An Introduction To Information Systems Information Systems in Organizations

PART
• 1•
Chapter 1 An Introduction to Information Systems

Chapter 2 Information Systems in Organizations
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CHAPTER An Introduction to
• 1• Information Systems
PRINCIPLES LEARNING OBJECTIVES
■ The value of information is directly linked ■ Discuss why it is important to study and under-
to how it helps decision makers achieve the stand information systems.
organization’s goals. ■ Distinguish data from information and describe
the characteristics used to evaluate the quality
of data.
■ Models, computers, and information sys- ■ Name the components of an information

tems are constantly making it possible for system and describe several system
organizations to improve the way they characteristics.
conduct business. ■ Identify the basic types of models and explain
how they are used.
■ Knowing the potential impact of informa- ■ List the components of a computer-based in-
tion systems and having the ability to put formation system.
this knowledge to work can result in a ■ Identify the basic types of business information
successful personal career, organizations systems and discuss who uses them, how they
that reach their goals, and a society with a are used, and what kinds of benefits they
higher quality of life. deliver.
■ System users, business managers, and in- ■ Identify the major steps of the systems devel-
formation systems professionals must opment process and state the goal of each.
work together to build a successful infor-
mation system.
■ Information systems must be applied ■ Describe some of the threats to security and
thoughtfully and carefully so that society, privacy that information systems and the
business, and industry can reap their Internet can pose.
enormous benefits. ■ Discuss the expanding role and benefits of in-
formation systems in business and industry.
An Introduction to Information Systems | Chapter 1 3
INFORMATION SYSTEMS IN THE GLOBAL ECONOMY

BOEHRINGER INGELHEIM, GMBH, GERMANY
Lean and Mean with Information Systems
If a business owner could foresee the future, decisions would be easy to make
and involve little risk. Unfortunately, crystal balls, tarot cards, and tea leaves
have proven useless to business decision makers. Since they can’t see into the
future, their goal is to find out what is currently happening in their business.
For a small-business owner, one who is involved in every transaction, staying
abreast of the state of the business is fairly straightforward. But as businesses
grow and diversify, it becomes increasingly difficult to access current informa-
tion on which to base decisions. Information systems provide a solution—open-
ing lines of communication between all business units and providing a
continuous stream of up-to-the-second information to support fast strategic
decision making.
Boehringer Ingelheim is among the world’s 20 largest pharmaceutical
companies. A giant company with $7.6 billion in revenue and 32,000 employees
in 60 nations, Boehringer has diversified into segments that include manufac-
turing and marketing pharmaceuticals (such as prescription medicines and
consumer healthcare products), products for industrial customers (such as
chemicals and biopharmaceuticals), and animal health products.
The sheer size of the company was slowing the flow of information to decision
makers in the organization. “I want to be told where I stand and where we are
heading,” says Holger Huels, chief financial officer, “I like to [be able to] see
negative trends and counter them as fast as possible.” With each of the
company’s segments using diverse information systems, it took a significant
amount of time to collect and combine all of the financial records. Each month
the accounting department would spend three days collecting and analyzing
printed reports to create the company’s monthly report.
Top managers decided to totally revamp the company’s systems with state-
of-the-art information systems from SAP, the world’s largest enterprise software
company. It took 14 months to roll out the new system, and many employees
needed intensive training. In the end, the results were well worth the investment
in time and money. The software provided a standard system used across all of
Boehringer’s business segments and offered convenient Web access to current
information. Boehringer is now able to complete monthly reports just two hours
after the close of business at the end of each month. The new system has made
the accounting department much more productive, allowing staff to run up-to-
date reports whenever needed.
Boehringer is committed to providing employees at all levels of the company
with access to the applications and information they need to meet their objec-
tives. About one third of Boehringer’s employees do their work outside the office.
To provide its mobile workforce with up-to-the-minute data, the company de-
ployed software from BackWeb Technologies, which allows access to current
sales information through a Web portal and a custom Web interface, wherever
employees travel. With the new system, Boehringer’s employees can access and
change information presented in the portal when they are offline, with updates
later when they log on.
4 Part 1 | An Overview
By the time Boehringer was finished with its technology makeover, the com-
pany had implemented over seven new interconnected information systems and
invested millions in hardware, software, databases, telecommunications, and
training. But the investment has paid off. Employees can now access up-to-date
organization-wide information, wherever they may be, with the click of a mouse.
And decision makers can react as nimbly and quickly to changes as many of
Boehringer’s smaller competitors.
As you read this chapter, consider the following:
• In designing its new information systems, what do you think were Boehringer’s most
critical goals and considerations?
• How are hardware, software, databases, telecommunications, people, and procedures
used in Boehringer’s information system to provide valuable data?
Information systems are used in almost every imaginable career area. Sales rep-
Why Learn About resentatives use information systems to advertise products, communicate with cus-
tomers, and analyze sales trends. Managers use them to make multimillion-dollar
Information decisions, such as deciding to build a new manufacturing plant or research a new
Systems? cancer drug. Corporate lawyers use information systems to develop contracts and
other legal documents for their firm. From a small music store to huge multinational
companies, businesses of all sizes could not survive without information systems to
perform accounting and finance operations. Regardless of your college major or cho-
sen career, you will find that information systems are indispensable tools to help you
achieve your career aspirations. Learning about information systems can help you
get your first job, obtain promotions, and advance your career. Why learn about
information systems? What is in it for you? Learning about information systems will
help you achieve your goals! In addition, most sections in this chapter are covered
in complete chapters later in this book. For example, the sections in this chapter on
hardware, software, databases, telecommunications, e-commerce and m-commerce,
transaction processing and enterprise resource planning, information and decision
support, special purpose systems, systems development, and ethical and societal
issues become complete chapters in the rest of the book. Let’s get started by
exploring the basics of information systems.
information system (IS) An information system (IS) is a set of interrelated components that collect, manipulate, store,
A set of interrelated components and disseminate data and information and provide a feedback mechanism to meet an
that collect, manipulate, store, and objective. The feedback mechanism helps organizations achieve their goals, such as increasing
disseminate data and information
and provide a feedback mechanism
profits or improving customer service.
to meet an objective. We all interact daily with information systems, both personally and professionally. We
use automatic teller machines at banks, checkout clerks scan our purchases using bar codes
and scanners, we access information over the Internet, and we get information from kiosks
with touchscreens. Major Fortune 500 companies are spending in excess of $1 billion per
year on information technology. In the future, we will depend on information systems even
more. Knowing the potential of information systems and having the ability to put this
knowledge to work can result in a successful personal career, organizations that reach their
goals, and a society with a higher quality of life.
Computers and information systems are constantly changing the way organizations conduct
business. They are becoming fully integrated into our lives, businesses, and society. They can help
organizations carry on daily operations (operational systems). For example, WalMart uses
operational systems to pull supplies from distribution centers and ultimately suppliers, stock
shelves, and push out products and services through customer purchases. Computer and
information systems also act as command and control systems that monitor processes and help
supervisors control them. For example, air traffic control centers use computers and information
systems as command and control centers to monitor and direct planes in their air space.
Information systems are

everywhere. A customer at the gas
pump waives a keychain tag at a
reader that sends the information to
a network to verify the customer’s
profile and credit information. The
terminal processes the transaction,
prints a receipt, and the customer’s
credit/check card is automatically
billed.
(Source: Courtesy of Texas
Instruments, Inc. All Rights
Reserved.)
Today we live in an information economy. Information itself has value, and commerce
often involves the exchange of information, rather than tangible goods. Systems based on
computers are increasingly being used to create, store, and transfer information. Investors
are using information systems to make multimillion-dollar decisions, financial institutions
are employing them to transfer billions of dollars around the world electronically, and man-
ufacturers are using them to order supplies and distribute goods faster than ever before.
Computers and information systems will continue to change our society, our businesses, and
our lives. In this chapter, we present a framework for understanding computers and
information systems and discuss why it is important to study information systems. This
understanding will help you unlock the potential of properly applied IS concepts.
INFORMATION CONCEPTS
Information is a central concept throughout this book. The term is used in the title of the
book, in this section, and in almost every chapter. To be an effective manager in any area of
business, you need to understand that information is one of an organization’s most valuable
and important resources. This term, however, is often confused with the term data.
Data Versus Information

Data consists of raw facts, such as an employee’s name and number of hours worked in a data
week, inventory part numbers, or sales orders. As shown in Table 1.1, several types of data Raw facts, such as an employee’s
can be used to represent these facts. When these facts are organized or arranged in a mean- name and number of hours worked
in a week, inventory part numbers,
ingful manner, they become information. Information is a collection of facts organized in or sales orders.
such a way that they have additional value beyond the value of the facts themselves. For
example, a particular manager might find the knowledge of total monthly sales to be more information
suited to his or her purpose (i.e., more valuable) than the number of sales for individual sales A collection of facts organized in
representatives. Providing information to customers can also help companies increase such a way that they have additional
value beyond the value of the facts
revenues and profits. themselves.
Table 1.1 Data Represented By

Types of Data Alphanumeric data Numbers, letters, and other characters
Image data Graphic images and pictures
Audio data Sound, noise, or tones
Video data Moving images or pictures
Data represents real-world things. As we have stated, data—simply raw facts—has little
value beyond its existence. For example, consider data as pieces of railroad track in a model
railroad kit. In this state, each piece of track has little value beyond its inherent value as a
single object. However, if some relationship is defined among the pieces of the track, they
will gain value. By arranging the pieces of track in a certain way, a railroad layout begins to
emerge (see Figure 1.1a). Information is much the same. Rules and relationships can be set
up to organize data into useful, valuable information.
Figure 1.1
Defining and Organizing

(a)
Relationships Among Data
Creates Information
(b)
(c)
The type of information created depends on the relationships defined among existing
data. For example, the pieces of track could be rearranged to form different layouts (see Figure
1.1b). Adding new or different data means relationships can be redefined and new informa-
tion can be created. For instance, adding new pieces to the track can greatly increase the
value—in this case, variety and fun—of the final product. We can now create a more elaborate
railroad layout (see Figure 1.1c). Likewise, our manager could add specific product data to
his sales data to create monthly sales information broken down by product line. This infor-
mation could be used by the manager to determine which product lines are the most popular
and profitable.
process Turning data into information is a process, or a set of logically related tasks performed
A set of logically related tasks to achieve a defined outcome. The process of defining relationships among data to create
performed to achieve a defined useful information requires knowledge. Knowledge is an awareness and understanding of a
outcome.
set of information and the ways that information can be made useful to support a specific
task or reach a decision. Part of the knowledge needed for building a railroad layout, for knowledge
instance, is understanding how large an area is available for the layout, how many trains will An awareness and understanding of
a set of information and ways that
run on the track, and how fast they will travel. The act of selecting or rejecting facts according
information can be made useful to
to their relevancy to particular tasks is also based on a type of knowledge used in the process support a specific task or reach a
of converting data into information. Therefore, information can be considered data made decision.
more useful through the application of knowledge. In some cases, data is organized or pro-
cessed mentally or manually. In other cases, a computer is used. In the earlier example, the
manager could have manually calculated the sum of the sales of each representative, or a
computer could calculate this sum. What is important is not so much where the data comes
from or how it is processed but whether the results are useful and valuable. This transfor-
mation process is shown in Figure 1.2.
The transformation process Figure 1.2

(applying knowledge by
Data selecting, organizing, and Information
The Process of Transforming
manipulating data)
Data into Information
The Characteristics of Valuable Information

To be valuable to managers and decision makers, information should have the characteristics
described in Table 1.2. These characteristics also make the information more valuable to an
organization. Many organizations and shipping companies, for example, are able to deter-
mine the exact location of inventory items and packages in their systems. Recently, the U.S.
Army Materiel Command tagged all its cargo and food shipments with radio-frequency
identification chips for shipment to the Middle East. Because of the easy electronic retrieval
of information from the tags, the time needed to take inventory of the cargo when it arrived
was reduced from the usual 2 to 3 days to just 22 minutes.1 In addition, if an organization’s
information is not accurate or complete, people can make poor decisions, costing organiza-
tions and individuals thousands, or even millions, of dollars. Many believe, for example, that
the collapse of energy-trading firm Enron in the early 2000s was a result of inaccurate ac-
counting and reporting information, which led investors and employees alike to misjudge
the actual state of the company’s finances and suffer huge personal losses. Some believe that
Enron’s inaccurate accounting was intentional and designed to deceive employees and in-
vestors and not a simple accounting mistake. As another example, if an inaccurate forecast
of future demand indicates that sales will be very high when the opposite is true, an organi-
zation can invest millions of dollars in a new plant that is not needed. Furthermore, if
information is not pertinent to the situation, not delivered to decision makers in a timely
fashion, or too complex to understand, it may be of little value to the organization.
Useful information can vary widely in the value of each of these quality attributes. For
example, with market-intelligence data, some inaccuracy and incompleteness is acceptable,
but timeliness is essential. Market intelligence may alert us that our competitors are about to
make a major price cut. The exact details and timing of the price cut may not be as important
as being warned far enough in advance to plan how to react. On the other hand, accuracy,
verifiability, and completeness are critical for data used in accounting for the use of company
assets such as cash, inventory, and equipment.
The Value of Information

