS project for the division with milestones developed during the project’s initiation and feasibility phase.

Disseminator CIO conveys organization’s business strategy to IS department and demonstrates how IS strategy supports the business strategy.

Spokesperson IS manager represents IS department at organization’s recruiting fair.

Decisional Entrepreneur Division manager suggests an application of a new technology that improves the division’s operational efficiency.

Disturbance handler

Division manager, as project team leader, helps resolve design disagreements between division personnel who will be using the system and systems analysts who are designing it.

Resource allocator

CIO allocates additional personnel positions to various departments based upon business strategy.

Negotiator IS manager negotiates for additional personnel needed to respond to recent user requests for enhanced functionality in a system that is being implemented.

FIGURE I-4 Manager’s roles. Source: Adapted from H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973).

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even more crucial to effective decision-making. The classic view is often seen as a tactical approach to management, whereas some describe Mintzberg’s view as more strategic.

Assumptions about Business

Everyone has an internal understanding of what constitutes a business, which is based on readings and experiences in different firms. This understanding forms a model that provides the basis for comprehending actions, interpreting decisions, and communicat- ing ideas. Managers use their internal model to make sense of otherwise chaotic and random activities. This book uses several conceptual models of business. Some take a functional view and others take a process view.

Functional View

The classical view of a business is based on the functions that people perform, such as accounting, finance, marketing, operations, and human resources. The business orga- nizes around these functions to coordinate them and to gain economies of scale within specialized sets of tasks. Information first flows vertically up and down between line positions and management; after analysis it may be transmitted across other functions for use elsewhere in the company (see Figure I-5).

Process View

Michael Porter of Harvard Business School describes a business in terms of the primary and support activities that are performed to create, deliver, and support a product or service (see Figure I-6). The primary activities of inbound logistics, operations, out- bound logistics, marketing and sales, and service are chained together in sequences that describe how a business transforms its raw materials into value-creating products. This value chain is supported by common activities shared across all the primary activities. For example, general management and legal services are distributed among the primary activities. Improving coordination among activities increases business profit. Organiza- tions that effectively manage core processes across functional boundaries will be winners in the marketplace. IS are often the key to this process improvement and cross- functional coordination.

Both the process and functional views are important to understanding IS. The functional view is useful when similar activities must be explained, coordinated,

O p e ra

tio n s

A cc

o u n tin

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S a le

s a n d S

u p p o rt

Executive Management

M a rk

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In fo

rm a tio

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FIGURE I-5 Hierarchical view of the firm.

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executed, or communicated. For example, understanding a marketing information system means understanding the functional approach to business in general and the marketing function in particular. The process view, on the other hand, is useful when examining the flow of information throughout a business. For example, understanding the information associated with order fulfillment or product development or customer service means taking a process view of the business. This text assumes that both views are important for participating in IS decisions.

Assumptions about Information Systems

Consider the components of an information system from the manager’s viewpoint, rather than from the technologist’s viewpoint. Both the nature of information (hierarchy and economics) and the context of an information system must be examined to understand the basic assumptions of this text.

Information Hierarchy

The terms data, information, and knowledge are often used interchangeably, but have significant and discrete meanings within the knowledge management domain (and are more fully explored in Chapter 11). Tom Davenport, in his book Information Ecology, pointed out that getting everyone in any given organization to agree on common definitions is difficult. However, his work (summarized in Figure I-7) provides a nice starting point for understanding the subtle but important differences.

The information hierarchy begins with data, or simple observations, data are a set of specific, objective facts or observations, such as “inventory contains 45 units.” Standing alone, such facts have no intrinsic meaning, but can be easily captured, transmitted, and stored electronically.

Inbound Logistics

Outbound Logistics

Operations Marketing & Sales

Service

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

M argin

M argin

FIGURE I-6 Process view of the firm: the value chain. Source: M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: The Free Press, 1985, 1998).

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Information is data endowed with relevance and purpose.7 People turn data into information by organizing it into some unit of analysis (e.g., dollars, dates, or customers). For example, a mashup of location data and housing prices adds something beyond what the data provides individually, and that makes it information. A mashup is the term used to for applications that combine data from different sources to create a new application on the Web. Deciding on the appropriate unit of analysis involves interpreting the context of the data and summarizing it into a more condensed form. Consensus must be reached on the unit of analysis.

To be relevant and have a purpose, information must be considered within the context that it is received and used. Because of differences in context, information needs vary across the function and hierarchical level. For example, when considering func- tional differences related to a sales transaction, a marketing department manager may be interested in the demographic characteristics of buyers, such as their age, gender, and home address. A manager in the accounting department probably won’t be interested in any of these details, but instead wants to know details about the transaction itself, such as method of payment and date of payment.

