Information Technology

Information Technology
Chapter 1 Information Technology in the Digital Age

Learning Objectives Describe the characteristics of the digital economy. Recognize the relationships between business pressures, organizational responses, and information systems. Identify the major pressures in the business environment & describe the major organizational responses to them. Describe the role of I.T. in organizational activities. Define computer-based information systems & I.T. List the essentials of networked computing & Web-based systems.

Case: BMS enters the Digital Economy
Problem: Bristol-Myers Squibb (BMS) is a leading manufacture of pharmaceutical drugs, beauty and infant-food products. They were struggling to stay ahead in the new digital economy. Solution: BMS initiated multiple Web-based projects, overhauled its management structure, revamped its procurement and supply chain processes, and expanded its myriad of Web sites. Results: BMS experienced over $100 million in annual savings just from e-procurement.

Lessons from the Case Global competition drives even large corporations to find ways to reduce costs, increase productivity and improve customer service. These efforts are best achieved by using Web-based systems. The major initiatives that BMS embarked upon were: Reduce costs by introducing an e-procurement system. Increase sales by utilizing the Web. Improve relationships with employees & customers.

EC & Networked Computing
Electronic commerce (EC) is the use of Web-based systems to support buying, selling, and customer service. Click-and-mortar companies add some EC activities to their regular business. Networked computing connects several computers and other electronic devices via telecommunication networks. Information technology (IT) refers to the collection of computer systems used by an organization.

The Digital Economy The digital economy refers to an economy that is based on digital technologies, including digital communication networks, computers, and software. The digital economy is also sometimes called the Internet economy, the New economy, or the Web economy.

Old vs. New Economy: Photography
Old Economy You buy film at the store, insert it into your camera & take pictures. Once you complete the film, sometimes weeks or months after you began the roll, you take it to the store for processing. Go back to the store and pay for enlargements and duplications. Send photos to family and friends. New Economy Use a digital camera that can also take videos. No film is needed, and no processing required. You can see the results immediately & enlarge & print photos quickly. If your digital camera is connected to a wireless device (such as a palmtop computer or a cell phone) take pictures and see them within a few seconds.

Digital Economy Business Models
Name-Your-Own-Price. Pioneered by Priceline.com, this model allows customers to state a price they are willing to pay for a product or service. Dynamic Brokering. In the digital age customers can specify requirements for a service or a product. These specifications are broadcast over the Internet (“Webcasted”) to service providers in an automatic invitation to submit bids. Reverse Auctions. Electronic reverse auctions are fast, they reduce administrative costs by as much as 85 %, & products’ prices can be % lower.

Digital Economy Business Models (cont.)
Affiliate marketing is an arrangement in which marketing partners place a banner of a company, such as Amazon.com, on their Web site. Group Purchasing. Anyone can pay less per unit when buying more units. Discounts are usually available for quantity purchases. E-marketplaces and Exchanges. Since 1999, thousands of electronic marketplaces, of different varieties, have sprung up.

Major Business Pressures

Market Pressures Global Economy & Strong Competition.
Global competition is intensified as governments become involved through the use of subsidies, tax policies, import/export regulations & incentives. Rapid and inexpensive communication and transportation modes increase the magnitude of international trade even further.

Market Pressures (cont.)
Changing Nature of the Workforce. The workforce is becoming more diversified, with more females, single parents, minorities, and handicapped persons working in all types of positions. Powerful Customers. Consumer sophistication & expectations increase as customers become more knowledgeable about the availability and quality of products and services.

Technology Pressures Technological Innovation & Obsolescence.
Some of today’s state-of-the-art products may be obsolete tomorrow. Thus, technology accelerates the competitive forces. Information Overload. The amount of information available on the Internet more than doubles every year. The management of information is critical.

Societal Pressures (cont.)
Social Responsibility. Issues range from the environment to education. Government Regulations. Regulation issues involve health, safety, environmental control, and equal opportunity. Government Deregulation. Deregulation can be a blessing to one company but a curse to another company. Ethical Issues. Business ethics relates to standards of right and wrong in business practices.

Organizational Framework

Organizational Responses
Organizations need to respond to business, societal and technical pressures with critical response activities. A typical industry-level response to the digital economy is disintermediation, or the elimination of intermediary organizations. Organizations can also take proactive measures, to create a change in the market place. e.g., exploiting opportunities created by external pressures.

Organizations’ Major Responses
Strategic systems for competitive advantage Continuous improvement efforts Business process reengineering (BPR) Business alliances Electronic commerce

Strategic Systems provide organizations with strategies to increase their market share, better negotiate with suppliers, or stop competitors. Continuous Improvement Efforts aim to improve a company’s productivity and quality. Examples include: Improved productivity  Managing enterprise data Just-in-time (JIT)  Innovation and creativity Total quality management  Change management Knowledge management  Customer service

Business Process Reengineering refers to the introduction of a major innovation in an organization’s structure & the way it conducts business. The major areas in which IT supports BPR are the following; Reducing cycle time and time to market. Empowerment of employees and collaborative work. Customer-focused approach and CRM. Restructuring and team-based structure.

Business Alliances. Many companies realize that alliances with other companies, even competitors, can be very beneficial. Temporary joint venture = companies form a special company for a specific, limited-time mission. Electronic Commerce. Doing business electronically is the newest and perhaps most promising strategy that many companies can pursue.

Case: IT Shortens Time to Market
Problem: In order to assure quality, and minimize risk, the FDA requires companies to conduct extensive research & testing, which can take up to 10 years. Solution: Several software companies enable document scanning into databases that saves hours in research time. The database is indexed and includes full-text-search and retrieval programs. Results: The time to market of a new drug has been reduced by up to a year, saving hundreds of lives.

Information Systems Information systems (IS) collect, process, store, analyze, and disseminate information for a specific purpose. Information Systems are comprised of; inputs (data, instructions) outputs (reports, calculations) feedback mechanisms that controls the operation an environment that it works within

Computer-Based Information System
A computer-based information system (CBIS) is an information system that uses computer technology to perform some or all of its intended tasks.

Components of Information Systems
Hardware is a set of devices such as processor, monitor, keyboard, and printer. Software is a set of programs that enable the hardware to process data. Database is a collection of related files, tables, relations, and so on, that stores data. Network is a connecting system that permits the sharing of resources between computers. Procedures are the set of instructions about how to combine the above components. People are those individuals who work with the system or use its output.

Case: Managing Accounting Across Asia
Problem: Le Saunda Holding Company (Hong Kong) is a shoe manufacturer that manages 32 subsidiaries in four Asian countries. Their financing and cash flow is a very complex process. Solution: To cope with the rapid growth of the company, a sophisticated accounting software package was installed. Results: The system is much more reliable & internal/ external auditing is easier. All these improvements have led to a substantial growth in revenue and profits for the firm.

Case: the US Presidential Election 2000
In addition to the various success stories, IT involves a number of failures, with the most famous being the Presidential Election of 2000. 20-to-30 year old machines were used to count votes and generated the greatest election confusion ever encountered. How can such election confusion be avoided in the future? Perhaps the solution lies in digital-age voting machines, which displays a person’s vote on a computer screen and asks them to verify their choice.

General Technological Trends
General trends within computing systems include the following: Cost Performance Ratio Object-Oriented Environment & Document Management. Networked Computing Mobile Commerce Integrated Home Computing. The Internet Intranets and Extranets Corporate Portals The Networked Enterprise Optical Networks

Cost Performance Ratio
Cost Performance Ratio: Improvement by a Factor of at Least 100. In about 10 years, a computer will cost the same as its costs today but will be about 50 times more powerful. Moore’s Law: Gordon Moore, the co-founder of Intel, predicted in 1965 that the processing power of silicon chips would double every 18 months.

Object-Oriented Environments
An object-oriented environment is an innovative way of programming and using computers that is expected to significantly reduce the cost of both building and maintaining information systems. Object technology enables the development of self-contained units of software that can be shared, purchased, and/or reused. The increased use of multimedia and object-oriented systems makes electronic document management one of the most important topics of IT.

Network Computing Network technology enables users to reach other users and access databases anywhere in the organization. Metcalfe’s Law: Robert Metcalfe, a pioneer of computer networks, claims that the value of a network grows roughly in line with the square of the number of its users. Kelly’s Extension: The value of the Internet is much larger, according to Kelly (1999). On the Internet we can make multiple simultaneous connections between groups of people.

Mobile-Commerce  M-commerce (mobile commerce) refers to the conduct of e-Commerce via wireless devices. It is the commercial application of mobile computing which is based on wireless networks. There is an increased interest in m-commerce because the number of mobile devices is projected to top 1 billion by 2004.  Location-based commerce (L-commerce) is an application of m-commerce that offers customers the location information of anything they want to purchase.

Network Computers & Home Computing
The Network Computer, first introduced in 1997, does not have a hard drive. Instead, it is served by a central computing station, and temporarily receives and can use applications and data stored elsewhere on the network. Integrated Home Computing. Soon, home computing, television, telephone, home security systems, and other devices will be integrated and managed in one unit. Smart appliances refer to home appliances that are connected to the Internet.

The Internet, Intranets & Extranets
The Internet. From about 50 million Internet users in 1997, there could be as many as 750 million by 2007. Intranets utilize information technology to provide organizations with internal communication systems. Extranets combine intranets with the Internet to create a powerful interorganizational systems for collaboration.

Corporate Portals, Networked Enterprises & Optical Networks
A corporate portal refers to a company’s Web site that is used as a gateway to the corporate data, information, and knowledge. The Networked Enterprise. The various components just described can be integrated together into an enterprise wide network extended to all business partners. Optical Networks are high capacity telecommunication networks that convert signals in the network and transmit these over fiber optic filaments.

Why Learn about IT? Being IT Literate On the Job & Off
Finding Employment Opportunities in IT Future Organizational Leadership Using IT to Become a Millionaire

Plan of the Book Part I: IT in the Organization
Part II: The Web Revolution Part III: Organizational Applications Part IV: Managerial and Decision Support Systems Part V: Implementing and Managing IT

Managerial Issues How can we recognize the opportunities for using IT and Web-based systems? How important is IT? In some cases, IT is the only approach that can help organizations. Who is going to build, operate, and maintain the information systems? How much IT? IT does not come free, but not having it may be much costlier.

Managerial Issues (cont.)
What about Globalization? Globalization opens many opportunities, ranging from selling products and services online, to conducting joint ventures or investing in them. How can an organization transform itself to the digital economy? Is the situation going to change? Yes, the pressures will be stronger as time passes & the IT role will be even more important. What about ethics and social issues? The implementation of IT involves many ethical and social issues.

Information Technologies: Concepts & Management
Chapter 2 Information Technologies: Concepts & Management

Learning Objectives Describe various information systems and their evolution, and categorize specific systems you observe. Describe transaction processing and functional information systems. Identify the major support systems, and relate them to managerial functions. Discuss information infrastructure and architecture.

Learning Objectives (cont.)
Compare client/server architecture, enterprisewide computing, and legacy systems, and analyze their interrelationship. Describe the major types of Web-based information systems and understand their functionality. Describe how information resources are managed. Describe the role of the information systems department and its relationship with end-users.

Case: Building an e-Business at Fed Ex
Problem: FedEx has kept looking ahead at every stage for opportunities to meet customers’ needs for fast, reliable, and affordable overnight deliveries. Solution: In addition to e-Shipping Tools, FedEx is now providing integrated solutions to address the selling & supply chain needs of its customers. Results: FedEx’s e-business model facilitates better communication and collaboration between the various parties along the supply chains. It promotes efficiency gains by reducing costs & speeding up the order cycle. It transforms organizations into high performance e-businesses.

Characteristics of Information Systems
Interorganizational information systems involve information flow in two or more organizations. An enterprisewide system or interorganizational information system is composed of large & small computers & hardware connected by different types of networks. Several different information systems can exist in one organization. A particular information system may be composed of several separate information systems. Information systems are connected by means of electronic networks.

Data, Information & Knowledge
One of the primary goals of Information Systems is to economically process data into information or knowledge. Data items refer to an elementary description of things, events, activities, and transactions that are recorded, classified, and stored, but not organized to convey any specific meaning. Information is data that have been organized so that they have meaning and value to the recipient. Knowledge consists of data or information that have been organized and processed to convey understanding, experience, accumulated learning, and expertise.

Classifications of Information Systems
Information Systems can be classified according to; Organizational Structure Functional Area Support Provided System Architecture Activity Supported

Classification by Organizational Structure
Departmental information systems. Frequently, an organization uses several application programs in one functional area or department. Enterprise information systems (EIS). While a departmental IS is usually related to a functional area, the collection of all departmental applications when combined with other functions’ applications comprises the enterprisewide information system. Interorganizational systems. Some information systems connect several organizations.

Classification by Functional Area
The major functional information systems are the following: The accounting information system The finance information system The manufacturing (operations/production) information system The marketing information system The human resources management information system

Classification by Support Provided
The major types of systems under this classification are: Transaction processing system (TPS) Management information system (MIS) Knowledge management system (KMS) Office automation system (OAS) Decision support system (DSS) Enterprise information system (EIS) Group support system (GSS) Intelligent support system

Evolution of Support Systems
Early 1950s 1960s Late 1960s Early 1970s Transaction processing system (TPS) Management information systems (MISs) Office automation system (OAS) Decision support system (DSS)

Evolution of Support Systems (cont.)
Early 1980s Executive information systems Enterprise information systems (EISs) Group support systems (GSSs) Mid- 1980s Expert systems (ES) Knowledge management systems (KMS) 1990s Artificial neural networks (ANNs)

Case: Detecting Bombs with ANN
Problem: The Federal Aviation Administration (FAA) use statistical analysis and expert systems to prevent terrorists from sneaking bombs aboard airplanes. Yet, these technologies cannot detect all types of explosives. Solution: Since 1993, artificial neural networks (ANN) have been added to improve detection effectiveness. The ANN is exposed to a set of historical cases and is then able to predict the existence of explosives in new cases. Results: The FAA hopes to detect explosives more successfully and also minimize false alarms.

Interrelated Support Systems

Classification by System Architecture
Information systems can be classified according to three types of architecture: A mainframe-based system. A standalone personal computer (PC). A distributed or a networked computing system (several variations exist).

Transaction Processing
Transaction processing systems (TPS) support the monitoring, collection, storage, processing, and dissemination of the organization’s basic business transactions. They provide the input data for many applications involving other support systems. The transaction processing systems are considered critical to the success of any organization. The TPS collects data continuously, frequently on a daily basis, or even in “real time”.

Functional MISs Functional Management Information Systems (MISs) are put in place to ensure that business strategies come to fruition in an efficient manner. Typically a functional MIS provides periodic information about such topics as operational efficiency, effectiveness, and productivity by extracting information from the corporate database and processing it according to the needs of the user. MISs can be constructed in whole or in part by end-users. MISs are also used for planning, monitoring, and control.

Functional MISs Sales forecast by region generated by marketing MIS.

Classification by the Activity Supported
Another important way to classify information systems is by the nature of the activity they support. Such support can be: Operational Day-to-day operations of an organization Managerial Middle-management activities such as short-term planning, organizing, and control Strategic Decisions that significantly change the manner in which business is being done

New Strategic Systems Electronic commerce (EC) has become a new way of conducting business in the last decade or so. In this new model, business transactions take place via telecommunications networks, primarily the Internet. e-Commerce provides organizations with innovative and strategic advantages, such as; Increased market share Better ability to negotiate with suppliers Better ability to prevent competitors from entering into their territory

Information Systems & People

Information Infrastructure
There are five major components of the infrastructure: Computer hardware Development software Networks and communication facilities (including the Internet and intranets) Databases Information management personnel

Information Architecture
Information architecture is a high-level map or plan of the information requirements in an organization. In preparing information architecture, the designer requires two kinds of information: The business needs of the organization—that is, its objectives and problems, and the contribution that IT can make. The information systems that already exist in an organization and how they can be combined among themselves or with future systems to support the organization’s information needs.

Types of Information Architecture
Mainframe environment. In the mainframe environment, processing is done by a mainframe computer. The users work with passive (or “dumb”) terminals, which are used to enter or change data and access information from the mainframe. PC environment. In the PC configuration, only PCs form the hardware information architecture. Networked (distributed) environment. Distributed processing divides the processing work between two or more computers.

Case: Flexible IT Architecture at Chase
Problem: When Chase Manhattan Bank & Chemical Bank merged in 1996, they faced the obstacle of merging different information systems and creating a new IT architecture. Solution: An innovative 3-layer architecture was constructed using the Internet & intranets. First layer: global infrastructure Second layer: distribution networks that route traffic among business units Third layer: numerous access networks Results: All of this massive networking has one goal: giving customers extensive real-time access to accounts and a view of their assets.

Client/Server Architecture
A client/server architecture divides networked computing units into two major categories; clients and servers. A client is a computer such as a PC or a workstation attached to a network, which is used to access shared network resources. A server is a machine that is attached to this same network and provides clients with these services. The purpose of client/server architecture is to maximize the use of computer resources. Client/server architecture gives a company as many access points to data as there are PCs on the network.

Electronic Data Interchange (EDI)
Electronic data interchange (EDI) is the electronic movement of specially formatted standard business documents, such as orders, bills, and confirmations sent between business partners. In the past, EDI ran on expensive value-added networks (VANs). These are private, data-only wide area networks used by multiple organization to provide high capacity, security, and economies in the cost of network service. The cost of VANS limited EDI to large business partners. However, the situation is changing rapidly with the emergence of Internet-based EDI.

Web-based Systems Web-based systems refer to those applications or services that are resident on a server that is accessible from anywhere via the WWW. The only client-side software needed to access and execute Web-based applications is a Web browser environment. Two important features of Web-based functionality; The generated content/ data is updated in real time. (2) They are universally accessible via the Web to users (dependent on defined user-access rights).

Web-based Systems (cont.)
The Internet is a worldwide system of computer networks--a network of networks in which users at any one computer can, if they have permission, get information from any other computer. An intranet is the use of WWW technologies to create a private network, usually within one enterprise. A security gateway such as a firewall is used to segregate the intranet from the Internet. An Extranet can be viewed as an external extension of the enterprise intranet.

e-Commerce & StoreFronts
One of the natural outcomes of the Internet and the World Wide Web has been e-Commerce. Web-based systems are the engines of e-Commerce. They enable business and inventory transactions to be conducted seamlessly over the Internet 24 hours a day, 7 days a week. An electronic storefront is the Web-equivalent of a showroom. This is the Web site where an e-retail business displays its products.

Electronic Markets & Exchanges
Electronic markets are a network of interactions and relationships over which information, products, services, and payments are exchanged. Electronic exchanges are central Web-based locations where buyers and sellers interact dynamically, with buyer and sellers going back and forth on a price. Vertical exchanges position themselves as the hub for all buying, selling, and related services in a single market category. Horizontal exchanges focus on a specific function or need applicable to many different industries.

Mobile-Commerce Mobile commerce or M-commerce is the buying and selling of goods and services through wireless handheld devices such as cellular telephone and personal digital assistants. Known as “next-generation e-commerce,” m-commerce enables users to access the Internet without a place to plug in to. Wireless Application Protocol (WAP) is the emerging technology behind m-commerce. Using Bluetooth technology, WAP-enabled smart phones offer fax, , and phone capabilities all in one.

Managing Information Resources
The responsibility for the management of information resources is divided between two organizational entities: The information systems department (ISD) - a corporate entity. The end-users - who are scattered throughout the organization. This division of responsibility raises important questions: Which resources are managed by whom? What is the role of the ISD, its structure, and its place in the organization? What are the relationships between the ISD and the end users?

Which Resources are Managed by Whom?
Major categories of Resources: Hardware Software Databases Networks Procedures Security facilities Physical buildings The responsibility for managing these resources depends on many things: the size/ nature of the organization, the amount/ type of IT resources, etc. Generally speaking, the ISD is responsible for corporate-level and shared resources, while the end users are responsible for departmental resources.

What is the Role of the ISD?
The role of the ISD is changing from purely technical to more managerial and strategic. As a result, the position of the ISD within the organization tends to be elevated from a unit reporting to a functional department, to a unit reporting to a senior vice president of administration or to the CEO. The role of the director of the ISD is changing from a technical manager to a senior executive. The ISD can be centralized or decentralized or a combination of the two. The ISD must work closely with external organizations such as vendors, business partners, etc.

Managing Relationships with End Users
The ISD and the end-user units must be close partners. Some mechanisms that build the required cooperation are: A Steering committee that represents all end users and the ISD. Joint ISD/end-users project teams for planning, budgeting, application developments, and maintenance. ISD representation on the top corporate executive committee. Service agreements that define computing responsibilities and provide a framework for services rendered by the ISD to end users. Technical and administrative support (including training) for end users. A conflict resolution unit established by the ISD to handle end-user complaints quickly and resolve conflicts as soon as possible.

Managerial Issues The transition to networked computing. Converting the IT in organizations to networked computing may be a complicated process. Legacy systems. Whether and when to move from the legacy systems to a client/server enterprisewide architecture is an important issue. The role of the ISD. The role of the ISD can be extremely important, yet top management frequently mistreats it.

How much infrastructure? Justifying information system applications is not an easy job due to the intangible benefits and rapid changes in technologies. The role of end users. End users play an important role in IT development and management. The end users know best what their information needs are and to what degree they are fulfilled. Ethical Issues. IS systems may invade the privacy of the users or create advantages to certain individuals at the expense of others.

Strategic Information Systems for Competitive Advantage
Chapter 3 Strategic Information Systems for Competitive Advantage

Learning Objectives Describe strategic information systems (SIS) and explain their advantages. Describe Porter’s competitive forces model & how IT helps companies improve their competitive positions. Describe Porter’s value chain model and its relationship to information technology. Describe several other frameworks that show how IT supports the attainment of competitive advantage.

Describe and understand the role of web-based SIS and the nature of competition in the digital age. Describe global competition and its SIS framework. Describe representative strategic information systems and the advantage they provide to organizations. Discuss implementation issues including possible failures of SIS.

Case: Rosenbluth International
Rosenbluth Int., a global player in the travel agency industry, faced threats due to the digital revolution. They responded with 2 strategies: (1) Withdrawal from the leisure travel business (2) Implementation of web-based travel technology, such as:  DACODA  A Globalization Network  Electronic Messaging Services  Customer-Res  E-Ticket Tracking Solution  IntelliCenters  Res-Monitor  NOC

Lessons from the Case Need for exchange business models and strategies
Importance of web-based IT Global competition over service is key Large investment over time Importance of networked infrastructure for global systems Web-based applications for superior customer service Need to patent innovative systems

Strategic Information Systems (SISs)
SISs provide strategic solutions to the 5 Business Pressures:

Elements of Strategic Management
1. Long Range Planning 2. Response Management 3. Proactive Innovation - Information Technologies

The Role of IT IT creates applications that provide strategic advantages to companies IT is a competitive weapon IT supports strategic change, e.g, re-engineering IT networks with business partners IT provides cost reduction IT provides competitive business intelligence

Competitive Intelligence
Many companies monitor the activities of competitors Such activities drive business performance by: Increasing market knowledge Improving internal relationships Raising the quality of strategic planning The Internet is central to supporting competitive intelligence

Competitive Advantage in the Web Economy
Competitive Strategy Search for a competitive advantage in an industry, which leads to control of the market. Competitive Advantage Look for a competitive necessity, which will help your company keep up with the competitors. Sustainable Strategic Advantage Maintain profitable & sustainable position against the forces that determine industry competition.

CASE: McKesson Drug (www.Mckesson.com)
Whole Sale Drug Distributor Economost (McKesson’s Web-based service) Allows for customers to phone, fax or orders. Order is transferred to an IBM main frame, quick delivery to pharmacies. Significant benefits to customers. Due to Economost, McKesson has survived the new economy, revenues have escalated. Early 2001, McKesson offered a suite of comprehensive Internet-based applications.

Porter’s 5 Competitive Forces
The threat of entry of new competitors. The bargaining power of suppliers. The bargaining power of customers (buyers). The threat of substitute products or services. The rivalry among existing firms in the industry.

Response Strategies (Porter, 1985)
COST LEADERSHIP Providing products and/or services at the lowest cost in the industry. DIFFERENTATION Being unique in the industry FOCUS Selecting a niche market and achieving cost leadership and/or differentation.