The value of information is directly linked to how it helps decision makers achieve their
organization’s goals. For example, the value of information might be measured in the time
required to make a decision or in increased profits to the company. Consider a market forecast
that predicts a high demand for a new product. If market forecast information is used to
develop the new product and the company is able to make an additional profit of $10,000,
the value of this information to the company is $10,000 minus the cost of the information.
Valuable information can also help managers decide whether to invest in additional infor-
mation systems and technology. A new computerized ordering system may cost $30,000,
Characteristics Definitions
Accurate Accurate information is error free. In some cases, inaccurate information is generated because
in accurate data is fed into the transformation process (this is commonly called garbage in,
garbage out [GIGO]).
Complete Complete information contains all the important facts. For example, an investment report that does
not include all important costs is not complete.
Economical Information should also be relatively economical to produce. Decision makers must always balance
the value of information with the cost of producing it.
Flexible Flexible information can be used for a variety of purposes. For example, information on how much
inventory is on hand for a particular part can be used by a sales representative in closing a sale,
by a production manager to determine whether more inventory is needed, and by a financial
executive to determine the total value the company has invested in inventory.
Reliable Reliable information can be depended on. In many cases, the reliability of the information depends
on the reliability of the data collection method. In other instances, reliability depends on the source
of the information. A rumor from an unknown source that oil prices might go up may not be reliable.
Relevant Relevant information is important to the decision maker. Information that lumber prices might drop
may not be relevant to a computer chip manufacturer.
Simple Information should also be simple, not overly complex. Sophisticated and detailed information
may not be needed. In fact, too much information can cause information overload, whereby a
decision maker has too much information and is unable to determine what is really important.
Timely Timely information is delivered when it is needed. Knowing last week’s weather conditions will not
help when trying to decide what coat to wear today.
Verifiable Information should be verifiable. This means that you can check it to make sure it is correct, perhaps
by checking many sources for the same information.
Accessible Information should be easily accessible by authorized users to be obtained in the right format and
at the right time to meet their needs.
Secure Information should be secure from access by unauthorized users.
Table 1.2 but it may generate an additional $50,000 in sales. The value added by the new system is
the additional revenue from the increased sales of $20,000. Most corporations have cost
Characteristics of Valuable reduction as a primary goal. Using information systems, some manufacturing companies
Data have been able to slash inventory costs by millions of dollars.
SYSTEM AND MODELING CONCEPTS
system Like information, another central concept of this book is that of a system. A system is a set
A set of elements or components of elements or components that interact to accomplish goals. The elements themselves and
that interact to accomplish goals. the relationships among them determine how the system works. Systems have inputs, pro-
cessing mechanisms, outputs, and feedback (see Figure 1.3). For example, consider an
automatic car wash. Obviously, tangible inputs for the process are a dirty car, water, and the
various cleaning ingredients used. Time, energy, skill, and knowledge are also needed as
inputs to the system. Time and energy are needed to operate the system. Skill is the ability
to successfully operate the liquid sprayer, foaming brush, and air dryer devices. Knowledge
is used to define the steps in the car wash operation and the order in which those steps are
executed.
Input Processing Output
Feedback
The processing mechanisms consist of first selecting which of the cleaning options you Figure 1.3
want (wash only, wash with wax, wash with wax and hand dry, etc.) and communicating
that to the operator of the car wash. Note that there is a feedback mechanism (your assessment Components of a System
of how clean the car is). Liquid sprayers shoot clear water, liquid soap, or car wax depending A system’s four components consist
on where your car is in the process and which options you selected. The output is a clean car. of input, processing, output, and
It is important to note that independent elements or components of a system (the liquid feedback.
sprayer, foaming brush, and air dryer) interact to create a clean car.
System Components and Concepts

Figure 1.3 shows a typical system diagram—a simple automatic car wash. The primary pur-
pose of the car wash is to clean your automobile. The system boundary defines the system system boundary
and distinguishes it from everything else (the environment). The limits of the system; it distin-
The way system elements are organized or arranged is called the configuration. Much like guishes it from everything else (the
environment).
data, the relationships among elements in a system are defined through knowledge. In most
cases, knowing the purpose or desired outcome of a system is the first step in defining the
way system elements are configured. For example, the desired outcome of our system is a
clean car. Based on past experience, we know that it would be illogical to have the liquid
sprayer element precede the foaming brush element. The car would be rinsed and then soap
would be applied, leaving your car a mess. As you can see from this example, knowledge is
needed both to define relationships among the inputs to a system (your dirty car and in-
structions to the operator) and to organize the system elements used to process the inputs
(the foaming brush must precede the liquid sprayer). Figure 1.4 shows a few systems with
their elements and goals.
System Types
Systems can be classified along numerous dimensions. They can be simple or complex, open
or closed, stable or dynamic, adaptive or nonadaptive, and permanent or temporary.
Table 1.3 defines these characteristics.
Classifying Organizations by System Type
Most companies can be described using the classification scheme in Table 1.3. For example,
a janitorial company that cleans offices after business hours most likely represents a simple,
stable system because there is a constant and fairly steady need for its services. A successful
computer manufacturing company, however, is typically complex and dynamic because it
operates in a changing environment. If a company is nonadaptive, it may not survive very
long. Many of the early computer companies, including Osborne Computer, which manu-
factured one of the first portable computers, and VisiCorp, which developed the first
spreadsheet program, did not change rapidly enough with the changing market for computers
and software. As a result, these companies did not survive. On the other hand, IBM was able
to reinvent itself from a manufacturer of large, mainframe computers to a manufacturer of

all classes of computers and a software and services provider.
Figure 1.4 Elements
Examples of Systems and Their Processing

System Inputs mechanisms Outputs Goal
Goals and Elements
(Source: © Steve Smith/Getty Coffee beans, Brewing equipment Coffee, tea, Quickly prepared
tea bags, water, pastries, other delicious coffees,
Images; © Stanley Rowin / Index sugar, cream, beverages and teas, and various
Stock Imagery; © PhotoDisc/Getty spices, pastries, food items food items
other ingredients,
Images.) labor, management
Students, Teaching, Educated students; Acquisition of

professors, research, service meaningful research; knowledge
administrators, service to
textbooks, community, state,
equipment and nation
Actors, director, Filming, editing, Finished film Entertaining movie,

staff, sets, special effects, delivered to movie film awards, profits
equipment film distribution theaters
Table 1.3
Systems Classifications and

Their Primary Characteristics
Simple Complex
Has many elements that are highly related and

between elements is uncomplicated and straightforward interconnected
Open Closed
Interacts with its environment Has no interaction with the environment
Stable Dynamic
Undergoes very over time Undergoes and constant change over time
Adaptive Nonadaptive
Is to change in response to changes in the Is not able to change in response to changes in the
environment
Permanent Temporary
Exists for a relatively long of time Exists for only a relatively short period of time
System Performance and Standards

System performance can be measured in various ways. Efficiency is a measure of what is efficiency
produced divided by what is consumed. It can range from 0 to 100 percent. For example, A measure of what is produced
the efficiency of a motor is the energy produced (in terms of work done) divided by the energy divided by what is consumed.
consumed (in terms of electricity or fuel). Some motors have an efficiency of 50 percent or
less because of the energy lost to friction and heat generation.
Efficiency is a relative term used to compare systems. For example, a gasoline engine is
more efficient than a steam engine because, for the equivalent amount of energy input (gas
or coal), the gasoline engine produces more energy output.
Effectiveness is a measure of the extent to which a system achieves its goals. It can be effectiveness
computed by dividing the goals actually achieved by the total of the stated goals. For example, A measure of the extent to which a
a company may have a goal to reduce damaged parts by 100 units. A new control system may system achieves its goals; it can be
computed by dividing the goals actu-
be installed to help achieve this goal. Actual reduction in damaged parts, however, is only 85 ally achieved by the total of the
units. The effectiveness of the control system is 85 percent (85/100 = 85%). Effectiveness, stated goals.
like efficiency, is a relative term used to compare systems. See the “Information Systems @
Work” box, which describes how Delta’s low-fare, all-digital spin-off airline called Song is
attempting to make Delta more efficient and effective with enhanced services for passengers.
Evaluating system performance also calls for the use of performance standards. A system system performance standard
performance standard is a specific objective of the system. For example, a system performance A specific objective of the system.
standard for a particular marketing campaign might be to have each sales representative sell
$100,000 of a certain type of product each year (see Figure 1.5a). A system performance
standard for a certain manufacturing process might be to have no more than 1 percent de-
fective parts (see Figure 1.5b). Once standards are established, system performance is
measured and compared with the standard. Variances from the standard are determinants of
system performance.
System Variables and Parameters

Parts of a system are under direct management control, while others are not. A system vari- system variable
able is a quantity or item that can be controlled by the decision maker. The price a company A quantity or item that can be con-
charges for its product is a system variable because it can be controlled. A system parame- trolled by the decision maker.
ter is a value or quantity that cannot be controlled, such as the cost of a raw material. The system parameter
number of pounds of a chemical that must be added to produce a certain type of plastic is A value or quantity that cannot be
another example of a quantity or value that is not controlled by management; it is controlled controlled, such as the cost of a raw
material.
by the laws of chemistry.
INFORMATION
SYSTEMS @ WORK
Delta Sings a New Song with a Focus on Information per flight. Automated kiosks shorten lines in the terminal and reduce
Systems the need for customer service agents.
Technology is deeply infused into the Song business model to
Times are tough for U.S. airlines. With the economy in a slump,
provide both customer benefits and reduced costs for the airline.
heightened security in airports, and a cautious public less willing to
Delta considers Song to be a testing ground for new innovations.
fly, many airlines are struggling at the brink of bankruptcy. The old
Dozens of streamlined information systems and new technologies
airline giants, which maintain large fleets, are particularly at a
are being tested. The effects of each new system are analyzed in
disadvantage as smaller and more streamlined airlines enter the
terms of time saved, money saved, and customer satisfaction. Every
market and win over customers with lower fares. Airlines are
second or penny saved is crucial. Ideas that prove to be successful
experimenting with new business models and practices hoping to
with Song will be integrated into Delta’s primary fleet. Song is far
find one that works in this highly competitive environment. Delta’s
from unique in its use of technology and information systems to gain
low-fare, all-digital spin-off airline called Song is one such
an advantage in a challenging marketplace. Businesses in all
experiment. Song uses technology, state-of-the-art information
markets rely on information systems and technology to assist them
systems, and good old-fashioned customer service to win
in accomplishing more for less.
customers.
The implementation of new and improved information systems
Song caters to its passengers through a number of in-flight
are, in many cases, dramatically changing the way employees do
amenities. Each of its thirty-six 757s is furnished with roomy leather
their jobs. The goal is to allow business processes to proceed as
seats throughout the aircraft. Passengers are offered an extensive
smoothly as possible, with as little inconvenience to employees,
menu of beverages and snacks from well-known vendors such as
management, and customers as possible. By allowing people to do
Pizzeria Uno, Cinnabon, Lender’s, and Yoplait—all of which they can
what they need to do without delay, they are able to accomplish more
pay for with the swipe of a credit card. But the most innovative and
in a given period. Frustration is minimized, and interaction between
appealing of Song’s services to passengers is located in the seatback
management, employees, and customers becomes less stressed
above the fold-down tray: a personal video monitor with
and more enjoyable.
“touchscreen” technology and credit card “swipe” capability.
Passengers can choose from 24 free, all-digital live DISH Network
TV channels or pay-per-view programming. They can use the display Discussion Questions
to design a personal playlist of favorite songs delivered as streaming 1. How have the information systems used at Song affected
MP3 music. They can even join in an interactive multiplayer video the duties of check-in agents and flight attendants?
game with other passengers on the flight. Other features of the LCD 2. What do you think are the biggest challenges for check-in
display include an interactive map program to view landmarks agents and flight attendants in dealing with customers in
below, connecting gate information at the upcoming stop, or the traditional airline business model? How do the infor-
shopping from an online version of the Sky-mall catalog. mation systems Song uses allow these workers to be
To make such luxurious accommodations available to more efficient and effective?
passengers at a low fare, Song has streamlined its information
systems to reduce overhead and turn flights around more quickly. Critical Thinking Questions
Song prides itself on spending 23 percent more time in the air than
3. Consider the hardships of air travel: the search for cheap
aircraft in Delta’s main line. Song’s planes require only 50 minutes
rates, long check-in lines at the terminal, backups at
between landing and taking off. More time in the air and less on land
security checkpoints, delayed and canceled flights,
allows for more flights and more income for the company. Song’s
crowded seating, and hours of waiting time. How has Song
information screens at airport gates double as movie screens,
used technology and information systems to soften these
where mock horror films such as The Thing That Wouldn’t Get Out
hardships? What more could the company do?
of the Aisle are featured. These minifilms entertain passengers as
4. Consider other transportation modes: train, ship, taxi, and
they wait for their flight and educate them on how to make the
bus. Do these other modes share any of the same chal-
boarding process run more smoothly and quickly.
lenges that Song has addressed with information sys-
Song provides an innovative online reservation system for
tems? Could other transportation areas benefit from
booking flights. Unlike most online flight reservation systems, Song
Song’s approach?
customers can easily compare prices across a variety of departure
and return days and times. Reservations made through Song’s Web
SOURCES: Kathleen Melymuka, “Delta’s Test Pilot: IT at Song, Delta’s New
site save Song $4 per flight over those made through traditional Low-Cost Airline Unit,” Computerworld, August 18, 2003, www.computer-
reservation systems. An e-ticketing kiosk allows customers to check world.com; “Song Unveils the World’s Most Sophisticated Single Aisle In-Flight
themselves in when they arrive at the terminal and automatically Entertainment System,” PR Newswire, November 17, 2003; Song Web site,
www.flysong.com, accessed January 16, 2004.
dispenses a boarding pass, saving the company $5 per customer
12 Copyright © 2005 by Course Technology. All rights reserved.This publication is protected by federal copyright law. No part of this publication
$150,000
125,000
Good
Standard=$100,000
100,000
Sales Bad
75,000
50,000
25,000
Adams Brown Davis Thomas

Salesperson
(a)
3
Defective
Parts (%)
2
1 2 3 4 5 6 7 8 13
Production Day
(b)
Modeling a System Figure 1.5