Similarly, information needs may vary across hierarchical levels. These needs are summarized in Figure I-8 and reflect the different activities performed at each level. At

Data Information Knowledge

Definition Simple observations of the state of the world

Data endowed with relevance and purpose

Information from the human mind (includes reflection, synthesis, context)

Characteristics � Easily structured � Easily captured on

machines � Often quantified � Easily transferred � Mere facts

� Requires unit of analysis

� Data that have been processed

� Human mediation necessary

� Hard to structure � Difficult to capture on

machines � Often tacit � Hard to transfer

Example Daily inventory report of all inventory items sent to the CEO of a large manufacturing company

Daily inventory report of items that are below economic order quantity levels sent to inventory manager

Inventory manager knowing which items need to be reordered in light of daily inventory report, anticipated labor strikes, and a flood in Brazil that affects the supply of a major component.

FIGURE I-7 Comparison of data, information, and knowledge. Source: Adapted from Thomas Davenport, Information Ecology (New York: Oxford University Press, 1997).

7 Peter F. Drucker, “The Coming of the New Organization,” Harvard Business Review (January–February 1988), 45–53.

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the supervisory level, activities are narrow in scope and focused on production or the execution of the business’s basic transactions. At this level, information is focused on day-to-day activities that are internally oriented and accurately defined in a detailed manner. The activities of senior management are much broader in scope. Senior management performs long-term planning and needs information that is aggregated, externally oriented, and more subjective. The information needs of middle managers in terms of these characteristics fall between the needs of supervisors and senior manage- ment. Because information needs vary across levels, a daily inventory report of a large manufacturing firm may serve as information for a low-level inventory manager, whereas the CEO would consider such a report to be merely data. A report does not necessarily mean information. The context in which the report is used must be considered in determining if it is information.

Knowledge is information that is synthesized and contextualized to provide value. It is information with the most value. Knowledge consists of a mix of contextual information, values, experiences, and rules. For example, the mashup of locations and housing prices means one thing to a real estate agent, another thing to a potential buyer, and yet something else to an economist. It is richer and deeper than information and more valuable because someone thought deeply about that informa- tion and added his or her own unique experience, judgment, and wisdom. Knowledge also involves the synthesis of multiple sources of information over time.8 The amount of human contribution increases along the continuum from data to information to knowledge. Computers work well for managing data, but are less efficient at managing information.

Top Management

Middle Management

Supervisory and Lower-Level Management

Time Horizon

Long: years Medium: weeks, months, years

Short: day to day

Level of Detail

Highly aggregated Less accurate More predictive

Summarized Integrated Often financial

Very detailed Very accurate Often nonfinancial

Orientation Primarily external

Primarily internal with limited external

Internal

Decision Extremely judgmental Uses creativity and analytical skills

Relatively judgmental Heavy reliance on rules

FIGURE I-8 Information characteristics across hierarchical level.

8 Thomas H. Davenport, Information Ecology (New York: Oxford University Press, 1997), 9–10.

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Some people think there is a fourth level in the information hierarchy, wisdom. In this context, wisdom is knowledge, fused with intuition and judgment that facilitates the ability to make decisions. Wisdom is that level of the information hierarchy used by subject matter experts, gurus, and individuals with a high level of experience who seem to “just know” what to do and how to apply the knowledge they gain. This is consistent with Aristotle’s view of wisdom as the ability to balance different and conflicting elements together in ways that are only learned through experience.

c ECONOMICS OF INFORMATION VERSUS ECONOMICS OF THINGS

In their book, Blown to Bits, Evans and Wurster argued that every business is in the information business.9 Even those businesses not typically considered to be information businesses have business strategies in which information plays a critical role. The physical world of manufacturing is shaped by information that dominates products as well as processes. For example, a high-end Mercedes automobile contains as much computing power as a midrange personal computer. Information-intensive processes in the manufacturing and marketing of the automobile include design, market research, logistics, advertising, and inventory management.

As our world is reshaped by information-intensive industries, it becomes even more important for business strategies to differentiate the timeworn economics of things from the evolving economics of information. Things wear out; things can be replicated at the expense of the manufacturer; things exist in a tangible location. When sold, the seller no longer owns the thing. The price of a thing is typically based on production costs. In contrast, information never wears out, though it can become obsolete or untrue. Infor- mation can be replicated at virtually no cost without limit; information exists in the ether. When sold, the seller still retains the information, but this ownership provides little value if the ability of others to copy it is not limited. Finally, information is often costly to produce,