Response Strategies (added by Porter and others)
GROWTH Increasing market share, acquiring more customers or selling more products IMPROVE INTERNAL EFFICIENCY To improve employee and customer satisfaction ALLIANCES Working with business partners to create synergy & provide opportunities for growth CRM Customer-oriented approaches, e.g. the customer is king (queen) INNOVATION Developing new products & services

Case: Trucking , IT & Cost Leadership
JB Hunt ( Uses web-based technology to: trigger lowest possible fuel costs notify customers of accurate fuel surcharge provide an on-line “proof of delivery” Roadway Express ( Uses IT technology to: compare vendor’s prices and related procurement expenses monitor the exact location of trucks

Porter’s Model in Action

Porter’s Model in Action (cont.)
Step 1: The players in each force are listed. Step 2: An analysis is made which relates Porter’s determining factors. Step 3: A strategy is devised to defend against these factors. Step 4: Support information technologies are employed.

CASE: Daimler Chrysler
Problem: In 1999, the company lost $US 2.6 Billion Chrysler’s program with part suppliers was failing Solution: Suppliers began using Lotus notes/ Damino Measurement reports to static HTML web pages E-procurement exchange at Convisint Results: Chrysler saves billions

Porter’s Value Chain Model
PRIMARY ACTIVITIES In bound logistics (in puts) Operations (manufacturing & testing) Outbound logistics (storage & distribution) Marketing & sales Service Supply Chain

Porter’s Value Chain Model
SUPPORT ACTIVITIES Firm Infrastructure Human Resources Management Technology Development Procurement

VALUE SYSTEM A firm’s value chain is part of a larger stream of activities, which Porter calls a “Value System”. Includes the suppliers that provide the necessary inputs AND their value chains. Applies to both products & services, for any organization, PUBLIC or PRIVATE. Is the basis for the Supply Chain Management.

CASE: Frito Lay uses IT & the Value Chain
World’s largest snack food producer and owner of Pepsi products. SIS System: Integrates marketing, sales, manufacturing, logistics, finance. Provides managers with information about suppliers, customers & competitors. Enables employees to access valuable information. Frito Lay’s use of IT allows for an optimal functioning of the value chain.

The Value Chain Model The Value System Model is used to:
Evaluate a company’s process and competencies. Investigate whether adding IT supports the value chain. Enable managers to assess the information intensity and the role of IT.

Bakos & Treacy Framework

McFarlan’s Portfolion Framework (1984)
For Analyzing Existing, Planned & Potential Information Systems

Stages in Customer Resources Life Cycle (1-7)
(1) Establish Customer Requirements (2) Specify Customer Requirements (3) Select a source, match customer with a supplier (4) Place an order (5) Authorize and pay for goods & services (6) Acquire goods or services (7) Test & accept goods or services

Stages in Customer Resources Life Cycle (8-13)
(8) Integrate into and manage inventory (9) Monitor use and behavior (10) Upgrade if needed (11) Provide maintenance (12) Transfer or dispose of product or service (13) Accounting for purchases

Web-based Strategic Information Systems (SISs)
Many of the SISs of the 70s - 90s were based on privately owned networks, or organizational information systems (OISs). EDI-based systems are of key importance. SISs are changing the nature of competition. In some cases, SIS renders traditional business procedures obsolete. E.g, Encyclopedia Britannia

CASE: Mobile Oil Moves to Web-based System
Problem: Largest marketer of lubricants in the USA In 1995, introduced EDI system Used to place orders, submit invoices & exchange business documents It was too expensive, too complex to use Solution: In 1997, moved to web-based extranet-supported B2B system Results: Reduced transaction cost from $45/order to $1.25 Fewer shortages, better customer service decline in distributor administration costs

Examples of EDI/Internet-based SIS (for individual Companies)
Electronic Auctions Electronic Biddings Buyer-Driven Commerce Single Company Exchange Direct Sales

Examples of EDI/Internet-based SIS (for Groups of Companies)
Industry Consortiums Horizontal Consortiums Web-based Call Centers Web-based Tracking Systems Web-based Intelligent Agents Web-based Cross Selling Accessing knowledge via Intranets

Growth of Companies Operating in a Global Environment
Fully Global or Multinational Corporations Companies that export or import Companies facing competitions of low labor cost and high natural resources Companies with low cost production facilities abroad Small companies that can now use EC to buy/sell internationally

A Global Drivers Framework (Ivers et al., 1993)
“The success of companies doing business in a competitive environment depends on the link between their information systems AND their global business strategy.” This framework provides a tool for identifying the firm’s global business drivers. Drivers look at the current and future needs, focusing on worldwide implementation.

Examples of Who is Using SIS
Otis Elevator Centralized call center, self diagnosing elevators’ malfunctions and maintenance analysis Baxtar International Terminals in customers’ hospitals Merrill Lynch Cash management accounts system American Airlines Computerized reservation system (SABRE)

CASE: Total Quality Management at FPL
Florida Power & Light  largest US utility company Leader in implementing total quality management Several successful SIS programs: Generation Equipment Management System (GEMS) Tracks electrical generators, saving $5 million/ yr. 20 different quality control applications Reduced customer complaints by 50% Trouble Call Management System Reduced black out time from 70 to 48 min.

CASE: Geisinger Implements an Intranet
Problem: As a result of mergers & acquisitions, Geisinger (a health maintenance organization) had 40 different IT legacy systems in need of an upgrade & integration. Solution: In 1993, Geisinger implemented an innovative Intranet: with the following features: “Tel-a-Nurse” Clinical Management System Human Resource Management Results: Geisinger reduced costs and unnecessary medical work.

CASE: Caltex Corporation
Major multinational company selling gasoline & petrol products. In 2000, created a centralized e-purchasing corporate exchange ( Suppliers build electronic catalogues with Ariba’s software. Many benefits to buyers and suppliers, particularly in Asia, Africa & the Middle East. System enables Caltex to successfully handle complex multinational business environments.

CASE : Port of Singapore
Problem: The Port of Singapore, the world’s largest international port, faced increased global competition. Solution: Implementation of Intelligent Systems Results: Reduction in Cycle Time 4 hours versus hours in neighboring ports Reduction in uploading/ loading time 30 sec. versus 4-5 min./ truck in neighboring ports

CASE: Volvo Speed Cars Problem:
In comparison to global competitors, Volvo’s cars were to expensive, with a slow delivery time. Solution: Creation of global ISDN-based network Result: Reduction in delivery time from weeks to weeks for customized cars. Reduction in cost of doing business, along with the price of the car.

CASE: Caterpiller Corporation
Problem: This world leader in manufacturing of heavy machines faced strong competition from Japanese companies. Solution: Computer-aided manufacturing and robots Computerized inventory management Supply chain web-based management Global Intranet & EDI Sensory Intelligent Agents attached to products. Results: CAT experienced such a high rate of success that their main competitor was forced to shift its strategy.

CASE: Dun & Bradstreet (D & B)
Problem: Clearing house that provides risk analysis & maintains database of credit ratings. Customers complained about long waiting periods and inaccuracies. Solution: Implementation of Web-based expert system. Results: Response time reduced from 3 days to a few seconds Credit ratings became more accurate.

SIS Implementation Major Issues to be Considered: Justification
Justifying SIS may be difficult due to the intengible nature of their benefits. Risks & Failures The magnitude, complexity, continuous changes in technology and business environment may result in failures. Finding appropriate SIS Identifying appropriate SIS is not a simple task.

Sustaining SIS & Strategic Advantage
A Major problem that companies face is how to sustain their SIS competitive advantage. 3 Major approaches = Create inward systems which are not visible to competitors. Provide a comprehensive, innovative & expensive system that is difficult to duplicate. Combine SIS with structural changes. This would include business processes, reengineering & organizational transformation.

Managerial Issues Implementing SIS Can Be Risky. The investment involved in implementing Strategic Information Systems (SIS) is high. Strategic Information Systems Requires Planning. Planning for an SIS is a major concern of organizations.

Sustaining Competitive Advantage Is Challenging. As companies become larger and more sophisticated, they develop resources to duplicate the systems of their competitors quickly. Ethical Issues. Gaining competitive advantage through the use of IT may involve unethical or even illegal actions. Companies can use IT to monitor the activities of other companies and may invade the privacy of individuals working there.

Network Computing: Discovery, Communication, & Collaboration
Chapter 4 Network Computing: Discovery, Communication, & Collaboration

Learning Objectives Understand the concepts of the Internet and the Web, their importance, and their capabilities. Understand the role of intranets, extranets, and corporate portals in organizations. Identify the various ways in which communication is executed over the Internet. Demonstrate how people collaborate over the Internet, intranets, and extranets using various supporting tools, including voice technology and teleconferencing.

Describe groupware capabilities. Describe and analyze the role of software agents for the Internet/ intranets. Analyze telecommuting (teleworking) as a techno-social phenomena. Consider ethical issues related to the use of the Internet.

Case: National Semiconductor Corporation (NSC)
Problem: The semiconductor industry is one of the most competitive global industries. To keep up with customer specifications, NSC needed to upgrade its communications channels. Solution: NSC introduced a corporate portal where it posts detailed descriptions of its 10,000 products. The NSC Web site offers design assistants and simulators to guide customers in designing their products. Results: NSC’s sales and profitability increased significantly in 1996 and 1997 due to the Internet solution.

Lessons from the Case The NSC opening case demonstrates the increasing role that the Internet, intranets, and extranets play in organizations, and their potential benefits. Using various Web-based applications, NSC enabled its employees to work very closely with its customers, to speed up design and cut costs. NSC made full use of Web technologies both for internal and external applications. Customers use the Web to discover information, to communicate with NSC’s employees, and to collaborate with the technical staff.

Wireless Networking Wireless networking is gaining popularity for flexible communication in wide area networks in cities and local area networks in buildings. Internet2 is a project involving over 180 U.S. universities working in partnership with industry and government. This project aims to provide the following advanced next generation applications. Remote diagnosis Digital libraries Distance education Online simulation Virtual laboratories

Internet Application Categories
The Internet supports applications in the following major categories: Discovery. Discovery involves browsing and information retrieval. Communication. The Internet provides fast and inexpensive communication channels that range from messages posted on bulletin boards to complex information exchanges among many organizations. Collaboration. Due to improved communication, electronic collaboration between individuals and/or groups is on the rise.

Discovery Discovery is done by browsing & searching data on the Web.
There are 2 main types of search facilities available on the Web: Search engines (e.g., Altavista, Google) maintain an index of hundreds of millions of Web pages and use that index to find pages that match a set of user-specified keywords. Directories (e.g., Yahoo!, About.com) provide a hierarchically organized collection of links to Web pages.

Search Engines Index Comparison
GG =Google, FAST=FAST, WT=WebTop.com, INK=Inktomi, AV=AltaVista, NL=Northern Light, EX=Excite, Go=Go (Infoseek) Grey portion = the number of indirect pages, if any, used during the search.

Web-browsing Assisting Agents
Intelligent Agents are computer programs that carry out a set of routine computer tasks on behalf of the user. Some agents can facilitate browsing by offering the user a tour guide of the Internet. They work while the user browses. FAQ agents guide people to answers of frequently asked questions. The agent (such as FAQFinder) addresses large numbers of FAQ files and provides an interface by which people can post their questions. AskJeeves (askjeeves.com) is an example of a FAQ assistant.

Web-browsing Assisting Agents (cont.)
Web robots, spiders, and wanderers travel the Web and perform tasks such as information retrieval and discovery, validating links or HTML, and generating statistics. Indexing agents can carry out a massive autonomous search of the Web on behalf of a user or, more commonly, of a search engine. Metasearch engines integrate the findings of the various search engines to answer queries posted by the users. Internet softbots attempt to determine more specifically what the user wants and can better focus a search.

Case: Catching Cases of Plagiarism
Problem: The Internet provides abundant information to students who may be tempted to download material and submit it as their own work. Solution: Some companies (e.g., Plagiarism.org) are offering Internet-based anti-plagiarism technology to identify such cases of plagiarism. Manuscript are checked against a database of other manuscripts collected from different universities and from all over the Internet. Results: Cases of gross plagiarism are more likely to be flagged.

Internet-based Data Mining
The term data mining refers to sophisticated analysis techniques for sifting through large amounts of information. Web mining is the application of data mining techniques to discover actionable and meaningful patterns, profiles, and trends from Web resources. Web mining is used in the following areas: Information filtering ( s, magazines, and newspapers). Surveillance (Internet competitors, patents) Mining Web-access logs Assisted browsing Services fighting crime on the Internet

Intranet Intranets (Internal Webs) are networks designed to serve the internal informational needs of a company, using Web concepts and tools. Intranets have the power to change organizational structures and reengineer corporations. Some functions of Intranets: Easy and inexpensive Internet browsing. Postings of employee resumes, business plans, and corporate regulations and procedures. Communication and collaboration capabilities, e.g. newsletters.

Extranets An Extranet is an infrastructure that allows secure communications among business partners over the Internet. It offers limited accessibility to the intranets of the participating companies as well as the necessary interorganizational communications. The use of extranets is increasing rapidly due to the large savings in communication costs that can materialize. Extranets enable innovative applications of business-to-business (B2B) e-Commerce. They are closely related to improved communications along the supply chain

Corporate Portals With the growing use of intranets and the Internet, many organizations encounter difficulties in dealing with information overload. One solution to the problem of scattered and duplicative data are corporate portals. Corporate portals provide single-point access to an organization’s information and applications available on the Internet, intranets, and extranets. Affinity portals are being built to support communities such as labor minors, hobby groups, and political parties .

Corporate Portals (cont.)
The top corporate portal applications currently under development include; Knowledge bases and learning tools Business process support Customer-facing sales, marketing, and service Collaboration and project support Access to data from disparate corporate systems Internal company information Policies and procedures Best practices and lessons learned Human resources and benefits

IT Technologies for Communications
Several factors determine the IT technologies used to provide communication support to an organization. Participants. The number of people sending and receiving information can range from two to many thousands. Nature of sources and destinations. Sources and destinations of information can include people, databases, sensors, and so on. Location. The sender(s) and receiver(s) can be in the same room, in different rooms at the same location, or at different locations. Time. Messages can be sent at a certain time and received almost simultaneously. Media. Communication can involve one or several media.

Time / Place Framework Same-time/same-place.
In this setting, participants meet face-to-face in one place and at the same time. An example is communication in a meeting room. Same-time/different-place. This setting refers to a meeting whose participants are in different places but communicate at the same time. E.g., a telephone conference call. Different-time/same-place. This setting can materialize when people work in shifts. The first shift leaves electronic or voice messages for the second shift. Different-time/different-place. In this setting, participants are in different places, and they send and/or receive messages at different times.

Communications Electronic mail ( ) is the most used service of the Internet. Instant messaging services allow users to identify and exchange instant messages in real time. ICQ is the most popular instant messaging tool on the Internet. Messaging in wireless environments offer access to the Internet from cellular phones. Software agents are programs that execute mundane tasks for the benefit of their users. agents assist users with the often time-consuming task of managing their .

Communications (cont.)
Web-based call centers provide effective product support and deliver live customer-service capabilities for any online company. Peer-to-peer networks are systems that include a large number of small computer systems used for information exchange and sharing resources. E.g., Napster (napster.com) Chat rooms are virtual meeting grounds where groups of regulars come to gab. Chat rooms can be used to build a community, or to promote a commercial, political, or environmental cause.

E-Voice Communication
Voice communication can now be done on the computer using a microphone and a sound card. e.g., Dialpad.com Applications of Voice Technology: Interactive voice recognition. Voice annotation. Automated attendant. Voice mail. Audiotext.

Collaboration Collaboration refers to mutual efforts by two or more individuals who perform activities in order to accomplish certain tasks. A work group refers to two or more individuals who act together to perform some task. E.g., a committee, a review panel, a task force, an executive board, a team, or a department.

Dysfunctions of Group Process
Social pressures to conform may eliminate superior ideas. Group process can be time-consuming, slow, and costly. Work done in a group may lack appropriate coordination. Some members may dominate the agenda. Some group members may rely on others to do most of their work. The group may compromise on solutions of poor quality. The group may be unable to complete a task. Unproductive time is spent socializing, getting ready, waiting for people, or repeating what has already been said. Members may be afraid to speak up.

Nominal Group Technique
The nominal group technique (NGT) is a group communication method that includes a sequence of activities: Silent generation of ideas in writing Round-robin listing of ideas on a flip chart Serial discussion of ideas Silent listing and ranking of priorities Discussion of priorities Silent reranking and rating of priorities

Groupware Groupware refers to software products that support groups of people who share a common task or goal and collaborate on its accomplishment. Groupware products comes in two forms: A standalone product supporting one task ( ). An integrated kit that includes several tools ( , workflow, etc.). Groupware products are either Web-based, which is the trend today, or they are not related to the Internet and work with other networks.

Groupware Technologies
Workflow systems are business process automation tools that place system controls in the hands of user departments. Screen Sharing uses special software to allow colleagues to work on the same document, which is shown on the screen of each participant. Whiteboarding allows each user to view and draw on a single document “pasted” onto the electronic whiteboard. Collaborative Web browsing assists a group of people in browsing by suggesting new material likely to be of common interest.

Real Time Collaboration
Real-time collaboration (RTC) tools help companies bridge time and space to make decisions and collaborate on projects. Lotus Notes is one of the best-known of the RTC tools and offers the following functions; online collaboration capabilities, workgroup , distributed databases, bulletin whiteboards, text editing, document management, etc. Microsoft NetMeeting, another RTC package, offers the following; whiteboarding, application sharing, remote desktop sharing, file transfer, text chat, data conferencing, and desktop audio and videoconferencing.

Teleconferencing Teleconferencing is the use of electronic communication that allows two or more people at different locations to have a simultaneous conference. Video teleconferencing enables participants in one location to see participants at other locations. Data conferencing enables data to be sent along with voice & video. Video mail is similar to voice mail; however, the voice and image components of video mail can be created from portions of conferences and stored on a file server.

Distance Learning (DL)
Distance learning (DL) occurs when learning is performed with tools or technologies designed to overcome the restrictions of either same time or same place learning. Distant learning courseware packages are software programs that enable distance learning. E.g., Lotus Notes, Microsoft NetMeeting, Novell GroupWise, and GroupSystems, Lotus Learning Space, WebCT. Online Corporate Training allow IT organizations to keep their staff members up to date with the latest innovations in IT.

Video conferencing Strategies
Strategies to help improve communication while using video conferencing technology include (Reed, 1999); Set expectations and establish protocols. Involve students from the beginning. Use visual aids. Provide supporting materials. Punctuate lectures with small group activities. Reduce distractions. Encourage dialogue.

Telecommuting Telecommuting, or teleworking is when employees work at home, at the customer’s premises, or while traveling, using a computer linked to their place of employment. Some experts predict that in 10 to 15 years, 50 percent of all work will be done at home, on the road, or at the customer’s site. The opportunity to work at home helps women or single parents assume more responsible managerial positions in organizations. Telecommuting has been related to an increase in work productivity.

Case: Handling Crucial Files on the Road
Problem: Mellissa McNatt, a telecommuter, was not able to attach large files to messages due to objections from her customers. Solution: McNatt found a solution to her problem at NetDocuments.com, which offers document storage at its site. With this facility McNatt is able to access her documents and also to share them with her customers. Results: Using this online document storage, McNatt expects to cut down her cycle of contact with prospective customers from 7-8 days to 2 days.

Reasons for Telecommuting Failures
Insufficient support infrastructure Insufficient security policies Union difficulties Quantifiable gains aren’t achieved Teleworker productivity declines Overall productivity declines

Ethics on the Net Privacy and ethics in e-mail Right of free speech
Copyright The privacy of patients’ information Internet manners Monitoring employees’ use of the Internet

Managerial Issues Security of communication. Communication via networks raises the issue of the integrity, confidentiality, and security of the data being transferred. Data crossing national borders. It is easier to control data crossing national borders electronically.

Congestion. Some people believe the increased use of the net will clog it and that companies should develop a plan to limit its use. Control of employee time and activities. Employees may be tempted to conduct private surfing during work hours. Questionnaires and referenda. An increasing number of researchers and pollsters are using the Internet for marketing or political surveys. Organizational impacts. Technology-supported communication may have major organizational impacts.

Telecommuting. Not all jobs are suitable for telecommuting. Cost-benefit justification. Information technologies do not come free, and many of the benefits are intangible. Legal issues. There are many unresolved legal issues. Managing the intranet. This is becoming a major problem due to the ease of placing material on an intranet and the huge volume of information.

Chapter 5 Electronic Commerce

Learning Objectives Describe electronic commerce, its dimensions, benefits, limitations, and process. Describe the major applications of e-commerce in the business-to-customer area, including advertisement. Discuss the importance and activities of market research and customer service. Describe B2B models and relate them to supply chain management. Describe e-commerce in service industries.

Describe other e-commerce applications (auctions, C2C, m- commerce, and e-government). Describe the e-commerce infrastructure, extranets, and EDI. Compare the various electronic payment systems, describe the role of smart cards, and discuss e-payment security. Discuss legal and ethical issues related to e-commerce. Describe failure factors of e-commerce.

Case: Intel Embraces the Web
Problem: Intel, the world’s largest producer of micro-processor chips, was experiencing problems with their ordering and distribution systems. Solution: In 1998, they launched a Web-based e-business program that focuses on online ordering for a range of products. In 1999, extensive e-procurement was introduced. Results: Intel has enhanced its competitive advantage by giving its customers better tools for managing transactions. Intel also experienced substantial tangible savings.

Electronic Commerce (EC)
Electronic Commerce involves making business transactions via telecommunications networks, primarily the Internet. It is also sometimes referred to as e-business (or e-biz) Evolution of EC: Electronic commerce applications began in the early 1970s. Electronic data interchange (EDI) extended the types of participating companies. EC applications expanded rapidly with the commercialization of the Internet in the early 1990s.

Electronic Framework

The field of EC can be divided into two segments:
Electronic markets, or e-marketplaces - networks of interactions and relationships where information, products, services, and payments are exchanged. B2C, company-centric, and B2B transactions. Interorganizational information systems (IOS) - information flow among two or more organizations. Applies to B2B applications only

Some benefits of EC to organizations are:
EC allows vendors to reach a large number of customers, anywhere around the globe, at a very low operating cost. Companies can procure materials and services from other companies rapidly and less expensively. Marketing distribution channels can be drastically cut or eliminated. EC decreases the cost of based information by as much as 90%. Customer services and relationships are facilitated by interactive, one-to-one communication, at a low cost.

Some benefits of EC to consumers are:
Benefits of EC (cont.) Some benefits of EC to consumers are: EC often provides customers with less expensive products and services by allowing them to shop in many places. EC provides customers with more choices. EC enables customers to shop 24 hours a day, year round, from almost any location. Customers can receive relevant and detailed information and other services in seconds. EC enables consumers to get customized products and services.

Some benefits of EC to society are:
Benefits of EC (cont.) Some benefits of EC to society are: EC is a major facilitator of the digital economy. EC enables more individuals to work at home, resulting in less traffic and lower air pollution. EC allows some goods to be sold at lower prices, so less affluent people can buy them, increasing their standard of living. EC enables people in developing countries and rural areas to enjoy products and services previously unavailable. EC facilitates a superior delivery of public services.

Limitations of EC Non-Technical Limitations Legal issues
Lack of universally accepted standards Insufficient bandwidth Still-evolving software development tools Difficulties in integrating the Internet and EC software Non-Technical Limitations Legal issues National and international government regulations Difficulty of measuring EC benefits Customer resistance Lack of a critical mass

Models of EC Business-to-Business (B2B) Business-to-Consumers (B2C)
Consumer-to-Organizations (C2O) Consumer-to-Consumer (C2C) Intrabusiness (Intraorganizational) Commerce Government-to-Citizens (G2C) Collaborative commerce (c-commerce) Mobile Commerce (m-commerce)

Electronic Retailing Electronic retailing is the direct sale (B2C) through electronic storefronts or in electronic malls, usually designed around an electronic catalog format. In electronic retailing, there are several selling channels: Solo electronic storefronts Electronic malls (or cybermalls) Shopping portals Metamalls

B2C e-Commerce Business-to-consumer EC can be done in two major ways:
Companies sell direct to the customer. Such direct marketing has the advantage of personalization and customization. Companies use an intermediary. There are two types of online infomediaries: Pure online e-tailers ”Click-and-mortar” retailers

Why Internet Advertisement?
Ads can be updated any time with a minimal cost. Ads can reach large numbers of buyers all over the world. Online ads are frequently cheaper in comparison with television, radio, newspaper, or billboard ads. Web ads can efficiently use text, audio, graphics, and animation. The audience for Internet advertising is growing rapidly. Web ads can be catered to a specific target.

Internet Advertisement
Banner advertisement is the most commonly used form of advertising on the Internet. Two types of banners: Keyword banners & Random banners A major advantage of using banners is the ability to customize, but banner advertising can be costly. URL Advertising: Any company can submit its URL to a search engine and be listed.