The real world is complex and dynamic. So when we want to test different relationships and
their effects, we use models of systems, which are simplified, instead of real systems. A System Performance
model is an abstraction or an approximation that is used to represent reality. Models enable Standards
us to explore and gain an improved understanding of real-world situations.
Since the beginning of recorded history, people have used models. A written description model
of a battle, a physical mock-up of an ancient building, and the use of symbols to represent An abstraction or an approximation
money, numbers, and mathematical relationships are all examples of models. Today, man- that is used to represent reality.
agers and decision makers use models to help them understand what is happening in their
organizations and make better decisions.
There are various types of models. The major ones are narrative, physical, schematic, and
mathematical, as shown in Figure 1.6. A narrative model, as the name implies, is based on
words; thus, it is a logical and not a physical model. Both verbal and written descriptions of
14 Part 1 | Information Technology Concepts
reality are considered narrative models. In an organization, reports, documents, and conver-
sations concerning a system are all important narratives. A physical model is a tangible
representation of reality. Many physical models are computer designed or constructed. An
engineer may develop a physical model of a chemical reactor to gain important information
about how a large-scale reactor might perform, or a builder may develop a scale model of a
new shopping center to give a potential investor information about the overall appearance
Figure 1.6 and approach of the development. A schematic model is a graphic representation of reality.
Graphs, charts, figures, diagrams, illustrations, and pictures are all types of schematic models.
Four Types of Models Schematic models are used extensively in developing computer programs and systems. A
Narrative (words, spoken or blueprint for a new building, a graph that shows budget and financial projections, electrical
written), physical (tangible), wiring diagrams, and graphs that show when certain tasks or activities must be completed to
schematic (graphic), and stay on schedule are examples of schematic models used in business. A mathematical model
mathematical (arithmetic) models. is an arithmetic representation of reality. Computers excel at solving mathematical models.
(Source: © Bob Daemmrich/ Retail chains, for example, have developed mathematical models to identify all the activities,
PhotoEdit; © PhotoDisc/Getty effort, and time associated with planning, building, and opening a new store so that they can
Images) forecast how long it will take to complete a store.
Narrative Physical
James Electronics Regional Sales
$250,000
$200,000
Desktop
$150,000
Notebook
Tablet
$100,000
$50,000
$0
Northeast Southeast Midwest Western
Schematic Mathematical
In developing any model, accuracy is critical. An inaccurate model will usually lead to an
inaccurate solution to a problem. Most models contain many assumptions, and it is important
that they be as realistic as possible. Potential users of the model must be aware of the
assumptions under which the model was developed.
WHAT IS AN INFORMATION SYSTEM?
As mentioned previously, an information system (IS) is a set of interrelated elements or

components that collect (input), manipulate (process) and store, and disseminate (output)
data and information and provide a feedback mechanism to meet an objective
(see Figure 1.7). The feedback mechanism helps organizations achieve their goals, such as
increasing profits or improving customer service.
FEEDBACK Figure 1.7
The Components of an
Information System
Feedback is critical to the
INPUT PROCESSING OUTPUT
successful operation of a system.
Input, Processing, Output, Feedback

Input
In information systems, input is the activity of gathering and capturing raw data. In pro- input
ducing paychecks, for example, the number of hours every employee works must be collected The activity of gathering and
before paychecks can be calculated or printed. In a university grading system, individual capturing raw data.
instructors must submit student grades before a summary of grades for the semester or quarter
can be compiled and sent to the students.
Input can take many forms. In an information system designed to produce paychecks,
for example, employee time cards might be the initial input. In a 911 emergency telephone
system, an incoming call would be considered an input. Input to a marketing system might
include customer survey responses. Car manufacturers are experimenting with a fingerprint
identification input device in their car security systems. You may soon be able to gain entry
to a car and start it with the touch of a finger. This unique input device will also adjust
mirrors, the steering-wheel position, the temperature, and the radio for an individual’s size
and preferences. Regardless of the system involved, the type of input is determined by the
desired output of the system.
Input can be a manual or automated process. A scanner at a grocery store that reads bar
codes and enters the grocery item and price into a computerized cash register is a type of
automated input process. Regardless of the input method, accurate input is critical to achieve
the desired output.
Processing
In information systems, processing involves converting or transforming data into useful processing
outputs. Processing can involve making calculations, making comparisons and taking alter- Converting or transforming data
native actions, and storing data for future use. Processing data into useful information is into useful outputs.
critical in business settings.
Processing can also be done manually or with computer assistance. In the payroll appli-
cation, each employee’s number of hours worked must be converted into net, or take-home,
pay. Other inputs often include employee ID number and department. The required pro-
cessing can first involve multiplying the number of hours worked by the employee’s hourly
pay rate to get gross pay. If weekly hours worked exceed 40 hours, overtime pay may also be
included. Then deductions—for example, federal and state taxes, contributions to health and
life insurance or savings plans—are subtracted from gross pay to get net pay.
Once these calculations and comparisons are performed, the results are typically
stored. Storage involves keeping data and information available for future use, including
output, discussed next.
Output
output In information systems, output involves producing useful information, usually in the form
Production of useful information, of documents and reports. Outputs can include paychecks for employees, reports for man-
usually in the form of documents
agers, and information supplied to stockholders, banks, government agencies, and other
and reports.
groups. In some cases, output from one system can become input for another. For example,
output from a system that processes sales orders can be used as input to a customer billing
system. Often, output from one system can be used as input to control other systems or
devices. For instance, the design and manufacture of office furniture is complicated with
many variables. The salesperson, customer, and furniture designer can go through several
design iterations to meet the customer’s needs. Special computer programs and equipment
create the original design and allow the designer to rapidly revise it. Once the last design
mock-up is approved, the computer creates a bill of materials that goes to manufacturing to
produce the order.
Output can be produced in a variety of ways. For a computer, printers and display screens
are common output devices. Output can also be a manual process involving handwritten
reports and documents.
Feedback
feedback In information systems, feedback is output that is used to make changes to input or processing
Output that is used to make changes activities. For example, errors or problems might make it necessary to correct input data or
to input or processing activities. change a process. Consider a payroll example. Perhaps the number of hours an employee
worked was entered into a computer as 400 instead of 40 hours. Fortunately, most infor-
mation systems check to make sure that data falls within certain ranges. For number of hours
worked, the range might be from 0 to 100 hours because it is unlikely that an employee
would work more than 100 hours for any given week. So, the information system would
determine that 400 hours is out of range and provide feedback, such as an error report. The
feedback is used to check and correct the input on the number of hours worked to 40. If
undetected, this error would result in a very high net pay on the printed paycheck! Some
blame the August 14, 2003, power blackout in the U.S.’s Northeast on a faulty computer
system that wasn’t able to provide second-by-second feedback.2
Feedback is also important for managers and decision makers. For example, a bedding
maker used a computerized feedback system to link its suppliers and plants. The output from
an information system might indicate that inventory levels for a few items are getting low—
a potential problem. A manager could use this feedback to decide to order more inventory
from a supplier. The new inventory orders then become input to the system. In addition to
this reactive approach, a computer system can also be proactive—predicting future events to
forecasting avoid problems. This concept, often called forecasting, can be used to estimate future sales
Predicting future events to avoid and order more inventory before a shortage occurs.
problems.
Manual and Computerized Information Systems

As discussed earlier, an information system can be manual or computerized. For example,
some investment analysts manually draw charts and trend lines to assist them in making
investment decisions. Tracking data on stock prices (input) over the last few months or years,
these analysts develop patterns on graph paper (processing) that help them determine what
stock prices are likely to do in the next few days or weeks (output). Some investors have made
millions of dollars using manual stock analysis information systems. Of course, today many
excellent computerized information systems have been developed to follow stock indexes and
markets and to suggest when large blocks of stocks should be purchased or sold (called
program trading) to take advantage of market discrepancies.
Many information systems begin as manual systems and become computerized. For ex-
ample, consider the way the U.S. Postal Service sorts mail. At one time, most letters were
visually scanned by postal employees to determine the ZIP code and were then manually
placed in an appropriate bin. Today the bar-coded addresses on letters passing through the
postal system are read electronically and automatically routed to the appropriate bin via
conveyors. The computerized sorting system results in speedier processing time and provides
management with information to help plan transportation needs. It is important to stress,
however, that simply computerizing a manual information system does not guarantee
Program trading systems allow

traders to keep up with swift
changes in stock prices and make
better decisions for their investors.
(Source: © Reuters NewMedia Inc./
CORBIS.)
improved system performance. If the underlying information system is flawed, the act of
computerizing it might only magnify the impact of these flaws.
Computer-Based Information Systems

A computer-based information system (CBIS) is a single set of hardware, software, databases, computer-based information
telecommunications, people, and procedures that are configured to collect, manipulate, store, system (CBIS)
and process data into information. For example, a company’s payroll systems, order entry A single set of hardware, software,
databases, telecommunications,
system, or inventory control systems are examples of a CBIS. The components of a CBIS are
people, and procedures that are
illustrated in Figure 1.8. (Information technology, IT, is a related term. For our purposes, IT configured to collect, manipulate,
refers to the technology components of hardware, software, databases, and telecommunica- store, and process data into
tions.) A business’s technology infrastructure includes all the hardware, software, databases, information.
telecommunications, people, and procedures that are configured to collect, manipulate, store,
and process data into information. The technology infrastructure is a set of shared IS re- technology infrastructure
sources that form the foundation of each individual computer-based information system. All the hardware, software, data-
bases, telecommunications, people,
and procedures that are configured
to collect, manipulate, store, and
process data into information.
Figure 1.8
The Components of a
Computer-Based Information
System
Hardware
Hardware consists of computer equipment used to perform input, processing, and output hardware
activities.3 Input devices include keyboards, automatic scanning devices, equipment that can Computer equipment used to per-
form input, processing, and output
read magnetic ink characters, and many other devices. Investment firms often use voice
activities.
response to allow customers to get their balances and other information using ordinary spoken
sentences. The Scripps Institution of Oceanography developed a special underwater com-

