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Management Information Systems Managing the Digital Firm THIRTEENTH EDITION

GLOBAL EDITION

Management Information

Systems MANAGING THE DIGITAL FIRM

THIRTEENTH EDITION

GLOBAL EDITION

Kenneth C. Laudon New York University

Jane P. Laudon Azimuth Information Systems

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Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England

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Visit us on the World Wide Web at: www.pearson.com/uk

© Pearson Education Limited 2014

The rights of Kenneth C. Laudon and Jane P. Laudon to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Authorised adaptation from the United States edition, entitled Management Information Systems: Managing the Digital Firm, 13th Edition, ISBN: 978-0-13-305069-1 by Kenneth C. Laudon and Jane. P. Laudon, published by Pearson Education © 2014.

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3

A b o u t t h e A u t h o r s

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

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

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

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

Jane Price Laudon is a management consultant in the information systems area and the author of seven books. Her special interests include systems analysis, data management, MIS auditing, software evaluation, and teaching business professionals how to design and use information systems.

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

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

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4

B r i e f C o n t e n t s

Part One Organizations, Management, and the Networked Enterprise 31

Chapter 1 Information Systems in Global Business Today 32 Chapter 2 Global E-Business and Collaboration 70 Chapter 3 Information Systems, Organizations, and Strategy 108 Chapter 4 Ethical and Social Issues in Information Systems 150

Part Two Information Technology Infrastructure 191 Chapter 5 IT Infrastructure and Emerging Technologies 192 Chapter 6 Foundations of Business Intelligence: Databases and Information

Management 238

Chapter 7 Telecommunications, the Internet, and Wireless Technology 276 Chapter 8 Securing Information Systems 322

Part Three Key System Applications for the Digital Age 365 Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise

Applications 366

Chapter 10 E-Commerce: Digital Markets, Digital Goods 400 Chapter 11 Managing Knowledge 446 Chapter 12 Enhancing Decision Making 482

Part Four Building and Managing Systems 515 Chapter 13 Building Information Systems 516 Chapter 14 Managing Projects 556 Chapter 15 Managing Global Systems 590

(available on the Web at www.pearsonglobaleditions.com/laudon)

References 591

Glossary 607

Indexes 621

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5

C o m p l e t e C o n t e n t s

Part One Organizations, Management, and the Networked Enterprise 31

Chapter 1 Information Systems in Global Business Today 32 ◆Opening Case: Efficiency in Wood Harvesting with Information Systems 33

1.1 The Role of Information Systems in Business Today 35 How Information Systems are Transforming Business 35 • What’s New in Management Information Systems? 36 • Globalization Challenges and Opportunities: A Flattened World 38

◆Interactive Session: Management Running the Business from the Palm of Your Hand 39

The Emerging Digital Firm 41 • Strategic Business Objectives of Information Systems 42

1.2 Perspectives on Information Systems 45 What Is an Information System? 45 • Dimensions of Information Systems 48 • It Isn’t Just Technology: A Business Perspective on Information Systems 52

◆Interactive Session: Technology UPS Competes Globally with Information Technology 53

Complementary Assets: Organizational Capital and the Right Business Model 56

1.3 Contemporary Approaches to Information Systems 58 Technical Approach 58 • Behavioral Approach 58 • Approach of This Text: Sociotechnical Systems 59

Learning Track Modules: How Much Does IT Matter?, Information Systems and Your Career, The Mobile Digital Platform 61

Review Summary 62 • Key Terms 63 • Review Questions 63 • Discussion Questions 64 • Hands-On MIS Projects 64 • Video Cases 65 • Collaboration and Teamwork Project 65

◆Case Study: Mashaweer 66

Chapter 2 Global E-business and Collaboration 70 ◆Opening Case: Telus Embraces Social Learning 71

2.1 Business Processes and Information Systems 73 Business Processes 73 • How Information Technology Improves Business Processes 75

2.2 Types of Information Systems 75 Systems for Different Management Groups 76

◆Interactive Session: Technology Schiphol International Hub 78

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6 Contents

Systems for Linking the Enterprise 83

◆Interactive Session: Management Piloting Procter & Gamble from Decision Cockpits 84

E-Business, E-Commerce, and E-Government 87

2.3 Systems for Collaboration and Social Business 88 What is Collaboration? 88 • What Is Social Business? 89 • Business Benefits of Collaboration and Social Business 90 • Building a Collaborative Culture and Business Processes 91 • Tools and Technologies for Collaboration and Social Business 92

2.4 The Information Systems Function in Business 98 The Information Systems Department 99 • Organizing the Information Systems Function 100

Learning Track Modules: Systems from a Functional Perspective, IT Enables Collaboration and Teamwork, Challenges of Using Business Information Systems, Organizing the Information Systems Function, Occupational and Career Outlook for Information Systems Majors 2012–2018 100

Review Summary 101 • Key Terms 102 • Review Questions 102 • Discussion Questions 103 • Hands-On MIS Projects 103 • Video Cases 104 • Collaboration and Teamwork Project 104

◆Case Study: Modernization of NTUC Income 105

Chapter 3 Information Systems, Organizations, and Strategy 108 ◆Opening Case: Will Sears’s Technology Strategy Work This Time? 109