Internet Advertising (cont.)
Advertising. is a cost-effective marketing channel with a better and quicker response rate than other channels. Problem of Spamming Online Events and Promotions (Sponsorship) Other Forms of Internet Advertisement. Internet communities, chat rooms, newsgroups, and kiosks

Advertisement Issues Customizing Ads Segmentation Webcasting
Permission Marketing Viral Marketing

Measuring the Effectiveness of E-Advertising
Ad view, or the number of times users see a banner ad during a specific time period. If a customer clicks on a banner and moves to the advertiser’s Web home page. If a customer clicks on a banner, moves to the advertiser’s site, and while there seeks product leads or fills out questionnaires. The actual purchases made on the Web. Affiliate Programs

Disintermediation & Reintermediation
The emergence of a new breed of electronic intermediaries. These include; e-malls directory and search-engine services market makers comparison-shopping agents Disintermediation Using the Internet, manufacturers can sell directly to customers and provide customer support online. In this sense, the traditional intermediaries may be eliminated.

Impact of EC on Distribution Strategy
Avoiding channel conflicts Coexistence with the dealers Regionally mixed strategy Restraint of competition by powerful distributors In-company channel conflicts

Internet Consumers There are two types of Internet consumers: individuals and organizations. Initially the vast majority of Internet users were mostly 15- to 35-year-old males. Now the female / male ration is equal. Younger and older surfers have joined the party. The largest group of Internet users are married and highly educated. Almost 90% are white. Most users have a high household income and are working in; educational institutions the computer industry, or professional jobs.

Models of Market Research

Organizational Buyers
The number of organizational buyers on the Internet is much smaller than individual buyers. However, their transaction volumes are far larger and the terms of negotiations/ purchase are more complex. Variables that are specific to organization buyers include; an organization’s purchasing guidelines and constraints the relationship among various buyers the possibility of group decision making the organizational structure interpersonal variables of the organizational buyer / seller

Facilitating Customer Service
Several tools are available for facilitating online customer service. The major tools, with their functionalities, are: Personalized Web pages A chat room FAQs Tracking capabilities Web-based call centers

B2B Models Sell-side model One company sells to many electronically.
(one-to-many) Buy-side model An organization (usually large) buys from many vendors. (many-to-one) Exchanges Marketplaces in which many buyers and sellers meet. (many-to-many)

B2B Model Types Sell-side model Sell-side marketplace Buy-side model
Forward auctions Buy-side model Reverse auctions Buyer’s Internal Marketplace Group Purchasing Exchanges Vertical Distributors Vertical Exchanges Horizontal Distributors Functional Exchanges

Cyberbanking Cyberbanking (electronic banking)
The Security First Network Bank (SFNB) was the first virtual bank International and Multiple-Currency Banking Bill-Paying Online Automatic payment of mortgages Paying bills from online banking account, etc. Personal Finance Bill paying and electronic check writing Tracking bank accounts, expenditures, and credit cards Budget management and organization, etc.

Online Stock Trading In 2001, about 30 million people in the US alone were using computers to trade stocks, bonds, and other financial instruments. Investment information available online includes; Stock screening/ evaluation Financial news Free advice from investment gurus

Other EC Services Job Market Online Travel and Tourism Real Estate
Participants include: (1) Job seekers (2) Job offerers (3) Recruitment firms (4) Newsgroups. Travel and Tourism Real Estate Non-Internet Applications e.g. Smart cards

M-Commerce M-commerce (mobile commerce) refers to the conduct of e-commerce via wireless devices. Advantages of M-Commerce Mobility Reachability Ubiquity Convenience Location of products and services L-commerce

B2B Auctions Corporations use auctions mainly as a B2B tool, but an increasing number use them also as a direct marketing channel. The Major Benefits of such auctions are; Generating revenue. As a new sales channel, auctions support existing online sales. Increasing page views. Auctions give sites “stickiness.” Acquiring and retaining members. All bidding transactions result in additional registered members, which increases the value of companies.

Types of B2B Auctions Independent Auctions. Commodity Auctions.
Companies use a 3rd-party auctioneer to create the site and to sell the goods. Commodity Auctions. Many buyers and sellers come together to a third-party Web site to buy and sell commodities. Private Auctions. Several companies bypass the intermediaries and auction their products by themselves directly to buyers. Auctions at the Company Web Site. Companies build an auction capability on their own Web site.

B2C & C2C Auctions Specialized auction sites Auctioning cars
e.g., ebay.com Auctioning cars Art auctions Airlines

C2C EC Activities Classifieds Personal services
classifieds2000.com Personal services These range from tutoring and astrology to the “oldest profession on earth.” Peer-to-peer (P2P) and bartering Electronic bartering = the exchange of goods and/or services without a monetary transaction.

Other EC Activities Intrabusiness and Business to Employees (B2E) Buying, selling and collaborative EC can be conducted within the company, usually using the Intranet and corporate portal. E-government Government-to-citizens (G2C) Electronic benefits transfer (EBT) - governments transfer Social Security, pensions, and other benefits directly to recipients’ bank accounts or smart cards. Government-to-business (G2B) Government-to-government (G2G)

EC Failures The major wave of EC failures started in 2000, as secondary funding that was needed by Internet-based EC began to dry up. Here are some examples; PointCast, a pioneer in the personalized Web-casting, folded in 1998 due to an incorrect business model. An Internet mall, operated by Open Market, was closed in 1996 due to an insufficient number of buyers. E-toys, a virtual toy retailer that impacted the entire toy industry folded in 2001 due to inability to generate profit. Advertising company Advertexpress.com, in the U.K., failed due to lack of second-round funding.

EDI has the following special characteristics:
EDI Characteristics EDI has the following special characteristics: Business transactions messages Data formatting standards EDI translators Private lines versus the Internet

Electronic Payment Systems
Security Requirements e.g. Authentification, Privacy, Integrity, Non-repudiation, Safety Single-Key (Symmetric) Encryption Public-Key Infrastructure Public and Private Keys Digital Signatures Electronic Certificates Protocols Secure Socket Layer (SSL). Secure Electronic Transaction Protocol (SET)

Electronic Payment Systems (cont.)
Electronic Credit Cards Electronic Checks (e-Checks) Purchasing Cards Electronic Payment From Cellular Phones Electronic funds transfer (EFT) Electronic cash (e-cash) E Cash for Micropayments Stored-Value Cards Enhanced Smart Cards Person-to-Person (P2P) Payment. Electronic Wallets

Fraud on the Internet Internet Stock Fraud
Fraud in Electronic Auctions Other Financial Fraud e.g. Selling bogus investments Federal Trade Commission provides a list of 12 scams most likely to arrive on the net e.g. Bulk mail solicitors, Chain letters, Work-at-home schemes Buyer Protection is critical to the success of any commerce, and especially EC, where buyers do not see the sellers. Seller Protection safeguards vendors against consumers who refuse to pay or who pay with bad checks.

EC-related Legal Issues
Domain Name Problems arise when several companies compete over a domain name. Taxes and Other Fees Federal, state, and local authorities are scrambling to figure out how to get a piece of the revenue created electronically. Copyright Protecting software and other intangible creations is difficult over the Web.

Ethical Issues Privacy and Web tracking. The human element.
Privacy issues are related to both customers and employees. The human element. The implementation of EC may lead to personnel dissatisfaction and loss of salespeople’s income Disintermediation. The use of EC may result in the elimination of a company’s employees as well as brokers and agents.

Managerial Issues Managing resistance to change.
Integration of e-Commerce into the business environment. Lack of qualified personnel and outsourcing. Choosing the company’s strategy toward e-Commerce Alliances. It is not a bad idea to join an alliance of companies to explore e-Commerce.

Implementation plan. Because of the complexity and multifaceted nature of EC, it makes sense to prepare an implementation plan. Responding to . Some companies are flooded by queries, requests, or complaints. Justifying EC by conducting a cost-benefit analysis. Privacy. In electronic payment systems, it may be necessary to protect the identity of buyers. Order fulfillment. Taking orders in EC may be easier than fulfilling them. The impacts. The impacts of EC may be dramatic.

Supply Chain Management & ERP
Chapter 6 Supply Chain Management & ERP

Learning Objectives Understand the concept of the supply chain, its importance and management. Describe the problems of managing the supply chain and some innovative solutions. Trace the evolution of software that supports activities along the supply chain. Understand the relationships among enterprise resources planning (ERP), supply chain management (SCM), and e-Commerce. Describe order fulfillment problems and solutions in e-Commerce and how EC solves other supply chain problems.

Case: How Dell Reengineered its Supply Chain
Problem: Dell pioneered the mail order approach to selling PCs In 1993, Compaq cuts prices to drive Dell out of the market. Dell experiences $65 million in losses. Solution: Dell implements the following re-engineering strategies: mass customization just-in-time marketing electronic orders & shipments e-collaboration with major buyers reduction in testing period monitoring of productivity & returns on investments

Case: How Dell Reengineered its Supply Chain (cont.)
Results: In 2001, Dell made over $4 million in computer web sales/ day. Becomes leader in Customer Relationship Management (CRM) Online tracking of orders & shipments Viewer approved configurations and pricing Customized home pages for clients. Use of Intelligent Agents in production process. Increased communication with suppliers. By 1999, Dell becomes the number two PC seller and is a leader in management & profitability.

Lessons from the Case By introducing a new business model , one can change the manner in which business is done. To implement this model on a large scale, one needs to build superb supply chain management. Another major success factor in Dell’s plans was the improvements made in its logistics system along the entire supply chain. Improved communications and customer service, which are part of Dell’s CRM program, are the cornerstones of its success. Dell was using c-Commerce with its business partners.

Supply Chain & Value Chain Definitions
flow of materials, information, payments, and services from raw material suppliers, through factories and warehouses, to the end customers. DEMAND CHAIN the process of taking orders. SUPPLY CHAIN MANAGEMENT (SCM) to plan, organize, and coordinate all the supply chain’s activities.

Benefits of SCM This positively affects inventory levels, cycle time, business processes & customer service. Contributes to overall increase in profitability & competitive advantage. Reduces uncertainty & risks in the supply chain.

Components of Supply Chain

Components of Supply Chains
Upstream Supply Chain Organization’s first tier suppliers & their suppliers. Internal Supply Chain Processes used by an organization to transform their inputs to outputs. Downstream Supply Chain Processes involved in delivering the product to the final customers.

The Supply Chain Involves the life of a product from ‘dirt to dust’.
Involves movement of tangible & intangible inputs. Can come in all shapes and sizes and may be fairly complex. Can be bi-directional and involve the return of products (reverse logistics) The flow of goods, services, information & financial resources must be followed with an increase in value.

Supply Chain Problems Problems with the Supply Chain have caused armies to lose wars & companies to go out of business, for example… In WWII, Germany encountered problems supplying troops in Russia, which contributed to their collapse. In 1999 ToysRUS had problems supplying to holiday shoppers & lost business.

Sources of Supply Chain Problems
UNCERTAINTY In demand forecast In delivery times & production delays POOR COORDINATION With Internal units and business partners Ineffective customer service High inventory costs, loss of revenue & extra cost for expediting services.

The Bull Whip Effect The most persistent SCM problem.
Erratic shifts in orders up & down the supply chain. Distributor orders fluctuate because of poor demand forecast, price fluctuation, order batching & rationing with supply chain. Example: Porter & Gamble’s distortion in SCM for manufacturing of disposable diapers. Avoidable with proper interorganizational EC. EDI, Extranets & Groupware technology

Solutions to Supply Chain Problems
Vertical Integration Purchasing & managing the supply source. Building Inventories “Insurance” against supply chain shortages. Main problem: It is difficult to correctly determine inventory level for each product & part. This can be costly.

CASE: How Littlewoods Improved its SCM
Problem: Littlewoods Large British clothing retailer with 136 stores in the UK & Ireland. Overstocking problems in the supply chain management. Solution: Introduced web-based performance reporting system. Enabled merchandising personnel to make more accurate stock, sales and supplier decisions. Results: In 1997, Littlewoods saves $1.2 million as a direct result of its strategic price merchandizing.

Other Solutions to SCM Problems
During peak times, outsource rather than do-it-yourself. “Buy” rather than “make” production inputs when appropriate. Configure optimal shipping plans. Create strategic partnerships with suppliers. Use the just-in-time approach to purchasing. Reduce the lead time for buying and selling. Use fewer suppliers. Improve supplier-buyer relationships. Manufacture only after orders are in. Achieve accurate demand by working closely with suppliers.

Two Tools for Reducing Supply Chain Problems
Supply Chain Teams “Teams of tightly integrated business that work together and serve the customers” Measurements & Metrics Use of IT for measuring areas in need of improvement. For example; Delivery on time Quality at unloading area Cost performance Lead time for procurement

COMPUTERIZED SYSTEMS & S.C.M.
PHASE 1: 1950s - 60s, the first software programs to support the supply chain arrive. PHASE 2: Development of the Material Requirement Protocol (MRP). PHASE 3: Enhanced MRP known as Material Resource Planning become available. PHASE 4: Enterprise Resource Planning (ERP) integrates transaction processing activities. PHASE 5: Extended ERP/SCM software.

COMPUTERIZED SYSTEMS & S.C.M.

Benefits of Systems Integration Source: Sandoe & Saharia (2001)
INTANGIBLE BENEFITS Information visibility New/improved processes Customer responsiveness Standardization Flexibility Globalization and business performance TANGIBLE BENEFITS Inventory reduction Personnel reduction Productivity improvement Order management improvement Financial-close cycle improvements IT cost reduction Procurement cost reduction Revenue/profit increases, etc.

Value Chain Integration
“The process by which multiple enterprises within a shared market channel collaboratively plan, implement, and manage (electronically as well as physically) the flow of goods, services, and information along the entire chain in a manner that increases customer-perceived value.“

Integrating the Supply Chain & Value Chain
A Supply Chain transforms into an integrated Value Chain when it….. Extends the chain all the way from sub-suppliers to customers. Integrates the back-office operations with those of the front office. Becomes highly customer-centric, focusing on demand generation and customer service. Is proactively designed by chain members to compete as an “extended enterprise”. Seeks to optimize the value added by information and utility-enhancing services.

Value Chain Integration

Case: Warner-Lambert’s Integrated Supply Chain
Problem: WL requires assistance with demand forecast of products. Solution: They use Manugistic Inc.’s Demand Planning Information System to analyze their manufacturing, distribution and sales data. The system is able to anticipate seasonal impact or a production line problem. Results: WL increases its ‘shelf fill’ rate from 87% to 98%, earning them $8 million/year in additional sales.

Enterprise Resource Planning
ERP = Process of planning & managing all resources & their use in the entire enterprise. Leading ERP software producers SAP, Oracle, J.D. Edwards, Computer Associates, People Soft MAIN OBJECTIVE of ERP  to integrate all departments & functions across a company onto a single computer system.

Functions of ERP Provides a single interface for managing routine manufacturing activities. Facilitates customer interaction & manages relationships with suppliers & vendors. Forces discipline & organization around business. Supports administrative activities.

Post- ERP: 2nd Generation ERP
By the late 1990s, the major benefits of ERPs had been fully exploited. There was a need for planning systems oriented towards decision-making. Emergence of SCM systems that complement ERP systems. Provide intelligent decision support capabilities. Overlay existing system & pull data from every step of the supply chain.

How is SCM Integration Achieved?
FIRST APPROACH Work with different software products from different vendors (i.e. one for ERP & one for SCM). SECOND APPROACH ERP vendors add decision support and business intelligence capabilities. Creation of 2nd generation ERP.

3 Ways to Provide Supply Chain Intelligence
Use an enhanced ERP package that includes business intelligence capabilities Integrate the ERP with business intelligence software from a specialized vendor such as Brio, Cognus, or Comshare. Create a “best of breed” system by using components from several vendors that will provide the required capabilities.

Componentization Breaking large ERP systems into individual components that work together. Makes it easier for ERP vendors to enhance their solutions and for customers to upgrade their software. Helps vendors extend the core ERP system with supply chain, sales force automation solutions, and customer relationship management (CRM).

ERP Implementation To avoid failures, the following factors should be considered;
The customer’s expectations. The ERP product capabilities, and gaps. The level of change the customer has to go through to make the system fit. The level of commitment within the customer organization to see the project through. The customer’s organization and culture. The risks presented by politics within the customer organization. The consultant’s capabilities, responsibilities and role (if applicable).

Application Service Providers & ERP Outsourcing
“ASP alternative” = A popular option today for businesses that want ERP functions but lease applications rather than building systems. Application Service Provider (ASP) is a software vendor that offers to lease ERP-based applications to other businesses. The ASP concept is especially useful in ERP projects, which are expensive to install and take a long time to implement, and for which staffing is a major problem.

Global Supply Chains Some of the issues involved in global supply chains; legal issues, customs fees and taxes language and cultural differences fast changes in currency exchange rates political instabilities. Global Supply Chains = Supply chains that involve suppliers and/or customers in other countries.

CASE: LEGO Struggles with Global Issues
Problem: In a rush to get its innovative product to market, Lego did not first solve all necessary issues, for example; The need for a supportive distribution & service system. Merging the offline and online operations Existing warehouses were not optimized to handle distribution to individual customers How to handle returns around the globe. Invoicing must comply with the regulations of many countries. Results: Lego closed the Web site for business. It took almost a year to solve all global trade-related issues.

How EC contributes to SCM
Digitizes products such as software, which expedites the flow of materials. Replaces all paper documents with electronic documents. Replaces faxes, phone & telegrams with electronic messaging system. Enhances collaboration & information sharing. Change the nature and structure of the supply chain from linear to a hub. Results in shorter supply chain and minimum inventories. Facilitates customer service. Introduces efficiencies in buying & selling through the creation of e-marketplaces.

Buying & Selling along the Supply Chain
A major role of EC is to facilitate buying and selling along the supply chain. The major activities are; UPSTREAM INTERNAL SCM DOWNSTREAM COMBINED UPSTREAM / DOWNSTREAM

Integration of EC with ERP
Since most middle-sized and large companies already have an ERP system, and since EC needs to interface with ERP, it makes sense to interconnect the two. By extending the existing ERP system to support e-commerce, organizations not only leverage their investment in the ERP solution, but also speed up the development of EC applications. The problem is that the ERP software is very complex and inflexible (difficult to change), so it is difficult to achieve easy, smooth, and effective integration.

Order Fulfillment in EC
When a company sells direct to customers it is involved in the following activities: Quickly find the products to be shipped, and pack them. Arrange for the packages to be delivered quickly to the customer’s door. Collect the money, either in advance, in COD, or by individual bill. Handle the return of unwanted or defective products. Many companies find it very difficult to fulfill these activities effectively & efficiently. This reveals that they have problems in their own supply chains.

Online Order Fulfillment & Logistics
While order fulfillment is a part of the back-office operations, it is strongly related to front-office operations. Recently, e-Tailors have faced continuous problems in order fulfillment, especially during the holiday season. For example, Amazon.com had to add physical warehouses in order to expedite deliveries and reduce order fulfillment costs. EC is based on the concept of “pull” operations, which begin with an order, frequently a customized one. In the “pull” case it is more difficult to forecast demand. Furthermore, in a B2C pull model, the goods need be delivered to the customer’s door.

Innovative Solutions to Supply Chain Problems
Galleryfurniture.com Uses dozens of cameras, (Webcam) to demonstrate its product inventory on the Web. This is an alternative to paper or electronic catalogs. Garden.com Developed proprietary software that allows it to collaborate with its 70 suppliers efficiently and effectively. Mail Boxes Etc. & Return.com Developed a logistics system that determines whether a customer is entitled to a return & refund. . Rightfreight.com Manages a marketplace that helps companies with goods to find "forwarders" -- the intermediary that prepare goods for shipping.

Automated Warehouses Traditional warehouses are built to deliver large quantities to a small number of stores and plants. But in B2C EC, companies need to send small quantities to large number of individuals. Large-volume EC fulfillment requires special automated warehouses. This may include robots and other devices that expedite the pick up of products. Most B2C is shipped via outsourcers. Fingerhut handles the logistics of mail orders (including online orders) for Wal-Mart, Macys, and many others.

Options for Dealing with Returns
Return an item to the place where it was purchased. This only works when there is a small amount of returns. Returns are shipped to an independent unit and handled separately inside the company. May be more efficient, but the buyer is still unhappy. Allow the customer to physically drop the returned items at collection stations. Such as convenience stores or Mail Boxes, Etc. Completely outsource returns. Several outsourcers, including UPS provide such services.

MANAGERIAL ISSUES Ethical issues. Conducting a supply chain management project may result in the need to lay off, retrain, or transfer employees. Other ethical issues may involve sharing of personal information and computer programs. How much to integrate? While companies should consider extreme integration projects, including ERP, SCM, and electronic commerce, they should recognize that integrating sometimes results in failure. Role of IT. Almost all major SCM projects use IT. However, it is important to remember that technology plays a supportive role to organizational and managerial issues.

Chapter 7 Transaction Processing, Innovative Functional Systems, CRM & Integration

Learning Objectives Relate functional areas and business processes to the value chain model. Identify functional management information systems. Describe the transaction processing system and demonstrate how it is supported by IT. Describe the support provided by IT and the Web to each of these functional areas: production/operations, marketing and sales, accounting and finance, and human resources management. Describe the role of IT in facilitating CRM. Describe the benefits & issues of integrating functional information systems.

Case: Integrated Solutions for Building Supply
Problem: Colonial is a small building supply company in Utah. To remain competitive, they needed a technology to provide information about inventory levels & customer buying trends. Solution: Colonial purchased an integrated system, point-of-sale (POS) terminals, hand-held automatic product identification & data collection. Sold items are deducted from the inventory instantly. Purchase orders are sent electronically via the Internet. Results: Lower costs for data entry labor, reductions in inventory/ storage space, fast access to information, better customer service, & higher employee satisfaction

Lessons from the Case IT supports the routine processes of a retailer, enabling it to be efficient and effective and to satisfy its customers. The software helped to modernize & redesign the company’s major business processes. The software supports several business processes, not just one. The system’s major applications are in logistics. However, the same software vendor provides ready-made accounting, marketing, & operations modules. IT can be beneficial to a relatively small company. The integration includes connection to business partners using the Internet.

Functional Information Systems
Traditionally, information systems were designed within each functional area to increase their internal effectiveness & efficiency. This may not suit some organizations, because certain processes may involve activities that are performed in several functional areas. Solution 1: Reengineer the organization. For example, the company can create cross-functional teams, each responsible for performing a complete business process. Solution 2: The integrated approach (e.g. Colonial). Keeps the functional departments but creates a supportive information system to help communication, coordination, and control.

Functional Departments & the Value Chain

Characteristics of Functional Information Systems
1. A functional information system consists of several smaller information systems that support specific activities performed in the functional area. 2. The specific IS applications in any functional area can be integrated to form a coherent departmental functional system, or they can be completely independent. 3. Functional information systems interface with each other to form the organization-wide information system. 4. Some organizational information systems interface with the environment. 5. Information systems applications support the three levels of an organization’s activities: operational, managerial, and strategic.

Transaction Processing Systems
Transaction Processing Systems (TPS) = “the information system that support business processes, mainly accounting & finance transactions, with some sales, personnel, & production activities as well.” TPS is the backbone of an organization’s information systems. It monitors, collects, stores, processes & disseminates information for all routine core business transactions. These data are input data to functional information systems applications, DSS, and CRM.

Objectives of TPS Primary goal of TPS = to provide all the information needed by law and/or by organizational policies to keep the business running properly and efficiently. Specific objectives of a TPS= to allow for efficient & effective operation of the organization. to provide timely documents and reports. to increase the competitive advantage of the corporation. to provide the necessary data for tactical & strategic systems, such as Web-based applications. to ensure accuracy & integrity of data & information. to safeguard assets & security of information.

Activities of TPS First, data are collected & entered into the computer via any input device. The system then processes data in one of the following ways: Batch processing= the firm collects data from transactions as they occur, placing them in groups or batches. The system then processes the batches periodically Online processing = data are processed as soon as a transaction occurs. Hybrid system (a combination of batch & online processing) collects data as they occur but process them at specified intervals.

Benefits of Internet Transaction Processes
Flexibility to accommodate unpredictable growth in processing demand. Cost effectiveness for small dollar amounts. Interactive, automatic billing, enabling companies to offer services to anyone, not just subscribers. Timely search and analysis of large databases. Ability to handle multimedia data such as pictures and sound effectively and efficiently. High data throughput to support inquiries requiring massive file size. Fast response time. Effective storage of huge graphics and video databases.