puter optical input device to allow a diver as deep as 100 feet to control an underwater camera,
which was formerly controlled by a computer system and mouse on the surface. 4 Processing
devices include the central processing unit and main memory.5 Processor speed is important
in creating video images.6 Lifelike movie characters such as Gollum in the Lord of the Rings
show what is possible with today’s fast processors. Mental Images of Germany and Pixar of
the United States have used such award-winning image-rendering techniques. The technol-
ogy is also used to help design cars, such as the sleek shapes of Mercedes Benz vehicles.
Specialized, inexpensive hardware has also been used in schools to help students learn a variety
of subjects.7
There are many output devices, including secondary storage devices, printers, and com-
puter screens. One company, for example, uses computer hardware in its stores to allow
customers to order items that are not on store shelves. The hardware helps the company “save
the sale” and increase revenues. Michael Dell, founder of Dell Inc., believes that hardware
will increasingly include very small devices that are connected to other hardware devices. He
said, “Nanotechnology and communications will be in everything. All kinds of other devices
will attach and link together, centered, I think, with the PC.”8 Nanotechnology can involve
molecule-sized hardware devices.9 There are also many special-purpose hardware devices.
Computerized event data recorders (EDRs) are now being placed into vehicles. Like an air-
plane’s black box, EDRs record a vehicle’s speed, possible engine problems, a driver’s
performance, and more. The technology is being used to monitor vehicle operation, deter-
mine the cause of accidents, and investigate whether truck drivers are taking required breaks.
In Florida, an EDR was used to help convict a driver of vehicular homicide.10 A surgeon
watching a 3-D computer screen and using a joystick can view up to 2,000 slices or cross-
sectional areas of a patient’s body before precisely removing a cancerous tumor. Sophisticated
input and output devices are making surgery more precise, which can save lives. 11
Hardware is a component of a
Computer-Based Information
System and includes input,
processing, and output.
(Source: Courtesy of Acer America
Inc.)
Software
software Software consists of the computer programs that govern the operation of the computer.
The computer programs that govern These programs allow a computer to process payroll, send bills to customers, and provide
the operation of the computer.
managers with information to increase profits, reduce costs, and provide better customer
service.12 With software, people can work anytime at any place. On a trip back to the United
States from Australia and New Zealand, Steve Ballmer, CEO of Microsoft commented, “I
could carry my slides, I could carry my e-mail. I could carry anything I needed to read. I
could carry my life with me. It was very powerful.”13 There are two basic types of software:
system software, such as Windows XP, which controls basic computer operations such as
start-up and printing, and applications software, such as Office 2003, which allows specific
tasks to be accomplished, such as word processing or tabulating numbers.
Databases
A database is an organized collection of facts and information, typically consisting of two or database
more related data files. An organization’s database can contain facts and information on An organized collection of facts and
information.
customers, employees, inventory, competitors’ sales information, online purchases, and
much more. Most managers and executives believe a database is one of the most valuable and
important parts of a computer-based information system. Increasingly, organizations are
placing important databases on the Internet, discussed next.14
Telecommunications, Networks, and the Internet
Telecommunications is the electronic transmission of signals for communications, which telecommunications
enable organizations to carry out their processes and tasks through effective computer net- The electronic transmission of sig-
nals for communications; enables
works.15 Large restaurant chains, for example, can use telecommunications systems and
organizations to carry out their
satellites to link hundreds of restaurants to plants and corporate headquarters to speed credit processes and tasks through
card authorization and report sales and payroll data. Networks are used to connect computers effective computer networks.
and computer equipment in a building, around the country, or around the world to enable
electronic communication.Investment firms can use wireless networks to connect thousands networks
of people with their corporate offices. Hotel Commonwealth in Boston uses wireless telecom- Computers and computer equip-
ment in a building, around the
munications to allow guests to connect to the Internet, get voice messages, and perform other
country, or around the world to
functions without plugging their computers or mobile devices into a wall outlet.16 Wireless enable electronic communications.
transmission is also allowing drones, like Boeing’s Scan Eagle, to monitor power lines, build-
ings, and other commercial establishments.17 The drones are smaller and less-expensive
versions of the Predator and Global Hawk drones that were used successfully in the
Afghanistan and Iraq conflicts by the U.S. military. One company uses a private network to
connect offices in the United States, Germany, China, Korea, and other companies. It doesn’t
use a public network available to everyone, such as the Internet, discussed next.
The Internet is the world’s largest computer network, actually consisting of thousands Internet
of interconnected networks, all freely exchanging information. Research firms, colleges, uni- The world’s largest computer net-
versities, high schools, and businesses are just a few examples of organizations using the work, actually consisting of thou-
sands of interconnected networks,
Internet. all freely exchanging information.
The Internet is used by most businesses and industries. ChemConnect, for example, is
an Internet site that allows companies to buy and sell chemicals and chemical products on-
line.18 The Internet site is the largest online chemical trading site with more than $8 billion
in annual sales. In addition to being able to cheaply download music, audio software and the
Internet allow people to change a song’s tempo, create mixes of their favorite tunes, and
modify soundtracks to suit their personal taste. It is even possible to play two or more songs
simultaneously, called mashing.19 Mortgage companies use the Internet to help make loans
to customers. Lending through the Internet has grown dramatically from about $260 billion
in 2001 to more than $800 billion in 2003, representing almost 30 percent of the total loan
market.20 Medco Health Online, a subsidiary of Merck & Company, received more than a
billion dollars in sales through its Internet site.21 The Internet has also been used in public
elections.22 Aniers, a suburb of Geneva, was the first city in Switzerland to use the Internet
in a public, binding vote. Businesses are increasingly using instant messaging (IM) to com-
municate.23 IM allows managers and employees to instantly communicate over the Internet
using text messages, video, and even sound. Today, bedrooms, studies, kitchens, and living
rooms are being connected to the Inte rnet.24 In addition, travelers who can gain access to
the Internet can communicate with anyone else on the Internet, including those who are in
flight. Some airline companies are starting Internet service on their flights to allow people to
send and receive e-mail, check investments, and browse the Internet. According to Vinton
Cerf, one of the pioneers of the Internet, “There will be a very large number of devices on
the Net—appliances, things you wear and carry around, and things that are embedded in
passive things like wine corks and your socks.”25 Table 1.4 lists companies that have used the
Internet to their advantage.
Organization Objective Description of Internet Usage
Godiva Increase sales The company developed a very profitable Internet site that allows customers
Chocolatier and profits to buy and ship chocolates. According to Kim Land, director of Godiva Direct,
“This was set up from the beginning to make money.” In two years, online
sales have soared by more than 70% each year.
Environmental Alert the The organization, formerly the Environmental Defense Fund, successfully
Defense public to used the Internet to alert people to the practice of catching sharks, remov-
environmental ing their fins for soup, and returning them to the ocean to die. The Internet
concerns site also helped people fax almost 10,000 letters to members of Congress
about the practice. According to Fred Krupp, the executive director of the
Environmental Fund, “The Internet is the ultimate expression of ‘think
global, act local.’”
Buckman Better The company used the Internet to train employees to sell specialty chemicals to
Laboratories employee paper companies, instead of bringing them to Memphis for training. According
training to one executive, “Our retention rate is much higher, and we removed a week
[of training] in Memphis, which meant big savings.” Using the Internet lowered
the hourly cost of training an employee from $1,000 to only $40.
Siemens Reduce costs Using the Internet, the company, which builds and services power plants,
was able to reduce the cost of entering orders and serving customers. The
Internet solution cost about $60,000 compared with a traditional solution
that would have cost of $600,000.
Goldman Save time The company makes machine tools and was able to slash the time it takes to
Industrial Group fill an order from 3 or 4 months to about a week using the Internet to help
coordinate parts and manufacturing with its suppliers and at its plants.
Partnership Make better The company developed an Internet site for wholesalers of computer equip-
America decisions ment and supplies. The wholesalers use the site to make better decisions
about the features and prices of various pieces of computer equipment. The
system allows wholesalers to connect to Partnership America’s site using cell
phones. “When many of our customers need information, they’re not at their
desks,” says one company representative.
Altra Energy Get energy to The company developed an Internet site to help companies buy oil, gas, and
Technologies companies wholesale power over the Internet.
that need it
Table 1.4
The World Wide Web (WWW) or the Web is a network of links on the Internet to
Uses of the Internet documents containing text, graphics, video, and sound. Information about the documents
and access to them are controlled and provided by tens of thousands of special computers
called Web servers. The Web is one of many services available over the Internet and provides
access to literally millions of documents.
The technology used to create the Internet is now also being applied within companies
intranet and organizations to create an intranet, which allows people within an organization to ex-
An internal network based on Web change information and work on projects. The Virgin Group, for example, uses an intranet
technologies that allows people
to connect its 200 global operating companies and 20,000 employees.26 According to Ashley
within an organization to exchange
information and work on projects.
Stockwell of the Virgin Group, “One of our key challenges at Virgin is to provide high-
quality service to our family of companies. One key tool to help us provide this was the
extranet development of an intranet and extranet.” An extranet is a network based on Web tech-
A network based on Web technolo- nologies that allows selected outsiders, such as business partners and customers, to access
gies that allows selected outsiders, authorized resources of the intranet of a company. Companies can move all or most of their
such as business partners and cus-
tomers, to access authorized
business activities to an extranet site for corporate customers. Many people use extranets every
resources of the intranet of a day without realizing it—to track shipped goods, order products from their suppliers, or
company. access customer assistance from other companies. Log on to the FedEx site to check the status
of a package, for example, and you are using an extranet.
People
People are the most important element in most computer-based information systems. In-
formation systems personnel include all the people who manage, run, program, and maintain
the system. Large banks can hire hundreds of IS personnel to speed up the development of
computer-related projects. Users are people who use information systems to get results. Users
include financial executives, marketing representatives, manufacturing operators, and many
others. Certain computer users are also IS personnel.
Procedures
Procedures include the strategies, policies, methods, and rules for using the CBIS. For procedures
example, some procedures describe when each program is to be run or executed. Others The strategies, policies, methods,
describe who can have access to facts in the database. Still other procedures describe what is and rules for using a CBIS.
to be done in case a disaster, such as a fire, an earthquake, or a hurricane that renders the
CBIS unusable.
Now that we have looked at computer-based information systems in general, we will
briefly examine the most common types used in business today. These IS types are covered
in more detail in Part 3.
BUSINESS INFORMATION SYSTEMS
The most common types of information systems used in business organizations are electronic
and mobile commerce systems, transaction processing systems, management information
systems, and decision support systems. In addition, some organizations employ special-pur-
pose systems such as artificial intelligence systems, expert systems, and virtual reality systems.
Together, these systems help employees in organizations accomplish both routine and special
tasks—from recording sales, to processing payrolls, to supporting decisions in various de-
partments, to providing alternatives for large-scale projects and opportunities. Figure 1.9
gives a simple overview of the development of important business information systems
discussed in this section.
Figure 1.9
Electronic and The Development of Important

TPS MIS DSS Mobile Commerce
Business Information Systems
1950s 1960s 1970s 1980s 1990s 2000 and Beyond
Electronic and Mobile Commerce

E-commerce involves any business transaction executed electronically between parties such e-commerce
as companies (business-to-business, B2B), companies and consumers (business-to-consumer, Any business transaction executed
B2C), consumers and other consumers (consumer-to-consumer, C2C), business and the electronically between parties such
as companies (business-to-
public sector, and consumers and the public sector. People may assume that e-commerce is business), companies and con-
reserved mainly for consumers visiting Web sites for online shopping. But Web shopping is sumers (business-to-consumer),
only a small part of the e-commerce picture; the major volume of e-commerce—and its consumers and other consumers
fastest-growing segment—is business-to-business (B2B) transactions that make purchasing (consumer-to-consumer), business
easier for corporations. This growth is being stimulated by increased Internet access, growing and the public sector, and
consumers and the public sector.
user confidence, better payment systems, and rapidly improving Internet and Web security.
Corporate Express, an office-supply company located in Broomfield, Colorado, uses a so-
phisticated B2B system to coordinate billions of dollars of office supplies that flow from its
suppliers, through its offices, to its customers.27 Today, more than half of its 75,000 daily
orders arrive electronically through B2B on the Internet. E-commerce offers opportunities
for small businesses, too, by enabling them to market and sell at a low cost worldwide, thus
IBM PartnerWorld® is an example

of B2B (business-to-business)
e-commerce that provides member
companies with resources for
product marketing, technical
support and training.
mobile commerce allowing them to enter the global market right from start-up. Mobile commerce
(m-commerce) (m-commerce) are transactions conducted anywhere, anytime. M-commerce relies on the
Transactions conducted anywhere, use of wireless communications to allow managers and corporations to place orders and
anytime.
conduct business using handheld computers, portable phones, laptop computers connected
to a network, and other mobile devices.
Consumers who have tried online shopping appreciate the ease of e-commerce. They can
avoid fighting crowds in the malls, shop online at any time from the comfort of their home,
and have goods delivered to them directly. As a result, advertisers plan to increase spending
by 6.3 percent online versus 4.7 percent in conventional media.28 In addition, current laws
governing online purchases exempt purchasers from paying state sales taxes. However, e-
commerce is not without its downside. Consumers continue to have concerns about sending
credit card information over the Internet to sites with varying security measures, where high-
tech criminals could obtain it. In addition, denial-of-service attacks that overwhelm the
capacity of some of the Web’s most established and popular sites have raised new concerns
for continued growth of e-commerce. Privacy is an additional concern. Individuals want to
know what data is gathered when a consumer visits a Web site and what companies do with
the collected data; some have sold data to multiple sources, leading marketing companies to
know more than we would like. See the “Ethical and Societal Issues” box, which discusses
other potential problems of e-commerce.
ETHICAL AND
SOCIETAL ISSUES
Phishing for Visa Card Customers electronically with their customers and to conduct business on-
line. “At stake is our very trust that the Internet can be relied upon
A new type of Internet fraud is becoming increasingly prevalent—
for safe and secure commerce and communications,” says Dave
and costing consumers their money and identity. This latest scam
Jevans, chairman of the Anti-Phishing Working Group
is called phishing because it uses e-mail and Web sites as bait to
(www.antiphishing.org ).
lure consumers into revealing private information.
Software tools designed to detect phishing scams typically
E-commerce systems rely on the trust of the participants. If they
identify only 50 to 70 percent of all phony systems. The only defense
do not trust the technology to provide safe and secure transactions,
consumers have against such scams is education—and caution. Be
e-commerce would have no future. While network research has
leery of any e-mail from a company that asks you to visit a Web page
produced more secure connections between two parties over the
to provide private information. Check with the company at its official
Internet, no foolproof systems exist to guarantee that the
Web site to confirm that such requests are legitimate before
participants are who they claim to be. Phishing scams exploit this
complying.
system vulnerability.
A phishing scam was recently launched against Visa card
customers and serves as a textbook example of the technique. A Critical Thinking Questions
mass e-mail was sent to Internet users with an official-looking Visa 1. How can people protect themselves from becoming a vic-
return address, claiming to have come from Visa International tim of a phishing scam?
Services. Sending e-mail with a forged return address is a common 2. What action can people take if they discover that their pri-
practice in Internet fraud and is formally referred to as spoofing. The vate information has been stolen?
e-mail stated that Visa had implemented a new “security system to
help you to avoid possible fraud actions” and asked users to click a
What Would You Do?
link to “reactivate your account.” The link was printed as www.visa.
com, but when users clicked the link, it took them to a Web site that You’ve received an e-mail from your college’s Financial Aid
resembled the Visa Web site—with an official Visa logo, artwork, and Department that congratulates you on being the recipient of funds
design—but was not owned by Visa. The site asked customers to from a newly launched grant program. To receive your $2,000 for
enter personal information, including their Visa credit card number. this semester, you are required to visit the Financial Aid Web site
The scam artists then had both a customer’s account number and (www.financial-aid.yourschool.com) and submit a brief online
his or her name. application form. After filling out the form, which collects information
The 2003 holiday season saw a 400 percent increase in phishing such as your name, address, phone, date of birth, school ID number,
scams, with 60 unique attacks launched and more than 60 million Social Security number, and bank-account number (for automatic
fraudulent e-mails sent out. It is estimated that 5 to 20 percent of deposit), you click the Submit button and head out to celebrate your
recipients respond to phishing scams. In the Visa scam, the owners good fortune. After a week, the money has yet to be deposited, and
of the fraudulent site shut down and disappeared prior to discovery, you are getting concerned.
taking with them an unknown quantity of customer records. The
information they stole could be sold in the underground credit card 3. What in this scenario suggests that this might be a phish-
market and used by crooks and thieves to assume the identity of the ing scam?
victims and make illegal purchases. 4. If you were responsible for information security at your
Phishing scams are increasingly difficult to detect. The school, what system might you design to assure students
fraudulent e-mails and Web sites look identical to original corporate that official school correspondence really comes from the
correspondence and Web sites. Web addresses appear legitimate school and not from an imposter?
and may even employ secure connections (identified by the
closed-lock icon at the bottom of the browser window). Such scams SOURCES: Paul Roberts, “Latest ’Phishing’ Scam Targets Visa Customers,”
Computerworld, December 26, 2003; “Growth in Internet Fraud to Be Key Con-
make it difficult for legitimate businesses to communicate cern In 2004,” Electronic Commerce News, January 5, 2004; the Anti-Phishing
group Web site, www.anti-phishing.org, accessed January 17, 2004.
23
Yet, in spite of the concerns, e-commerce offers many advantages for streamlining work
activities. Figure 1.10 provides a brief example of how e-commerce can simplify the process
for purchasing new office furniture from an office-supply company. Under the manual sys-
tem, a corporate office worker must get approval for a purchase that costs more than a certain
amount. That request goes to the purchasing department, which generates a formal purchase
order to procure the goods from the approved vendor. Business-to-business e-commerce
automates the entire process. Employees go directly to the supplier’s Web site, find the item
in its catalog, and order what they need at a price set by the employee’s company. If approval
is required, the approver is notified automatically. As the use of e-commerce systems grows,
companies are phasing out their traditional systems. The resulting growth of e-commerce is
creating many new business opportunities.
E-commerce can have a positive impact on stock prices and the market value of firms.
Today, several e-commerce firms have teamed up with more traditional brick-and-mortar
firms to draw from each other’s strengths. Some e-commerce customers can order products
through an Internet site and pick them up at a local store close by.
Obtain
approval of
Prepare requisition
requisition
Purchasing
Requisition department Vendor
eO
rde
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ee
ac
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as on
rch us ACME Inc.
Pu
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ow 7 That St.
as
e fo ll tap od
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of ply s
es ine rew
ox Xp sc
0b CD all s 01800
10 ts w ge
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47
Traditional process for placing a purchase order
Vendor
Electronic
purchase order
E-commerce process for placing a purchase order
Figure 1.10
In addition to e-commerce, business information systems include the use of telecommu-
E-Commerce Greatly nications and the Internet to perform many related tasks. Electronic procurement (e-procure-
Simplifies Purchasing ment), for example, involves using information systems and the Internet to acquire parts and
supplies using information systems and the Internet. Electronic business (e-business) goes be-
yond e-commerce to include the use of information systems and the Internet to perform all
business-related tasks and functions, such as accounting, finance, marketing, manufacturing,
and human resources activities. Electronic management (e-management) involves the use of
information systems and the Internet to manage profit and nonprofit organizations, includ-
ing governmental agencies, the military, and religious and charitable organizations.
E-management includes all aspects of staffing and hiring, directing, controlling, and other
management tasks.
Transaction Processing Systems and Enterprise

