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Introduction to Information Systems Supporting and Transforming Business Sixth Edition

R. Kelly Rainer Jr. Brad Prince

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

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ISBN 978-1-119-10800-9 (Binder-Ready Version)

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

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vPREFACE

v

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

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

Preface

What’s In ITFor rMe?

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

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

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

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

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

MKTACCT FIN POMHRM MIS

vi PREFACE

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

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

IT topic relates to students in each major.

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

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

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

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

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

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

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

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

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

viiPREFACE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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http://wileyinformationsystemsupdates.com/
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http://www.wiley.com/college/microsoft
ixPREFACE

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

You can:

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

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

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

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

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

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

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

Wiley Custom This group’s services allow you to:

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

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

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

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x PREFACE

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

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

Kelly Rainer Brad Prince

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

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

Reviewers

xiPREFACE

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

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

xiiiBRIEF CONTENTS

xiii

Brief Contents [Chapter 1] Introduction to

Information Systems 1

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

[Chapter 3] Ethics and Privacy 66

[Chapter 4] Information Security 85

[Chapter 5] Data and Knowledge Management 121

[Chapter 6] Telecommunications and Networking 161

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

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

[Chapter 9] Social Computing 262

[Chapter 10] Information Systems Within the Organization 293

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

[Chapter 12] Business Intelligence 355

[Chapter 13] Acquiring Information Systems and Applications 380

[Technology Guide 1] Hardware 409

[Technology Guide 2] Software 424

[Technology Guide 3] Cloud Computing 433

[Technology Guide 4] Intelligent Systems 456

[Index] 471

xiv CONTENTS

xiv

[Chapter 1] Introduction to Information Systems 1

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

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

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

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

Information Technology Support 44 2.4: Competitive Advantage and Strategic Information

Systems 52

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

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

Resources 99 4.5: Information Security Controls 102

[Chapter 5] Data and Knowledge Management 121

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

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

[Chapter 6] Telecommunications and Networking 161

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

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

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

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

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

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

Customer Relationship Management 284

Contents

xvCONTENTS

9.6: Social Computing in Business: Human Resource Management 285

[Chapter 10] Information Systems within the Organization 293

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

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

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

Systems 328 11.3: Analytical Customer Relationship Management

Systems 331 11.4: Other Types of Customer Relationship

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

Management 343

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

for Data Analysis 367 12.4: Business Intelligence Applications

for Presenting Results 370

[Chapter 13] Acquiring Information Systems and Applications 380

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

Development 399

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

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

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

[Technology Guide 3] Cloud Computing 433

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

Computing 447 TG 3.7: Web Services and Service-Oriented

Architecture 450

[Technology Guide 4] Intelligent Systems 456

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

[Index] 471

Chapter

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

MKTACCT FIN POM HRM MIS

ACCOUNTING

Monitor social media for

compliance

FINANCE

Collaborate with external fi nancial

experts

MARKETING

Receive real-time feedback from

customers

PRODUCTION OPERATIONS

MANAGEMENT

Partners/ customers

collaborate on product

development

HUMAN RESOURCES

MANAGEMENT

Enhance recruiting efforts

MIS

Develop internal company social