Case: Taxis in Singapore
Taxis in Singapore are tracked by a global positioning system (GPS). This provides users with an instant fix on the geographical position of each taxi. Customer orders are usually received via telephone, fax & . Frequent users enter orders from their offices or homes by keying in a PIN number. The system completely reengineered the taxi order processing. The transaction time for processing an order is much shorter. The system increased the capacity for taking incoming calls by 1,000%.

Production & Operations Management (POM)
The Production and Operations Management (POM) function in an organization is responsible for the processes that transform inputs into useful outputs. Four IT-supported POM topics be discussed: In-house logistics and material management. Planning production/operations. Automating design work and manufacturing. Computer-integrated manufacturing (CIM).

In-House Logistics & Material Management
Logistics Management deals with ordering, purchasing, inbound logistics (receiving), and outbound logistics (shipping) activities. All of these activities can be supported by information systems. For example, many companies today are moving to some type of e-procurement Inventory management determines how much inventory to keep. Three costs play important roles in inventory decisions: cost of maintaining inventories cost of ordering (a fixed cost per order) cost of not having inventory when needed.

Planning Procedures/ Operations
Material Requirements Planning (MRP) = The software that facilitates the plan for acquiring (or producing) parts, subassemblies, or materials. Manufacturing Resource Planning (MRP II) = connects the regular MRP to other functional areas. In addition to the output similar to that of MRP, MRP II determines the costs of parts and the cash flow needed to pay for parts. Just-in-time (JIT) = an approach that attempts to minimize waste of all kinds (space, labor, materials, energy, and so on) and continuously improve processes and systems.

Planning Procedures/ Operations (cont.)
The management of a project is complicated by the following characteristics: Most projects are unique undertakings, and participants have little prior experience in the area. Uncertainty exists due to the long completion times. There can be significant participation of outsiders, which is difficult to control. Extensive interaction may occur among participants. Projects often carry high risk but also high profit potential.

Automated Design Work & Manufacturing
Computer-aided design (CAD) is a system that enables industrial drawings to be constructed on a computer screen & stored, manipulated & updated electronically. Computer-aided engineering (CAE) software enables designers to analyze the design and determine whether it will work the way the designer thought it would. Computer-Aided Manufacturing (CAM) encompasses computer-aided techniques that facilitate planning, operation & control of a production facility. Enhanced product realization (EPR) is a Web-based, distributed system that allows manufacturers to make product modifications anywhere in the world in as few as five days.

Computer-Integrated Manufacturing (CIM]
is a philosophy about the implementation of various integrated computer systems in factory automation.

Computer-Integrated Manufacturing (CIM]
Computer-integrated manufacturing (CIM) has three basic goals; Simplification of all manufacturing technologies & techniques. Automation of as many of the manufacturing processes as possible by the integration of many information technologies. Integration and coordination of all aspects of design, manufacturing & related functions via computer hardware and software.

The CIM Model

Channel Systems CHANNEL SYSTEMS are all the systems involved in the process of getting a product or service to customers & dealing with all customers’ needs. FOUR MAIN CHANNEL SYSTEM ACTIVITIES: The Customer is King/ Queen. Telemarketing. Distribution channels. Marketing management.

The Customer is King/ Queen
Innovative products & services and superb customer service are becoming a necessity for many organizations. For example; Customer Profiles and Preference Analysis. Prospective Customer Lists & Marketing Databases. Mass Customization. Personalization. It is essential for companies today to be aware of their customers and treat them like royalty.

Telemarketing & Online Shopping
Lately, telemarketing has been moving to cell phones, using Short message service (SMS), which consists of messages you can receive on your cell phone. A telemarketing process can be divided into five major activities, all of which are supported by IT & can be done on the Web, even in a wireless environment. Advertisement and reaching customers Order processing Customer service Sales support Account management

Distribution Channels
Organizations can distribute their products & services through several available delivery channels. A company may use its own outlets or distributors. The company also needs to decide on the delivery mode (trains, planes, trucks). Distribution Channels Management. Once products are in the distribution channels, firms need to monitor and track them to guarantee customer satisfaction. Improving Sales at Retail Stores. Using information technology, it is possible to improve sales by reengineering the checkout process.

Marketing Management Many marketing management activities are supported by computerized information systems. Some areas where this is being done include; Pricing of Products or Services. Salesperson Productivity. Productivity Software (Sales automation software) Product-Customer Profitability Analysis. Sales Analysis and Trends. New Product, Service, and Market Planning. Web-Based Systems in Marketing.

Managing Accounting & Finance Systems

Managing Accounting & Finance Systems
An accounting/finance information system is responsible for: Gathering the raw data necessary for the accounting/finance TPS Ttransforming the data into information Making the information available to users Many packages exist to execute routine accounting transaction processing activities. Some software packages are integrated, e.g. MAS 90 and MAS 200 The accounting/finance TPS also provides a complete, reliable audit trail of all transactions transmitted through the network.

Financial Planning & Budgeting
Appropriate management of financial assets is a major task in financial planning and budgeting. Financial and Economic Forecasting. Knowledge about the availability and cost of money is a key ingredient for successful financial planning. Planning for Incoming Funds. Funds for organizations come from several sources. Using the information generated by financial and economic forecasts, the organization can build a decision support model for planning incoming funds.

Investment Management
Investment management is a difficult task for the following reasons: 1. There are thousands of investment alternatives. 2. Investment decisions are based on economic and financial forecasts, which are frequently unreliable. 3. The investment environment includes opportunities in other countries, providing both high potential rewards and high risks. 4. Investments made by many organizations are subject to complex regulations and tax laws. 5. Investment decisions need to be made quickly & frequently. 6. Several multiple and conflicting objectives exist in making investments, including high yield, safety, and liquidity.

CASE: Equity Portfolios at Daiwa Securities
Daiwa Securities of Japan is one of the world’s largest and most profitable multinational securities firms. They believe that identifying mispricings in the stock markets holds great profit potential. Daiwa uses leading-edge computerized quantitative analysis which compares stock price performance of individual companies to that of other companies in the same market sector. The recommendations are generated by a system called MATLAB. MATLAB attempts to minimize the risk of the portfolio yet maximize its profit.

Access to Financial & Economic Reports
To cope with the large amount of financial online data, investors use three supporting tools: Internet search engines for finding financial data. Internet directories and yellow pages. Software for monitoring, interpreting, analyzing financial data, & alerting management.

Specific forms of financial control are;
Control & Auditing Specific forms of financial control are; Budgetary controls Internal and External audits Financial Ratio Analysis Profitability Analysis &Cost Control Product Pricing

Managing Human Resource Systems
Developments in Web-based systems increased the popularity of human resources information systems (HRISs) as of the late 1990s. Initial HRIS applications were mainly related to transaction processing systems. However, in the last decade we have seen considerable computerization activities in the managerial and even strategic areas.

HRISs & Recruitment Using the Web for Recruitment. With millions of resumes available online, companies are trying to find appropriate candidates on the Web. Position Inventory. Large organizations need to fill vacant positions frequently. An advanced intranet-based position inventory system keeps the position inventory list current & matches openings. Employee Selection. To expedite the testing and evaluation process and ensure consistency in selection, companies use information technologies such as expert systems.

Human Resources Maintenance & Development
Performance Evaluation. Once digitized, evaluations can be used to support many decisions, ranging from rewards to transfers to layoffs. Training and Human Resources Development. IT can support the planning, monitoring, and control of training and retraining activities by using workflow applications. Intelligent computer-aided instruction (ICAI) and application of multimedia support for instructional activities. Training can be improved using Web-based video clips & virtual reality.

Human Resources Planning & Management
Personnel Planning. Large companies develop qualitative and quantitative workforce planning models, which can be enhanced if IT is used to collect, update, and process the information. Labor–Management Negotiations. Some companies have developed computerized DSS models that support negotiations. These models can simulate financial & other impacts of fulfilling any demand made by employees and provide answers to queries in seconds. Benefits Administration. Using computers for benefits selection can save a tremendous amount of labor and time. Some companies have automated benefits enrollments.

Customer Relationship Management
Customer relationship management (CRM) is an approach that recognizes that customers are the core of the business and that the company’s success depends on effectively managing relationships with them. Customer service is a series of activities designed to enhance the level of customer satisfaction. Relationship marketing is the “overt attempt of exchange partners to build a long-term association, characterized by purposeful cooperation and mutual dependence on the development of social, as well as structural, bonds” (Mowen & Minor, 1998). E-Service is customer service that is performed on the Web, sometimes automatically.

CRM in Action According to Seybold and Marshak (1998) there are five steps in building IT-supported CRM. These are: 1. Make it easy for customers to do business with you. 2. Focus on the end customer for your products and services. 3. Redesign your customer-facing business processes from the end customer’s point of view. 4. Wire your company for profit: design a comprehensive, evolving electronic business architecture. 5. Foster customer loyalty. In e-Commerce, especially, this is the key to profitability.

Information Technology in CRM

Customer Service on the Web
Providing Search and Comparison Capabilities. Providing Free Products and Services. Providing Technical and Other Information and Service. Allowing Customers to Order Customized Products and Services Online. Letting Customers Track Accounts or Order Status

Tools for Customer Service
Personalized Web Pages FAQs Tracking Tools Chat Rooms and Automated Response Help Desks and Call Centers Troubleshooting Tools

Justifying CRM programs
One way to determine how much customer service to provide is to compare your company against a set of standards known as metrics. Metrics to evaluate Web-related customer service: Security and privacy. Fulfillment. Return policy. Navigability. Response time. Site availability. Download time. Timeliness.

CRM Failures A large percentage of failures have been reported in CRM.
Some of the big issues are; Failure to identify and focus on specific business problems. Lack of active senior management (non-IT) sponsorship. Poor user acceptance, which can occur for a variety of reasons such as unclear benefits and usability issues. Trying to automate a poorly defined process.

Partner Relationship Management
Partnership Relationship Management (PRM) refers to all of the efforts made to apply CRM to all types of business partners. Specific functions of PRM applications: Partner profiles Centralized forecasting Partner communications  Group planning Lead management  / Web-based alerts Targeted information distribution  Messaging Connecting the extended enterprise  Price lists Partner planning  Community bulletin boards

Case: Integrated Server System at Europcar
Problem: Europcar Internet, the largest European-based car rental agency, combined 55 different mainframe and minicomputer systems into a single client/server center known as Greenway. The 55 independent systems needed to be integrated. Solution: Key business processes were all integrated into Greenway. Customer-related benefits include (1) faster service (2) reservation desks linked to airline reservation systems, and (3) corporate customers managed from one location. Results: By 2000, Europcar expanded to 100 countries worldwide.

Managerial Issues Integration of functional information systems. Integration of existing standalone functional information systems is a major problem for many organizations. Priority of transaction processing. Transaction processing may not be an exotic application, but it deals with the core processes of organizations. The customer is king/queen. In implementing IT applications, management must remember the importance of the customer, whether external or internal.

Finding innovative applications. Tools such as Lotus Notes, intranets, and the Internet enable the construction of many applications that can increase productivity and quality. System integration. Although functional systems are necessary, they may not be sufficient if they work independently. Using the Web. Web-based systems should be considered in all functional areas. They are effective, inexpensive & user friendly. Ethical Issues. Many ethical issues are related to the code of ethics followed in CRM and privacy policies.

Chapter 8 IT Planning & BPR

Learning Objectives Discuss the major issues addressed by IS planning.
Demonstrate the importance of aligning information systems plans with business plans. Explain the four-stage model of information systems planning. Describe several different methodologies for conducting strategic information systems planning. Identify the different types of IT architectures and outline the processes necessary to establish an information architecture.

Distinguish the major Web-related issues and understand application portfolio selection. Describe the need for processes redesign and BPR. Explain the IT support for BPR and for redesign. Describe organizational transformation and virtual corporations.

Case: How TruServ planned its IT
Problem: The merger of Cotter & Co. and TruServ in 1997 required combining the information systems of the two companies. Solution: A strategic IT plan was created and addressed issues such as; the company’s Intranet and extranet e-procurement EC applications Results: The plan has remained fluid. It has been reevaluated and updated with new business goals every six months since its inception.

IT planning is essential for both planners & end-users
for several reasons: End-users do IT planning for their own units. End-users must participate in the corporate IT planning and therefore must understand the process. Corporate IT planning determines how the IT infrastructure will look. This in turn determines what applications end-users can deploy.

IT Planning (cont.) A Strategic information systems plan identifies a set of computer-based applications that will help a company reach its business goals. IT planning identifies the applications portfolio, a list of major, approved IS projects that are consistent with the long-range plan. Planning and control systems for IT started in the late 1950s and early 1960s. Initial mechanisms addressed operational planning, and eventually shifted to managerial planning.

Basic IT planning addresses the following four general issues:
IT Planning Issues Basic IT planning addresses the following four general issues: Aligning the IT plan with the organizational business plan Designing an IT architecture for the organization in such a way that users, applications, and databases can be integrated and networked together. Efficiently allocating information systems development and operational resources among competing applications. 4. Planning information systems projects so that they are completed on time and within budget and include the specified functionalities.

Four-Stage Model of IT Planning

IT Planning Stages Major IT Planning Activity Description
Strategic IT planning Establishing the relationship between the overall organizational plan and the IT plan. Information requirements analysis Identifying broad, organizational information requirements to establish a strategic information architecture. Resource allocation Allocating both IT application development resources and operational resources. Project planning Developing a plan that expresses schedules and resource requirements for specific information systems projects.

Stage 1: Strategic Information Planning
Strategic information planning (SIP) must be aligned with overall organizational planning and with e-business. To accomplish this alignment, the organization must execute the following: Set the IT mission. Assess the environment. Assess existing systems’ availabilities and capabilities. Assess organizational objectives and strategies. Set IT objectives, strategies, and policies. Assess the potential impacts of IT. An organization would conduct the same six steps for e-business.

Business Systems Planning
The Business systems planning (BSP) model, developed by IBM, is a top-down approach that starts with business strategies. It deals with two main building blocks as the basis of the information architecture; Business processes Data classes The recognition that processes could be a more fundamental aspect of business than departments or other organizational arrangements broke new ground.

CSF & Scenario Planning
The critical success factors (CSF) approach was developed to help identify the information needs of managers. Sample questions asked in the CSF approach are: What objectives are central to your organization? What are the critical factors that are essential to meeting these objectives? What decisions or actions are key to these critical factors? What variables underlie these decisions, and how are they measured? Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of IT in general and e-commerce. In this approach planners create several scenarios.

Stage 2: Information Requirements Analysis
Step 1: Define underlying organizational subsystems. Step 2: Develop subsystem matrix. Step 3: Define and evaluate information requirements for organizational subsystems. Step 4: Define major information categories and map interview results into them. Step 5: Develop information/subsystem matrix.

Stage 3: Resource Allocation
Resource allocation consists of developing the hardware, software, data communications, facilities, personnel, and financial plans needed to execute the master development plan defined in Stage 2. This stage provides the framework for technology and labor procurement, and identifies the financial resources needed to provide appropriate service levels to users. Funding requests from the ISD fall into two categories; Those necessary to stay in business Those for improving the information architecture

Stage 4: Project Planning
Project Planning provides an overall framework within which specific applications can be planned, scheduled, and controlled. This stage is associated with systems development (to be covered in Chapter 14).

Infrastructure Considerations
Broadbent et al. (1996) found the following four infrastructure relationships; Industry—manufacturing firms use less IT infrastructure services than retail or financial firms. Market volatility—firms that need to change products quickly use more IT infrastructure services. Business unit synergy—firms that emphasize synergies (e.g., cross-selling) use more IT infrastructure services. Strategy and planning—firms that integrate IT and organizational planning, use more IT infrastructure services.

IT Architecture Computing
Centralized computing puts all processing and control authority within one computer and all other computing devices respond. Distributed Computing handles the choices for computing at the point of the computing need; individual needs are met with individualized computing. A Blended approach combines the two models above. The mainframe (centralized resource) can operate as a peripheral device for other (distributed) computing resources.

Reengineering Legacy Systems
Legacy Systems are holdovers of earlier architectures that are still in use after an organization migrates to a new architecture. The decision—to keep, improve, or replace—can present management with agonizing alternatives. Reverse engineering is the process of examining systems to determine their present status, and to identify what changes are necessary to allow the system to meet current and future business needs.

IT Planning & E-Planning
Some connections between IT planning and e-planning are: Web applications may replace traditional IT applications for improving their operations. Web applications must be integrated with legacy systems, ERP, etc. The e-Commerce unit may report to the CIO. The ISD and the e-Commerce project may compete for limited resources. Some Web-based applications are designed to directly support the IT strategy and goals.

Applications Portfolio
Tjan’s Portfolio Strategy. Tjan (2001) adopted a business project portfolio applications approach to create an Internet portfolio planning. The strategy is based on company fit, which can be either low or high, and the project’s viability, which can also be low or high. The various initiatives are then mapped on the Internet portfolio matrix, based on the two average scores. If both viability and fit are low, the project is killed. If both are high, then the project is adopted, etc.

Issues in E-Planning Who and where? Should the EC initiatives be conducted in a completely independent division or even a separate company? Use of metrics. It is desirable to use industry standards, also known as metrics, for executing various steps of the planning process. Learn from failures. During 2000/2001 there were many EC failures, both major initiatives and whole companies. Use a different planning process. The Web environment requires a different planning process. Integration. Information systems strategic planning must integrate, in many cases, e-business and knowledge management.

Business Processes Across Functional Areas

Business Process Reengineering
Business process reengineering (BPR) refers to a situation in which an organization fundamentally and radically redesigns its business process to achieve dramatic improvement. Initially, attention was given to a complete restructuring of organizations. Later, the concept was changed due to failures of BPR projects and the emergence of Web-based applications. Today, BPR can focus on anything from the complete restructuring of an organization to the redesigning of individual processes. Major objective of BPR = Information Integration.

Case: VW of Mexico uses e-Procurement
Problem: Facing strong competition and the North American Free Trade Agreement (NAFTA) environment, Volkswagen of Mexico turned to IT. Solution: In 1996 VW implemented an enterprise resource planning system, using SAP R/3 software. By 1998, the company integrated its entire enterprise system. Results: The company projects that its IT applications will result in $50 million in cost savings over three years for the dealers.

Intervening Technology
The Enabling Role of IT Old Rule Intervening Technology New Rule Information appears in only one place at one time. Shared databases, client/server architecture, Internet, intranets Information appears simultaneously wherever needed. Only an expert can perform complex work. Expert systems, neural computing Novices can perform complex work. Business must be either centralized or distributed. Telecommunication and networks: client/server, intranet Business can be both centralized and distributed. Only managers make decisions. Decision support systems, enterprise support systems, expert systems Decision making is part of everyone’s job.

Tools for BPR Simulation and visual simulation tools Flow diagrams
Application development tools Integrated tool kits Work analysis Workflow software Business process design Comprehensive modeling tools Other tools

Mass Customization One of the most successful models of e-Commerce is mass customization. the production of large quantities of customized items. It supplements or even replaces one of the most innovative concepts of the Industrial Revolution, mass production. Mass customization can be facilitated by the Web in four different approaches; Collaborative customizers Adaptive customizers Cosmetic customizers Transparent customizers

Mass Customization & EC
EC transforms the supply chain from a traditional push model to a pull model. Push model - the business process starts with manufacturing and ends with consumers buying the products or services. Pull model - the process starts with the consumer ordering the product (or service) and ends with the manufacturer making it. The pull model enables customization since orders are taken first.

Cycle Time Reduction IT helps to contribute to cycle time reduction.
Cycle time refers to the time it takes to complete a process from beginning to end. Time is recognized as a major element that provides competitive advantage.

BPR Failures During the 1990s there were just as many cases of BPR failures as there were success stories. A survey conducted by the PROSCI organization (prosci.com) indicates a failure rate of 50 to 80%. Some of the reasons cited for failures are: high risk inappropriate change management failure to plan for internal politics high cost of retooling lack of participation and leadership inflexible software lack of motivation

Networked Organizations
Today some organizations are turning away from the hierarchical organization toward the networked organization. Networked organizations refer to organizational structures that resemble computer networks and are supported by information systems. In the information-based economy, most people do knowledge work, and the subordinate often has more expertise than the “hierarchical” supervisor. A flattened organization has fewer layers of management and a broader span of control than the hierarchical organization.

Networked Organizations (cont.)

Empowerment Using IT Empowerment is the vesting of decision-making or approval authority in employees where, traditionally, such authority was a managerial prerogative. Empowerment can be enhanced through IT. Empowered employees are expected to perform better. In addition to empowering employees, companies are empowering their customers, suppliers, and other business partners. E.g. Federal Express uses the Internet to empower its customers.

Virtual Corporations A Virtual Corporation (VC) is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or service. According to Goldman et al. (1995), permanent virtual corporations are designed to do the following: Create or assemble productive resources rapidly. Create or assemble productive resources frequently and concurrently. Create or assemble a broad range of productive resources.

Virtual Corporations (cont.)
In a VC, the resources of the business partners remain in their original locations but are integrated. In order to function, VCs rely on the following forms of IT; Communication/ collaboration among dispersed business partners e.g., , desktop videoconferencing, screen-sharing, etc. EDI and EFT Intelligent agents Modern database technologies and networking Intranet/Internet applications

Managerial Issues Importance. IT planning is one of the most challenging and difficult tasks facing all of management. Organizing for planning. What should be the role of the ISD? How should IT be organized? Staffed? Funded? Fitting the IT architecture to the organization is important.

IT architecture planning. IT specialists & business users must jointly determine the present and future needs for the IT architecture. Ethical and legal issues. IT policy. IT architectures should be based on corporate guidelines. IT strategy. Leadership, listening and experimentation are important. Integration. The role of IT in redesign and BPR. Failures. Very big projects have a tendency to fail when expectations exceed real capabilities.

Chapter 9 Knowledge Management

Learning Objectives Define knowledge and describe the different types of knowledge. Describe the characteristics of knowledge management. Describe the knowledge management cycle. Describe the technologies that can be utilized in a knowledge management system. Describe the activities of the chief knowledge officer and others involved in knowledge management.

Describe the role of KM in organizational activities. Describe ways of evaluating intellectual capital in an organization. Describe how knowledge management systems are implemented. Describe the roles of technology, people, and management in knowledge management. Describe how knowledge management can revolutionize the way an organization functions.

Case: Mitre & Knowledge Management
Problem: Mitre Co., a global research and development center faced difficulties with accessing knowledge within the company. Solution: In 1993, Mitre technologists developed the groundwork for the Mitre Information Infrastructure through a wide-area information system. Results: Enhanced collaboration within the organization and among clients. On the $7.19 million invested into the system, there has been $62.1 million returned in reduced operating costs and improved productivity.

Knowledge Management Knowledge management (KM) is a process that helps organizations identify, select, organize, disseminate, and transfer important information and expertise that are part of the organization’s memory. Knowledge is information that is contextual, relevant, and actionable. Tacit knowledge is usually in the domain of subjective, cognitive, and experiential learning. Explicit knowledge deals with more objective, rational, and technical knowledge.

Characteristics of Knowledge
Extraordinary leverage & increasing returns Fragmentation, leakage & the need to refresh Uncertain value Uncertain value sharing

Data, Information & Knowledge

Knowledge-based Economy
Rapid changes in the business environment cannot be handled in traditional ways. Firms are much larger, with higher turnover and require better tools for collaboration, communication, and knowledge sharing. Firms must develop strategies to sustain competitive advantage by leveraging their intellectual assets for optimum performance. Managing knowledge is now critical for firms spread out over wide geographical areas, and for virtual organizations.

Learning Organization
The term learning organization refers to an organization’s capability of learning from its past experience. To build a learning organization, it must tackle three critical issues: (1) Meaning (determining a vision of the learning organization); (2) Management (determining how the firm is to work); and (3) Measurement ( assessing the rate and level of learning).

Sharing Knowledge Some reasons people are reluctant to share knowledge include; No skill in knowledge management techniques. Willing to share, but not enough time to do so. Don’t understand knowledge management and benefits. Lack of appropriate technology. No commitment from senior managers. No funding for knowledge management. Culture does not encourage knowledge sharing.

Organization Culture The ability of an organization to learn, develop memory, and share knowledge is dependent on its culture. Culture is a pattern of shared basic assumptions. Over time organizations learn what works and what doesn’t work. As the lessons become second nature, they become part of the organizational culture. Generally when a technology project fails, it is because the technology does not match the organization’s culture.

Objectives of Knowledge Management
Davenport et al. (1998) describe four broad objectives of knowledge management systems in practice: Create knowledge repositories. Improve knowledge access. Enhance the knowledge environment. Manage knowledge as an asset.

The Knowledge Management Cycle
Create knowledge Capture knowledge Refine knowledge Store knowledge Manage knowledge Disseminate knowledge

The Knowledge Management Cycle (cont.)