Resource Planning
Transaction Processing Systems
Since the 1950s computers have been used to perform common business applications. The transaction
objective of many of these early systems was to reduce costs by automating many routine, Any business-related exchange,
labor-intensive business systems. A transaction is any business-related exchange such as pay- such as payments to employees,
sales to customers, and payments
ments to employees, sales to customers, or payments to suppliers. Thus, processing business to suppliers.
transactions was the first application of computers for most organizations. A transaction
processing system (TPS) is an organized collection of people, procedures, software, Transaction processing system
databases, and devices used to record completed business transactions. To understand a (TPS)
transaction processing system is to understand basic business operations and functions. An organized collection of people,
procedures, software, databases,
One of the first business systems to be computerized was the payroll system (see Figure
and devices used to record complet-
1.11). The primary inputs for a payroll TPS are the numbers of employee hours worked ed business transactions.
during the week and pay rate. The primary output consists of paychecks. Early payroll systems
were able to produce employee paychecks, along with important employee-related reports
required by state and federal agencies, such as the Internal Revenue Service. Other routine
applications include sales ordering, customer billing and customer relationship management,
inventory control, and many other applications. Some automobile companies, for example,
use their TPS to buy billions of dollars of needed parts each year through Internet sites.
Because these systems handle and process daily business exchanges, or transactions, they are
all classified as TPSs.
Figure 1.11
Hours
worked A Payroll Transaction
Processing System
Payroll The inputs (numbers of employee
transaction Payroll hours worked and pay rates) go
processing checks
through a transformation process to
produce outputs (paychecks).
Pay
rate
In improved forms, these TPSs are still vital to most modern organizations: Consider
what would happen if an organization had to function without its TPS for even one day.
How many employees would be paid and paid the correct amount? How many sales would
be recorded and processed? Transaction processing systems represent the application of in-
formation concepts and technology to routine, repetitive, and usually ordinary business
transactions that are critical to the daily functions of that business.
Enterprise Resource Planning
An enterprise resource planning (ERP) system is a set of integrated programs that is capable enterprise resource planning
of managing a company’s vital business operations for an entire multisite, global organization. (ERP) system
ERP systems can replace many applications with one unified set of programs. Sutter Health, A set of integrated programs capa-
ble of managing a company’s vital
a large network of 33 hospitals with over 4 million patients in northern California, uses an
business operations for an entire
ERP system to process medical transactions and to exchange information between hospitals, multisite, global organization.
physicians, and employees.29 Although the scope of an ERP system may vary from company
to company, most ERP systems provide integrated software to support the manufacturing
and finance business functions of an organization. In such an environment, a forecast is
prepared that estimates customer demand for several weeks. The ERP system checks what is
SAP AG, a German software

company, is one of the leading
suppliers of ERP software. The
company employs nearly 30,000
people in more than 50 countries.
already available in finished product inventory to meet the projected demand. Manufacturing
must then produce inventory to eliminate any shortcomings. In developing the production
schedule, the ERP system checks the raw-material and packing-material inventories and de-
termines what needs to be ordered to meet the schedule. Most ERP systems also have a
purchasing subsystem that orders the needed items. In addition to these core business
processes, some ERP systems can support additional business functions, such as human re-
sources, sales, and distribution. Customer relationship management (CRM) features, for
example, help organizations manage all aspects of customer interactions, including inquiries,
sales, delivery of products and services, and support after the sale. Today, ERP companies
have Internet-based systems to manage customer relationships. The primary benefits of im-
plementing an ERP system include easing adoption of improved work processes and
improving access to timely data for decision making. An ERP system can take a large number
of separate systems developed over a number of years by an organization and replace them
with one unified set of programs, making the system easier to use and more effective.
Information and Decision Support Systems

The benefits provided by an effective TPS are tangible and justifies their associated costs in
computing equipment, computer programs, and specialized personnel and supplies. They
speed business activities and reduce clerical costs. Although early accounting and financial
TPSs were already valuable, companies soon realized that the data stored in these systems
could be used to help managers make better decisions in their respective business areas,
whether human resource management, marketing, or administration. Satisfying the needs of
managers and decision makers continues to be a major factor in developing information
systems.
Management Information Systems
management information A management information system (MIS) is an organized collection of people, procedures,
system (MIS) software, databases, and devices used to provide routine information to managers and deci-
An organized collection of people, sion makers. The focus of an MIS is primarily on operational efficiency. Marketing,
procedures, software, databases,
production, finance, and other functional areas are supported by MISs and linked through
and devices used to provide routine
information to managers and
a common database. Management information systems typically provide standard reports
decision makers. generated with data and information from the TPS (see Figure 1.12).
Management information systems were first developed in the 1960s and are characterized
by the use of information systems to produce managerial reports. In most cases, these early
reports were produced periodically—daily, weekly, monthly, or yearly. Gambling casinos
generate daily reports that tell their staff what specific customers like. Some casinos know
MARKETING MANUFACTURING Figure 1.12

MANAGEMENT MANAGEMENT
INFORMATION INFORMATION Functional management
SYSTEM SYSTEM
information systems draw data from
the organization’s transaction
Common
Database processing system.
FINANCIAL OTHER
MANAGEMENT MANAGEMENT
INFORMATION TPS INFORMATION
SYSTEM SYSTEMS
whether a certain customer likes flowers in her room or a beverage in his hand and can
accommodate individual needs or desires. Periodic reports are printed regularly, so they are
called scheduled reports. Scheduled reports help managers perform their duties. For example,
a summary report of total payroll costs might help an accounting manager control future
payroll costs. Because of their value to managers, MISs have proliferated throughout the
management ranks. For instance, the total payroll summary report produced initially for an
accounting manager might also be useful to a production manager to help monitor and
control labor and job costs. Other scheduled reports are used to help managers from a variety
of departments control customer credit, payments to suppliers, the performance of sales
representatives, inventory levels, and more.
Other types of reports were also developed during the early stages of MISs. Demand
reports were developed to give decision makers certain information on request. For example,
prior to closing a sale, a sales representative might seek a demand report on how much
inventory exists for a particular item. This report would tell the representative whether
enough inventory is on hand to fill the customer’s order. Exception reports describe unusual
or critical situations, such as low inventory levels. An exception report is produced only if a
certain condition exists—in this case, inventory falling below a specified level. For example,
in a bicycle manufacturing company, an exception report might be produced by the MIS if
the number of bicycle seats is too low and more should be ordered.
Decision Support Systems
By the 1980s, dramatic improvements in technology resulted in information systems that
were less expensive but more powerful than earlier systems. People at all levels of organizations
began using personal computers to do a variety of tasks; they were no longer solely dependent
on the IS department for all their information needs. So, people quickly recognized that
computer systems could support additional decision-making activities. A decision support decision support system (DSS)
system (DSS) is an organized collection of people, procedures, software, databases, and de- An organized collection of people,
vices used to support problem-specific decision making. The focus of a DSS is on decision- procedures, software, databases,
and devices used to support prob-
making effectiveness. Whereas an MIS helps an organization “do things right,” a DSS helps lem-specific decision making.
a manager “do the right thing.” Oxford Bookstore, located in Calcutta, uses a DSS and the
Internet to allow book lovers in India to purchase their favorite books at Oxford’s traditional
retail stores or through its Internet site. The Internet site provides a wealth of information
to help people make better book-purchasing decisions.30 Blue Cross of Pennsylvania uses a
DSS from InterQual to help it support level-of-care decisions.31
A DSS supports and assists all aspects of problem-specific decision making. A DSS can
also support customers by rapidly responding to their phone and e-mail inquiries. A DSS
goes beyond a traditional MIS by providing immediate assistance in solving complex prob-
lems. Many of these problems are unique and not straightforward, and information is often
difficult to obtain. For instance, an auto manufacturer might try to determine the best
location to build a new manufacturing facility, or an oil company might want to discover
the best place to drill for oil. Some big oil companies use a DSS to track and manage projects
and employees in countries around the world. Traditional MISs are seldom used to solve
these types of problems; a DSS can help by suggesting alternatives and assisting in final
decision making.
Decisioneering provides decision

Decision support systems are used when the problem is complex and the information
support software called Crystal
Ball, which helps business people of
needed to make the best decision is difficult to obtain and use. So, a DSS also involves
all types assess risks and make managerial judgment and perspective. Managers often play an active role in the development
forecasts. Shown here is the and implementation of the DSS. A DSS recognizes that different managerial styles and de-
Standard Edition being used for oil cision types require different systems. For example, two production managers in the same
field development. position trying to solve the same problem might require different information and support.
(Source: Crystal Ball screenshot The overall emphasis is to support, rather than replace, managerial decision making.
courtesy of Decisioneering, Inc.) The essential elements of a DSS include a collection of models used to support a decision
maker or user (model base), a collection of facts and information to assist in decision making
(database), and systems and procedures (dialogue manager) that help decision makers and
other users interact with the DSS (see Figure 1.13). Software is often used to manage the
database (the database management system, DBMS) and the model base (the model
management system, MMS).
In addition to DSSs that support individual decision making, there are group decision
support systems and executive support systems that use the same overall approach of a DSS.
A group decision support system, also called a group support system, includes the DSS elements
just described and software, called groupware, to help groups make effective decisions. An
executive support system, also called an executive information system, helps top-level managers,
including a firm’s president, vice presidents, and members of the board of directors, make
better decisions. An executive support system can be used to assist with strategic planning,
top-level organizing and staffing, strategic control, and crisis management.
Figure 1.13
Database Model base Essential DSS Elements
DBMS MMS
Access to the Internet,

External
corporate intranets,
database External
extranets, networks,
access database
and other computer
systems
Dialogue manager
Specialized Business Information Systems: Artificial

Intelligence, Expert Systems, and Virtual Reality
In addition to TPSs, MISs, and DSSs, organizations often use specialized systems. One of
these systems is based on the notion of artificial intelligence (AI), where the computer system artificial intelligence (AI)
takes on the characteristics of human intelligence. The field of artificial intelligence includes A field in which the computer system
several subfields (see Figure 1.14). takes on the characteristics of
human intelligence.
Figure 1.14
Artificial
intelligence The Major Elements of Artificial
Intelligence
Vision Learning
systems systems
Robotics Expert systems
Neural networks
Natural language
processing
Artificial Intelligence
Robotics is an area of artificial intelligence in which machines take over complex, dangerous,
routine, or boring tasks, such as welding car frames or assembling computer systems and
components. Vision systems allow robots and other devices to see, store, and process visual
images. Natural language processing involves the ability of computers to understand and act
on verbal or written commands in English, Spanish, or other human languages. Learning
systems give computers the ability to learn from past mistakes or experiences, such as playing
games or making business decisions, and neural networks is a branch of artificial intelligence
that allows computers to recognize and act on patterns or trends. Some successful stock,
options, and futures traders use neural networks to spot trends and make them more
profitable with their investments.
Expert Systems
expert system Expert systems give the computer the ability to make suggestions and act like an expert in
A system that gives a computer the a particular field. The unique value of expert systems is that they allow organizations to
ability to make suggestions and act capture and use the wisdom of experts and specialists. Therefore, years of experience and
like an expert in a particular field.
specific skills are not completely lost when a human expert dies, retires, or leaves for another
job. Expert systems can be applied to almost any field or discipline. Expert systems have been
used to monitor complex systems such as nuclear reactors, perform medical diagnoses, locate
possible repair problems, design and configure IS components, perform credit evaluations,
and develop marketing plans for a new product or new investment strategies. The collection
of data, rules, procedures, and relationships that must be followed to achieve value or the
knowledge base proper outcome is contained in the expert system’s knowledge base.
The collection of data, rules, proce- The end of the twentieth century brought advances in both artificial intelligence and
dures, and relationships that must expert systems. More and more organizations are using these systems to solve complex prob-
be followed to achieve value or the
proper outcome.
lems and support difficult decisions. However, many issues remain to be resolved, and more
work is needed to refine their meaningful uses.
Virtual Reality
virtual reality Virtual reality is the simulation of a real or imagined environment that can be experienced
The simulation of a real or imagined visually in three dimensions. Originally, virtual reality referred to immersive virtual reality,
environment that can be experi- which means the user becomes fully immersed in an artificial, 3-D world that is completely
enced visually in three dimensions.
generated by a computer. The virtual world is presented in full scale and relates properly to
the human size. It may represent any 3-D setting, real or abstract, such as a building, an
archaeological excavation site, the human anatomy, a sculpture, or a crime scene reconstruc-
tion. Virtual worlds can be animated, interactive, and shared. Through immersion, the user
can gain a deeper understanding of the virtual world’s behavior and functionality.
A variety of input devices such as head-mounted displays (see Figure 1.15), data gloves
(see Figure 1.16), joysticks, and handheld wands allow the user to navigate through a virtual
environment and to interact with virtual objects. Directional sound, tactile and force feed-
back devices, voice recognition, and other technologies are used to enrich the immersive
experience. Several people can share and interact in the same environment. Because of this
ability, virtual reality can be a powerful medium for communication, entertainment, and
learning.
Virtual reality can also refer to applications that are not fully immersive, such as mouse-
controlled navigation through a 3-D environment on a graphics monitor, stereo viewing
from the monitor via stereo glasses, stereo projection systems, and others. Some virtual reality
applications allow views of real environments with superimposed virtual objects. Motion
trackers monitor the movements of dancers or athletes for subsequent studies in immersive
virtual reality. Telepresence systems (e.g., telemedicine, telerobotics) immerse a viewer in a
real world that is captured by video cameras at a distant location and allow for the remote
manipulation of real objects via robot arms and manipulators. Many believe that virtual
reality is reshaping the interface between people and information technology by offering new
ways to communicate information, visualize processes, and express ideas creatively.
Useful applications of virtual reality include training in a variety of areas (military, med-
ical, equipment operation, etc.), education, design evaluation (virtual prototyping), archi-
tectural walk-throughs, human factors and ergonomic studies, simulation of assembly
sequences and maintenance tasks, assistance for the handicapped, study and treatment of
Figure 1.15
A Head-Mounted Display
The head-mounted display (HMD)
was the first device of its kind
providing the wearer with an
immersive experience. A typical
HMD houses two miniature display
screens and an optical system that
channels the images from the
screens to the eyes, thereby
presenting a stereo view of a virtual
world. A motion tracker
continuously measures the position
and orientation of the user’s head
and allows the image-generating
computer to adjust the scene
representation to the current view.
As a result, the viewer can look
phobias (fear of flying), entertainment, and, of course, virtual reality games. Students taking around and walk through the
Television and the Modern Presidency at the University of Denver, are able to chat with surrounding virtual environment.
former presidents, White House administrators, and Washington insiders. 32 (Source: Image Courtesy of 5DT,
Inc., www.5DT.com .)
Figure 1.16
A Data Glove
Realistic interactions with virtual
objects via such devices as a data
glove that senses hand position
allow for manipulation, operation,
and control of virtual worlds.
(Source: Image Courtesy of 5DT,
Inc., www.5DT.com .)
It is difficult to predict where information systems and technology will be in 10 to 20