3.1 Organizations and Information Systems 111 What Is an Organization? 112 • Features of Organizations 114

3.2 How Information Systems Impact Organizations and Business Firms 119 Economic Impacts 119 • Organizational and Behavioral Impacts 120 • The Internet and Organizations 123 • Implications for the Design and Understanding of Information Systems 123

3.3 Using Information Systems to Achieve Competitive Advantage 123 Porter’s Competitive Forces Model 124 • Information System Strategies for Dealing with Competitive Forces 125 • The Internet’s Impact on Competitive Advantage 128

◆Interactive Session: Organizations Technology Helps Starbucks Find New Ways to Compete 129

The Business Value Chain Model 131

◆Interactive Session: Technology Automakers Become Software Companies 134 Synergies, Core Competencies, and Network-Based Strategies 136

3.4 Using Systems for Competitive Advantage: Management Issues 140 Sustaining Competitive Advantage 140 • Aligning IT with Business Objectives 141 • Managing Strategic Transitions 142

Learning Track Module: The Changing Business Environment for Information Technology 142

Review Summary 142 •Key Terms 143 • Review Questions 143 • Discussion Questions 144 • Hands-On MIS Projects 144 • Video Cases 146 • Collaboration and Teamwork Project 146

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Contents 7

◆Case Study: Can This Bookstore Be Saved? 147

Chapter 4 Ethical and Social Issues in Information Systems 150 ◆Opening Case: Ethical Issues Facing the Use of Technologies for the Aged Community 151

4.1 Understanding Ethical and Social Issues Related to Systems 153 A Model for Thinking About Ethical, Social, and Political Issues 155 • Five Moral Dimensions of the Information Age 155 • Key Technology Trends That Raise Ethical Issues 156

4.2 Ethics in an Information Society 159 Basic Concepts: Responsibility, Accountability, and Liability 159 • Ethical Analysis 160 • Candidate Ethical Principles 161 • Professional Codes of Conduct 161 • Some Real-World Ethical Dilemmas 162

4.3 The Moral Dimensions of Information Systems 162 Information Rights: Privacy and Freedom in the Internet Age 162 • Property Rights: Intellectual Property 169

◆Interactive Session: Technology Life on the Grid: iPhone Becomes iTrack 170 Accountability, Liability, and Control 174 • System Quality: Data Quality and System Errors 176 • Quality of Life: Equity, Access, and Boundaries 176

◆Interactive Session: Organizations Monitoring in the Workplace 179 Learning Track Module: Developing a Corporate Code of Ethics for Information Systems 183

Review Summary 184 • Key Terms 184 • Review Questions 185 • Discussion Questions 185 • Hands-On MIS Projects 185 • Video Cases 187 • Collaboration and Teamwork Project 187

◆Case Study: Facebook: It’s About the Money 188

Part Two Information Technology Infrastructure 191

Chapter 5 IT Infrastructure and Emerging Technologies 192 ◆Opening Case: Reforming the Regulatory System for Construction Permits 193

5.1 IT Infrastructure 195 Defining IT Infrastructure 195 • Evolution of IT Infrastructure 197 • Technology Drivers of Infrastructure Evolution 201

5.2 Infrastructure Components 206 Computer Hardware Platforms 207 • Operating System Platforms 207 • Enterprise Software Applications 208 • Data Management and Storage 208 • Networking/Telecommunications Platforms 208 • Internet Platforms 209 • Consulting and System Integration Services 209

5.3 Contemporary Hardware Platform Trends 210

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8 Contents

The Mobile Digital Platform 210 • Consumerization of IT and BYOD 210 • Grid Computing 211 • Virtualization 211

◆Interactive Session: Management Should You Use Your iPhone for Work? 212 Cloud Computing 213 • Green Computing 216 • High-Performance and Power-Saving Processors 216

◆Interactive Session: Organizations Nordea Goes Green with IT 217 Autonomic Computing 218

5.4 Contemporary Software Platform Trends 219 Linux and Open Source Software 219 • Software for the Web: Java, HTML, and HTML5 219 • Web Services and Service-Oriented Architecture 221 • Software Outsourcing and Cloud Services 223

5.5 Management Issues 225 Dealing with Platform and Infrastructure Change 225 • Management and Governance 226 • Making Wise Infrastructure Investments 226

Learning Track Modules: How Computer Hardware and Software Work, Service Level Agreements, The Open Source Software Initiative, Comparing Stages in IT Infrastructure Evolution, Cloud Computing 229

Review Summary 230 • Key Terms 231 • Review Questions 231 • Discussion Questions 232 • Hands-On MIS Projects 232 • Video Cases 233 • Collaboration and Teamwork Project 233

◆Case Study: Should Businesses Move to the Cloud? 234

Chapter 6 Foundations of Business Intelligence: Databases and Information Management 238

◆Opening Case: BAE Systems 239 6.1 Organizing Data in a Traditional File Environment 241

File Organization Terms and Concepts 241 • Problems with the Traditional File Environment 242

6.2 The Database Approach to Data Management 244 Database Management Systems 244 • Capabilities of Database Management Systems 249 • Designing Databases 251

6.3 Using Databases to Improve Business Performance and Decision Making 254

The Challenge of Big Data 254 • Business Intelligence Infrastructure 254 • Analytical Tools: Relationships, Patterns, Trends 257

◆Interactive Session: Technology Big Data, Big Rewards 261 Databases and the Web 262

◆ Interactive Session: Organizations Controversy Whirls Around the Consumer Product Safety Database 264