Organizational Knowledge Repositories
Knowledge network model. The individual who has the knowledge transfers expertise through person-to-person contacts. Knowledge repository model. Knowledge contribution and use follows a two-step transfer procedure of person-to-repository and repository-to-person. Captured knowledge is stored in a knowledge repository, a collection of both internal and external knowledge. Hybrid Model. Many organizations use a hybrid of the network and repository models.

Knowledge Repositories
Databases. It is possible to structure part of a knowledge repository as a database. Data warehouses, large repositories of important data, can also be used for knowledge management, especially in conjunction with customer relationship management (CRM) systems.

Knowledge Repositories (cont.)
Specially Structured Databases. Some systems have been developed in Lotus Notes/Domino Server and hence utilize the Notes database structure. These specialized databases are ideal for storing tacit knowledge because of its nature. Electronic Documents. Others have been developed around electronic document management systems. e.g., DocuShare by Xerox

Strategies for Knowledge Management
The codification strategy typically is adopted by companies that sell relatively standardized products that fill common needs. Knowledge is carefully codified and stored in knowledge repositories structured as databases. The personalization strategy typically is adopted by companies that provide highly customized solutions to unique problems. Knowledge is shared mostly through person-to-person contacts.

Knowledge Systems Development
1. Identify the problem 2 . Prepare for change 3. Create the team 4. Map the knowledge 5. Create a feedback mechanism 6. Define the building blocks for the system 7. Integrate existing information systems

Challenges of KM Implementation
Lack of understanding of KM and its benefits Lack of time by employees for knowledge management Lack of skill in knowledge management techniques Organizational culture does not encourage knowledge sharing Lack of incentives to share Lack of funding of knowledge management initiatives Lack of appropriate technology Lack of commitment from senior management

Case: Xerox as a Knowledge Enterprise
Xerox Co. recognized that the bulk of the knowledge in an organization is contained in its documents and in how people use these documents. Xerox decided to transform itself from a copy-machine developer and manufacturer to a developer of knowledge management. They started by developing internal knowledge-sharing systems such as Eureka, a service-technician system In early 2000, a community-of-practice Web site was used by 30,000 Xerox employees. They developed DocuShare for in-house use.

Knowledge Management Facilities
As storage models become increasingly important, there is a need to have dedicated staff to manage the knowledge repository. The leaders in knowledge storage are major consulting firms such as Accenture, Ernst & Young, KPMG, and so on. Most of these firms have one or more Knowledge Center that is open 24 hours per day, every day. These facilities are accessible via the Internet, as is the KMS. These centers function as a reference library, with a manager and reference knowledge specialists.

KM & Information Technologies
The KMS challenge is to identify and integrate the following three technologies to meet the KM needs of an organization. Communication technologies allow users to access needed knowledge, and to communicate with each other--especially with experts. Collaboration technologies provide the means to perform group work. Storage technologies use a database management system to capture, store and manage knowledge.

KM Technologies Knowware are technology tools that support KM.
Collaboration tools, or groupware, were the first used to enhance collaboration for tacit knowledge transfer within an organization. KM suites are complete KM solutions out-of-the-box. Knowledge Servers contain the main KM software, including the knowledge repository.

KM Technologies (cont.)
Electronic document management systems focus on the document in electronic form as the collaborative focus of work. KM Tools capture knowledge unobtrusively (with minimal effort and impact). E.g. Tacit Knowledge Systems' Knowledg Enterprise knowledge portals are the doorway into many KM systems. XML provides standardized representations of data structures so data can be processed without case-by-case programming. Application Software Providers have evolved as a form of KMS outsourcing on the Web.

KM & Artificial Intelligence
AI is used in knowledge management systems to do the following: Assist in and enhance searching knowledge (e.g., in Web searches). Establish profiles to determine what kinds of knowledge to scan for individuals and groups. Help determine the relative importance of knowledge. Scan , documents, and databases to perform knowledge discovery to determine meaningful relationships or to glean knowledge. Scan , documents, and databases to perform knowledge discovery to induce rules for expert systems. Identify patterns in data (usually neural networks).

Knowledge Discovery in Databases
Knowledge discovery in databases (KDD) involves tasks known as knowledge extraction, data archaeology, data exploration, data pattern processing, data dredging, and information harvesting. This is accomplished with the tool of Data mining. Model marts and model warehouses are analogous to data marts and data warehouses for models. They act as repositories of knowledge by using KDD techniques on past decision instances (stored in data marts and data warehouses).

Knowledge Management Benefits
Reduction in loss of intellectual capital when people leave the company Reduction in costs by decreasing the number of times the company must repeatedly solve the same problem Economies of scale in obtaining information from external providers Reduction in redundancy of knowledge-based activities Increase in productivity by making knowledge available more quickly & easily Increase in employee satisfaction by enabling greater personal development and empowerment Strategic competitive advantage in the marketplace

KM Value Matrices (Allee, 1999)
External relationship capital: how an organization links with its partners, suppliers, customers, regulators, and so on. Structural capital: systems and work processes that leverage competitiveness, such as information systems, and so on. Human capital: individual capabilities, knowledge, skills, etc. Social capital: the quality of relationships with the larger society. Environmental capital: the value of relationships with the environment.

Case: KM Failure at Ford
In 2000 A failure to share knowledge between Ford and Firestone resulted in a Ford Explorer tire disaster. Although Ford shares knowledge extremely well, no one knew about the tremendous problem for two main reasons; Knowledge is best shared within communities. The more widely dispersed knowledge is, the more powerful a force is needed to extract and share it. A major lesson from this KM failure: Organizations should extract as much important knowledge as they can because they never know what might prove truly important, or when.

Knowledge Management Issues
Buying & Selling Knowledge Most firms are reluctant to sell knowledge, unless they are expressly in the business of doing so. A firm’s knowledge is an asset that has competitive value. Encouraging System Use Employees must be motivated properly to contribute knowledge. The mechanism for doing so should be part of their job, and their salaries should reflect this.

People in the KM System The Chief Knowledge Officer
CEO, Officers & Managers of the Organization Communities of Practice KMS Developers KMS Staff

Chief Knowledge Officer
A CFO must do the following (adapted from Duffy, 1998): Set knowledge management strategic priorities. Establish a knowledge repository of best practices. Gain a commitment from senior executives to support a learning environment. Teach information seekers how to ask better & smarter questions. Establish a process for managing intellectual assets. Obtain customer satisfaction information in near real time. Globalize knowledge management.

Integration Since a KM system is an enterprise system, it must be integrated with other enterprise and information systems in an organization. The most important systems to integrate with are; Decision Support Systems Artificial Intelligence Databases and Information Systems Customer Relationship Management Systems Supply Chain Management Systems Corporate Intranets and Extranets

Managerial Issues Organizational culture change. How can we change organizational culture so that people are willing to both contribute knowledge to and use knowledge from a KMS? How to store tacit knowledge. How to measure the tangible and intangible benefits of KMS.

The importance of knowledge management. KM is not another management fad. Implementation in the face of quickly changing technology. How can our organization develop a successful knowledge management system? Determining the roles of the various personnel in a KM effort.

Supporting Management & Decision Making
Chapter 10 Supporting Management & Decision Making

Learning Objectives Describe the concepts of management, decision making, and computerized support for decision making. Justify the role of models in decision making. Describe the framework for computerized decision support & classify problems & support according to the framework. Describe decision support systems and their benefits, and analyze their role in management support.

Compare regular (personal) decision support systems with group and organizational decision support systems and analyze the major differences. Describe enterprise and executive information systems, and analyze their role in management support. Explain how networks and the Web can enhance managerial decision making.

Case: Web-based Data Analysis at Shopko
Problem: The information systems that supported ShopKo’s business in the past were highly fragmented, ineffective, and inflexible. Forecasts were inaccurate, and wrong decisions were frequently made. Solution: The company installed comprehensive decision support system (DSS) software (DSS Agent, from MicroStrategy). This system includes a data warehouse and online analytical processing. Results: ShopKo’s investment into sophisticated web-based data analysis enabled stores to carry the right merchandise at the right place & time.

Lessons from the Case A solution to complex decisions can be enhanced with the use of computer programs called a decision support system (DSS). Decisions are supported both in the sales and inventory areas. Much of the support is based around the concepts of data warehousing and online analytical processing. The Web is playing an increasing role in facilitating purchasing.

Managers & Decision Making
Management is a process by which organizational goals are achieved through the use of resources (people, money, energy, materials, space, time). These resources are considered to be inputs, and the attainment of the goals is viewed as the output of the process. Managers oversee this process in an attempt to optimize it.

The Manager’s Job 3 Categories
(Mintzberg ,1973) 1. Interpersonal roles: figurehead, leader, liaison. 2. Informational roles: monitor, disseminator, spokesperson. 3. Decisional roles: entrepreneur, disturbance handler, resource allocator, negotiator.

The Manager’s Decision Role

Managerial Decisions & Computerized Support
The success of management depends on the skillful execution of managerial functions such as planning, organizing, directing, and controlling. To carry out these functions, managers engage in the continuous process of making decisions. Managers must learn how to use the new tools and techniques that can help them make decisions. Computerized techniques support qualitative and quantitative decision making.

The Decision Making Process

Modeling & Models A model (in decision making) is a simplified representation or abstraction of reality. With modeling, one can perform virtual experiments and an analysis on a model of reality, rather than on reality itself. Some Benefits of Modelling: The cost of virtual experimentation is much lower than the cost of experimentation conducted with a real system. Models allow for the simulated compression of time. Manipulating the model (by changing variables) is much easier than manipulating the real system. The cost of making mistakes during a real trial-and-error experiment is much lower.

4 Types of Models Iconic (Scale) Models. An iconic model—the least abstract model—is a physical replica of a system, usually based on a different scale from the original. Analog Models. An analog model, in contrast to an iconic model, does not look like the real system but behaves like it. Mathematical (Quantitative) Models. The complexity of relationships in many systems cannot conveniently be represented. A more abstract model is possible with the aid of mathematics. Mental models provide a subjective description of how a person thinks about a situation.

Why do Managers Need the Support of IT?
Making decisions while processing information manually is growing increasingly difficult due to the following trends: The number of alternatives to be considered is ever increasing. Many decisions must be made under time pressure. Due to increased fluctuations & uncertainty in the decision environment, it is frequently necessary to conduct a sophisticated analysis to make a good decision. It is often necessary to access remote information, consult with experts, or have a group decision-making session, all quickly & in expensively.

Determining the Information Needs of Managers
Wetherbe approach (1991): Two-phase process. Phase I: a structured interview is conducted to determine managers’ perceived information needs. Phase I: a prototype of the information system is quickly constructed. Critical success factor (CSF) approach Watson and Frolick approach (1992): is based on the following strategies: determining information requirements asking (the interview approach) deriving the needs from an existing information system synthesizing from characteristics of the systems and discovering via evolving systems (prototyping)

Management Support Systems (MSS]
Four major information technologies have been successfully used to support managers. DSSs: provide support primarily to analytical, quantitative types of decisions. Executive (enterprise) support systems: support the informational roles of executives. Group decision support systems: support managers working in groups. Intelligent systems: provide mulitfunctional support.

Framework for Computerized Decisions
Managerial problems fall under 3 categories (Source: Simon,1977): Structured problems: all phases—intelligence, design, and choice—are structured & the procedures for obtaining the best solution are known. Unstructured problems: none of the three phases—intelligence, design, or choice—is structured, and human intuition is frequently the basis for decision making. Semistructured problems: requires a combination of standard solution procedures and individual judgment.

Framework for Computerized Decisions (cont.)
There are 3 broad categories that encompass all managerial activities (Part ii Source: Anthony,1965): Strategic planning — the long-range goals & policies for resource allocation; Management control — the acquisition & efficient utilization of resources in the accomplishment of organizational goals Operational control — the efficient & effective execution of specific tasks.

Management Science The Management Science approach maintains that managers can follow a fairly systematic process for solving problems. Defining the problem (a decision situation that may deal with a setback or with an opportunity). Classifying the problem into a standard category. Constructing a standard mathematical model that describes the real-life problem. Finding potential solutions to the modeled problem and evaluating them. Choosing & recommending a solution to the problem.

Decision Support Systems [DSS]
Decision Support System (DSS) = a computer-based information system that combines models and data in an attempt to solve semistructure problems with extensive user involvement. The term decision support systems (DSS), like the terms MIS and MSS, means different things to different people. DSS can be viewed as an approach or a philosophy rather than a precise methodology.

Case: Using DSS to Determine Risk
Problem: Houston Oil & Minerals Corporation was interested in a proposed joint venture but requried a risk analysis. Solution: Houston Oil built a DSS by means of a specialized planning language. The results suggested that the project be accepted. Results: The executive vice president, using his experience, judgment, and intuition, decided to reverse the decision and rejected the project. The DSS was flexible and responsive enough to allow managerial intuition and judgment to be incorporated into the analysis. .

Characteristics of DSSs
Provides support for decision makers at all management levels, whether individuals or groups, by bringing together human judgment and objective information. Supports several interdependent and/or sequential decisions. Supports all phases of the decision-making process— intelligence, design, choice, and implementation—as well as a variety of decision-making processes and styles. Is adaptable by the user over time to deal with changing conditions. .

Characteristics of DSSs (cont.)
Is easy to construct and use in many cases. Promotes learning, which leads to new demands & refinement of the application, which leads to additional learning, and so forth. Utilizes quantitative models (standard and/or custom made). Advanced DSSs are equipped with a knowledge management component that allows the efficient and effective solution of very complex problems. Can be disseminated for use via the Web. Allows the easy execution of sensitivity analyses.

Components of a DSS System
Data Management Subsystem contains all the necessary data that flow from several sources and are extracted prior to their entry to a DSS database. Model Management Subsystem contains completed models & models’ building blocks necessary to develop DSS applications. This includes standard software with financial, statistical, management science, or other quantitative models. Model Base Management System (MBMS) creates DSS models easily and quickly, either from scratch, existing models, or building blocks.

DSS Users Staff Assistant. This person has specialized knowledge about management problems and some experience with decision support technology. Expert Tool User. This person is skilled in the application of one or more types of specialized problem-solving tools. This user performs tasks for which the manager does not have the necessary skills or training. Business (System) Analyst. This person has a general knowledge of the application area, formal business administration education, and considerable skill in DSS construction tools. Group Facilitator. When group decisions are supported by IT, it is frequently beneficial to use a process facilitator.

The DSS Model

Group Decision Support Systems
Group decision support system (GDSS) = an interactive computer-based system that facilitates the solution of semistructured and unstructured problems by a group of decision makers. The goal of GDSS is to improve the productivity of decision-making meetings, either by speeding up the decision-making process or by improving the quality of the resulting decisions, or both. The first generation of GDSS was designed to support face-to-face meetings in what is called a decision room. Such a GDSS is composed of hardware, software, people and procedures.

GDSS Components Hardware. A group can use two types of hardware configurations. a GDSS facility designed for electronic meetings. a collection of PCs, equipped with keypads for voting and other groupware activities. Software. Typical GDSS software is a collection of about a dozen tools or packages, which are integrated into a comprehensive system. People. The group members and a facilitator. Procedures. The procedures that allow for ease of operation and effective use of the technology by group members.

Case: The World Economic Forum (WEF)
Problem: WEF is a consortium of top business, government, academic, and media leaders from virtually every country in the world. Until 1998 the members conferred privately or debated global issues at meetings. Follow-up was difficult. Solution: WEF developed a collaborative computing system called the World Electronic Community (WELCOM). Provides members with a secure channel to send , read reports & communicate in videoconferences. Results: By 2001 the system was completely on the Web.

Enterprise Decision Support
There are two main types of enterprise decision support system: Organizational decision support systems (ODSS) which focus on an organizational task or activity involving a sequence of operations and decision makers Computer-based systems can be developed to provide decision support at the individual group or organization levels (Hackathorn and Keen, 1981). Executive information system (EIS), also known as an Executive support system (ESS), is a technology designed in response to managers’ specific needs.

Characteristics of EISs
The drill down capability enables users to get details, and details of details, of any given information. Critical success factors (CSFs) & Key Performance Indicators are identified. In a status access mode, the latest data or reports on the status of key indicators or other factors can be accessed at any time. Trend analysis can be done using forecasting models, which are included in many ESSs Executive support systems provide for ad hoc analysis capabilities, in which executives can make specific requests for data analysis as needed.

Characteristics of EISs (cont.)
Exception reporting is based on the concept of management by exception, in which an executive gives attention to significant deviations from standards. In order to save the executive’s time in conducting a drill down, finding exceptions, or identifying trends, an intelligent EIS has been developed. Integration with DSS. Executive information systems are useful in identifying problems and opportunities. With the introduction of the Intranet & corporate portals, the traditional EIS has become a part of an enterprise information system, and it now often appears under the name of business intelligence.

Benefits of DSS for the User
Users can access DSS from anywhere. Many DSSs are now deployed on the corporate Intranet, making them accessible to all employees. The Web supports interactive DSS-related queries and ad hoc report generation. Users can select a list of variables from a pull-down menu when executing a predefined query or report. Web-based application servers can download Java applets that execute functions on desktop DSS programs. This gives users the capabilities of advanced DSS applications without requiring client software to be loaded.

Benefits of DSS for the Builder
A DSS developer (builder) can access Web pages with data related to the project, the software used, the users etc., thus cutting development time. A DSS developer can collaborate with end-users for quicker prototyping of DSS applications. A DSS developer can collaborate with vendors over the Web. DSS software and applications are available from ASPs over the Web. In such a case there is no need to program the DSS, but the developer must work with the vendor.

Benefits Web-Based DSSs
Able to reach rich resources of data with simple data entry & analysis procedure. Can easily retrieve data in sophisticated ways. Is easy to use. Reduces paperwork Contributes to better decision making. Enables easier use of ready-made DSS. Cuts development costs.

Requirements for Web-Based DSS
A study by Business Objects Corporation (businessobjects.com) identified five key requirements for the successful delivery of Web-based DSS. Self-service data access High availability & performance Zero-administration clients Security Unified meta data

Simulation for Decision Makers
In DSS, simulation refers to a technique for conducting experiments with a computer on a model of a management system. Characteristics of Simulation; While models in general represent reality, simulation usually imitates it closely. It is a technique for conducting experiments. It can describe and/or predict the characteristics of a given system under different circumstances. It can be used for complex decision making

Case: Simulation Saves Siemens Millions
Problem: Siemens Solar Industries (SSI), the world’s largest maker of solar electric products, suffered continuous problems in poor material flow, unbalanced resource use, bottlenecks in throughput & schedule delays. Solution: SSI built a cleanroom contamination-control technology. The simulation provided a virtual laboratory for engineers to experiment with various configurations before the physical systems were constructed. Results: SSI improved their manufacturing process significantly. The cleanroom facility saved SSI over $75 million/ year.

Advantages of Simulation
1. Allows for inclusion of the real- life complexities of problems. 2. Is descriptive, enabling managers to ask what-if type questions. 3. Can handle an extremely wide variation in problem types, such as inventory & staffing, as well as higher managerial- level tasks like long-range planning. 4. Can show the effect of compressing time, giving the manager in a matter of minutes the long-term effects of various policies. 5. Can be conducted from anywhere using Web tools on the corporate portal or extranet.

Examples of DSSs PriceWaterhouseCoopers (pcwglobal.com) offers online DSSs in retailing, financial services, etc. Of special interest are the risk management and self insurance decisions. Microsoft’s Office Small Business edition (microsoft.com) contains “what-if”wizards that can be used to view the financial impacts of decisions, such as price and inventory decisions. IBM (software.ibm.com) offers many tools ranging from market-basket analysis to financial & manufacturing decision support Brio’s (brio.com) “revenue optimization application” helps companies to identify & capture the full potential of revenue across product lines & market segments.

Frontline Decision Making
Frontline decision making is the process by which companies automate decision processes and push them down into the organization & sometimes out to partners. Frontline decision making serves business users such as line managers, sales executives, and call-center representatives by incorporating decision making into their daily work. Frontline software that started to appear on the market in late 1999 can solve standard problems According to Forrester Research Inc., such systems are essential for the survival of many companies, but it is expected to take five years for the technology to mature.

DSS Failures Over the years there have been many cases of failures of all types of decision support systems. Here are some examples; The ill-fated Challeger Shuttle mission was partially attributed to a flawed GDSS. NASA used a mismanaged GDSS session in which anonymity was not allowed and other procedures were violated. In an international congress on airports, failures in Denver, Hong Kong, and Malaysia airports have been attributed to failed DSSs. Brezillon and Pomerol (1997) describe some failures in intelligent DSSs.

Managerial Issues Intangible benefits. Management support systems are difficult to justify because they generate mostly intangible benefits, such as the ability to solve problems faster. Documenting personal DSS. Many employees develop their own DSS to increase their productivity. It is advisable to have an inventory of these DSSs so that if the employee leaves the organization, the productivity tool remains. Security. Decision support systems may contain extremely important information for the livelihood of organizations.

Ready-made commercial DSS. With the increased use of Web- based system and ASPs, it is possible to find more and more DSS applications sold off the shelf, frequently online. Organizational culture. The more people recognize the benefits of DSS and the more support is given to it by top management, the more DSS will be used. Intelligent DSS. Introducing intelligent agents into a DSS application can greatly increase its functionality. Ethical issues. Corporations with management support systems may need to address some serious ethical issues such as privacy & accountability. Human judgment is another important issue DSS.

Data Management: Warehousing, Analyzing, Mining & Vizualization
Chapter 11 Data Management: Warehousing, Analyzing, Mining & Vizualization

Learning Objectives Recognize the importance of data, their managerial issues, and their life cycle. Describe the sources of data, their collection, and quality issues. Relate data management to multimedia and document management. Explain the operation of data warehousing and its role in decision support.

Understand the data access and analysis problem and the data mining and online analytical processing solutions. Describe data presentation methods and explain geographical information systems, visual simulations, and virtual reality as decision support tools. Discuss the role and provide examples of marketing databases. Recognize the role of the Web in data management.

Case: Sears & Data Warehouses
Problem: Sears was caught by surprise in the 1980s as shoppers defected to specialty stores and discount mass merchandisers. Solution: Sears constructed a single sales information data warehouse, replacing 18 old databases which were packed with redundant, conflicting & obsolete data. By 2001, Sears made the following Web initiatives: e-Commerce home improvement center B2B supply exchange for the retail industry Online Toy catalog and much more

Case: Sears & Data Warehouses
Results: The ability to monitor sales by item per store enables Sears to create a sharp local market focus. Data monitoring of Web-based sales helps Sears marketing and Web advertisement plans. Response time to queries has dropped from days to minutes. The data warehouse offers Sears employees a tool for making better decisions. Sears retailing profits have climbed more than 20 % annually since the data warehouse was implemented.

Difficulties of Managing Data
The amount of data increases exponentially. Data are scattered throughout organizations and are collected by many individuals using several methods and devices. Only small portions of an organization’s data are relevant for any specific decision. An ever-increasing amount of external data needs to be considered in making organizational decisions. Data are frequently stored in several servers and locations in an organization.

Difficulties of Managing Data (cont.)
Raw data may be stored in different computing systems, databases, formats, and human and computer languages. Legal requirements relating to data differ among countries and change frequently. Selecting data management tools can be a major problem because of the huge number of products available. Data security, quality, and integrity are critical yet are easily jeopardized.

Data Life Cycle

Data Sources & Collection
Internal Data. An organization’s internal data are about people, products, services, and processes. Personal Data. IS users or other corporate employees may document their own expertise by creating personal data. External Data. There are many sources for external data, ranging from commercial databases to sensors and satellites. The Internet & Commercial Database Services. Some external data flow to an organization through electronic data interchange (EDI), through other company-to-company channels or the Internet.

Data Quality Data Quality (DQ) is an extremely important issue since quality determines the data’s usefulness as well as the quality of the decisions based on the data.

Data Quality Problems (Strong et al.,1997)
Intrinsic DQ: Accuracy, objectivity, believability, and reputation. Accessibility DQ: Accessibility and access security. Contextual DQ: Relevancy, value added, timeliness, completeness, amount of data. Representation DQ: Interpretability, ease of understanding, concise representation, consistent representation.

Object-Oriented Databases
The object-oriented database is the most widely used of the newest methods of data organization, especially for Web applications. An object-oriented database is a part of the object-oriented paradigm, which also includes object-oriented programming, operating systems, and modeling. Object-oriented databases are sometimes referred to as multimedia databases and are managed by special multimedia database management systems.