years. It seems, however, that we are just beginning to discover the full range of their use-
fulness. Technology has been improving and expanding at an increasing rate; dramatic
growth and change are expected for years to come. Without question, a knowledge of the
effective use of information systems will be critical for managers both now and in the long
term. But how are these information systems created?
SYSTEMS DEVELOPMENT
systems development Systems development is the activity of creating or modifying existing business systems.
The activity of creating or modifying People inside a company can develop systems, or companies can use outsourcing, hiring an
existing business systems.
outside company to perform some or all of a systems development project. Outsourcing
allows a company to focus on what it does best and delegate other functions to companies
with expertise in systems development. Cox Insurance Holdings, for example, outsourced its
commercial underwriting operations to another company.33 Outsourcing enabled Cox In-
surance to streamline its operations and reduce costs. Outsourcing, however, is not the best
alternative for all companies. Toyota recently stopped outsourcing its financial services and
started to perform the financial services function internally.34 According to the director of
Toyota Financial Services, “ You depend on that service provider. you worry about whether
or not it will be in business next year, and whether or not it will be able to service you
consistently throughout the terms of the agreement and beyond.” Other companies have
used outsourcing for software development, database development, and other aspects of
systems development.
Developing information systems to meet business needs is highly complex and difficult,
so much so that it is common for IS projects to overrun budgets and exceed scheduled
completion dates. Business managers would like the development process to be more man-
ageable, especially with predictable costs and timing. One strategy for improving the results
of a systems development project is to divide it into several steps, each with a well-defined
goal and set of tasks to accomplish (see Figure 1.17). These steps are summarized next.
Figure 1.17
An Overview of Systems
Development SYSTEMS INVESTIGATION
Understand problem
SYSTEMS ANALYSIS
Understand solutions
SYSTEMS DESIGN
Select and plan best solution
SYSTEMS IMPLEMENTATION
Place solution into effect
SYSTEMS MAINTENANCE
AND REVIEW
Evaluate results of solution
Systems Investigation and Analysis

The first two steps of systems development are systems investigation and analysis. The goal
of the systems investigation is to gain a clear understanding of the problem to be solved or
opportunity to be addressed. A cruise line company, for example, may launch a systems
investigation to determine whether a development project is feasible to automate purchasing
at ports around the world. Once an organization understands the problem, the next question
to be answered is, “Is the problem worth solving?” Given that organizations have limited
resources—people and money—this question deserves careful consideration. If the decision
is to continue with the solution, the next step, systems analysis, defines the problems and
opportunities of the existing system.
Systems Design, Implementation, Maintenance, and

Review
Systems design determines how the new system will work to meet the business needs defined
during systems analysis. Systems implementation involves creating or acquiring the various
system components (hardware, software, databases, etc.) defined in the design step, assem-
bling them, and putting the new system into operation. The purpose of systems maintenance
and review is to check and modify the system so that it continues to meet changing business
needs.
INFORMATION SYSTEMS IN SOCIETY, BUSINESS,

AND INDUSTRY
Information systems have been developed to meet the needs of all types of organizations and
people, and their use is spreading throughout the world to improve the lives and business
activities of many citizens. But to provide their enormous benefits, information systems must
be implemented thoughtfully and carefully. The speed and widespread use of information
systems opens organizations and individuals to a variety of threats from unethical people.
Security, Privacy, and Ethical Issues in Information

Systems and the Internet
Although information systems can provide enormous benefits, there are a number of potential
negative aspects to their use.35 Figure 1.18, for example, shows the percentage of businesses
and other organizations attacked by various means in a one-year period. Figure 1.19 reveals
the cost of losses during a one-year period of about 250 organizations that responded to a
survey.
In addition to attacks on information systems, computer resources can be wasted, and
computer-related mistakes and misuse have cost organizations millions of dollars. In an act
of revenge, one fired employee in Australia used a computer to hack into a sewerage system
and released millions gallons of raw waste into rivers and parks.36 He released raw waste more
than 40 times before he was caught. Computer crime and the invasion of privacy are also
potential problems.37
Increasingly, the ethical use of systems has also been highlighted in the news. Ethical
issues concern what is generally considered right or wrong. Some IS professionals believe that
computers may create new opportunities for unethical behavior. For example, a faculty
member of a medical school falsified computerized research results to get a promotion—and
a higher salary. In another case, a company was charged with using a human resource infor-
mation system to time employee layoffs and firings to avoid paying pensions. More and more,
the Internet is also associated with unethical behavior. Unethical investors have placed false
rumors or wrong information about a company on the Internet and tried to influence its
Figure 1.18 TYPE OF ATTACK
Virus
Attacks on Businesses and
Other Organizations in One Insider abuse of
Internet access
Year
Laptop theft
(Source: Data from Riva Richmond,
“How to Find Your Weak Spots,” The Unauthorized access by
insiders
Wall Street Journal, September 29,
2003, p. R3.) Denial of service
System penetration
Theft of proprietary
information
Sabotage
Financial fraud
Telecommunications fraud
Telecommunications
eavesdropping
Active wiretap
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
PERCENTAGE OF
ORGANIZATIONS ATTACKED
Figure 1.19 CAUSE

Theft of proprietary
The Cost and Cause of information
Computer Attacks Denial of service
(Source: Data from Riva Richmond,
Virus
“How to Find Your Weak Spots,” The
Wall Street Journal, September 29, Insider abuse of
Internet access
2003, p. R3.)
Financial fraud
Laptop theft
Sabotage
System penetration
Active wiretap
Telecommunications fraud
Unauthorized access by
insiders
Telecommunications
eavesdropping
0 0
10 2
20 30 40 50 60 70 80 90 100
COST
(MILLIONS OF DOLLARS)
stock price to make money. Stolen property is another issue. A few weeks before the $100-
million film, Hulk, first hit the big screen, pirated copies were available on the Internet, after
a man in New Jersey got an illegal copy of the film before its formal release.38
Many organizations have codes of conduct to foster ethical behavior in the use of
information systems. Some other security and control measures are controversial, however.
The USA Patriot Act, enacted as a result of the September 11, 2001, terrorist attacks, requires
companies to respond to a subpoena in five days or fewer. The USA Patriot Act can require
organizations to supply financial and personal information, such as books checked out at a
library. Like many companies, Sumitomo Mitsui Bank uses a new computer system to collect
any necessary data and make it available to government agencies. Without the new in-
formation system, it could take weeks just to collect the needed data.39 Some believe that
provisions in this act may violate an individual’s privacy.
Individuals and organizations can install security and control measures to protect them-
selves against some of the potential negative aspects of computerization. For example, a
number of software products have been developed to detect and remove viruses from
computer systems. Software can also protect you from spam, unwanted e-mail.40 Information
systems can help reduce crime as well.41 A free computer center in Wellington, New Zealand,
has cut vandalism by keeping young people off the street and giving people in the community
a sense of pride. When a pair of headphones disappeared from the center, the community
rallied to make sure that they were promptly returned.
Some individuals and companies install firewalls (software and hardware that protect a
computer system or network from outside attacks) to avoid viruses and prevent unauthorized
people from gaining access to the computer system. Identification numbers and passwords
can also be used. One individual has proposed that Web cameras be put in critical areas and
that “citizen spotters” be hired to monitor the Webcams.42 In response to possible abuses, a
number of laws have been passed to protect people from invasion of their privacy, including
The Privacy Act, enacted in the 1970s.
Use of information systems also raises a number of work concerns, including job loss
through increased efficiency and some potential health problems from making repetitive
motions and other workplace issues. Ergonomics, the study of designing and positioning
computer systems, can help people and companies avoid health-related problems of using
computer systems.
Computer and Information Systems Literacy

In the twenty-first century, business survival and prosperity continue to become more
difficult. For example, increased mergers among former competitors to create global con-
glomerates, continued downsizing of corporations to focus on their core businesses and to
improve efficiencies, efforts to reduce trade barriers, and the globalization of capital all point
to the increased internationalization of business organizations and markets. In addition,
business issues and decisions are becoming more complex and must be made faster. Whatever
career path you take, an understanding of information systems will help you cope, adapt,
and prosper in this challenging environment.
The Internet is one means for advancing your knowledge of information systems and
other professional study. Increasingly, courses or entire degrees are being offered over the
Internet. One Harvard University professor, for example, stays up late at night to teach a
class on clinical design to doctors in Asia.43 In addition to traditional colleges and universities,
a number of online degree programs are offered over the Internet.44 Online degree programs
are especially attractive to people with full-time jobs because they can learn during nontra-
ditional hours from home.45 While some people question the value of these online programs,
others believe they foster motivation and determination in working professionals.
A knowledge of information systems will help you make a significant contribution on
the job. It will also help you advance in your chosen career or field. Managers are expected
to identify opportunities to implement information systems to improve their business. They
are also expected to lead IS projects in their areas of expertise. To meet these personal and
organizational goals, you must acquire both computer literacy and information systems lit-
eracy. Computer literacy is a knowledge of computer systems and equipment and the ways computer literacy
they function. It stresses equipment and devices (hardware), programs and instructions (soft- Knowledge of computer systems
ware), databases, and telecommunications. and equipment and the ways they
function; it stresses equipment and
Information systems literacy goes beyond a knowledge of the fundamentals of computer devices (hardware), programs and
systems and equipment. Information systems literacy is a knowledge of how data and in- instructions (software), databases,
formation are used by individuals, groups, and organizations. It includes knowledge of not and telecommunications.
only computer technology but also aspects of the broader range of information technology.
information systems literacy Most important, however, it encompasses how and why this technology is applied in busi-
Knowledge of how data and infor- ness. Knowing about various types of hardware and software is an example of computer
mation are used by individuals,
literacy. Knowing how to use hardware and software to increase profits, cut costs, improve
groups, and organizations.
productivity, and increase customer satisfaction is an example of information systems literacy.
Information systems literacy can involve a knowledge of how and why people (managers,
employees, stockholders, and other individuals) use information technology; a knowledge of
organizations, decision-making approaches, management levels, and information needs; and
a knowledge of how organizations can use computers and information systems to achieve
their goals. Knowing how to deploy transaction processing, management information,
decision support, and special-purpose systems to help an organization achieve its goals is a
key aspect of information systems literacy.
Information Systems in the Functional Areas of Business

Studies have shown that the involvement of managers and decision makers in all aspects of
information systems is a major factor for organizational success, including higher profits and
lower costs. Information systems are used in all functional areas and operating divisions of
business. In finance and accounting, information systems are used to forecast revenues and
business activity, determine the best sources and uses of funds, manage cash and other fi-
nancial resources, analyze investments, and perform audits to make sure that the organization
is financially sound and that all financial reports and documents are accurate. In sales and
marketing, information systems are used to develop new goods and services (product analysis),
determine the best location for production and distribution facilities (place or site analysis),
determine the best advertising and sales approaches (promotion analysis), and set product
prices to get the highest total revenues (price analysis).
In manufacturing, information systems are used to process customer orders, develop pro-
duction schedules, control inventory levels, and monitor product quality. In addition,
information systems are used to design products (computer-assisted design, or CAD), manu-
facture items (computer-assisted manufacturing, or CAM), and integrate multiple machines or
pieces of equipment (computer-integrated manufacturing, or CIM). Information systems are
also used in human resource management to screen applicants, administer performance tests
to employees, monitor employee productivity, and more. Legal information systems are used
to analyze product liability and warranties and to develop important legal documents and
reports.
Information Systems in Industry