6.4 Managing Data Resources 265 Establishing an Information Policy 265 • Ensuring Data Quality 266

Learning Track Modules: Database Design, Normalization, and Entity- Relationship Diagramming, Introduction to SQL, Hierarchical and Network Data Models 267

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Contents 9

Review Summary 268 • Key Terms 269 • Review Questions 269 • Discussion Questions 270 • Hands-On MIS Projects 270 • Video Cases 272 • Collaboration and Teamwork Project 272

◆Case Study: Lego: Embracing Change by Combining BI with a Flexible Information System 273

Chapter 7 Telecommunications, the Internet, and Wireless Technology 276

◆Opening Case: RFID and Wireless Technology Speed Up Production at Continental Tires 277

7.1 Telecommunications and Networking in Today’s Business World 279 Networking and Communication Trends 279 • What Is a Computer Network? 280 • Key Digital Networking Technologies 282

7.2 Communications Networks 285 Signals: Digital vs. Analog 285 • Types of Networks 286 • Transmission Media and Transmission Speed 287

7.3 The Global Internet 288 What Is the Internet? 288 • Internet Addressing and Architecture 288

◆Interactive Session: Organizations The Battle over Net Neutrality 292 Internet Services and Communication Tools 293

◆Interactive Session: Management Monitoring Employees on Networks: Unethical or Good Business? 296

The Web 298

7.4 The Wireless Revolution 307 Cellular Systems 307 • Wireless Computer Networks and Internet Access 308 • RFID and Wireless Sensor Networks 310

Learning Track Modules: LAN Topologies, Broadband Network Services and Technologies, Cellular System Generations, Wireless Applications for Customer Relationship Management, Supply Chain Management, and Healthcare, Web 2.0 313

Review Summary 314 • Key Terms 315 • Review Questions 315 • Discussion Questions 316 • Hands-On MIS Projects 316 • Video Cases 317 • Collaboration and Teamwork Project 317

◆Case Study: Apple, Google, and Microsoft Battle for Your Internet Experience 318

Chapter 8 Securing Information Systems 322 ◆Opening Case: You’re on LinkedIn? Watch Out! 323

8.1 System Vulnerability and Abuse 325 Why Systems Are Vulnerable 325 • Malicious Software: Viruses, Worms, Trojan Horses, and Spyware 328 • Hackers and Computer Crime 330 • Internal Threats: Employees 335 • Software Vulnerability 335

◆Interactive Session: Organizations Stuxnet and the Changing Face of Cyberwarfare 336

8.2 Business Value of Security and Control 338

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10 Contents

Legal and Regulatory Requirements for Electronic Records Management 338 • Electronic Evidence and Computer Forensics 339

8.3 Establishing a Framework for Security and Control 340 Information Systems Controls 340 • Risk Assessment 341 • Security Policy 342 • Disaster Recovery Planning and Business Continuity Planning 343 • The Role of Auditing 344

8.4 Technologies and Tools for Protecting Information Resources 345 Identity Management and Authentication 345 • Firewalls, Intrusion Detection Systems, and Antivirus Software 347 • Securing Wireless Networks 349 • Encryption and Public Key Infrastructure 349 • Ensuring System Availability 350 • Security Issues for Cloud Computing and the Mobile Digital Platform 352 • Ensuring Software Quality 353

◆Interactive Session: Technology MWEB Business: Hacked 354 Learning Track Modules: The Booming Job Market in IT Security, The Sarbanes- Oxley Act, Computer Forensics, General and Application Controls for Information Systems, Management Challenges of Security and Control, Software Vulnerability and Reliability 356

Review Summary 357 • Key Terms 358 • Review Questions 358 • Discussion Questions 359 • Hands-On MIS Projects 360 • Video Cases 361 • Collaboration and Teamwork Project 361

◆Case Study: Information Security Threats and Policies in Europe 362

Part Three Key System Applications for the Digital Age 365

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 366

◆Opening Case: Technology Helps Nvidia Anticipate the Future 367 9.1 Enterprise Systems 369

What Are Enterprise Systems? 369 • Enterprise Software 370 • Business Value of Enterprise Systems 371

9.2 Supply Chain Management Systems 372 The Supply Chain 372 • Information Systems and Supply Chain Management 374 • Supply Chain Management Software 376 • Global Supply Chains and the Internet 376

◆ Interactive Session: Organizations DP World Takes Port Management to the Next Level with RFID 377

Business Value of Supply Chain Management Systems 379

9.3 Customer Relationship Management Systems 381 What Is Customer Relationship Management? 381 • Customer Relationship Management Software 382 • Operational and Analytical CRM 386 • Business Value of Customer Relationship Management Systems 386

9.4 Enterprise Applications: New Opportunities and Challenges 387 Enterprise Application Challenges 387 • Next-Generation Enterprise Applications 388

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Contents 11

◆Interactive Session: Technology Customer Relationship Management Heads to the Cloud 390

Learning Track Modules: SAP Business Process Map, Business Processes in Supply Chain Management and Supply Chain Metrics Best-Practice Business Processes in CRM Software, 391

Review Summary 392 • Key Terms 393 • Review Questions 393 • Discussion Questions 393 • Hands-On MIS Projects 394 • Video Cases 395 • Collaboration and Teamwork Project 395