Document Management Document Management is the automated control of electronic documents, page images, spreadsheets, word processing documents, and complex, compound documents through their entire life cycle within an organization, from initial creation to final archiving. Benefits of Document Management : Greater control over production, storage, and distribution of documents Greater efficiency in the reuse of information Control of a document through a workflow process Reduction of product cycle times

Case: U.S. Automobile Association (USAA)
Problem: The USAA is a large insurance company in Texas that serves over 2 million officers. In the 1980s, the company experienced extreme delays in data retrieval and searches. Solution: Using an environment called Automated Insurance Environment, USAA has been transformed into a completely paperless company. Results: The system reduces the cost of storing documents, improves customer service, and improves productivity of employees. USAA now saves $70,500,000 for the 10,000,000 documents handled annually.

Data Processing Transactional: Analytical:
Data processing in organizations can be viewed either as transactional or analytical. Transactional: The data in transactions processing systems (TPS) are organized mainly in a hierarchical structure and are centrally processed. Databases and processing systems are known as operational systems. Analytical: Analytical processing involves analysis of accumulated data, mainly by end-users. Includes DSS, EIS, Web applications, and other end-user activities.

Delivery Systems A good data delivery system should be able to support: Easy data access by the end-users themselves. A quick decision-making process. Accurate and effective decision making. Flexible decision making.

Major Benefits of Data Warehouses:
The purpose of a data warehouse is to establish a data repository that makes operational data accessible in a form readily acceptable for analytical processing activities (e.g. decision support, EIS) Data warehouses include a companion called metadata, meaning data about data. Major Benefits of Data Warehouses: (1) The ability to reach data quickly, as they are located in one place. (2) The ability to reach data easily, frequently by end-users themselves, using Web browsers.

Data Warehouses

Characteristics of Data Warehouses
Organization. Data are organized by detailed subjects. Consistency. Data in different operational databases may be encoded differently. In the warehouse they will be coded in a consistent manner. Time variant. The data are kept for 5 to 10 years so they can be used for trends, forecasting, and comparisons over time. Non-volatile. Once entered into the warehouse, data are not updated. Relational. The data warehouse uses a relational structure. Client/server. The data warehouse uses the client/server to provide the end user an easy access to its data.

Data Warehouse Suitability
Data warehousing is most appropriate for organizations in which some of the following apply. Large amounts of data need to be accessed by end-users. The operational data are stored in different systems. An information-based approach to management is in use. There is a large, diverse customer base. The same data are represented differently in different systems. Data are stored in highly technical formats that are difficult to decipher. Extensive end-user computing is performed.

Two major types of Data Marts:
Data Marts are an alternative used by many other firms is creation of a lower cost, scaled-down version of a data warehouse. They refer to small warehouses designed for a strategic business unit (SBU) or a department. Two major types of Data Marts: 1) Replicated (dependent) Data Marts. In such cases one can replicate functional subsets of the data warehouse in smaller databases. 2) Stand-Alone Data Marts. A company can have one or more independent data marts without having a data warehouse.

Knowledge Discovery in Databases (KDD)
KDD is the process of extracting useful knowledge from volumes of data. It is the subject of extensive research. KDD’s objective is to identify valid, novel, potentially useful, and ultimately understandable patterns in data. KDD is useful because it is supported by three technologies that are now sufficiently mature: Massive data collection Powerful multiprocessor computers Data mining algorithms

Evolution of KDD

Tools & Techniques of KDD
Ad-hoc queries allow users to request in real time information from the computer that is not available in the periodical reports. Such answers are needed to expedite decision making. Online analytical processing (OLAP) refers to such end-user activities as DSS modeling using spreadsheets and graphics, which are done online. Ready-made Web-based Analysis. Many vendors provide ready made analytical tools, mostly in finance, marketing, and operations.

Data Mining Data mining derives its name from the similarities between searching for valuable business information in a large database,and mining a mountain for valuable ore. Data mining technology can generate new business opportunities by providing these capabilities: Automated prediction of trends and behaviors. Data mining automates the process of finding predictive information in large databases. Automated discovery of previously unknown patterns. Data mining tools identify previously hidden patterns in one step.

Applications of Data Mining
Data Mining is currently being used in the following areas; Insurance Policework Government & Defense Airlines Health care Broadcasting Marketing Retailing & Sales Banking Manufacturing & Production Brokerage & Securities trading Computer hardware & software

Text & Web Mining Text mining is the application of data mining to non-structured or less structured text files. Text mining helps organizations to do the following: Find the “hidden” content of documents, including additional useful relationships. Group documents by common themes. Web Mining refers to mining tools used to analyze a large amount of data on the Web, such as what customers are doing on the Web—that is, to analyze clickstream data.

Data Visualization Data visualization refers to the presentation of data by technologies such as digital images, geographical information systems, graphical user interfaces, multidimensional tables and graphs, virtual reality, three-dimensional presentations, and animation.

CASE: Data Visualization Helps Haworth
Problem Haworth Corporation, a major office furniture manufacturer, has maintained a competitive edge by offering customization. But many customers are unable to visualize the 21 million potential product combinations. Solution: Computer visualization software enables sales representatives with laptops to show customers exactly what they were ordering. Results: Reduction in time spent between sales reps and CAD operators, & increased customer satisfaction with quicker delivery.

Multidimensionality Modern data and information may have several dimensions. e.g. Management may be interested in examining sales figures in a certain city by product, by time period, by salesperson, and by store. It is important to provide the user with a technology that allows him or her to add, replace, or change dimensions quickly and easily in a table and/or graphical presentation. The technology of slicing, dicing, and similar manipulations is called Multidimensionality.

Three factors are considered in multidimensionality:
Examples of dimensions: Products, salespeople, market segments, business units, geographical locations, distribution channels, countries, industries. Examples of measures: Money, sales volume, head count, inventory profit, actual versus forecasted results. Examples of time: Daily, weekly, monthly, quarterly, yearly.

Advantages of Multidimensionality
. Data can be presented and navigated with relative ease. Multidimensional databases are easier to maintain. Multidimensional databases are significantly faster than relational databases as a result of the additional dimensions and the anticipation of how the data will be accessed by users.

Geographic Information Systems (GIS)
A geographical information system (GIS) is a computer-based system for capturing, storing, checking, integrating, manipulating, and displaying data using digitized maps. Every record or digital object has an identified geographical location. Banks are using GIS for plotting the following: Branch and ATM locations Customer demographics Volume and traffic patterns of business activities Geographical area served by each branch Market potential for banking activities Strengths and weaknesses against the competition Branch performance

Geographic Information Systems (GIS)
GIS Software varies in its capabilities, from simple computerized mapping systems to enterprise wide tools for decision support data analysis. GIS Data are available from a wide variety of sources. Government sources (via the Internet and CD-ROM) provide some data, while vendors provide diversified commercial data as well GIS & Decision Making. The graphical format of makes it easy for managers to visualize the data & make decisions. GIS and the Internet or intranet. Most major GIS software vendors are providing Web access, such as embedded browsers, or a Web/Internet/intranet server that hooks directly into their software. Emerging GIS Applications.

Visual Interactive Modeling (VIM)
Visual interactive simulation (VIS) is one of the most developed areas in VIM. It is a decision simulation in which the end-user watches the progress of the simulation model in an animated form using graphics terminals. Visual interactive modeling (VIM) uses computer graphic displays to represent the impact of different management decisions on goals such as profit or market share. A VIM can be used both for supporting decisions & training. It can represent a static or a dynamic system.

Virtual Reality Virtual reality (VR) is interactive, computer-generated, three-dimensional graphics delivered to the user through a head-mounted display. VR applications to date have been used to support decision making indirectly. Boeing has developed a virtual aircraft mock-up to test designs. At Volvo, VR is used to test virtual cars in virtual accidents. Data visualization helps financial decision makers by using visual, spatial & aural immersion virtual systems. Some stock brokerages have a VR application in which users surf over a landscape of stock futures, with color, hue, and intensity.

Marketing Transaction Database
The Marketing transaction database (MTD) combines many of characteristics of static databases and marketing data sources into a new database that allows marketers to engage in real-time personalization and target every interaction with customers. The MTD provides dynamic, or interactive, functions not available with traditional types of marketing databases. Exchanging information allows marketers to refine their understanding of each customer continuously. Data mining, data warehousing, and MTDs are delivered on the Internet and intranets.

Implementation Examples
The following examples illustrate how companies use data mining and warehousing to support the new marketing approaches; Alamo Rent-a-Car discovered that German tourists liked bigger cars. So now, when Alamo advertises its rental business in Germany, the ads include information about its larger models. Au Bon Pain Company discovered that they were not selling as much cream cheese as planned. When they analyzed point-of-sale data, they found that customers preferred small, one-serving packaging. AT&T and MCI sift through terabytes of customer phone data to fine-tune marketing campaigns and determine new discount calling plans.

CASE: Data Mining Powers Walmart
Wal-Mart’s formula for success owes much to the company’s multimillion-dollar investment in data warehousing. The systems house data on point of sale, inventory, products in transit, market statistics, customer demographics, finance, product returns, and supplier performance. The data are used for three broad areas of decision support: analyzing trends managing inventory understanding customers The data warehouse is available over an extranet to store managers and suppliers. In 2001, 5,000 users made over 35,000 database queries each day.

Web-based Data Management Systems
Business intelligence activities – from data acquisition, through warehousing, to mining – can be performed with Web tools or are interrelated with Web technologies and e-Commerce. e-Commerce software vendors are providing Web tools that connect the data warehouse with EC ordering and cataloging systems. e.g. Tradelink, a product of Hitachi Data warehousing and decision support vendors are connecting their products with Web technologies and EC. e.g. Comshare’s DecisionWeb, Brio’s Brio One, Web Intelligence from Business Objects, and Cognos’s DataMerchant.

Corporate Portals

Web-based Data Acquisition & Agents
Intelligent Data Warehouse The amount of data in the data warehouse can be very large. While the organization of data is done in a way that permits easy search, it still may be useful to have a search engine for specific applications. Web-based Data Acquisition Traditional data acquisition has become a pervasive element in today’s business environment. This acquisition includes both the recording of information from online surveys and questionnaires, and direct measurements taken in the manufacturing environment.

Managerial Issues Cost–benefit issues & justification. A cost–benefit analysis must be undertaken before any commitment to new technologies. Where to store data physically. Should data be distributed close to their sources? Or should data be centralized for easier control. Legal issues. Data mining gives raise to a variety of legal issues. The legacy data problem What should be done with masses of information already stored in a variety of formats, often known as the legacy data acquisition problem?

Disaster recovery. How well can an organization’s business processes recover after an information system disaster? Internal or external? Should a firm store & maintain its databases internally or externally? Data security and ethics. Are the company’s competitive data safe from external snooping or sabotage? Ethics. Should people have to pay for use of online data? Privacy. Collecting data in a warehouse and conducting data mining may result in the invasion of privacy. Data purging. When is it beneficial to “clean house” and purge information systems of obsolete or non–cost-effective data? Data delivery. A problem regarding how to move data efficiently around an enterprise also exists.

Intelligent Support Systems
Chapter 12 Intelligent Support Systems

Learning Objectives Describe artificial intelligence & compare it to conventional computing. Identify the characteristics, structure, benefits, & limitations of expert systems. Describe natural language processing & voice technologies. Describe neural computing & its differences from other computer- based technologies. Define intelligent agents and their role in IT. Describe the relationship between the Web & intelligent systems. Understand the importance of creativity & how it is supported by IT.

Artificial Intelligence & Intelligent Behavior
Artificial Intelligence (AI) is “behavior by a machine that, if performed by a human being, would be called intelligent.” AI’s ultimate goal is to build machines that will mimic human intelligence. AI is concerned with two basic ideas. It involves studying the thought processes of humans; It deals with representing those processes via machines

Knowledge & Artificial Intelligence
AI is frequently associated with the concept of knowledge. Such knowledge consists of facts, concepts, theories, heuristic methods, procedures, and relationships. Knowledge Base = an organized & stored collection of knowledge related to a specific problem (or an opportunity) to be used in an intelligent system. Organizational Knowledge Base = The collection of knowledge related to the operation of an organization.

Conventional Vs. AI Computing
AI software is based on symbolic processing of knowledge. Using symbols, it is possible to create a knowledge base that contains facts, concepts, and the relationships that exist among them. Conventional computer programs are based on algorithms. An algorithm is a mathematical formula or sequential procedure that leads to a solution.

The Commercial AI Field
Expert Systems (ESs) are computerized advisory programs that attempt to imitate the reasoning processes of experts in solving difficult problems. Natural language processing (NLP) gives computer users the ability to communicate with the computer in human languages. Speech (Voice) Understanding is the recognition and understanding by a computer of a spoken language. Robotics refers to a broad category of systems that combines sensory systems such as vision systems with AI.

The Commercial AI Field (cont.)
Visual recognition has been defined as the addition of some form of computer intelligence and decision making to digitized visual information received from a machine sensor. Intelligent computer-aided instruction (ICAI) refers to the work of machines that can tutor humans. Machine learning refers to a set of methods that attempt to teach computers to solve problems or to support problem solving by analyzing (learning from) historical cases. Handwriting recognition is supported by technologies such as expert systems and neural computing and is available in some pen-based computers.

Expert Systems Expert Systems (ES) are an attempt to mimic human experts. Expert systems can either support decision makers or completely replace them. Expert systems are the most widely applied & commercially successful AI technology.

CASE: GE Models Human Troubleshooters
Problem: GE wanted an effective & dependable way of disseminating expertise to its engineers & preventing valuable knowledge from “retiring” from the company. Solution: GE decided to build an expert system that modeled the way a human troubleshooter works. The system builders spend several months interviewing an employee & transfer their knowledge to a computer. The new diagnostic technology enables a novice engineer to uncover a fault by spending only a few minutes at the computer terminal. Results: The system is currently installed at every railroad repair shop served by GE.

Expertise & Knowledge Expertise is the extensive, task-specific knowledge acquired from training, reading, and experience. The transfer of expertise from an expert to a computer and then to the user involves four activities: knowledge acquisition from experts or other sources. knowledge representation in the computer. knowledge inferencing, resulting in a recommendation for novices. knowledge transfer to the user.

Benefits of Expert Systems
Increased output and productivity Increased quality Capture and dissemination of scarce expertise Operation in hazardous enivronments Accessibility to knowledge and help desks Reliability Increased capabilities of other systems Ability to work with incomplete or uncertain information Provision of training Enhancement of decision-making and problem-solving capabilities Decreased decision-making time Reduced downtime

Components of Expert Systems
The knowledge base contains knowledge necessary for understanding, formulating, and solving problems. The blackboard is an area of working memory set aside for the description of a current problem, as specified by the input data. The “brain” of the ES is the inference engine, a computer program that provides a methodology for reasoning & formulating conclusions.

Components of Expert Systems (cont.)
The user interface allows for user-computer dialogue, which can be best carried out in a natural language, usually presented in a Q&As format and sometimes supplemented by graphics. The explanation subsystem can trace responsibility and explain the ES’s behavior by interactively answering questions. A knowledge-refining system enables the system to analyze its performance, learn from it, and improve it for future consultations.

Structure & Process of ES

Generic Categories for ES
Interpretation Inferring situation descriptions from observations. Prediction Inferring likely consequences of given situations. Diagnosis Inferring system malfunctions from observations. Design Configuring objects under constraints. Planning Developing plans to achieve goal(s). Monitoring Comparing observations to plans, flagging exceptions. Debugging Prescribing remedies for malfunctions. Repair Executing a plan to administer a prescribed remedy. Instruction Diagnosing, debugging, & correcting performance. Control Interpreting, predicting & repairing systems behavior.

Illustrative Examples of ES
The U.S. Department of Treasury Fights Criminals with an ES. By using ES, the agency can detect suspicious transactions and changes in transactions’ patterns. Since its inception in 1993, the ES has helped to uncover more than 100 cases of money-laundering activities each year. Helping The Navajo Nation. An ES facilitates self-management of the tribe’s welfare program. The interactive solution integrates the tribe’s unique cultural heritage while following complex federal, state, and tribal guidelines China’s Freight Train System. An expert system determines what and how much to load on each freight car.

Natural Language Processing [NLP]
Natural Language Understanding Investigates methods of allowing a computer to comprehend instructions given in ordinary English, via the keyboard or by voice, so that computers are able to understand people. Natural Language Generation Strives to allow computers to produce ordinary English language, on the screen or by voice (known as voice synthesis), so people can understand computers more easily.

Applications of NLP Natural language processing programs have been applied in several areas. The most important are: Human–computer interfaces (mainly to databases) Abstracting and summarizing text Grammar analysis Translation of a natural language to another natural language Translation of a computer language to another computer language Speech understanding Composing letters by machine.

Speech Recognition & Understanding
is a process that allows us to communicate with a computer by speaking to it. The computer recognizes words that have been spoken without necessarily interpreting their meanings. SPEECH UNDERSTANDING refers to the second part of the communication process, where the meaning of the speech is ascertained.

Speech Recognition & Understanding Advantages
Ease of access. Many more people can speak than can type. As long as communication with a computer depends on typing skills, many people may not be able to use computers effectively. Speed. Even the most competent typists can speak more quickly than they can type. Manual freedom. There are many situations in which computers might be useful to people whose hands are otherwise occupied, such as product assemblers, pilots of aircraft, and busy executives. Remote access. If a remote database includes speech recognition capabilities, you could retrieve information by issuing oral commands into a telephone. Accuracy. Typing mistakes are minimized with voice input.

Speech Recognition & Understanding
Voice Portals allow customers to use an ordinary telephone as an Internet appliance. Customers dial a toll-free number and use voice to request information ranging from a traffic report to stock prices. Synthesis is the technology by which computers speak. Sounds that make up words/ phrases are constructed electronically from basic sound components & can be made to form any voice pattern. In e-Commerce one may need the capacity to recognize or understand voice AND to support dialogue. Example: IBM’s Via Voice system that lets people interact with the Internet by voice rather than by pointing and clicking with a mouse.

Neural Computing A different approach to intelligent systems is computing with architecture that mimics certain processing capabilities of the brain. The results are knowledge representations and processing based on massive parallel processing, fast retrieval of large amounts of information, and the ability to recognize patterns based on experiences. The technology that attempts to achieve these results is called Neural Computing or Artificial Neural Networks (ANN).

Components & Structure of ANN
ANNs are composed of artificial neurons; these are the processing elements. Each of the neurons receives input(s), processes the input(s), and delivers a single or a few outputs. The 5 major components in the process include: Inputs  Outputs Summation Function  Weights Transformation Function

Processing Information in the Network
Each input corresponds to the value of a single attribute. For example, if the problem is to decide on the approval or disapproval of a loan, an attribute can be the borrower’s income level, age, or ownership of a house. All inputs—including qualitative attributes, voice, signals from monitoring equipment, or pictures—must be preprocessed into binary (0 and 1) equivalencies. The computed output of the network is the solution to a problem. In the case of the loan application, it may be “yes” or “no.”

Benefits of Neural Systems
Pattern recognition. Neural networks can analyze large quantities of data to establish patterns/ characteristics in situations where the logic or rules are not known. Fault tolerance. If there are many processing nodes, damage to a few nodes or links does not bring the system to a halt. Generalization. When a neural network is presented with an incomplete or previously unseen input, it can generalize to produce a reasonable response. Adaptability. The network learns in new environments. Forecasting capabilities. Similar to statistics, prediction is made based on historical data.

Suitable Business Areas for ANNs
Data mining Tax fraud Financial services Loan application evaluation Solvency prediction New product analysis Airline fare management Resource allocation Identifying takeover targets Signature validation Prediction Insurance fraud detection Credit card fraud detection Evaluation of personnel & job candidates

Case: Visa Cracks Down on Fraud
Problem: Only 0.2% of Visa International’s turnover in 1995 was lost to fraud, but at $655 million it is a loss well worth addressing. Solution: Visa invested in a cardholder risk identification system (CRIS) designed to notice inconsistent use, such as sudden expensive non-essentials. Results: Visa’s participating banks believe the neural technology has been successful. Bank of America has cut fraudulent card use by two-thirds. By 1995, Visa member banks loss to counterfeiters dropped by more than 16 percent.

Hybrid Systems Intelligent systems are frequently integrated with other intelligent systems or with conventional systems such as decision support systems. These form what is known as Hybrid Systems. The integrated technologies and their roles are: Neural Networks. These are used to predict future market share and growth. Expert Systems. These provide intelligent advice on developing market strategy to individuals and to the planning team. Fuzzy Logic. This helps deal with uncertainties by simulating the process of human reasoning, allowing the computer to behave less precisely and logically than conventional computers do.

The following are the major tasks that can be performed by IAs.
Intelligent Agents The following are the major tasks that can be performed by IAs. 1. Information access & navigation are today’s major applications of IAs. 2. Decision support & empowerment. Knowledge workers need increased support, especially in decision making. IA can facilitate decision making and empower employees. 3. Repetitive office activity. There is a pressing need to automate tasks performed by administrative personnel in functional areas, such as sales or customer support, to reduce labor costs and increase office productivity. 4. Mundane personal activity. In a fast-paced society, time-strapped individuals need new ways to minimize the time spent on routine personal tasks, such as booking airline tickets.

Intelligent Agents (cont.)
The following are the major tasks that can be performed by IAs. 5. Search & retrieval. Users will have to delegate the tasks of searching and of cost comparison to agents. 6. Domain experts. “Expert” software agents could be models of real-world agents, such as translators, lawyers, diplomats, union negotiators, stockbrokers, and even clergy. 7. Mobile agents. These agents can move from one Internet site to another and can send data to & retrieve data from the user, who can focus on other work in the meantime. 8. Clerical & management activities. Intelligent agents can even be used to assist clerks, professional staff, and managers in performing their activities.

Applications of Intelligent Agents
User Interface. Intelligent agent technology allows systems to monitor the user’s actions, develop models of user abilities, and automatically help out when interface problems arise. Operating Systems Agents. Agents can assist in the use of operating systems. Spreadsheet Agents. Spreadsheet agents make the software more friendly. Workflow & Task Management Agents. Intelligent agents can be used to ascertain, then automate, user wishes or business processes. Negotiation in e-Commerce. A challenging system is one in which agents need to negotiate with each other. Such systems are especially applicable to EC.

Case: IAs Trim Papermaking Costs
Problem: Madison Paper was struggling to compete against larger papermakers. Costs of transportation from suppliers and to customers seemed to be high, paper loss during production was cutting into profits, and scheduling work was difficult and lengthy. Solution: A multiagent system was implemented that evaluates each of the solutions in light of multiple business objectives (cost, speed of delivery, and so on). Results: Paper losses were trimmed by about 6 tons /day, as well as 10 percent of freight costs, for annual savings of more than $5 million.

Using Expert Systems on the Net
The widespread availability and use of the Internet and intranets now provide the opportunity to disseminate expertise and knowledge to mass audiences. ESs can be transferred over the Net not only to human users, but also to other computerized systems, including DSS, robotics, and databases. The Web also can support the spread of multimedia-based expert systems. Such systems, referred to as Intellimedia Systems, support the integration of extensive multimedia applications and ES.

Web-Based Intelligent Tutoring Systems
Intelligent tutoring systems (ITSs) are a cost-effective approach to deliver training to wherever trainees are. Course developers can easily maintain and update training materials. Each example or exercise includes the following: A multimedia description of the problem, which may evolve over time. A description of the correct actions to take, including order-independent, optional, and alternative steps. A multimedia explanation of why these steps are correct. A list of methods for determining whether students have correctly executed the steps. A list of principles that must be learned to take the correct action.

Supporting Creativity
IAs can increase productivity and quality—but are they really intelligent? There are computer programs that do exhibit what we might call creative behavior. Two examples include: Copycat consists of several IAs & can find analogies to sets or strings of letters. This ability can be generalized to other problems that require conceptual understanding and the manipulation of things. AARON is a program that can draw. Its output can be considered to be art.

Limitations of Manual Idea Generation
There are circumstances where manual methods for idea generation (such as brain storming in a group) are either not economically feasible or not possible. For example, when: There is a poor facilitator (or there is no facilitator) There is no time to conduct a proper idea-generation session. It is too expensive to conduct an idea-generation session. The subject matter is too sensitive for a face-to-face idea-generation session. There are not enough participants, the mix of participants is not optimal, or there is no climate for idea generation. In such cases, it makes sense to try to electronically induce idea generation

Idea Generation Software
Idea-generation software is designed to help stimulate a single user or a group to come up with new ideas, options, and choices. The user does all the work, but the software encourages and pushes just like a personal trainer. Some software packages use questions to prompt the user toward new, unexplored patterns of thought. Computer-assisted brainstorming (CAB) programs enhance creative thinking through the use of built-in creativity techniques along with a well-deifined goal-oriented structure. The computer ask questions and urge the user to go on, thus shortening the incubation time for new ideas and creative problem solutions

Idea Generation Software (cont.)
Onestep is a free browser that among other things indexes your hard drive. Besides allowing you to retrieve data in seconds, it also suggests relationships between the files and other data that can lead to idea generation. Group Idea-generation software works somewhat differently from such software for individuals. A large number of ideas are usually generated in a short time. These ideas are then organized, debated, and prioritized by the group, all electronically.