Information systems are used in almost every industry or field. The airline industry employs
Internet auction sites to offer discount fares and increase revenue. Investment firms use in-
formation systems to analyze stocks, bonds, options, the futures market, and other financial
instruments, as well as to provide improved services to their customers. Banks use information
systems to help make sound loans and good investments, as well as to provide online check
payment for account holders. The transportation industry uses information systems to sched-
ule trucks and trains to deliver goods and services at the lowest cost. Publishing companies use
information systems to analyze markets and to develop and publish newspapers, magazines,
and books. Healthcare organizations use information systems to diagnose illnesses, plan med-
ical treatment, track patient records, and bill patients. HMOs use Web technology to access
patients’ insurance eligibility and other information held in databases to cut patient costs.
Retail companies are using the Web to take customer orders and provide customer service
support. Retail companies also use information systems to help market products and services,
manage inventory levels, control the supply chain, and forecast demand. Power manage-
ment and utility companies use information systems to monitor and control power generation
and usage. Professional services firms employ information systems to improve the speed and
quality of services they provide to customers. Management consulting firms use intranets
and extranets to provide information on products, services, skill levels, and past engagements
to its consultants. These industries will be discussed in more detail as we continue through
the book.
An Introduction to Information systems | Chapter 1 37
SUMMARY
Principle There are four basic types of models: narrative, physical,

schematic, and mathematical. These models serve as an
The value of information is directly linked to how it
abstraction or an approximation that is used to represent
helps decision makers achieve the organization’s
reality. Models enable us to explore and gain an improved
goals. understanding of real-world situations. The narrative model
Information systems are used in almost every imaginable provides a verbal description of reality. A physical model is a
career area. Regardless of your college major or chosen tangible representation of reality, often computer designed or
career, you will find that information systems are indispens- constructed. A schematic model is a graphic representation
able tools to help you achieve your career aspirations. Learn- of reality such as a graph, chart, figure, diagram, illustration,
ing about information systems can help you get your first job, or picture. A mathematical model is an arithmetic represen-
obtain promotions, and advance your career. tation of reality.
Data consists of raw facts; information is data trans-
formed into a meaningful form. The process of defining Principle
relationships between data requires knowledge. Knowledge
is an awareness and understanding of a set of information and
Knowing the potential impact of information systems
the way that information can be made useful to support a and having the ability to put this knowledge to work
specific task. To be valuable, information must have several can result in a successful personal career, organiza-
characteristics: It should be accurate, complete, economical tions that reach their goals, and a society with a higher
to produce, flexible, reliable, relevant, simple to understand, quality of life.
timely, verifiable, accessible, and secure. The value of infor-
mation is directly linked to how it helps people achieve their Information systems are sets of interrelated elements that
organization’s goals. collect (input), manipulate and store (process), and dissemi-
nate (output) data and information. Input is the activity of
capturing and gathering new data; processing involves con-
Principle verting or transforming data into useful outputs; and output
Models, computers, and information systems are involves producing useful information. Feedback is the output
constantly making it possible fororganizations to that is used to make adjustments or changes to input or pro-
cessing activities.
improve the way they conduct business.
The components of a computer-based information system
A system is a set of elements that interact to accomplish a include hardware, software, databases, telecommunications
goal or set of objectives. The components of a system include and the Internet, people, and procedures. CBISs play an
inputs, processing mechanisms, and outputs. Systems also important role in today’s businesses and society. The key to
contain boundaries that separate them from the environment understanding the existing variety of systems begins with
and each other. Feedback is used by the system to monitor learning their fundamentals. The types of business informa-
and control its operation to make sure that it continues to tion systems used within organizations can be classified into
meet its goals and objectives. Systems may be classified in four basic groups: (1) e-commerce and m-commerce, (2) TPS
many ways. They may be considered simple or complex. A and ERP systems, (3) MIS and DSS, and (4) specialized busi-
stable, nonadaptive system does not change over time, while ness information systems.
a dynamic, adaptive system does. Open systems interact with E-commerce involves any business transaction executed
their environments; closed systems do not. Some systems electronically between parties such as companies (business-
exist temporarily; others are considered permanent. to-business), companies and consumers (business-to-con-
System performance is measured by its efficiency and sumer), business and the public sector, and consumers and
effectiveness. Efficiency is a measure of what is produced the public sector. The major volume of e-commerce and its
divided by what is consumed; effectiveness is a measure of fastest-growing segment is business-to-business transac-
the extent to which a system achieves its goals. A systems tions that make purchasing easier for big corporations. E-
performance standard is a specific objective. A system vari- commerce also offers opportunities for small businesses by
able is a quantity or item that can be controlled by the decision enabling them to market and sell at a low cost worldwide, thus
maker, such as how much of a product to produce, while a allowing them to enter the global market right from start-up.
system parameter is a value or quantity that cannot be con- M-commerce involves anytime, anywhere computing that
trolled, such as the cost of raw material. relies on wireless networks and systems.
The most fundamental system is the transaction process- Principle

ing system (TPS). A transaction is any business-related
System users, business managers, and information
exchange. The TPS handles the large volume of business
systems professionals must work together to build a
transactions that occur daily within an organization. An enter-
successful information system.
prise resource planning (ERP) system is a set of integrated
programs that is capable of managing a company’s vital busi- Systems development involves creating or modifying existing
ness operations for an entire multisite, global organization. business systems. The major steps of this process and their
The management information system (MIS) uses the goals include systems investigation (gain a clear understand-
information from a TPS to generate information useful for ing of what the problem is), systems analysis (define what the
management decision making. Management information sys- system must do to solve the problem), systems design (deter-
tems produce a variety of reports. Scheduled reports contain mine exactly how the system will work to meet the business
prespecified information and are generated regularly. needs), systems implementation (create or acquire the vari-
Demand reports are generated only at the request of the user. ous system components defined in the design step), and
Exception reports contain listings of items that do not meet a systems maintenance and review (maintain and then modify
predetermined set of conditions. the system so that it continues to meet changing business
A decision support system (DSS) is an organized collection needs).
of people, procedures, databases, and devices used to sup-
port problem-specific decision making. A DSS differs from an
MIS in the support given to users, the decision emphasis, the Principle
development and approach, and system components, speed, Information systems must be applied thoughtfully
and output. and carefully so that society, business,and industry
The specialized business information systems include can reap their enormous benefits.
artificial intelligence systems, expert systems, and virtual
reality systems. Artificial intelligence (AI) includes a wide Information systems play a fundamental and ever-expanding
range of systems, in which the computer system takes on the role in society, business, and industry. But their use can also
characteristics of human intelligence. Robotics is an area of raise serious security, privacy, and ethical issues. Effective
artificial intelligence in which machines take over complex, information systems can have a major impact on corporate
dangerous, routine, or boring tasks, such as welding car strategy and organizational success. Businesses around the
frames or assembling computer systems and components. globe are enjoying better safety and service, greater efficiency
Vision systems allow robots and other devices to have “sight” and effectiveness, reduced expenses, and improved decision
and to store and process visual images. Natural language making and control because of information systems. Individ-
processing involves the ability of computers to understand uals who can help their businesses realize these benefits will
and act on verbal or written commands in English, Spanish, be in demand well into the future.
or other human languages. Learning systems give computers Computer and information systems literacy are prereq-
the ability to learn from past mistakes or experiences, such uisites for numerous job opportunities, not just in the IS field.
as playing games or making business decisions, while neural Computer literacy (a knowledge of computer systems and
networks is a branch of artificial intelligence that allows com- equipment) and information systems literacy (a knowledge of
puters to recognize and act on patterns or trends. An expert how data and information are used by individuals, groups, and
system (ES) is designed to act as an expert consultant to a organizations) is needed to get the most from any information
user who is seeking advice about a specific situation. Origi- system. Today, information systems are used in all the func-
nally, the term virtual reality referred to immersive virtual tional areas of business, including accounting, finance, sales,
reality, in which the user becomes fully immersed in an arti- marketing, manufacturing, human resource management,
ficial, 3-D world that is completely generated by a computer. and legal information systems. Information systems are also
Virtual reality can also refer to applications that are not fully used in every industry, such as airlines, investment firms,
immersive, such as mouse-controlled navigation through a banks, transportation companies, publishing companies,
three-dimensional environment on a graphics monitor, healthcare, retail, power management, professional services,
stereo viewing from the monitor via stereo glasses, stereo and more.
projection systems, and others.
CHAPTER 1: SELF-ASSESSMENT TEST
The value of information is directly linked to how it helps c. software

decision makers achieve the organization’s goals. d. transaction processing system
1. A (an) _________________ is a set of interrelated com- 9. Payroll and order processing are examples of a computer-
ponents that collect, manipulate, and disseminate data and ized management information system. True or false?
information and provide a feedback mechanism to meet an 10. What type of system is used when the problem is complex
objective. and the information needed to make the best decision is
2. Numbers, letters, and other characters are represented by difficult to obtain?
_____________.
a. TPS
a. image data b. MIS
b. numeric data c. DSS
c. alphanumeric data d. AI
d. symmetric data
11. _________________ involves anytime, anywhere com-
3. Knowledge is an awareness and understanding of a set of merce that uses wireless communications.
information. True or false?
System users, business managers, and information systems
Models, computers, and information systems are constantly professionals must work together to build a successful infor-
making it possible for organizations to improve the way they mation system.
conduct business.
12. What determines how a new system will work to meet the
4. A (an) _______________ is a set of elements or compo- business needs defined during systems investigation?
nents that interact to accomplish a goal.
a. systems implementation
5. Which of the following is a way to classify systems?
b. systems review
a. permanent—temporary c. systems development
b. simple—dynamic d. systems design
c. input—output
Information systems must be applied thoughtfully and care-
d. open—adaptive
fully so that society, business, and industry can reap their
6. Graphs, charts, and figures are examples of physical models. enormous benefits.
True or false?
13. ______________ literacy is a knowledge of how data and
Knowing the potential impact of information systems and information are used by individuals, groups, and
having the ability to put this knowledge to work can result in organizations.
a successful personal career, organizations that reach their
goals, and a society with a higher quality of life. CHAPTER 1: SELF-ASSESSMENT TEST ANSWERS
7. A (an) ______________ consists of hardware, software, (1) information system (2) c (3) True (4) system (5) a (6) False
databases, telecommunications, people, and procedures. (7) computer-based information system (CBIS) (8) c (9) False
8. Computer programs that govern the operation of a com- (10) c (11) Mobile commerce (m-commerce) (12) d
puter system are called _____________. (13) Information systems
a. feedback
b. feedforward
KEY TERMS
artificial intelligence (AI) 29 database 19 enterprise resource planning (ERP)

computer-based information system decision support system (DSS) 27 system 25
(CBIS) 17 e-commerce 21 expert system 30
computer literacy 35 effectiveness 11 extranet 20
data 05 efficiency 11 feedback 16
forecasting 16 mobile commerce (m-commerce) 22 system parameter 11