◆Case Study: Summit Electric Lights Up with a New ERP System 396

Chapter 10 E-commerce: Digital Markets, Digital Goods 400 ◆Opening Case: Groupon’s Business Model: Social and Local 401

10.1 E-commerce and the Internet 403 E-Commerce Today 403 • Why E-commerce Is Different 405 • Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace 409

10.2 E-commerce: Business and Technology 412 Types of E-Commerce 413 • E-Commerce Business Models 413 • E-Commerce Revenue Models 416

◆Interactive Session: Organizations Location-Based Marketing and Advertising 417

Social Networking and The Wisdom of Crowds 420 • E-Commerce Marketing 421 • B2B E-commerce: New Efficiencies and Relationships 426

◆Interactive Session: Management Social Commerce Creates New Customer Relationships 427

10.3 The Mobile Digital Platform and Mobile E-commerce 431 Location-based Services and Applications 432 • Other Mobile Commerce Services 433

10.4 Building an E-commerce Presence 434 Pieces of the Site-Building Puzzle 435 • Business Objectives, System Functionality, and Information Requirements 435 • Building the Web Site: In-house Versus Outsourcing 436

Learning Track Modules: E-commerce Challenges: The Story of Online Groceries, Build an E-commerce Business Plan, Hot New Careers in E-commerce, E-commerce Payment Systems 439

Review Summary 439 • Key Terms 440 • Review Questions 440 • Discussion Questions 441 • Hands-On MIS Projects 441 • Video Cases 442 • Collaboration and Teamwork Project 442

◆Case Study: To Pay or Not to Pay: Zagat’s Dilemma 443

Chapter 11 Managing Knowledge 446 ◆Opening Case: Designing Drugs Virtually 447

11.1 The Knowledge Management Landscape 449 Important Dimensions of Knowledge 449 • The Knowledge Management Value Chain 451 • Types of Knowledge Management Systems 453

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12 Contents

11.2 Enterprise-Wide Knowledge Management Systems 454 Enterprise Content Management Systems 455 • Knowledge Network Systems 456 • Collaboration And Social Tools and Learning Management Systems 456

11.3 Knowledge Work Systems 457 Knowledge Workers and Knowledge Work 457 • Requirements of Knowledge Work Systems 458 • Examples of Knowledge Work Systems 459

◆Interactive Session: Technology Firewire Surfboards Lights Up with CAD 460 11.4 Intelligent Techniques 463

Capturing Knowledge: Expert Systems 463 • Organizational Intelligence: Case-Based Reasoning 466 • Fuzzy Logic Systems 467 • Machine Learning 468

◆Interactive Session: Organizations Albassami's Job is not Feasible without IT 469

Intelligent Agents 473 • Hybrid AI Systems 474

Learning Track Module: Challenges of Knowledge Management Systems 474

Review Summary 475 • Key Terms 476 • Review Questions 476 • Discussion Questions 477 • Hands-On MIS Projects 477 • Video Cases 478 • Collaboration and Teamwork Project 478

◆Case Study: Knowledge Management and Collaboration at Tata Consulting Services 479

Chapter 12 Enhancing Decision Making 482 ◆Opening Case: Moneyball: Data-Driven Baseball 483

12.1 Decision Making and Information Systems 485 Business Value of Improved Decision Making 485 • Types of Decisions 485 • The Decision-Making Process 487 • Managers and Decision Making in the Real World 488 • High-Velocity Automated Decision Making 491

12.2 Business Intelligence in the Enterprise 492 What Is Business Intelligence? 492 • The Business Intelligence Environment 493

◆Interactive Session: Organizations Analytics Help the Cincinnati Zoo Know Its Customers 494

Business Intelligence and Analytics Capabilities 496 • Management Strategies for Developing BI and BA Capabilities 500

12.3 Business Intelligence Constituencies 501 Decision Support for Operational and Middle Management 501 • Decision Support for Senior Management: Balanced Scorecard and Enterprise Performance Management Methods 504 • Group Decision-Support Systems (GDSS) 505

◆Interactive Session: Management Colgate-Palmolive Keeps Managers Smiling with Executive Dashboards 506

Learning Track Module: Building and Using Pivot Tables 508

Review Summary 508 • Key Terms 509 • Review Questions 509 • Discussion Questions 510 • Hands-On MIS Projects 510 • Video Cases 511 • Collaboration and Teamwork Project 511

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Contents 13

◆Case Study: Zynga Wins with Business Intelligence 512

Part Four Building and Managing Systems 515

Chapter 13 Building Information Systems 516 ◆Opening Case: New Systems and Business Processes Put MoneyGram “On the Money” 517

13.1 Systems as Planned Organizational Change 520 Systems Development and Organizational Change 520 • Business Process Redesign 522

13.2 Overview of Systems Development 525 ◆Interactive Session: Organizations Burton Snowboards Speeds Ahead with Nimble Business Processes 526

Systems Analysis 528 • Systems Design 528 • Completing the Systems Development Process 529 • Modeling and Designing Systems: Structured and Object-Oriented Methodologies 532

13.3 Alternative Systems-Building Approaches 537 Traditional Systems Life Cycle 537 • Prototyping 538 • End-User Development 539 • Application Software Packages and Outsourcing 541

13.4 Application Development for the Digital Firm 544 Rapid Application Development (RAD) 544 • Component- Based Development and Web Services 544 • Mobile Application Development 545