Managerial Issues Cost-benefit and justification. While some of the benefits of intelligent systems are tangible, it is difficult to put a dollar value on the intangible benefits of many intelligent systems. Heightened expectations. When there is too much expectation and hope associated with intelligent technologies, management may get discouraged. Acquiring knowledge. Intelligent systems are built up on experts’ knowledge. How can an expert be motivated to contribute his or her knowledge?

System acceptance. The acceptance of intelligent systems by the IS department and the integration of such systems with mainstream IT is a critical success factor. System integration. Intelligent systems can succeed as standalone systems, but they have a broader area of applications when integrated with other computer-based information systems. Embedded technologies. Intelligent systems are expected to be embedded in at least 20 % of all IT applications in about ten years. Ethical issues. Finally, there are several issues related to the use of intelligent systems. The actions performed by an ES can be unethical, or even illegal. There is also the issue of using knowledge extracted from people and replacing people with machines.

Information Technology Economics
Chapter 13 Information Technology Economics

Learning Objectives Identify the major aspects of the economics of information technology. Explain the “productivity paradox.” Demonstrate how to define and measure tangible information technology benefits. Show how to evaluate intangible information technology benefits. Identify the advantages and disadvantages of approaches to charging end-users for IT services.

Identify the advantages and disadvantages of outsourcing. Describe causes of systems development failures. Discuss the concept of “increasing returns” as it relates to the Internet and to software production. Describe economic issues related to Web-based technologies including e-commerce.

Technological & Financial Trends
Moore’s Law Moore suggested in 1965 that the number of transistors, and thus the power, of an integrated circuit (computer chip) would double every year while the cost remained the same. He later revised this estimate to a slightly less rapid pace: doubling every 18 months. Price-to-performance ratio Organizations will have the opportunity to buy, for the same price, twice the processing power in 1½ years, four times the power in 3 years, eight times the power in 4½ years, etc.

Moore’s Law

Technology & Organizations
Impact of new technologies on organizations: First, most organizations will perform existing functions at decreasing costs over time and thus become more efficient. Second, creative organizations will find new uses for information technology—based on the improving price-to-performance ratio—and thus become more effective. New and enhanced products and services will provide competitive advantage to organizations that have the creativity to exploit the increasing power of information technology.

The Productivity Paradox
Over the last 50 years, organizations have invested trillions of dollars in information technology. Total worldwide annual spending on IT in 2000 was two trillion dollars, and is expected to be over three trillion dollars by 2004. Yet it is very hard to demonstrate that IT investments really have increased outputs or wages. The discrepancy between measures of investment in information technology and measures of output at the national level is described as the Productivity Paradox.

Productivity Economists define productivity as outputs divided by inputs. Outputs are calculated by multiplying units produced, for example, number of automobiles, by their average value. If inputs are measured simply as hours of work, the resulting ratio of outputs to inputs is labor productivity. If other inputs—investments and materials—are included, the ratio is known as multifactor productivity.

Explaining the Productivity Paradox
Economists have developed a variety of explanations for the productivity paradox. These can be grouped into the following three categories; Data & analysis problems hide productivity gains. Gains from IT are offset by losses in other areas.  Productivity gains are offset by IT costs or losses.

 Data & Analysis Problems
The productivity gains may not be apparent in all processes supported by the information systems. A failure to consider the time lags between IT investments & IT benefits may underestimate the productivity impacts. Productivity numbers are only as good as the data used in their calculations. In service industries, such as finance or health-care delivery, it is more difficult to define what the products are, how they change in quality, and how to allocate corresponding costs.

 Offsetting of Losses Sometimes IT produces gains in certain areas of the economy, but these gains are offset by losses in other areas. For example: An organization may install a new computer system that makes it possible to increase output per employee. If the organization reduces its production staff but increases employment in unproductive overhead functions, the productivity gains from information technology will be dispersed.

 Offsetting of IT Costs or Losses
The third possibility is that IT really does not increase productivity. Strassmann (1997) suggests that little or no relationship between IT spending and corporate profitability. Examples of factors that reduce the ability of IT to increase productivity: Support Costs Wasted Time Support Development Problems Software Maintenance Incompatible systems and workarounds

Evaluating IT Lucas (1999) suggests that the following issues must be considered while assessing the value of investing in IT. (1) There are multiple kinds of values, and the return on investment measured in dollar terms is only one of them. (2) Different types of investments in IT are associated with different probabilities of providing returns. (3) The probability of obtaining a return from an IT investment depends on probability of conversion success & implementation factors. (4) The expected value of the return on IT investment in most cases will be less than that originally anticipated.

IT Appraisal Methods Financial approach – These appraisal methods consider only impacts that can be monetary valued. They focus on incoming and outgoing cash flows. Multi-criteria approach – These appraisal methods consider both financial impacts and nonfinancial impacts that cannot, or not easily be, expressed in monetary terms. These methods employ quantitative and qualitative decision-making techniques. Ratio approach - These methods use several ratios (e.g., IT expenditures vs. total turnover) to assist in IT investment evaluation. Portfolio approach – These methods apply portfolios to plot several investment proposals against decision-making criteria. The portfolio methods are more informative compared to multi-criteria methods and generally use fewer evaluation criteria.

Value of Information to Decision Making
The value of information to decision making is the difference between the net benefits—benefits adjusted for costs—of decisions made using the information and decisions without the information. Value of Information = Net benefits with information – Net benefits without information

Evaluating Automation
Automation of business processes is an area where it is necessary to define and measure IT benefits and costs. The decision of whether to automate is a capital investment decision. Such decisions can be analyzed by cost-benefit analyses that compare the total value of the benefits with the associated costs.

Intangible Benefits Use “concrete indicators.” Solve for an unknown.
Financial analyses need to consider not just tangible benefits but also intangible benefits. The most straightforward solution to the problem of evaluating intangible benefits is to make rough estimates of monetary values for all intangible benefits. Downing (1989) suggests eight ways to evaluate intangible benefits. Here are a few of them: Use “concrete indicators.” Solve for an unknown. Prevent competitive disadvantage.

Evaluating IT through Benchmarks
One approach to evaluating infrastructure is to focus on objective measures of performance known as benchmarks. Benchmarks come in two forms: Metric benchmarks provide numeric measures of performance. IT expenses as percent of total revenues. Percent of “downtime” (when the computer is not available). CPU usage (as percent of total capacity). Best-practice benchmarks emphasize how information system activities are actually performed rather than numeric measures of performance.

Case: Costmark Costmark is a benchmarking tool to assist in managing SAP R/3-related environments. It provides a snapshot of various costs related to personnel, hardware, software licenses, maintenance, help-desk functions, and telecommunications. Some examples of reports generated by Costmark: Distribution of cost of operations across different user groups. Total cost of operations across different user groups and across different departments. Comparison of various costs with average costs obtained across all SAP-R/3 installations (i.e., industry average).

Other Methods & Commercial Services
Costs: One Time Software expert system purchase Software development Other software purchase Hardware platform lease or purchase Benefits: Quantifiable Improved decision speed Improved decision quality Automation of tasks Ability to perform new tasks Costs: Ongoing Operating personnel Communication lines Hardware maintenance Software upgrades Office space and utilities Benefits: Intangible Synergy with other projects Expanded long-term opportunities Strategic positioning Job enrichment Recording of knowledge

Total Cost of Ownership
An interesting approach for evaluating the value of IT is the total cost of ownership (TCO). TCO is a formula for calculating the cost of owning and operating a PC. The cost includes hardware, technical support, maintenance, software upgrades, and help-desk and peer support. By identifying such costs, organizations get more accurate cost-benefit analyses and also reduce the TCO. It is possible to reduce TCO of workstations in networked environments by as much as 26 percent by adopting best practices in workstation management (Kirwin et al., 1997).

Assessing Intangible Benefits
There are 4 main methodologies of assessing intangible benefits: Value analysis allows users to evaluate intangible benefits on a low-cost, trial basis before deciding whether to commit to a larger investment. Information economics focuses on the application of IT in areas where its intangible benefits contribute to performance on key aspects of organizational strategies and activities. Management by maxim provides a means of rationalizing IT infrastructure investments. Option valuation takes into account potential future benefits that current IT investments could produce.

Value Analysis Keen (1981) developed the value analysis method to assist organizations considering investments in decision support systems (DSSs). The value analysis approach includes eight steps, grouped into two phases. The first phase works with a low-cost prototype. The decision maker identifies the desired capabilities and the (generally intangible) potential benefits. If the decision maker feels that the system can provide these benefits, development proceeds on the full-scale system. The second phase involves the development of a full-scale system.

Value Analysis

Information Economics
Information Economics is another method of evaluating IT that focuses on key organizational objectives. It incorporates the technique of scoring methodologies, which are used in many evaluation situations. Scoring methodology is used by analysts to first identify all the key performance issues and assign a weight to each one. Organizational objectives are used to determine which factors to include, and what weights to assign in the scoring methodology. This approach can incorporate both tangible and intangible benefits. This flexible approach can be carried out by software packages such as Expert Choice (expertchoice.com).

Management by Maxim Consider strategic context.
Organizations with multiple business units need frequently to make decisions about the appropriate level & types of infrastructure. Broadbent and Weill (1997) suggest a method called Management by Maxim. This method brings together corporate executives, business-unit managers, and IT executives in planning sessions to determine appropriate infrastructure investments in the following steps: Consider strategic context. Articulate business maxims. Identify IT maxims. Clarify the firm’s view of its IT infrastructure. Specify infrastructure services.

Management by Maxim

Option Valuation of IT Investments
A promising new approach for evaluating IT investments is Option Valuation, a concept well known in the securities markets. In addition to stocks, investors can purchase options on stocks. These options give their owners the right to buy or sell the stock at a given price within a specified time period. An investor could buy stock now in a major computer manufacturer at $80 per share, or he/ she could pay around $8 now for the right to buy a share of that same stock at $80 any time in the next three months. Options offer an opportunity for a large profit in the future. Unfortunately, the mathematics of option valuation are well established but unfortunately too complex for many managers.

IT Accounting Systems Ideally IT accounting systems will effectively deal with two issues: Provide an accurate measure of total IT costs for management control purposes. Charge users for shared (usually infrastructure) IT investments and services in a manner that contributes to the achievement of organization goals. These are two very challenging goals for any accounting system. The complexities and rapid pace of change make them even more difficult to achieve in the context of IT. In the early days of computing it was much easier to identify costs. Nowadays a large proportion of the costs are in “hidden,” indirect costs that are often overlooked.

Chargeback Behavior-oriented chargeback is another IT accounting alternative. The primary objective of this system is influencing users’ behavior. It is possible to encourage (or discourage) usage of certain IT resources by assigning lower (or higher) costs. Although more difficult to develop, it recognizes the importance of IT to the success of the organization. Chargeback is an alternative IT accounting method which distributes all costs of IT to users as accurately as possible, based on actual costs and usage levels. Although accurate allocation sounds desirable in principle, it can create problems in practice.The most accurate measures of use may reflect technological factors that are totally incomprehensible to the user.

Behavior-Oriented Chargeback
Examples of behaviors that behavior-oriented chargeback systems may seek to influence are: Efficiency—Doing Things Right Reduce wasted resources. Reduce use of scarce resources. Encourage use in off-peak hours (load leveling). Discourage “false economies” and suboptimizing behavior (actions that appear to help the individual unit but are bad for the organization) Effectiveness—Doing the Right Things Encourage IT usage consistent with organizational strategies. Encourage experimentation, technology assimilation, and organizational learning. Encourage more productive use of surplus resources. Improve communications between users & IS department.

Behavior-Oriented Chargeback
There are three steps in implementing a behavior-oriented chargeback system: Determine objectives. Determine appropriate measures. Implement and maintain the system.

Outsourcing Many organizations may not be able to manage IT as well as firms that specialize in managing IT. For such organizations, the most effective strategy is outsourcing. Outsourcing is the process of obtaining services from vendors, rather than from within the organization. The decision to outsource usually considers two factors: (1) Which source is less expensive? (2) How much control is necessary? Since the late 1980s, many organizations are outsourcing the majority of their IT functions rather than just incidental parts. In the mid-1990s, IBM, EDS, and Computer Sciences Corp. were winning approximately two-thirds of the largest outsourcing contracts.

Offshore Outsourcing Offshore outsourcing of software development has become a common practice in recent years. About one-third of Fortune 500 companies have started to outsource software development to software companies in India. India has fifteen of twenty-three organizations worldwide that have achieved Level 5, the highest in SW-CMM ratings In addition to the traditionally outsourced services, Brown and Young (2000) identify two more scenarios for future outsourcing: Creation of shared environments (e.g., exchanges, portals, e-commerce backbones) 2. Providing access to shared environments (e.g., applications service providers (ASPs), Internet data centers).

Outsourcing Advantages
Financial Avoid heavy capital investment, thus releasing funds for other uses. Improve cash flow and cost accountability. Technical Be freer to choose software due to a wider range of hardware. Achieve technological improvements more easily. Management Concentrate on developing and running core business activity. Delegate IT development (design, production, and acquisition) and operational responsibility to supplier.

Outsourcing Advantages (cont.)
Human Resources Draw on specialist skills, available from a pool of expertise. Enrich career development and opportunities for staff. Quality Clearly define service levels. Improve performance accountability. Flexibility Respond quickly to business demands. Handle IT peaks and valleys more effectively.

Outsourcing Risks (Clemons, 2000)
Shirking occurs when a vendor deliberately underperforms while claiming full payment. e.g., billing for more hours than worked, providing excellent staff first and later replacing them with less qualified ones. Poaching occurs when a vendor develops a strategy and strategic application for a client and then uses them for other clients. e.g., vendor redevelops similar systems for other clients at much lower cost, or vendor goes into client’s business. Opportunistic repricing or holdup occurs when a client enters into a long-term contract with a vendor and vendor changes financial terms at some point or overcharges for unanticipated enhancements and contract extensions.

Outsourcing Strategies (Clemons, 2000)
Understand the project. Clients must have a high degree of understanding of the project, including its requirements, the method of its implementation, and the source of expected economic benefits. Divide and conquer. Dividing a large project into smaller and more manageable pieces will greatly reduce programmatic risk and provides clients with an exit strategy if any part of the project fails. Align incentives. Designing contractual incentives based on activities that can be measured accurately can result in achieving desired performance.

Case: CIBC Outsources to IBM
Problem: In the spring of 1996 the competitors of Canadian Imperial Bank of Commerce (CIBC) were ahead in implementing Internet banking, and CIBC started to lose market share. A decision was made to move quickly to implement the bank’s own Internet capabilities. Solution: The bank decided to outsource the job to IBM’s Global Services. Together, CIBC & IBM were able to implement home banking in 6 months. Results: By 1998 the bank regained market share, having 200,000 online clients.

Outsourcing Recommendations (e.g., Marcolin and McLellan, 1998)
Write short-period contracts. Outsourcing contracts are often written for five- to ten-year terms. Because IT changes so rapidly, it is very possible that some of the terms will not be in the customer’s best interests after five years. Subcontracting. Vendors may subcontract some services to other vendors. The contract should give the customer some control over the circumstances, e.g. choice of vendors. Selective outsourcing. This is a strategy used by many corporations who prefer not to outsource the majority of their IT (like Kodak), but rather to outsource certain areas (such as connectivity or network security).

Digital vs. Non-digital Products

Justifying Web-based Systems
The justification of EC application can be difficult and usually one needs to prepare a business case. The purpose of the business case is not merely to justify an investment to the corporate leadership, but to develop the baseline of desired results. This can be used to judge and measure the actual performance. The benefit and costs of EC depend on its definitions. But even when the applications are defined, we still have measurement complexities. Tjan (2001) suggests conducting an Internet portfolio planning analysis to identify appropriate EC applications. Using matrices, it is possible to find the fit of each project with the organizational objectives and the viability (potential payoff).

Intranet & Extranet Returns on Investment
Kinko’s Inc. This copying and small-business-support retail chain, created an intranet document distribution and repository for information directed at its 900 retail branches. The intranet application resulted in savings of $500,000 per year in reduced paper, printing, and postage expenses. These savings gave the company a 50 percent ROI on the project Heineken USA Inc. This beer company deployed an inventory-forecasting & sales extranet application to its network of 450 distributors. The application, apart from bringing significant savings from a reduction in manual data entry and paper shuffling, has also contributed to shrinking order-cycle time and facilitating better inventory planning.

IT Failures The following definitions indicate the range of possibilities for the various types of IT failures: Outright failure. The system is never completed, and little or nothing is salvaged from the project. Abandoned. The system is completed, including some or all of the originally specified features, but either it is never used or usage stops after a short period. Scaled down. The system is completed and used, but lacks much of the functionality of the original specifications. Runaway. The project requires much more money and time than planned, regardless of whether it is ever completed or used.

Case: Denver International Airport
The Denver International Airport (DIA), at 53 square miles, was designed to be the largest U.S. airport. By 1992, it was recognized that baggage handling would be critically important. BAE Automated Systems, Inc., a world leader in the design and implementation of material handling systems, was commissioned to develop an IT-based baggage handling system. Problems with the baggage system, however, kept the new airport from opening as originally scheduled in October 1993. By the time the airport opened in late February 1995, it was 16 months behind schedule and close to $2 billion over budget.

Managing Development Risks
Liebowitz (1999) identified the following suggestions for managing development risks; All phases of development must be carefully planned out at the beginning of the project. Fear of failure of developing innovative IS projects has inhibited the creation and successful use of IS projects. The user interface design is a critical element in gaining acceptance of an information system. Accuracy and timeliness of information affects the level of confidence that the users and managers have in the information system. All interested parties including senior IS managers should be actively involved throughout all phases of the system development .

The New Economics of IT The WWW resembles commercial broadcasting in its early days. The market is large—at least one-half of the population of the United States, plus foreign markets, now have access to the Internet—and it is growing rapidly.

The New Economics of IT (cont.)
The Web is also different from broadcasting in ways that increase its economic potential. At present, typical Web users have above-average incomes and education. Users can view most Web content at any time, rather than just at the scheduled times of broadcast programs. The Web can reach smaller, very specialized “niche” markets better than the mass media.

Increasing & Decreasing Returns

Managing Increased Returns
Arthur (1996) suggests the following management strategies for increased returns: Build up a large customer base through low prices. e.g., Netscape allows individual consumers (as opposed to organizations) to download its Web browser at no charge. Encourage development of complementary products. e.g. Novell provided support and assistance for developers to create applications or modify existing applications to run on its network operating system. Use “linking and leveraging.” In addition to encouraging outside suppliers, firms can acquire or internally develop products that complement existing products.

Management Issues Constant growth and change.
Managers need to continuously monitor developments in IT to identify new technologies relevant to their organizations. Shift from tangible to intangible benefits. The economic justification of IT applications will increasingly depend on intangible benefits. Not a sure thing. Although IT offers opportunities for significant improvements in organizational performance, these benefits are not automatic.

Management Issues Chargeback.
Users have little incentive to control IT costs if they do not have to pay for them. Outsourcing. The complexities of managing IT, and the inherent risks, may require more management skills than some organizations possess. Risk. Investments in IT are inherently more risky than investments in other areas. Increasing returns. Industries whose primary focus is IT, or that include large amounts of IT in their products, often operate under a paradigm of increasing returns.

Building Information Systems
Chapter 14 Building Information Systems

Learning Objectives Explain the concept of a systems development life cycle (SDLC). Compare and contrast prototyping, rapid application development (RAD), joint application design (JAD), and traditional SDLC approaches to systems development. Identify advantages and disadvantages of object-oriented (OO) development. Describe component-based development

Evaluate alternatives to in-house systems development. Discuss the major strategies, methods, and tools for building e-commerce applications. Identify advantages and disadvantages of CASE tools. Describe alternative approaches to software process quality improvement.

Case: Snap-On Sets up an EC Site
Problem: Snap-On, a tool and equipment maker in Washington state wanted to set up an e-commerce site and went for the in-house option. Solution: Snap-On hired application service provider (ASP) OnLink Technologies to implement a catalog for the company's e-commerce site. Results: The creation of an in-house ASP consulting service for Snap-On. Skill transferring to other departments and subsidiaries that want to put up catalogs on their own Web sites.

Systems Development Life Cycle
Systems Development Life Cycle (SDLC) represents a set of general categories that show the major steps, over time, of an information systems development project. There is no universal, standardized version of the SDLC, but the phrase has two distinct meanings. An SDLC can be a general conceptual framework for all the activities involved in systems development or acquisition. An SDLC can also be a very structured and formalized design and development process.

An Eight-Stage SDLC

Stages 1 & 2 Stage 1: Project Initiation
Stage 2: Systems Analysis & Feasibility Studies Systems Analysis - the investigation of the existing situation. Feasibility Studies - the major areas of feasibility investigation are; Technology Economics Organizational factors Legal, ethical, and other constraints

Stages 3 & 4 Stage 3: Logical Analysis and Design
Systems analysts determine 2 major aspects of the system: what it needs to do how it will accomplish these functions. Logical Design – the design of an IS from the user’s point of view. Physical Design -translates the abstract logical model into the specific technical design (the “blueprints”) Stage 4: Actual Acquisition or Development The logical design of the new system guides the actual development or acquisition

Stages 5 & 6 Stage 5: Implementation Stage 6: Operation
Approaches to conversion from a previous system include: Parallel conversion Direct cutover Pilot conversion Phased (or modular) conversion Stage 6: Operation After a successful conversion, the system will operate for an indefinite period of time.

Stages 7 & 8 Stage 7: Post-audit Evaluation Stage 8: Maintenance
An organization should evaluate all its larger system projects after their completion. These post-audits introduce an additional element of discipline into the development process. Stage 8: Maintenance Every system needs two kinds of maintenance: Fixing bugs Updating systems to accommodate changes in the environment

Implementing SDLCs IS groups considering the implementation of a formal SDLC methodology should look for the following characteristics: Minimal overhead Flexibility and responsiveness Concurrent tasks Focused analysis

Alternatives to Conventional SDLCs
Four Possibilities: Prototyping Joint application design Rapid application development Object-oriented development

Prototyping Instead of spending a lot of time producing very detailed specifications, the developers find out only what the users want. Developers quickly create a prototype. This contains portions of the system of most interest to the users, or is a small-scale working model of the entire system. After reviewing the prototype with the users, the developers refine & extend it. This approach is also known as evolutionary development.

Joint Application Design
Joint application design (JAD) is a group-based method for collecting user requirements and creating system designs. JAD is most often used within the systems analysis and systems design stages of the SDLC. In contrast to the SDLC requirements analysis, JAD has a group meeting in which all users meet simultaneously with analysts. An electronic JAD session can be conducted offsite/online with technology support. JAD may not be an easy task for Web site design since in some cases the stakeholders may be outside of an organization.

Rapid Application Development
Rapid application development (RAD) methodologies and tools make it possible to develop systems faster, especially systems where the user interface is an important component. E.g., Blue Cross & Blue Shield Develop an award-winning application using RAD. Typical RAD packages include the following: GUI development environment Reusable components Code generator Programming language

Rapid Application Development (cont.)

Object-Oriented Development
An object-oriented (OO) system begins not with the task to be performed, but with the aspects of the real world that must be modeled to perform that task. Object technology enables the development of purchasable, sharable, and reusable information assets (objects) existing in a worldwide network of interorganizational information systems. The techniques and notations that are incorporated into a standard object-oriented language are called unified modeling language or UML. The object-oriented approach is ideal for developing Web applications.

Component-based Development
Components are self-contained packages of functionality that have clearly defined, open interfaces with high-level application services. E.g., interface icons (small), online ordering (a business component) Components can be distributed dynamically for reuse across multiple applications and heterogeneous computing platforms. The major reasons for using components-based development are: Code reusability, which make programming faster, with fewer errors. Support for heterogeneous computing infrastructure and platforms. Rapid assembly of new business applications Ability of an application to scale.