hardware 17 model 13 system performance standard 11
information 05 networks 19 system variable 11
information system (IS) 04 output 16 systems development 32
information systems literacy 36 procedures 21 technology infrastructure 17
input 15 process 06 telecommunications 19
Internet 19 processing 15 transaction 25
intranet 20 software 18 transaction processing system (TPS)
knowledge 07 system 08 25
knowledge base 30 system boundary 09 virtual reality 30
management information system
(MIS) 26
REVIEW QUESTIONS
1. What is an information system? What are some of the ways 10. Identify three functions of a transaction processing system.
information systems are changing our lives? 11. What is the difference between an intranet and an extranet?
2. How would you distinguish data and information? Infor- 12. What is m-commerce? Describe how it can be used.
mation and knowledge? 13. What are the most common types of computer-based infor-
3. Identify at least six characteristics of valuable information. mation systems used in business organizations today? Give
4. Define the term system. What is the difference between a an example of each.
stable system and a dynamic system? 14. Identify three elements of artificial intelligence.
5. What are the components of any information system? 15. What are computer literacy and information systems liter-
6. What is feedback? What are possible consequences of acy? Why are they important?
inadequate feedback? 16. What are some of the benefits organizations seek to achieve
7. How is system performance measured? through using information systems?
8. What is a model? What is the purpose of using a model? 17. Identify the steps in the systems development process and
9. What is a computer-based information system? What are state the goal of each.
its components?
DISCUSSION QUESTIONS
1. Why is the study of information systems important to you? 6. Describe the “ideal” automated auto license plate renewal
What do you hope to learn from this course to make it system for the drivers in your state. Describe the input,
worthwhile? processing, output, and feedback associated with this
2. What is a database? Why is it an important part of a com- system.
puter-based information system? 7. How is it that useful information can vary widely from the
3. What is the difference between e-commerce and m-com- quality attributes of valuable information?
merce? 8. Discuss the potential use of virtual reality to enhance the
4. What is the difference between an MIS and a DSS? learning experience for new automobile drivers. How might
5. Suppose that you are a teacher assigned the task of describ- such a system operate? What are the benefits and potential
ing the learning processes of preschool children. Why disadvantages of such a system?
would you want to build a model of their learning pro- 9. Discuss how information systems are linked to the business
cesses? What kinds of models would you create? Why might objectives of an organization.
you create more than one type of model? 10. What are your career goals and how can a computer-based
information system be used to achieve them?
PROBLEM-SOLVING EXERCISES
1. Prepare a data disk and a backup disk for the problem- Internet, etc.). Use word processing software to prepare a
solving exercises and other computer-based assignments one-page summary of the different resources you tried and
you will complete in this class. Create one directory for each their ease of use and effectiveness.
chapter in the textbook (you should have 14 directories). 3. Create a table that lists all the courses you are taking in the
As you work through the problem-solving exercises and first column. The other columns of the table should be the
complete other work using the computer, save your assign- weeks of the semester or quarter, such as Week 1, Week 2,
ments for each chapter in the appropriate directory. On the and so on. The body of the table should contain the actual
label of each disk, be sure to include your name, course, and assignments, quizzes, exams, the final exam, and so forth
section. On one disk write “Working Copy”; on the other for each course. Place the table into a database and print
write “Backup.” the results. Create a table in the database for the first three
2. Search through several business magazines (Business Week, weeks of class and print the results. Create another table in
Computerworld, PC Week, etc.) for a recent article that dis- the database for your two hardest classes for all weeks and
cusses the use of information technology to deliver signifi- print the results.
cant business benefits to an organization. Now use other 4. Do some research to obtain estimates of the rate of growth
resources to find additional information about the same of e-commerce and m-commerce. Use the plotting capa-
organization (Reader’s Guide to Periodical Literature, online bilities of your spreadsheet or graphics software to produce
search capabilities available at your school’s library, the a bar chart of that growth over a number of years. Share
company’s public relations department, Web pages on the your findings with the class.
TEAM ACTIVITIES
1. Before you can do a team activity, you need a team! The mation on each team member into a database and print
class members may self-select their teams, or the instructor enough copies for each team member and your instructor.
may assign members to groups. Once your group has been 2. With the other members of your group, use word process-
formed, meet and introduce yourselves to each other. You ing software to write a one-page summary of what your
will need to find out the first name, hometown, major, and team hopes to gain from this course and what you are will-
e-mail address and phone number of each member. Find ing to do to accomplish these goals. Send the report to your
out one interesting fact about each member of your team, instructor via e-mail.
as well. Come up with a name for your team. Put the infor-
WEB EXERCISES
1. Throughout this book, you will see how the Internet pro- Try to obtain information on this book. You may be asked
vides a vast amount of information to individuals and to develop a report or send an e-mail message to your
organizations. We will stress the World Wide Web, or sim- instructor about what you found.
ply the Web, which is an important part of the Internet. 2. Go to an Internet search engine, such as www.yahoo.com,
Most large universities and organizations have an address and search for information about a company, including its
on the Internet, called a Web site or home page. The address Web site. Write a report that summarizes the size of the
of the Web site for this publisher is www.course.com. You company, number of employees, its products, the location
can gain access to the Internet through a browser, such as of its headquarters, and its profits (or losses) for last year.
Internet Explorer or Netscape. Using an Internet browser, Would you want to work for this company?
go to the Web site for this publisher. What did you find?
3. Using the Internet, search for information on the use of interests you. How does the organization use technology to
information systems in a company or organization that help it accomplish its goals?
CAREER EXERCISES
1. In the Career Exercises found at the end of every chapter, 2. Research the three career areas you selected and describe the
you will explore how material in the chapter can help you job opportunities, job duties, and the possible starting
excel in your college major or chosen career. Write a brief salaries for each in a report.
report on the career that appeals to you the most. Do the
same for two other careers that interest you.
VIDEO QUESTIONS
Watch the video clip Go Inside Krispy Kreme and answer these 2. How have information systems assisted the many
questions: Krispy Kreme franchises in providing consistent
products and services for their customers?
1. Provide a description of how Krispy Kreme is using each
of the elements of an information system: hardware, soft-
ware, databases, telecommunications, people, and proce-
dures to provide services for its employees.
CASE STUDIES
Case One cashier’s checks, and other documents; and processing stop
payments. These “super ATMs” also provide cardless trans-
Tyndall Federal Credit Union explores new ATM
actions, such as creating new bank accounts and delivering
services
targeted marketing messages. They even have a microphone
Tyndall Federal Credit Union has provided banking services and speakers to provide personal assistance. “Our members
to military personnel at Tyndall Air Force Base in Panama love the compact-BANKs. They provide fast service during
City, Florida, since 1956. Recently the credit union has strug- peak hours and are beginning to fulfill Tyndall’s vision of 24x7
gled to keep up with the demand for services from its 80,000 service,” says Janet Turner, vice president of Interactive Ser-
members. Waiting lines in its six branch locations increased vices at Tyndall FCU.
in size, and customer aggravation was beginning to show. By installing compact-BANK stations around the Panama
Also, the credit union’s highly mobile members were unable City area, Tyndall Federal was able to reduce traffic at its
to carry out transactions when they were out of the country. branch locations and improve local member satisfaction. But
Tyndall Federal’s information systems needed to expand to what about those members overseas? To address their needs,
keep up with its growing membership. Tyndall Federal hired FundsXpress Financial Network, a lead-
Tyndall Federal hired IS specialists from IBM to assist in ing provider of online financial services, to design a Web-
developing a solution. IBM partnered with Wincor Nixdorf, based banking service for its members. Now members
designer of bank ATM machines, to develop what they called stationed overseas can access bank services such as real-
the compact-BANK—an ATM machine that offers all of the time account balances, account transfers, extended online
services a teller provides in a branch location. The compact- account history, e-mail payments, electronic statements, and
BANKs go beyond the standard ATM services by dispensing check imaging.
both cash and coins; scanning and cashing personal checks; While Tyndall Federal has solved problems for its mem-
processing passbook transactions; printing statements, bers, has it created management problems for itself? No.
Tyndall Federal’s system development project was managed Critical Thinking Questions
wisely and connects all of its systems—its branch office, ATM, 3. If you were a bank officer in charge of security at Tyndall
and Web-based services—to a centralized server for easy Federal, what security concerns do you think are the most
management. From the main branch, a manager can use important to address and solve in designing its compact-
remote reporting tools to view and monitor transactions at BANK?
any location. Also, customers have access to consistent inter- 4. Why might credit-union members prefer banking in a
faces and services from any of the systems. branch office over banking with an ATM?
Discussion Questions SOURCES: “Tyndall Federal Credit Union: Banking on Next-Generation ATMs
from IBM and Wincor Nixdorf,” IBM Success Stories, www.306.ibm.com/soft-
1. If you were deciding on a credit union or bank with which ware/success/, accessed January 17, 2004; “FundsXpress to Provide Online
to do business, would the services provided by Tyndall Financial Services to Tyndall Federal Credit Union,” FundsXpress press
Federal influence your decision? How? release,www.fundsxpress.com/press/2003/11-17-2003.html, accessed Jan-
uary 17, 2004; Tyndall Federal Credit Union Web site, www.tyndallfcu.org/,
2. If you were employed as a bank teller at Tyndall Federal, accessed January 17, 2004.
how would you react to news that your employer was
deploying automated compact-BANKs around town?
Case Two Travel Systems LP (DTS). John Broughan, president of DTS,

says that the IT needs of cruise ship operators differ from
The Queen Mary 2 and partner
those of typical hotel property management companies, so
The Queen Mary 2 (QM2) is the largest and most expensive specialized systems had to be created to better serve cruise
cruise ship ever built. It includes five swimming pools, a plan- companies.
etarium, a two-story theater that seats 1,000, a casino, a gym, The Queen Mary 2 provides yet another example of how
luxurious kennels, a nursery staffed with British nannies, and information systems assist with management functions, pro-
the largest ballroom, library, and wine collection at sea. Of all viding valuable information and offering services to cus-
its amenities, the one considered most valuable to the crew tomers.
and management and key to the functioning of the vessel is
the integrated network and information system accessible in Discussion Questions
every cabin. 1. What conveniences does The Ship Partner information
The $800 million QM2, constructed in the shipyard at system provide to passengers of the Queen Mary 2? What
Chantiers de l’Atlantique, France, and owned by Miami-based entertainment services could be made available to pas-
Cunard Line Ltd., made her maiden voyage in early 2004. Pas- sengers through this digital network?
sengers in each of her 1,310 cabins had access to digital 2. How does The Ship Partner information system assist ship
entertainment such as on-demand movies and interactive managers with their duties and responsibilities?
television. Each cabin is also wired with Internet access and
network services. For example, passengers use the network
Critical Thinking Questions
to make shore excursion reservations and dinner plans.
Upon checking in, passengers are presented with a plastic 3. How does The Ship Partner information system assist
bar-coded card. The card is used while on board to make Cunard in competing in the travel industry? What other
purchases, which are then billed to the customer’s account. travel and leisure industries would benefit from a system
It is also swiped as guests leave and return to the ship to track like The Ship Partner?
passenger location. The ship’s massive data network brings 4. Why is it important for The Ship Partner to have a backup
order where there once was chaos. Ship managers can run system? How would a systemwide failure affect the func-
reports showing which passengers are on board, how many tioning of the ship?
will be attending the morning exercise class, and which
entrée was most popular at last night’s dinner. The network SOURCES: Todd R. Weiss, “New Queen Mary 2 Offers High Tech on the High
Seas,” Computerworld, January 12, 2004, www.computerworld.com; Eric
and database are backed up by redundant systems that auto-
Thomas, “Queen Mary 2, World’s Biggest Liner, Awaits Its Champagne
matically take over if the primary system fails. Moment,” Agence France Presse , January 8, 2004; The Chantiers de l’Atlan-
The information system, called The Ship Partner, is used tique Web site, www.chantiersatlantique.com/UK/index_UK.htm , accessed
January 18, 2004.
to track security, billing, telephone service, onboard televi-
sion, and other operations. It was designed by Discovery
Case Three Within 30 days after MyFamily.com implemented Right-

Now’s system, the number of e-mails that employees had to
MyFamily Comforts Its Members
answer fell 30 percent, according to Mary Kay Evans,
MyFamily.com, Inc., is a leading online subscription business spokeswoman for MyFamily.com. Calculating the savings in
for researching family history, and the site also allows fami- employee time, MyFamily.com has received over two and a
lies to set up their own Web site and share photos with other half times as much as it invested in the system over nine
family members. months—a 260 percent return on investment (ROI). The new
MyFamily.com was one of the rare companies that sur- system earned MyFamily.com two awards in 2003:
vived the hardships of the dot-com bust. Through smart busi- SearchCRM honored MyFamily.com with the Customer Touch
ness management and providing a highly valued service to its award, and CRM Magazine awarded MyFamily its 2003 CRM
customers, MyFamily.com actually grew its business when Elite award.
many others lost theirs. From 1999 through 2003
MyFamily.com doubled its subscribers each year, finishing Discussion Questions
2003 with 1.6 million customers.
1. What type of information system is RightNow’s eService
The rapid growth of the company presented
Center, a TPS, MIS, DSS, or some other specialized sys-
MyFamily.com with challenges in customer relationship
tem? Present the rationale for your answer.
management (CRM). The company was hiring many customer
2. Besides cost savings, what other benefits does the eSer-
service representatives just to respond to customer e-mail.
vice Center provide for the upper-level managers of
Much of the e-mail involved simple questions that employees
MyFamily.com?
answered repeatedly day in and day out. What MyFamily.com
needed was a system to help organize its customer support
Critical Thinking Questions
function and allow the company to make better use of its
employees. The solution lay in a self-service CRM application 3. Have you had any experience with automated customer
from RightNow Technologies called eService Center. service systems? Do you think that these services benefit
The eService Center provides Web-based customer sup- the company or the customer more? Why?
port for routine customer inquiries, freeing up customer ser- 4. The types of questions that this automated system assists
vice representatives to handle more difficult problems. It uses customers with are described as typical customer
artificial intelligence contained in a single self-learning inquiries. Do you think handling frequently asked ques-
knowledge base that can be accessed from the Web, e-mail, tions (FAQs) is a job better suited for humans or
chat room, or telephone. The system makes it easy for cus- machines? Why?
tomers to find answers to questions by presenting the most
successful solutions first and refining the solution based on SOURCES: Linda Rosencrance, “CRM with a Family Touch,” Computerworld,
April 7, 2003, www.computerworld.com; “RightNow Customer MyFamily.com
customer responses. The eService Center also includes ana-
Wins SearchCRM.com’s Customer Touch Award for Effective Service & Sup-
lytics and the ability to measure customer satisfaction port,” PR Newswire , September 11, 2003; MyFamily.com Web site,
through surveys. www.myfamily.com, accessed January 17, 2004.
NOTES
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PART

Chapter 1 An Introduction to Information Systems

PRINCIPLES LEARNING OBJECTIVES

■ Models, computers, and information sys- ■ Name the components of an information

INFORMATION SYSTEMS IN THE GLOBAL ECONOMY

Information systems are

Data Versus Information

Table 1.1 Data Represented By

Image data Graphic images and pictures

Audio data Sound, noise, or tones

Video data Moving images or pictures

Defining and Organizing

The transformation process Figure 1.2

The Characteristics of Valuable Information

The Value of Information

Secure Information should be secure from access by unauthorized users.

SYSTEM AND MODELING CONCEPTS

Input Processing Output

System Components and Concepts

to reinvent itself from a manufacturer of large, mainframe computers to a manufacturer of

Figure 1.4 Elements

Examples of Systems and Their Processing

Students, Teaching, Educated students; Acquisition of

Actors, director, Filming, editing, Finished film Entertaining movie,

Systems Classifications and

Has many elements that are highly related and

Interacts with its environment Has no interaction with the environment

System Performance and Standards

System Variables and Parameters

Adams Brown Davis Thomas

Modeling a System Figure 1.5

WHAT IS AN INFORMATION SYSTEM?

As mentioned previously, an information system (IS) is a set of interrelated elements or

FEEDBACK Figure 1.7

Input, Processing, Output, Feedback

Manual and Computerized Information Systems

Program trading systems allow

Computer-Based Information Systems

sentences. The Scripps Institution of Oceanography developed a special underwater com-

Organization Objective Description of Internet Usage

BUSINESS INFORMATION SYSTEMS

Electronic and The Development of Important

1950s 1960s 1970s 1980s 1990s 2000 and Beyond

Electronic and Mobile Commerce

IBM PartnerWorld® is an example

Traditional process for placing a purchase order

E-commerce process for placing a purchase order

Transaction Processing Systems and Enterprise

SAP AG, a German software

Information and Decision Support Systems

MARKETING MANUFACTURING Figure 1.12

Decisioneering provides decision

Database Model base Essential DSS Elements

Access to the Internet,

Specialized Business Information Systems: Artificial

Robotics Expert systems

It is difficult to predict where information systems and technology will be in 10 to 20

Systems Investigation and Analysis

Systems Design, Implementation, Maintenance, and

INFORMATION SYSTEMS IN SOCIETY, BUSINESS,

Security, Privacy, and Ethical Issues in Information

Figure 1.18 TYPE OF ATTACK

Figure 1.19 CAUSE