Learning Track Modules: Unified Modeling Language (UML), A Primer on Business Process Design and Documentation, A Primer on Business Process Management 546

◆Interactive Session: Technology What Does It Take to Go Mobile? 547 Review Summary 548 • Key Terms 550 • Review Questions 550 • Discussion Questions 551 • Hands-On MIS Projects 551 • Video Cases 553 • Collaboration and Teamwork Project 553

◆Case Study: Honam Petrochemical’s Quest for Better Management Reports 554

Chapter 14 Managing Projects 556 ◆Opening Case: Nu Skin’s New Human Resources System Project Puts People First 557

14.1 The Importance of Project Management 559 Runaway Projects and System Failure 559 • Project Management Objectives 560

◆Interactive Session: Management Austin Energy’s Billing System Can’t Light Up 561

14.2 Selecting Projects 563 Management Structure for Information Systems Projects 563 • Linking Systems Projects to the Business Plan 564 • Information Requirements

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and Key Performance Indicators 566 • Portfolio Analysis 566 • Scoring Models 567

14.3 Establishing the Business Value of Information Systems 567 Information System Costs and Benefits 568 • Real Options Pricing Models 570 • Limitations of Financial Models 571

14.4 Managing Project Risk 571 Dimensions of Project Risk 571 • Change Management and the Concept of Implementation 572 • Controlling Risk Factors 574

◆Interactive Session: Organizations Westinghouse Electric Takes on the Risks of a “Big Bang” Project 578

Designing for the Organization 579 • Project Management Software Tools 580

Learning Track Modules: Capital Budgeting Methods for Information System Investments, Information Technology Investments and Productivity, Enterprise Analysis (Business Systems Planning) and Critical Success Factors 581

Review Summary 582 • Key Terms 582 • Review Questions 583 • Discussion Questions 583 • Hands-On MIS Projects 583 • Video Cases 585 • Collaboration and Teamwork Project 585

◆Case Study: NYCAPS and CityTime: A Tale of Two New York City IS Projects 586

Chapter 15 Managing Global Systems 590 (available on the Web at www.pearsonglobaleditions.com/laudon,

"Instructor Resources")

◆Opening Case: L’Oréal’s Global Makeover 15-1 15.1 The Growth of International Information Systems 15-3

Developing an International Information Systems Architecture 15-4 • The Global Environment: Business Drivers and Challenges 15-5 • State of the Art 15-8

15.2 Organizing International Information Systems 15-9 Global Strategies and Business Organization 15-9 • Global Systems to Fit the Strategy 15-10 • Reorganizing the Business 15-11

15.3 Managing Global Systems 15-12 A Typical Scenario: Disorganization on a Global Scale 15-12 • Global Systems Strategy 15-13 • The Management Solution: Implementation 15-15

◆Interactive Session: Organizations Hasbro Develops a Global Systems Strategy 15-17

15.4 Technology Issues and Opportunities for Global Value Chains 15-19 Computing Platforms and Systems Integration 15-19 • Connectivity 15-20 • Software Localization 15-21

◆Interactive Session: Management CombineNet ASAP Helps Primark Manage Its Global Supply Chain 15-23

14 Contents

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Contents 15

Review Summary 15-25 • Key Terms 15-25 • Review Questions 15-26 • Discussion Questions 15-26 • Hands-On MIS Projects 15-26 • Video Cases 15-28 • Collaboration and Teamwork Project 15-28

◆Case Study: Sherwin-Williams Paints the World 15-29

References 591

Glossary 607

Indexes 621

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BUSINESS CASES AND INTERACTIVE SESSIONS

Here are some of the business firms you will find described in the cases and Interactive Sessions of this book:

Chapter 1: Information Systems in Global Business Today Efficiency in Wood Harvesting with Information Systems Running the Business from the Palm of Your Hand UPS Competes Globally with Information Technology Mashaweer

Chapter 2: Global E-Business and Collaboration Telus Embraces Social Learning Schiphol International Hub Piloting Procter & Gamble from Decision Cockpits Modernization of NTUC Income

Chapter 3: Information Systems, Organizations, and Strategy Will Sears’s Technology Strategy Work This Time? Technology Helps Starbucks Find New Ways to Compete Automakers Become Software Companies Can This Bookstore Be Saved?

Chapter 4: Ethical and Social Issues in Information Systems Ethical Issues Facing the use of Technologies for the Aged Community Life on the Grid: iPhone Becomes iTrack Monitoring in the Workplace Facebook: It’s About the Money

Chapter 5: IT Infrastructure and Emerging Technologies Reforming the Regulatory System for Construction Permits Should You Use Your iPhone for Work? Nordea Goes Green with IT Should Businesses Move to the Cloud?