Systems Developed Outside the ISD
Many organizations are using approaches that shift the construction task from the IS department to others. Of the various ways of doing this, three are most common: Let users build their own systems Outsource the entire systems development process Let end-users and/or the ISD use packages

Trends Favoring End-User Development
The following list presents existing factors that lead to higher levels of end-user development:. Increasingly powerful desktop hardware Declining hardware costs Increasingly diverse software capabilities Increasingly computer-literate population Backlog of IS projects Development speed Business orientation Small applications Control Apparent cost savings

Outsourcing Firms that provide outsourcing cite numerous benefits:
Hardware economies of scale Staffing economies of scale Specialization Tax benefits Outsourcing can also create problems for companies: Limited economies of scale Staffing Lack of business expertise Contract problems Internal cost reduction opportunities

External Acquisition of Software
The choice between developing software in-house and purchasing existing software is called the make-or-buy decision. The initial cost of off-the-shelf software is often lower and the software should be of high quality, because many customers have used and helped debug it. However, buying off-the-shelf software may mean that an organization has to pay for features and functions that are not needed.

External Acquisition of Software (cont.)
The most prominent advantages of buying off-the-shelf software are: On-time On-budget Full functionality The following outcomes are also important: User acceptance Favorable costs-to-benefits ratio Low maintenance Scalability Integration with other systems Minimal negative cross-impacts Reusability

Managerial Considerations
The traditional SDLC approach often works well for large projects with well-defined requirements, where there is not a lot of time pressure. Prototyping requires effective management to make sure that the iterations of prototyping do not continue indefinitely. RAD may be less appropriate than conventional programming languages for larger projects, or those with a lot of real-time processing. JAD is easy for senior management to understand, yet it is difficult and expensive to get all people in the same place at the same time.

Managerial Considerations (cont.)
Object-Oriented development is becoming increasingly popular, but usage is limited by a shortage of personnel with OO skills. A component-based application architecture provides several business benefits, but the execution of component-based development requires special training and skill. End-user development is also a possibility for larger projects whose priorities are not high enough to lead to a timely response from the central IS unit. Outsourcing should always be considered by large and complex systems with a significant risk of failure, yet the disadvantages should be reviewed carefully.

The Development of EC Applications

The Development of EC Applications (cont.)
Step 1: System Analysis Step 2: Select a Development Option Step 3: Installation, Connection, and More Step 4: Deployment Step 5: Operation and Maintenance

Development Strategies for EC Applications
Buy the EC Applications The following are the major criteria for consideration in buying e-commerce applications: The functionalities of development packages & criteria of choice User-friendliness Information requirements Hardware and software resources Installation Maintenance services Security Vendor quality Cost

Development Strategies for EC Applications
2. Lease the EC Applications Leasing is advantageous in cases where extensive maintenance is required, or where the cost of buying is very high. Two ways to lease: Lease the application from an outsourcer and install it on the company’s premises. Lease from either an application service provider or a CSP. 3. Develop EC Applications In House: Insourcing Build from scratch. Build from components. Enterprise application integration.

Other Development Options
Join An E-Marketplace Join An Auction or Reverse Auction Third-Party Site Joint Ventures Join a Consortium Hybrid Approach

Application Service Provider
An Application service provider (ASP) is an agent who assembles functionality needed by enterprises, and packages it with outsourced development, operation, maintenance, and other services. The essential difference between an ASP and an outsourcer is that an ASP will manage application servers in a centrally controlled location, rather than on a customer’s site.

Benefits & Risks of ASP Leasing
Type Benefit Potential Risk Business Reduces the need to attract and retain skilled IT professionals. Loss of control and high level of dependence on ASP. Enables company to concentrate on strategic use of IT. Inability of ASP to deliver quality of service: lack of skills and experience. Technical Fast and easy application deployment. Level of customization and legacy application integration offered by ASP may be insufficient. Higher degree of application standardization. Reliability and speed of delivery due to bandwidth limitations. Economic Low total cost of ownership. Pricing changes by ASP unpredictable for application updates and services.

Criteria for Selecting an ASP Vendor
Track record Scope of service Application & data storage Support services Integration Database format & portability

Java Programming Language
Java has established itself as the most important programming language for putting extra features into Web pages. Java is an object-oriented language. The Java Web page programs, called applets, need to be relatively small to avoid delays in transmitting them over the Internet. Prototyping is probably the most suitable approach for developing Java applets.

CASE Tools Computer-aided software engineering (CASE) tools are marketed as individual items or in a set (toolkit) that automates various aspects of the development process. CASE can be used in two different ways: To automate certain SDLC activities on a piecemeal basis. To provide an integrated (I-CASE) package for IS groups. The relatively high turnover rate among systems personnel creates problems for use of I-CASE systems as new employees will need to take the time to learn the integrated package.

Software Quality Testing and validation Contract review Acceptance
The International Organization for Standardization (ISO) first published its quality standards in 1987, and then republished an updated version in 2000. The ISO allows organizations to use any SDLC that includes the following: Testing and validation Acceptance Replication, delivery, and installation Maintenance Contract review Purchaser’s requirements specification Development planning Quality planning Design and implementation

Project Planning Project planning provides an overall framework with which the systems development life cycle can be planned, scheduled, and controlled. Milestones, or checkpoints, are established to allow a periodic review of progress.

Project Planning (cont.)
Critical Path Method (CPM), PERT, and Gantt Charts. These generic project management tools are suitable for systems development projects. Project Properties and Priorities The following five properties most significantly influence the overall nature of an IT project: Predefined structure Stability of technology Size User proficiency Developer proficiency

Managerial Issues Importance. Functional managers must participate in the development process and should understand all the phases. Ethical and legal issues. Developing systems across organizations and countries could result in problems in any phase of system development. Building interorganizational and international information systems can be very complicated.

User involvement is important. Traditional approaches vs. prototyping. Tool use by developers. Quality assurance vs. schedules. Behavior problems. Perpetual development.

Managing Information Resources & Security
Chapter 15 Managing Information Resources & Security

Learning Objectives Recognize the difficulties in managing information resources. Understand the role of the IS department and its relationships with end-users. Discuss the role of the chief information officer. Recognize information systems’ vulnerability and the possible damage from malfunctions.

Describe the major methods of defending information systems. Describe the security issues of the Web and electronic commerce. Distinguish between security auditing and disaster recovery planning and understand the economics of security. Describe the Euro 2002 issue.

Case: Cyber Crime On Feb. 6, the biggest EC sites were hit by cyber crime. Yahoo!, eBay, Amazon.com, E*Trade The attacker(s) used a method called denial of service (DOS). By hammering a Web site’s equipment with too many requests for information, an attacker can effectively clog a system. The total damage worldwide was estimated at $5-10 billion (U.S.). The alleged attacker, from the Philippines, was not prosecuted because he did not break any law in the Philippines.

Lessons Learned from the Case
Information resources that include computers, networks, programs, and data are vulnerable to unforeseen attacks. Many countries do not have sufficient laws to deal with computer criminals. Protection of networked systems can be a complex issue. Attackers can zero on a single company, or can attack many companies, without discrimination. Attackers use different attack methods. Although variations of the attack methods are known, the defence against them is difficult and/or expensive.

Information Resources Management
Information resources management (IRM) encompasses all activities related to the planning, organizing, acquiring, maintaining, securing, and controlling of IT resources. The management of information resources is divided among the information services department (ISD) and the end-users. The name of the ISD depends on the IT role, its size, and so forth. The director of IS is sometimes called the chief information officer (CIO). It is extremely important to have good relations between the ISD & end-users.

End-User Computing Generally, the IS organization takes one of the following four approaches toward end-user computing: Let them sink or swim. Don’t do anything—let the end-user beware. Use the stick. Establish policies and procedures to control end-user computing so that corporate risks are minimized. Use the carrot. Create incentives to encourage certain end-user practices that reduce organizational risks. Offer support. Develop services to aid end-users in their computing activities.

Steering Committees The corporate steering committee is a group of managers and staff representing various organizational units. The committee’s major tasks are:  Direction setting  Staffing  Rationing  Communication  Structuring  Evaluating

SLAs & Information Centers
Service Level agreements (SLAs) are formal agreements regarding the division of computing responsibility among end-users and the ISD. Such divisions are based on a small set of critical computing decisions made by end-user management. Information centers (IC), also known as the user’s service or help center, concentrate on end-user support with PCs, client/server applications, and the Internet/intranet. The IC is set up to help users get certain systems built quickly.

The “New IT Organization”
Rockart et al. (1996) proposed the following eight imperatives for ISDs the “New IT organization“: Achieve two-way strategic alignment Develop effective relations with line management Quickly develop and implement new systems Build and manage infrastructures Reskill the IT organization Manage vendor relationships Build high performance Redesign and manage the “federal” IT organization

The Role of the CIO The CIO needs to argue for a greater measures of central coordination. The IT asset-acquisition process must be improved by the CIO. The CIO is responsible for developing new Web-based business models. The CIO is becoming a business visionary. The CIO is taking increasing responsibility for defining strategic future. The increased networked environment may lead to disillusionment with IT. The CIO needs to understand that the Web-based era is more about fundamental business change than technology.

Key Terminology IS controls Backup Integrity (of data) Decryption Risk
Threats (or hazards) Vulnerability Backup Decryption Encryption Exposure Fault tolerance

Security Threats

Cyber Crime Crimes can be performed by outsiders who penetrate a computer system (hackers) or by insiders who are authorized to use the computer system but are misusing their authorization. A cracker is a malicious hacker, who may represent a serious problem for a corporation. Two basic methods of attack are used in deliberate attacks on computer systems: data tampering programming fraud, e.g. Viruses

U.S. Federal Statutes According to the FBI, an average white-collar crime involves $23,000; but an average computer crime involves about $600,000. The following U.S. federal statutes deal with computer crime; Counterfeit Access Device and Computer Fraud Act of 1984 Computer Fraud and Abuse Act of 1986 Computer Abuse Amendment Act of 1994 (prohibits transmission of viruses) Computer Security Act of 1987 Electronic Communications Privacy Act of 1986 Electronic Funds Transfer Act of 1980 Video privacy protection act of 1988

Defending Information Systems
Defending information systems is not a simple or inexpensive task for the following reasons: Rapid technological changes make some controls obsolete as soon as they are installed. Many computer crimes are undetected for a long period of time. People tend to violate security procedures because they are inconvenient. Hundreds of potential threats exist. Computing resources may be situated in many locations. Many individuals control information assets. Computer networks can be outside the organization and difficult to protect.

Defense Strategies The following are the major objectives of defense strategies: Prevention & deterrence Detection Limitation Recovery Correction

Types of Defense Controls
The defense controls are divided into two major categories: General controls Protect the system regardless of the specific application. Application controls Safeguards that are intended to protect specific applications.

Types of Controls General Controls Application Controls Input controls
Physical controls Access controls Biometric controls Data security controls Communications (networks) controls Administrative controls Application Controls Input controls Processing controls Output controls

Security Measures An access control system guards against unauthorized dial-in attempts. The use of preassigned personal identification number (PIN). Modems. It is quite easy for attackers to penetrate them and for employees to leak secret corporate information to external networks. Encryption is used extensively in EC for protecting payments and privacy. Troubleshooting packages such as cable tester can find almost any fault that can occur with LAN cabling.

Security Measures (cont.)
Payload security involves encryption or other manipulation of data being sent over networks. Commercial Products. Hundreds of commercial security products exist on the market. Intrusion Detecting. It is worthwhile to place an intrusion detecting device near the entrance point of the Internet to the intranet. A Firewall is commonly used as a barrier between the secure corporate intranet, or other internal networks, and the Internet.

IT Auditing In the information system environment, auditing can be viewed as an additional layer of controls or safeguards. It involves a periodical examination and check of financial and accounting records and procedures. Two types of auditors (and audits): Internal An internal auditor is usually a corporate employee who is not a member of the ISD. External An external auditor is a corporate outsider.

Auditors attempt to answer questions such as:
IT Auditing (cont.) Auditors attempt to answer questions such as: Are there sufficient controls in the system? Which areas are not covered by controls? Which controls are not necessary? Are the controls implemented properly? Are the controls effective; do they check the output of the system? Is there a clear separation of duties of employees? Are there procedures to ensure compliance with the controls? Are there procedures to ensure reporting and corrective actions in case of violations of controls?

How is Auditing Executed?
IT auditing procedures can be classified into three categories: Auditing around the computer - verifying processing by checking for known outputs using specific inputs. Auditing through the computer - inputs, outputs, and processing are checked. Auditing with the computer - using a combination of client data, auditor software, and client and auditor hardware.

Disaster Recovery Plan
A disaster recovery plan is essential to any security system. Here are some key thoughts about disaster recovery by Knoll (1986): The purpose of a recovery plan is to keep the business running after a disaster occurs. Recovery planning is part of asset protection. Planning should focus first on recovery from a total loss of all capabilities. Proof of capability usually involves some kind of what-if analysis that shows that the recovery plan is current. All critical applications must be identified and their recovery procedures addressed in the plan.

Backup Location In the event of a major disaster, it is often necessary to move a centralized computing facility to a far-away backup location. External hot-site vendors provide access to a fully configured backup data center. E.g., When an earthquake hit San Francisco in 1989, Charles Schwab & Co. was ready. Within a few minutes, the company’s disaster plan was activated. Programmers, engineers, and backup computer tapes were flown to New Jersey, where Comdisco Disaster Recovery Service provided a hot site.

Case: Disaster Planning at Reuters
Problem: Reuters is a multinational information-delivery corporation. If Reuters’ information system were to fail outright, it would take more than 15 brokerage houses with it. The costs, not to mention the legal ramifications, would be tremendous. Solution: Reuters implemented an Internet disaster recovery plan with SunGard Corp. The company now operates 3 redundant Web sites in different locations from coast to coast. If all 3 were to fail, a hot site would be used to ensure continuous operation.

Risk Management

Risk-Management (cont.)
A risk-management approach helps identify threats and selects cost-effective security measures. Risk-management analysis can be enhanced by the use of DSS software packages. Calculations can be used to compare the expected loss with the cost of preventing it. A business continuity plan outlines the process in which businesses should recover from a major disaster.

IT Security in the 21st Century
Increasing the Reliability of Systems. The objective relating to reliability is to use fault tolerance to keep the information systems working, even if some parts fail. Intelligent Systems for Early Detection. Detecting intrusion in its beginning is extremely important, especially for classified information and financial data. Intelligent Systems in Auditing. Intelligent systems are used to enhance the task of IS auditing.

IT Security in the 21st Century (cont.)
Artificial Intelligence in Biometrics. Expert systems, neural computing, voice recognition, and fuzzy logic can be used to enhance the capabilities of several biometric systems. Expert Systems for Diagnosis, Prognosis, and Disaster Planning. Expert systems can be used to diagnose troubles in computer systems and to suggest solutions. Smart Cards. Smart card technology can be used to protect PCs on LANs. Fighting Hackers. Several new products are available for fighting hackers.

Case: The Euro Conversion
Some major IT issues involved in the Euro conversion are; Time and cost estimates are difficult. The decision on a conversion date was delegated to individual companies, and it varies. Legal requirements force organizations to keep accounting data in their original form. This will create problems for comparisons over time. It is necessary to convert the code and the existing applications that involve currencies. It is necessary to change all the data and data files in the organizations’ databases.

Case: The Euro Conversion (cont.)
In order to execute the conversion properly a CIO must… Coordinate the execution with the business side of the enterprise, creating a joint team with members of the ISD & other functional units. Outsourcing some of the tasks is advisable. Business impact analysis should be done first. Both business and IT strategies for the conversion must be done, coordinated, and assessed periodically. A proper project management process must be conducted. A proper testing program must be prepared and properly implemented. A deployment strategy for the conversion should be determined.

Managerial Issues To whom should the ISD report? Who needs a CIO?
End-users are friends, not enemies, of the IS department. Ethical Issues.

Responsibilities for security should be assigned in all areas. Security awareness programs are important for any organization, especially if it is heavily dependent on IT. Auditing information systems should be institutionalized into the organizational culture. Organizing the ISD in a multinational corporation is a complex issue.

Impacts of IT on Organizations, Individuals & Society
Chapter 16 Impacts of IT on Organizations, Individuals & Society

Learning Objectives Understand the major impacts of information technology on organizations, individuals, and society. Consider the potential dehumanization of people by computers and other potential negative impacts of information technology. Identify the major impacts of information technology on organizational structure, power, jobs, supervision, and decision making. Identify some of the major societal impacts of the Web. Understand the role and impact of virtual communities.

Case: Wearable Computers
For years, many mobile employees were unable to enjoy the new technologies designed to make employees work or feel better. The use of wireless devices that can communicate with each other and with remote IS is increasing very rapidly (m-commerce). Such systems could easily include GPS (global positioning systems). So far only a few companies make and sell wearables for mobile workers, but this is expected to change in the future.

Does IT have only Positive Effects?
While our society generally embraces IT, there are many people who believe that humankind is threatened by the evolution of technology. We must be aware of IT’s effect on us as individuals and as members of organizations and society.Questions arise, such as; Will society have any control over the decisions to deploy technology? Where will technology critics be able to make their voices heard? Who will investigate the costs and risks of technologies, and who is going to pay for that investigation?

Structure, Authority & Job Content
Flatter Organizational Hierarchies An increased span of control. Blue-to-white Collar Staff Ratio The number of professionals and specialists could decline. Special Units Technology center, e-commerce center, etc.

Structure, Authority & Job Content (cont.)
Centralization of Authority Greater empowerment and decentralization. Power and Status Online knowledge bases may reduce the power of certain professional groups. Job Content If job content changes, people may need training, re-skilling.

Personnel Issues Employee Career Ladders Changes in Supervision
The use of IT may short-cut a portion of the learning curve. Changes in Supervision Electronic supervision. Other Considerations Job qualifications, training, worker satisfaction.

IT changes the way Managers make decisions in the following ways;
The Manager’s Job IT changes the way Managers make decisions in the following ways; Automation of routine decisions (e.g,. frontline employee). Less expertise required for many decisions. Less reliance on experts to provide support to top executives. Empowerment of lower and medium levels of management. Decision making undertaken by non-managerial employees. Power redistribution among managers, and power shifts down the organization.

Organizational Changes
The use of computer-assisted communication technologies leads to the following organizational changes (Huber,1990); A large number and variety of people participating in decision making. A decrease in the number and variety of people participating in traditional face-to-face communication. Fewer organizational levels involved in authorizing actions. More rapid and accurate identification of problems and opportunities, so better decisions are made. Organizational intelligence that is more accurate, comprehensive, timely, and available. Shorter time required to authorize actions and make decisions.

Impacts of Individuals at Work
Job Satisfaction Dissatisfied Managers Dehumanization & Psychological Impacts Isolation and the Internet

Impacts of Individuals at Work
Information Anxiety Frustration with the quality of the information available on the Web. Too many sources online. Frustration with the guilt associated with not being better informed. Impacts on Health & Safety Job Stress Repetitive Strain Injuries Ergonomics

IS & the Individual

Social Impacts Opportunities for People with Disabilities
Quality of Life Improvements Potential positive uses of Robots E.g., Case: Laying Fiber Optic Cables. E.g., Case: Cleaning Train Stations in Japan Improvements in Health Care Crime Fighting and Other Benefits

Technology & Crime One of the major debates surrounding IT involves situations in which police are using technology to reduce crime. Scanning Crowds for Criminals. Casinos use face recognition systems to identify ”undesirables”. The U.K. police have, since 1998, been using a similar system in East London borough with 300 cameras. Many banks, gas stations, convenience stores, and even elevators use the system.

Cultural Lag Ogburn’s Cultural Lag Thesis: An inherent conflict exists between the rapid speed of modern technological advances and the slower speed at which ethical guidelines for utilization of new technologies are developed. A failure to develop broad social consensus on appropriate applications of modern technology may lead to; breakdowns in social solidarity the rise of social conflict.

IT & Society Hearst (1999) presents three different views on how IT and society are changing one another: View #1: Becoming socialized means learning what kinds of behavior are appropriate in a given social situation. View #2: Newly internetworked IT allows people acting in their own self- interest to indirectly affect the experiences of other people. View #3 There is a move away from a hierarchical society into a society in which boundaries are more permeable. “glocalization”- simultaneously being intensely global & intensely local

Virtual Society The term virtual society refers to all components that are part of a society’s culture based on the functional rather than the physical structure.

IT & Employment Levels A major attribute associated with automation is the replacement of people by machines. There is no doubt that many people have been displaced by automation, but many more have gained employment due to automation. Computers encourage competition, which leads to a decline in prices. Lower prices mean higher demand, which, in turn, creates more jobs. The computer industry itself has created millions of new jobs.

Is Mass Unemployment Coming?
Massive Unemployment Will Come No Massive Unemployment Benefit/ cost advantage of computers increases with time. New occupations and jobs have always been created by automation. Less skilful employees are needed. There is much less unemployment in countries that use more automation. Shifting displaced employees to services is getting difficult. Work can be expanded to accommodate everyone. Many employees lost their jobs in the 1990s. Conversion to automation is slow, and the economy can adjust. Hidden unemployment exists in many organizations. Many tasks cannot be fully automated. E-commerce will cause millions of intermediaries/ agents to lose their jobs. There will always be some areas where people are better than machines.

Digital Divide Digital Divide – the gap between those that have information technology and those that do not. Within countries and among countries. In 2001, only 5 % of the world’s population used the Web, and the vast majority of this 5 % was located in the developed world. Yet the Web has the potential to turn poor countries such as India into economic powerhouses & dissolve rigid social barriers. Cyber cafes - One instrument for closing the digital divide.

Globalization & Free Speech
International Implications Many countries, willingly or unwillingly, knowingly or unknowingly, are being westernized as a result of information about western ways of life and values flowing freely across borders. Challenge to Free Speech The problem of Internet pornography is very serious Some countries take an entirely different line with respect to freedom of speech

Social Responsibility
Organizations need to be motivated to utilize IT to improve the quality of life in the workplace. Social Services and Privacy. Conflicting public pressures may rise to suppress the use of IT because of concerns about privacy and “Big Brother” government. E.g. Hong Kong ID Cards

Virtual Community A virtual community is one in which the interaction is done by using the Internet. Also known as an Internet community or an electronic community. An Internet community may have millions of members and as a result could have significant effects on e-markets. GeoCities (geocities.com) has grown to many million members in less than two years.

Elements of the Virtual Society
Category Element Communication Bulletin boards, Chat rooms\threaded discussions (string Q&A), and instant messaging, Private mailboxes, Newsletters, Web postings, Voting Information Directories and yellow pages, Search engine, Member-generated content, Links to information sources, Expert advice E-Commerce Element E-catalogs, e-shopping carts, Advertisements, Auctions of all types, Classified ads, Bartering online, Classified advertisement mail and instant messaging

Types of Virtual Communities
Communities of Transactions - facilitate buying and selling. Communities of Interest or Purpose - people have the chance to interact with each other on a specific topic. Rugby365.com gets rugby fans, and music lovers go to mp3.com. Communities of Relations or Practice - are organized around certain life experiences, situation, or vacations. Communities of Fantasy - participants create imaginary environments.

Business Aspects of E-communities
Value creation arises in virtual communities because the community brings together consumers of specific demographics and interests. This presents opportunities for transacting business, and for communicating messages about products and services. E-communities can attract advertising revenues from advertisers eager to communicate their messages to a specific target audience. Opportunities also arise for collecting valuable marketing information. demographics and psychographics of members

Value Creation in Virtual Communities

The IRM Model

Lessons Learned The major concern of most organizations today is how to transform themselves to a “new organization” adaptable to the new economy. The key to survival is the ability to properly and quickly adapt to changes in the environment. Change in the business environment is demonstrated not only in the increased competition and globalization, but also in industry structures, distribution channels, production systems, and more. IT can also save organizations, helping them to adjust and survive. IT is the major driver of the new economy.

“Digital –Economy Ready”
Actions organizations can take to become “digital-economy ready”; Build strategic information systems and use innovations such as electronic auctions and exchanges. Create effective and efficient communication and collaboration networks. Examine possible new models and initiatives of e-commerce Examine supply chains. Make a continuous effort to increase productivity, quality, security, and effectiveness in every facet of the organization’s operations.

“Digital –Economy Ready” (cont.)
In moving to a “digital-economy-ready status,” carefully plan IT systems in coordination with the business plans they intend to support. Increase recognition of knowledge, its creation, preservation, storage, and dissemination. Support managerial decisions with IT and especially the Web. Have the ability to process a large amount of data. Facilitate innovation and creativity in digital economy applications by using intelligent systems.

“Digital –Economy Ready” (cont.)
Carefully address the economies of IT in general and e-commerce in particular, including outsourcing, when moving to the new economy. Properly build and deploy information systems that will provide for internal efficiency and connect to the many business partners. Manage the increasing information resources in both business units and a centralized IS department. Address organizational, personal, and socioeconomic issues associated with the increase use of IT.

Managerial Issues Supporting the disabled. Culture is important.
The impact of the Web. Making money from electronic communities. Information anxiety may create problems. IT can cause layoffs.

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