Chapter 6: Foundations of Business Intelligence: Databases and Information Management BAE Systems Big Data, Big Rewards Controversy Whirls Around the Consumer Product Safety Database Lego: Embracing Change by Combining BI with a Flexible Information System

Chapter 7: Telecommunications, the Internet and Wireless Technology RFID and Wireless Technology Speed Up Production at Continental Tires The Battle Over Net Neutrality Monitoring Employees on Networks: Unethical or Good Business? Apple, Google, and Microsoft Battle for your Internet Experience

MIS13_InteriorSpread Global.indd 4 1/17/2013 2:37:37 PM

Chapter 8: Securing Information Systems You’re on LinkedIn? Watch Out! Stuxnet and the Changing Face of Cyberwarfare MWEB Business: Hacked Information Security Threats and Policies in Europe

Chapter 9: Achieving Operational Excellence and Customer Intimacy: Enterprise Applications Technology Helps Nvidia Anticipate the Future DP World Takes Port Management to the Next Level with RFID Customer Relationship Management Heads to the Cloud Summit Electric Lights Up with a New ERP System

Chapter 10: E-Commerce: Digital Markets, Digital Goods Groupon’s Business Model: Social and Local Location-Based Marketing and Advertising Social Commerce Creates New Customer Relationships To Pay or Not to Pay: Zagat’s Dilemma

Chapter 11: Managing Knowledge Designing Drugs Virtually Albassami's Job is not Feasible without IT Firewire Surfboards Lights Up with CAD Knowledge Management and Collaboration at Tata Consulting Services

Chapter 12: Enhancing Decision Making Moneyball: Data-Driven Baseball Analytics Help the Cincinnati Zoo Know Its Customers Colgate-Palmolive Keeps Managers Smiling with Executive Dashboards Zynga Wins with Business Intelligence

Chapter 13: Building Information Systems New Systems and Business Processes Put MoneyGram “On the Money” Burton Snowboards Speeds Ahead with Nimble Business Processes What Does It Take to Go Mobile? Honam Petrochemical’s Quest for Better Management Reports

Chapter 14: Managing Projects Nu Skin’s New Human Resources System Project Puts People First Austin Energy’s Billing System Can’t Light Up Westinghouse Electric Takes on the Risks of a “Big Bang” Project NYCAPS and CityTime: A Tale of Two New York City IS Projects

Chapter 15: Managing Global Systems L’Oréal’s Global Makeover Hasbro Develops a Global Systems Strategy CombineNet ASAP Helps Primark Manage Its Global Supply Chain Sherwin-Williams Paints the World

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19 19

P re f a c e

We wrote this book for business school students who wanted an in-depth look at how today's business firms use information technologies and systems to achieve corporate objectives. Information systems are one of the major tools available to business managers for achieving operational excellence, developing new products and services, improving decision making, and achieving competi- tive advantage. Students will find here the most up-to-date and comprehensive overview of information systems used by business firms today.

When interviewing potential employees, business firms often look for new hires who know how to use information systems and technologies for achiev- ing bottom-line business results. Regardless of whether you are an accounting, finance, management, operations management, marketing, or information sys- tems major, the knowledge and information you find in this book will be valu- able throughout your business career.

WHAT’S NEW IN THIS EDITION

CURRENCY The 13th edition features many new opening, closing, and Interactive Session cases. The text, figures, tables, and cases have been updated through November 2012 with the latest sources from industry and MIS research.

NEW FEATURES • Chapter-opening cases have been expanded and new case study questions

have been added. • More online cases: MIS Classic Cases, consisting of five outstanding cases

from previous editions on companies such as Kmart or Blockbuster/Netflix, will be available on the book’s Web site. In addition, some of the chapter- ending cases from the previous edition (MIS12e) will be available online.

• New Video Cases collection: 30 video cases (2 per chapter) and additional instructional videos covering key concepts and experiences in the MIS world.

• Learning Tracks: over 40 Learning Tracks are for additional coverage of selected topics.

NEW TOPICS • Social Business: Extensive coverage of social business, introduced in

Chapter 2 and discussed in throughout the text. Detailed discussions of enterprise (internal corporate) social networking as well as social network- ing in e-commerce.

• Big Data: Chapter 6 on Databases and Information Management rewrit- ten to provide in-depth coverage of Big Data and new data management

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technologies, including Hadoop, in-memory computing, non-relational databases, and analytic platforms.

• Cloud Computing: Expanded and updated coverage of cloud computing in Chapter 5 (IT Infrastructure), with more detail on types of cloud services, private and public clouds, hybrid clouds, managing cloud services, and a new chapter-ending case on Amazon’s cloud services. Cloud computing also covered in Chapter 6 (databases in the cloud); Chapter 8 (cloud secu- rity); Chapter 9 (cloud-based CRM); and Chapter 13 (cloud-based systems development and component-based development).

• Ethical and Social issues: expanded and updated coverage in Chapter 4 (Ethical and Social Issues) of the social and ethical issues that surround the rapid expansion of the mobile platform, including privacy, patent and copy- right, behavioral and smartphone tracking, data quality, due process, and quality of life.

• Social graph • Social marketing • Social search • Social CRM • Consumerization of IT and BYOD • Mobile device management • Mobile application development • Responsive Web design • Cyberlockers • Expanded coverage of business analytics • Machine learning • Windows 8, Android, iOS, and Chrome operating systems • Apps • HTML5 • IPv6 • Microblogging • Multitouch interface • Siri • Software-defined networking • Tablet computers • 3-D printing

WHAT’S NEW IN MIS Plenty. In fact, there’s a whole new world of doing business using new tech-

nologies for managing and organizing. What makes the MIS field the most excit- ing area of study in schools of business is the continuous change in technology, management, and business processes. (Chapter 1 describes these changes in more detail.)

A continuing stream of information technology innovations is transforming the traditional business world. Examples include the emergence of cloud com- puting, the growth of a mobile digital business platform based on smartphones, tablets, and ultrabooks, and not least, the use of social networks by managers to achieve business objectives. Most of these changes have occurred in the last few years. These innovations are enabling entrepreneurs and innovative tradi- tional firms to create new products and services, develop new business models,

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and transform the day-to-day conduct of business. In the process, some old businesses, even industries, are being destroyed while new businesses are springing up.

For instance, the rapid growth of online content stores such as iTunes and Amazon, based on cloud storage services—driven by millions of consumers who prefer smartphones and tablet computers as the center of their media world—has forever changed the older business models of distributing music, television, and movies on physical discs, such as CDs and DVDs. Cloud-based content delivered on the Internet is beginning to challenge the dominance of cable television networks for the delivery of television shows.

E-commerce is growing rapidly again following a deep recession, generating over $362 billion in revenues in 2012, and is estimated to grow to over $542 bil- lion in 2016. With nearly 122 million Americans accessing the Internet with their smartphones, mobile commerce in 2012 has grown to $30 billion in a few years, and is growing by double digits each year. Amazon's revenues grew 41 percent in 2011, despite the recession, while offline retail grew by 5 percent. E-commerce is changing how firms design, produce and deliver their products and services. E-commerce has reinvented itself again, disrupting the tradi- tional marketing and advertising industry and putting major media and content firms in jeopardy. Facebook and other social networking sites such as YouTube, Twitter, and Tumblr, and new graphical social sites such as Pinterest, exemplify the new face of e-commerce in the 21st Century. They sell services. When we think of e-commerce we tend to think of an online store selling physical products. While this iconic vision of e-commerce is still very powerful and the fastest growing form of retail sales in the U.S., growing up alongside is a whole new value stream based on selling services, not goods. It’s a services model of e-commerce. Information systems and technologies are the foundation of this new services-based e-commerce.

Likewise, the management of business firms has changed: With new mobile smartphones, high-speed wireless Wi-Fi networks, and wireless laptop and tablet computers, remote salespeople on the road are only seconds away from their managers’ questions and oversight. Managers on the move are in direct, continuous contact with their employees. The growth of enterprise-wide infor- mation systems with extraordinarily rich data means that managers no longer operate in a fog of confusion, but instead have online, nearly instant, access to the really important information they need for accurate and timely decisions. In addition to their public uses on the Web, private social networks, wikis and blogs are becoming important corporate tools for communication, collabora- tion, and information sharing.

THE 13TH EDITION: THE COMPREHENSIVE SOLUTION FOR THE MIS CURRICULUM Since its inception, this text has helped to define the MIS course around the globe. This edition continues to be authoritative, but is also more customizable, flexible, and geared to meeting the needs of different colleges, universities, and individual instructors. This book is now part of a complete learning package that includes the core text and an extensive offering of supplemental materials on the Web.

The core text consists of 15 chapters with hands-on projects covering essen- tial topics in MIS. An important part of the core text is the Video Case Study

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and Instructional Video package: 30 video case studies (2 per chapter) plus many instructional videos that illustrate business uses of information systems, explain new technologies, and explore concepts. Video cases are keyed to the topics of each chapter.

In addition, for students and instructors who want to go deeper into selected topics, there are over 40 online Learning Tracks that cover a variety of MIS top- ics in greater depth.

MyMISLab provides more in-depth coverage of chapter topics, career resources, additional case studies, supplementary chapter material, and data files for hands-on projects.

THE CORE TEXT The core text provides an overview of fundamental MIS concepts using an integrated framework for describing and analyzing information systems. This framework shows information systems composed of management, organiza- tion, and technology elements and is reinforced in student projects and case studies.

Chapter Organ izat ion Each chapter contains the following elements:

• A chapter-opening case describing a real-world organization to establish the theme and importance of the chapter

• A diagram analyzing the opening case in terms of the management, organi- zation, and technology model used throughout the text

• A series of learning objectives • Two Interactive Sessions with Case Study Questions • A Learning Tracks section identifying supplementary material in MyMISLab • A Review Summary section keyed to the learning objectives • A list of key terms that students can use to review concepts • Review questions for students to test their comprehension of chapter material • Discussion questions raised by the broader themes of the chapter • A series of Hands-on MIS Projects consisting of two Management Decision

Problems, a hands-on application software project, and a project to develop Internet skills

• A pointer to the chapter's video cases • A Collaboration and Teamwork project to develop teamwork and presenta-

tion skills, with options for using open source collaboration tools

A diagram accompanying each chapter-opening case graphically illustrates how management, orga- nization, and technology elements work together to create an informa- tion system solution to the business challenges discussed in the case.

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• A chapter-ending case study for students to learn about how real business firms use information systems, and to apply chapter concepts

KEY FEATURES We have enhanced the text to make it more interactive, leading-edge, and appealing to both students and instructors. The features and learning tools are described in the following sections.

Bus iness -Dr iven wi th Rea l -Wor ld Bus iness Cases and Examples The text helps students see the direct connection between information sys- tems and business performance. It describes the main business objectives driv- ing the use of information systems and technologies in corporations all over the world: operational excellence; new products and services; customer and supplier intimacy; improved decision making; competitive advantage; and sur- vival. In-text examples and case studies show students how specific companies use information systems to achieve these objectives.

We use current examples from business and public organizations throughout the text to illustrate the important concepts in each chapter. The case stud- ies describe companies or organizations that are familiar to students, such as Starbucks, Google, Groupon, Facebook, Amazon, L'Oréal, and Procter & Gamble.

Interact iv i ty There's no better way to learn about MIS than by doing MIS. We provide differ- ent kinds of hands-on projects where students can work with real-world busi- ness scenarios and data, and learn first hand what MIS is all about. These proj- ects heighten student involvement in this exciting subject.

• Online Video Case Package. Students can watch short videos online, either in-class or at home or work, and then apply the concepts of the book to the analysis of the video. Every chapter contains at least two business video cases (30 videos in all) that explain how business firms and managers are using information systems, describe new management practices, and explore concepts discussed in the chapter. Each video case consists of a video about a real-world company, a background text case, and case study questions. These video cases enhance students’ understanding of MIS topics and the relevance of MIS to the business world. In addition, there are many Instructional Videos that describe developments and concepts in MIS keyed to respective chapters.

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• Hands-on MIS Projects. Every chapter concludes with a Hands-on MIS Projects section containing three types of projects: two Management Decision Problems, a hands-on application software exercise using Microsoft Excel, Access, or Web page and blog creation tools, and a project that devel- ops Internet business skills. A Dirt Bikes USA running case in MyMISLab provides additional hands-on projects for each chapter.

• Interactive Sessions. Two short cases in each chapter have been redesigned as Interactive Sessions to be used in the classroom (or on Internet discussion boards) to stimulate student interest and active learning. Each case con- cludes with case study questions. The case study questions provide topics for class discussion, Internet discussion, or written assignments.

Case study questions encourage students to apply chapter concepts to real-world companies in class discussions, student presentations, or writing assignments.

Two real-world business scenarios per chapter provide opportunities for students to apply chapter concepts and practice management decision making.

Each chapter contains two Interactive Sessions focused on management, organiza- tions, or technology using real- world companies to illustrate chapter concepts and issues.

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Each chapter features a project to develop Internet skills for accessing informa- tion, conducting research, and performing online calculations and analysis.

• Collaboration and Teamwork Projects. Each chapter features a collabora- tive project that encourages students working in teams to use Google Sites, Google Docs, and other open-source collaboration tools. The first team proj- ect in Chapter 1 asks students to build a collaborative Google site.

Assessment and AACSB Assessment Gu ide l ines The Association to Advance Collegiate Schools of Business (AACSB) is a not-for- profit corporation of educational institutions, corporations and other organiza- tions that seeks to improve business education primarily by accrediting univer- sity business programs. As a part of its accreditation activities, the AACSB has developed an Assurance of Learning Program designed to ensure that schools do in fact teach students what they promise. Schools are required to state a clear mission, develop a coherent business program, identify student learning objectives, and then prove that students do in fact achieve the objectives.

We have attempted in this book to support AACSB efforts to encourage assessment-based education. On the Laudon Web site is a more inclusive and detailed assessment matrix that identifies the learning objectives of each chap- ter and points to all the available assessment tools for ensuring students in fact do achieve the learning objectives. Because each school is different and may have different missions and learning objectives, no single document can satisfy all situations. The authors will provide custom advice on how to use this text in their colleges with different missions and assessment needs. Please e-mail the authors or contact your local Pearson Education representative for contact information.

Students practice using software in real-world settings for achieving operational excellence and enhancing decision making.

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For more information on the AACSB Assurance of Learning Program, and how this text supports assessment-based learning, please visit the Web site for this book.

Customizat ion and F lex ib i l i ty : New Learn ing Track Modules Our Learning Tracks feature gives instructors the flexibility to provide in-depth coverage of the topics they choose. There are over 40 Learning Tracks avail- able to instructors and students. A Learning Tracks section at the end of each chapter directs students to short essays or additional chapters in MyMISLab. This supplementary content takes students deeper into MIS topics, concepts and debates; reviews basic technology concepts in hardware, software, database design, telecommunications, and other areas; and provide additional hands- on software instruction. The 13th Edition includes new Learning Tracks on E-Commerce Payment Systems, LAN Topologies, and the Occupational and Career Outlook for Information Systems Majors 2012–2018.

AUTHOR-CERTIFIED TEST BANK AND SUPPLEMENTS

• Author-Certified Test Bank. The authors have worked closely with skilled test item writers to ensure that higher level cognitive skills are tested. The test bank includes multiple-choice questions on content, but also includes many questions that require analysis, synthesis, and evaluation skills.

• New Annotated Interactive PowerPoint Lecture Slides. The authors have prepared a comprehensive collection of over five hundred PowerPoint slides to be used in lectures. Ken Laudon uses many of these slides in his MIS classes and executive education presentations. Each of the slides is anno- tated with teaching suggestions for asking students questions, developing in-class lists that illustrate key concepts, and recommending other firms as examples in addition to those provided in the text. The annotations are like an Instructor's Manual built into the slides and make it easier to teach the course effectively.

STUDENT LEARNING-FOCUSED Student learning objectives are organized around a set of study questions to focus student attention. Each chapter concludes with a review summary and review questions organized around these study questions.

MYMISLAB MyMISLab is a Web-based assessment and tutorial tool that provides practice and testing while personalizing course content and providing student and class assessment and reporting. Your course is not the same as the course taught down the hall. Now, all the resources that instructors and students need for course success are in one place—flexible and easily organized and adapted for an individual course experience. Visit www.pearsonglobaleditions.com/ mymislab to see how you can teach, learn, and experience MIS.